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February 18, 2012
Apparently these are the worst of times. We have a once-in-a-century investment boom in the resources sector and an economy in transition, but the public mood is one of depression and anxiety. The Coalition taps into this despair with its rhetoric of an "avalanche of job losses” hitting the Australian economy. That is accepted as telling the gospel truth about the way things are, even though unemployment continues to fall and economic growth continues.
Another irony is that the success Gillard is having in passing legislation through the Parliament---eg., the private health rebate means test legislation and a bill to abolish the Australian building and construction industry court---is increasing the despair about her leadership.
Those with an eye to the marketing aspect of politics would say that the Gillard Government cannot communicate--ie., sell---its reform successes, or even the good news on the economy. The Gillard Government is generally seen as an anti-business and directionless government. It is weak.
Philip Lowe in The Forces Shaping the Economy Over 2012 describes the positive spill-over effects of the mining boom thus:
The indirect effects come through a variety of channels. Day to day, they can be hard to see but they do percolate through the economy. In effect, there is a chain that links the investment boom in the Pilbara and in Queensland to the increase in spending at cafés and restaurants in Melbourne and Sydney. This chain starts with the high terms of trade that has pushed up the Australian dollar. In turn, the high dollar has meant that the prices that Australians pay for many manufactured goods are, on average, no higher than they were a decade ago, despite average household incomes having increased by more than 60 per cent over this period. The stable prices for many goods, combined with strong disposable income growth means there is more disposable income to be spent on services in the cities and towns far from where the resources boom is taking place. As I said, this chain can be hard to see, but it is real, and it is one of the factors that have had a material effect on the Australian economy over recent years.
At the same time, the high exchange rate is having a contractionary effect on other parts of the economy, as it reduces the international competitiveness of industries such as the manufacturing, tourism and education sectors, some parts of the agriculture sector and in some business services sectors.
So we have countervailing expansionary and contractionary economic tendencies ---an economy in structural transition. Lowe concludes his speech thus:
...the Australian economy started 2012 in relatively good shape. Growth has been around trend and inflation is consistent with the target, and there are reasonable prospects for this to continue. We also have much more flexibility to deal with unfolding events than almost any other developed economy.
This kind of analysis has little to no effect on the public mood of despair. The despair narrative sees Australia in decline. It's all gloom and doom. This public mood accepts that economic doom and gloom makes sense, and it's insecurities means that it buys the Coalition's calculated rhetoric that the economic decline it talks up can only be reversed by the politics of austerity---savage spending cuts.
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Treasury's argument---eg.,Martin Parkinson, speaking to the Senate Economics estimates hearings in Canberra--- is that the structural change being wrought by the strong dollar is occurring against the backdrop of employment growth. It is not a collapse in employment from a global recession as happened during the early 1990s, when manufacturing in Labor’s heartland was devastated.
No one believes Treasury, the Reserve Bank or the figures. It's only a downward slide into economic-devastation that makes sense of what is happening.