Your say column- former Labor Minister * John Kerin joins us as occasional columnist, writing on economics and politics.
There are very few examples disproving the consensus of economists that increasing supply does not stimulate demand. However, regarding the pool of unemployed in Australia, the current government is hell bent on increasing the supply of labour in the face of growing unemployment.
First, what is the true picture of the number of people unemployed or under-employed (part-time, casuals, people on job experience, various visas etc)? Our employment/unemployment statistics do not give a wholly accurate picture of the number of people unemployed.
“up to one million people underemployed”
There are up to one million people underemployed. Of the estimated 188,000 people out of work for over a year, 58,000 people aged between 15 and 24 are included. Forty per cent of our unemployed are below 25. We are facing over 800,000 people being out of work by 2016.
It has recently been shown (Fairfax Lateral Economics index) that the cost of the long term unemployed is nearly $4b per quarter with 1.5% of the workforce being out of work for over a year.
Let’s look at the labour supply side and the current government’s policies.
- We have a 1.5% population growth due to the relatively high rate of immigration (net overseas migration of 240,000, per annum– figures vary 190,000 migrants 2014-15), encouraged by a range of visas (457s etc ) for the hundreds of listed jobs we can’t perform ourselves and, debatably including those such as hairdressers, chefs, chicken sorters and fruit pickers?
- Temporary migration is uncapped. The Treasurer’s partisan Intergenerational Report projects an Australian population of 39m in 2055. Both major political parties believe in a ‘big’ Australia – for what purpose? because growth is good for business or do we think we can become more powerful and out-number people in our region? -faint hope!
- We are being enjoined to work until we are 70 to save on the Age Pension.
- Paid Parental Leave is partially motivated to ensure that women (mainly) can more easily re-enter the workforce and increase their workforce participation (commendable for those who can take advantage of the measure).
- Our younger unemployed people were being required to live without any support for 6 months-now reduced to a month. Plans are afoot so that “job-ready young people can find work” and to encourage employers to employ older job seekers. The reason why our young people are not job ready is due to the changing nature of our economy (the structural changes underway) and probable failures in our education and training systems.
“cut jobs, less consumer spending”
- Because wages growth is being compressed as firms cut costs and deal with excess capacity, there will be less consumer spending. As well, we also carry record credit card debt, and both act to depress economic growth and employment. Yet, we are now being encouraged to spend by the Treasurer when once we were being encouraged to save- latest official retail sales figures were below expectations at only 0.3% increase.
- The government’s rabid rhetoric about the “wage explosion” in 2014 now goes unrehearsed along with most of the ideological yearnings of the 2014 Commission of Audit.
- Expenditure on potential economic growth generators such as education and research is being slashed and being made more difficult for people to engage in. And the government is ideologically opposed to exploiting the knowledge we have with respect to alternative energy.
- Digitisation will create and destroy jobs, destroy jobs particularly in our now dominant services sector. If you do not know that we are only at the start of the ‘digital revolution’, you will soon know.
“mining employment the facts and the fantasy”
- The mining and coal seam gas sector is shedding labour but was never a large employer. The mining investment boom also deleteriously served to distort the whole economy, inducing a high currency exchange rate, seriously harming manufacturing, import competing industries and agricultural exports.
Two years ago some prominent people in the mining sector campaigned for more freedom to recruit overseas labour (Africans for $2 a day?) and reduce all ‘restrictions’ holding the sector back. The sector’s now increased and increasing supply does not seem like encouraging demand – but we are assured by our P.M. that “coal is good for humanity”.
- The China Free Trade deal (it’s really a preferential trade deal) gives Chinese investors the choice to employ their own people for investments worth over $150m.
Investment is now slow in other parts of the economy. Why?
- One reason could be that the out of control banking/finance sector can see more profits in backing property investment in our major cities and ‘churning’ existing stock market wealth rather than investing in longer term growth industries such as agriculture and higher–tech. manufacturing- we cannot all become baristas.
- It would seem that our two regulatory authorities the Australian Securities and Investment Commission and the Australian Prudential Regulation Authority (ASIC and APRA, respectively )now have more than doubts about our banking “culture” and concerns about “appalling behaviour”, with respect to investment advice by at least three of the big four banks- and now the financial services giant, IOOF.
“Low interest rates hurt those on fixed incomes, but govt won’t borrow”
- With official interest rates at a record low, there is little room left for monetary policy to work to stimulate demand and or investment. Official rates have been below 2.5% for two years but no bounce. Interest rates this low badly effect people on fixed incomes and distort long term investment choices. The government is not interested in borrowing at record low interest rates for job-boosting infrastructure because it is against its rhetoric about the absolute joy of budget surpluses.
- Then there is the question of confidence. The Abbott Opposition, now Government, spent over four years talking the economy down, including in its first year of government, with nonsensical slogans (Budget Emergency, Debt and Deficit Crisis, We Will Quickly Get the Federal Budget into Surplus, etc).
It has now gone to the polar opposite in its second Budget and has ‘discovered’ that the situation was not so bad and that perhaps budget deficits are not so bad after all? Next it will say inflation does not matter? The government seems to have discovered that Wayne Swan was right about there being a revenue problem.
- Our Australian-based multi and transnational companies seem to regard paying tax on Australian earnings as optional.
“join the dots, where are the jobs?”
But, someone should join the dots- where are the jobs? How will the long term young unemployed or low wage earners ever be able afford a house in Sydney or Melbourne? Will negative gearing ever build a pool of affordable rental accommodation? Why are we adopting policies to increase the labour supply –to create a permanent ‘under-class’? Is the government hell bent on adopting the US economic model to the extent that we have to kiss all four cheeks of their economic policies and build a sweated labour pool?
The current Treasurer and Government believe that tax cuts and austerity is the way to proceed. Markets do work, depending on who manipulates them, but sometimes slowly and sometimes perversely –there is no such thing as ‘The Market’. Austerity also works.
See what the Conservatives did and are doing in England (zero labour contracts!), but at enormous cost to those least able to cope with it – the City of London and Wall St and merchant bankers have done well from the UK and US governments’ trillion dollar bank bailouts. The banks adopted a policy of business as usual, set after those owing them money and invested abroad, not in economic stimulation – the same approach to US ‘quantitative easing (printing money).
Germany which does not religiously follow the Anglo-American economic model, does not exult in having 105 billionaires (as in London) and a growing under-class as does the UK and it does provide affordable housing.
Goebbels-like double speak is used by the government against those who think we could have a fairer, modernised treatment of taxes and tax concessions and is accusing them of indulging in ‘class warfare’ or the ‘politics of envy’.
Class warfare was what Hockey’s own highly ideological first Budget was all about. Two like ‘stings’ still lie in the second Abbott Budget (tertiary education and pensions), but not likely to pass through the less than predictable Senate. How does Hockey square ‘budget emergency’ with his oft-quoted need for tax cuts?
I fully realise that my views go against the prevailing economic orthodoxy and that the ‘housing bubble’ in Sydney is a myth and that the words of warning about the economy by the Australian Reserve Bank Governor, Glenn Stevens, are also to be ignored – despite the evidence.
Evidence? Show me the evidence that Treasurer Costello’s tax cuts in the 2000s and spending the mining boom revenue had all or any good long term effects. Show me the evidence that by never ending tax cuts for the rich in the US and increasing median incomes by zero over the last 30 years, and hollowing out the incomes of the US middle class, have done anything to stimulate US domestic demand (the latest research by the Organisation for Economic Development and International Monetary Fund clearly show otherwise).
Show me the evidence that the neo-liberal orthodoxy has not had the effect of increasing, and probably cannot prevent, growing inequality in incomes and wealth in the so-called advanced economies.
“governing as warfare”
None of this is easy, but the approach of the Prime Minister of being in constant campaigning, never explaining, aggressive mode (divisive politics and governing as war), adopting three word slogans, beating up the issue of terrorism (“ISIS is Coming to Get All of Us”) and switching to vaudeville (fleuro –jackets, TV grabs, etc) will not do much about the longer term structural economic problems we face.
Nor will adopting policies to increase the labour supply in the belief that it will be good for growth and our business sector.
*John Kerin was Minister for Primary Industries (and Energy) 1983-1991- and Treasurer for the introduction of Keating’s 1991 budget, and Minister for Trade and Overseas Development, 1992-93.