January 30, 2013
In his Upside to economy's downside column in the Sydney Morning Herald Ross Gitten asks: why has the gloom of so many business people and consumers greatly exceeded the reality? Why have people's perceptions of the state of the economy been so much worse than what the hard facts tell us.?
Gittens reckons that a big part of the explanation is political. By this he means that:
Many business people seem to be sitting on their hands until the political atmospherics improve. They say the period of minority government has damaged confidence, but this is code for their impatience to see the back of Julia Gillard.....If you delve into [the Westpac and the Melbourne Institute] index you discover that people intending to vote Liberal are far more pessimistic about the economy than those intending to vote Labor. I suspect it will prove a better indicator of who'll win this year's election than of the prospects for consumer spending.
The end of the gloom for the corporate elite is a Liberal government. With the proper order restored all will be well in heaven and earth and we can all relax and be comfortable. The corporate elite don't seem to appreciate that a Coalition government would be one blundering through history; or that it would be led astray by its ideological opposition to an educated polity and a strong research establishment that threatens the corporate elite's vested interests.
Gittens adds that another explanation for the discrepancy between perception and reality is surely that the difficulties currently faced by the manufacturing and retail industries from structural change caused by the high dollar and digital technology have mistakenly been taken as symptomatic of the whole economy.
The policy option here is is to allow the supply side to adjust to the different structure of demand more normal and sustainable sources of demand – to ease the way for retail workers and autoworkers to retrain for faster-growing industries. The worst thing that governments can do is to stand in the way by propping up unviable firms or by sustaining demand in unviable industries through easy credit. These kind of supply-side adjustments take time.