I resisted getting into politics in any way for most of my adult life. For the most part I thought it was just a popularity contest that I had no intention of getting involved with, nor trying to form an opinion on more it than once every 3 years. Fortunately I can count amongst my friends a highly skilled academicwho’s area of study is politics and his constant pontificating about the subject eventually pushed me into figuring the whole thing out, lest I be unable to communicate with him (and subsequently be utterly bored). Today I pride myself on taking an engineer’s approach to the world of politics, figuring out the variables and breaking it down into manageable chunks upon which I can base my ultimate decision. It’s no secret I tend towards the liberal ideals with perhaps a touch of the libertarian in me, much like most of my generation.
This year though presented quite a conudrum as neither of the two major parties nor any of the others could logically get my full support. Labor continues to push policies that I can not agree with (Internet filtering and other nanny-state type policies) and the Liberals candidate for Prime Minister is nothing more than a rabid attack dog who couldn’t write a decent policy to save his life. The popular choice amongst my peers would then be the Greens party who, whilst giving their preferences to Labor, don’t support Internet filtering and have favourable policies in many other areas. Unfortunately for someone like me who sees the benefit in developing nuclear power in a similar fashion to countries like France the Greens can’t be an alternative as they outright oppose any kind of nuclear development. Other favourites include the newly formed Australian Sex Party who take similar positions to the Greens on many matters but unfortunately lack clear direction on many other key matters. The same can be said for many of the other minor parties as well, as whilst they have solid positions on their key issues I can’t really vote for them unless their stance on many critical issues is formalized.
After some research (which was sped up nicely by this spreadsheet) I came to the ultimate conclusion that no party fully supports my political vision. I can understand that this is usually the case with any political party as you can’t satisfy everyone but in the past I was able to easily reconcile my differences with the major parties as the issues were usually small. This last term has seen my support for the party I once supported wane without a strong competitor that rose up instead. In the end it looks to be the Greens who will get my vote as whilst I disagree with some of their policies I can reconcile that with the fact that many of my ideas won’t take off in Australia for decades to come, so I might as well go for the people who support the largest majority of my ideas.
Election time always sees discussions over the dinner table with my family about who we’re going to vote for and my weekly dinner with the parents was no different. My father was always a staunch Labor supporter whilst my mother flits between different parties depending on the political climate of the time. This year was quite a different discussion than the ones I was used to as whilst my father said he would be supporting Labor (but wasn’t quite happy about it) my mother wanted to send a message to the Labor government that she wouldn’t tolerate their actions, and so would be voting Liberal. Since they are in one of the most critical seats of Australia, Eden-Monaro, I took it upon myself to see why she felt that way and the results surprised me.
Many of the issues were those you’d find in the popular media. She wasn’t happy with Julia Gillard’s rise to power, felt that the border protection policies were lax and overall didn’t trust the government to bring Australia back into the black over the coming years. I agreed with her on several key points, I wasn’t terribly happy with the way Gillard came into power either, but the fiscal management one caught me off guard. Since my mother had lived through the Labor government previous to this one I thought she would’ve understood why Labor had to spend money during their times in government, but honestly who really does remember what happened 20 years ago?
I can tell you I certainly don’t remember much. The last time Labor was in power I was still in primary school, blissfully unaware of all the goings on. Still my perverse interest in all things financially disastrous had taught me quite a lot about the economic climate of the time, and the similarities to the current government were startling. I asked her “Do you remember what was happening in the early 90s that just happened recently?”. She couldn’t answer and I don’t think many Australians would be able to either.
The answer is: global economic crisis.
Most Australians will remember Paul Keating’s famous line of the “recession we had to have” which was in fact caused by a wider economic crisis that can be traced back to Black Monday in 1987. Whilst everything appeared to recover during the early nighties it was unfortunately shorted lived and many countries, including Australia, plunged into recession because of it. Since the great depression all governments have recognised the ideals of Keynesian economic theory which dictates that during times of recession the government should step in and spending in order to stimulate the economy. Traditionally this is done with deficit spending, I.E. borrowing money, which many people see as being detrimental. However as history has shown not going into debt to avoid a recession will make said recession last that much longer. Indeed we saw the swift action by our government that saw Australia to be the only developed country to avoid a recession, a phenomenal feat especially when the rest of the world couldn’t manage it.
The past 2 Labor governments have presided over an Australia that was ravaged by global economic tides and the notion that all a Labor government does is spend the surplus that the Liberals build up is complete bullshit. Everyone seems to forget that the last Liberal government saw such economic growth and surpluses because it was never hit by a global financial truck that required them to spend their way out of it. Indeed even the Liberal party forgot that Labor delivered a budget surplus in its first year only to have it dashed by the global financial crisis the year after. To say that a Labor government is fiscally irresponsible because they always run a deficit shows a complete disregard for the facts and is nothing more than political spin. My mother also brought out the old chestnut of interest rates being higher under a Labor government, conveniently forgetting the last 3 years.
The fact is that if you’re worried about a Labor government staying in power because you don’t trust them to run the economy think again. They proven that they are completely capable of handling an economy through the toughest times where the Liberals have only shown how they fair when the seas are calm. Additionally if you’re worried about your interest rates I’d point you to the last 6 years of the Liberal government which saw a steady rise of interest rates that only came down under Labor. Really though the interest rates have absolutely nothing whatsoever to do with the government of the day, so please ignore any pontificating you hear when its related to any political party.
Hopefully you’ve learned something from this post and I urge you to spread this knowledge amongst everyone you know. The misinformation around this subject is abnormally high and the media outlets have no interest in setting the records straight. Whilst such information won’t swing the election one way or another it may do the public some good to question what they’re being told and hopefully seek out the truth for themselves.
This morning brings some good news for America and the world at large. After 4 consecutive quarters of the GDP shrinking, the unemployment rate rocketing to 9.5% and the financial markets flailing around in a complete mess the United States of America have managed to drag themselves up out of the dank depths of recession and post some exceptionally strong growth (given the circumstances). Of course it’s not all sunshine and rainbows over there yet, and Obama has recognised this with his recent speech on the matter:
Oct. 29 (Bloomberg) — President Barack Obama said U.S. economic growth in the third quarter affirms that the recession is abating, adding that the nation has “a long way to go” to fully recover and reduce unemployment.
He said a Commerce Department report that the economy grew at a 3.5 percent pace in the third quarter, after shrinking for four quarters, is “welcome news and an affirmation that this recession is abating.” It isn’t enough, he added.
“The benchmark I use to measure the strength of our economy is not just whether our GDP is growing, but whether we’re creating jobs, whether families are having an easier time paying their bills, whether our businesses are hiring and doing well,” Obama told business leaders in a speech on the White House grounds.
He’s being cautious in trumpeting this as a victory for himself and his party and this is with good reason. Right now the last thing that any economy needs is uncontrolled growth as that will just get us back in the same situation in a very short period of time. Right now this serves as an indicator that the work the Obama administration has done in order to combat the financial troubles experienced in America worked and the lessons of the past have not gone unheeded. It would seem that all the naysayers about the various stimulus packages will have to take another look at what they’ve said as it appears that Obama’s ideas have worked despite their vitriol.
Hopefully this is the kind of indicator that will prompt companies to start rethinking their strategic direction. For the last few years most of them have been in at least one form of damage control or cost reduction scheme in order to stay in business. This is of course what has lead to the high unemployment figures that are currently plauging the USA. A few quarters of consecutive, small growth will see most businesses rework their directions from “staying alive” back to business as usual and this will easily be tracked in the unemployment rate. In fact the last 3 months have seen a drop in the unemployment rate of 0.2%. It’s not much, but it’s definitely a start.
For as long as the GFC has been in effect I’ve always been very skeptical about how long its effects would last. Sure when you tallied up the dollar amounts that were lost or “potential loses” the situation looked extremely grim, much worse than the great depression. The knowledge of past recessions however let us ride through this with a few bruises but wiser for the experience. One good thing that’s come of this is tighter regulation of the banks in the USA, something which could have prevented this disaster from happening in the first place.
Overall this is great news for the world at large. When the giant of America was toppled by its own system the world rightly went into panic. After battling naysayers, unwilling congress critters and the scathing eye of the media Obama has won himself a hard fought victory for all of America and this will resonate with the public.
Like my fellow blogger said, he’s going to have no trouble coasting into re-election come 2012.
Today we will see a release of the National Accounts document from the Australian Bureau of Statistics which will give us a very clear idea of how Australia’s has faired since it narrowly avoided a recession just 3 months ago. As with any ramp up to figures like this, especially during tough economic times like this, there’s already a healthy amount of speculation abounding with the growth currently tipped to be somewhere around 0.2%:
Most economists’ forecasts were revised down after figures yesterday showed a worse-than-expected current account deficit.
Still, it would be the second consecutive quarter of growth after the December quarter’s contraction of 0.6 per cent.
Annual economic growth is expected to come in at just 0.2 per cent.
Joshua Williamson says household spending kept the economy afloat in the June quarter.
“Consumers have gone out and spent some of their stimulus payments and we’re expecting to see that through the household consumption data,” he said.
BT Financial Group’s chief economist, Chris Caton, says the economic picture will be mixed and goes beyond the gross domestic product figures.
“Although GDP growth has remained close to zero and/or positive except for one quarter, we’ve taken a 2 per cent hit to the unemployment rate, so we certainly have been affected, but not as much as elsewhere.”
I was going to wait for the figures to be released prior to posting this however I realised that regardless of the outcome my stance would be the same: Whilst Australia might be the only developed nation dodging the dreaded “r word” this is not something that signalling a bigger crash further down the road, as many doom and gloomers would have you believe. We as a country are very well set to ride out this global financial crisis as the problems that plagued the United States and many other countries simply aren’t present here (which I’ve blogged about previously).
There are 2 quips I commonly encounter from my friends over on the doom and gloom side of the fence. The first is that Australia only avoided a recession due to Rudd’s initial cash splash for over 8 million Australian tax payers. I give this some credit as for the most part it was spent as intended and the saving or paying off debt helped ease the burden on banks. However the idea falls down when you see that the unemployment rate around the same time showed signs of levelling off. The next round of unemployment figures (due out this time next week) will settle this issue succintly, and I’ll make sure to do a follow up then.
The second is that through their other stimulus initiatives (mostly the First Home Owners Grant boost) are keeping asset bubbles propped up which give the false impression that we’re doing fine and a crash is soon to come around the bend. Whilst I can appreciate the idea that housing is relatively expensive in Australia I always question the algorithms people use to come up with their metrics. The standard would be median house price to median wage (the median multiple) which I remarked about in the comments on a previous post. Such a metric is an extremely blunt too with which to judge housing affordability as there are many other factors that can influence what constitutes affordable housing. Take for instance the situation back in 1990 and compare it to today:
That last line is the kicker. With interest rates this low the average mortgage will be only $64 more than it was 20 years ago. This also doesn’t take into account that first home owners should not be buying a house in the median price bracket and should start out with something that’s less desirable but affordable (both of my current mortgages are below median properties, so I’m not just peddling nonsense here). Housing is affordable for those in a stable job and do their research. The main problem I see is a crisis of desire as most people want the large house close to town, which as a rule of thumb will always be out of reach of the first home owner.
As I was writing this post the figures were released! Here’s the low down:
|GDP (Chain volume measure)|
|Final consumption expenditure (Chain volume measure)|
|Gross fixed capital formation (Chain volume measure)|
|GDP chain price index|
|Terms of trade|
|Real net national disposable income|
Staggering. The figures show that even before seasonal adjustment we still come out ahead. Australia has now had 2 quarters of small positive growth, so much for a recession ey?
With the ABS releasing its National Accounts figures yesterday a strange thing occurred, we avoided a recession. In a seemingly unprecedented move the Australian economy rose above negative territory and showed a small positive growth of 0.4%. The results of this news was almost instantaneous with the share market closing slightly higher overall. Whilst I’m cautious about this signalling the end of the bad economic times for Australia (and I’m glad Rudd doesn’t think that either) it does show that as a country we are well placed to ride out this crisis with the least amount of impact to our daily lives. There are a few key points to take away from the ABS’ figures however.
Firstly we need to take a look at what the contributions to the GDP figure where¹:
What we can see here is growth in Agriculture, Mining, Energy, Construction and Retail. What’s not doing so well is Manufacturing, Wholesales, Transport and Property and Business services. Whilst the strong growth in agriculture is a good sign the rest of the industries that showed growth only had small increases. Undoubtedly the retail figures are backed in part by Rudd’s stimulus package which also drove up imports. There was also some additional growth (about 0.5% from the previous quarter) in terms of exports, which could be put down to how cheap our dollar was until recently. The most worrying parts of these figures are the manufacturing and property and business services, as they represent a good chunk of where Australia’s future problems lie.
When the manufacturing numbers are down it usually means that there’s been a downturn in demand and this has been seen for the past few quarters. Whilst we can easily point the finger at the GFC for this one it signals that there is a decreased demand for production within Australia. Further to this we’ve seen an increase in the amount of imports over this last quarter showing that less is being sourced from within our country. Due to the dollar rising this could soon change however I believe the damage might have already been done, as many manufacturing plants have already begun to thin their workforces. Trying to take advantage of the strong local dollar will prove difficult for such companies as they will no longer have the capacity to increase production.
The property and business services is a little less worrying as there has been quite a lot of wealth knocked out of the top end of the market which will drag the entire sector down. Business are also cutting back on expansion plans and additional services so this is not particularly surprising either. However this figure still represents a downturn in this sector, but I believe that it is far better placed to recover than manufacturing is.
So overall I believe Australia’s resource backed economy is serving it well through this recession. We’re still feeling much of the pain from the GFC but at least there’s some signs that once confidence comes back to the markets Australia as a whole will be well placed to take advantage of it. The key issue for the Rudd government now is how to keep unemployment low through the next year or two so that we don’t lose our strong resource and manufacturing workforces, something which will cost a lot more to replace in the future.
¹Australian Bureau of Statistics, 2009, Australian National Accounts: National Income, Expenditure and Product, Mar 2009 cat no 5206.0 , viewed 04 June 2009, http://www.abs.gov.au/AUSSTATS/[email protected]/productsbyCatalogue/35F488B5F9F7D242CA256DF000814610?OpenDocument
The worst global economic recession in 75 years means it’s inevitable that Australia will be dragged into recession,
The challenge for government is to cushion the impact of recession on business and jobs, through the actions we take, through economic stimulus strategy.
Up until now Rudd has been referring to the situation using terms such as economic tough times and making reference that Australia is not immune to the global economic climate. Whilst this would seem a much of muchness when it comes to describing Australia’s current economic position it is actually a powerful rhetorical tool. Some particular words love to wreck havoc with the stock exchange and recession is one of the bigger ones (with regulation being my all time favourite). Looking back to December last year the Federal Reserve Bank of America officially announced that America had slumped into a recession. This was then accompanied by a huge rush in stock sell-offs and had the Dow Jones finishing almost 8% lower, its fourth worst drop in history. Official figures using certain words can really get people in the mood to sell.
Whilst Rudd’s announcement has done little to stir the market it does put people on notice that when the next quarterly figures come out they’ll probably be negative and this puts us into the technical definition of a recession. In reality this starts to get the execs thinking more about cost cutting, improving their returns on investment and adopting new strategies to cope with economic climate. In essence Rudd is attempting to pre-empt an announcement by the Reserve Bank so that people start thinking about it now, rather then panicking when the R word is used officially.
Whilst it’s a good move overall for Rudd there’s probably a few more things he could do in order to gear people up for the coming recession. His current focus of stimulating the economy through handouts, a few infrastructure projects and supporting small businesses will provide a decent amount of short to medium term boost to the economy. However there is little in the package about longer term investments or adjustments to the banking sector, and rightly so. After the initial down turn businesses will start to pick themselves up off the floor again, and the economy should start turning itself over as per normal. Rudd is doing a good job of keeping in everyone’s good graces and this will do well for him come election time. I’d be really interested to see what policies he brings forth when he doesn’t have to contend with the world falling down around him.