Contributed by Joe Montero
The latest National Accounts released November provided Australia’s treasurer Scott Morrison with an opportunity to hype up the economy, himself and his government.
It has long been par for the course for treasurers to tell us everything is going great guns. In this vein, Morrison crowed that Australia’s economic growth has accelerated, risen from 1.9 percent to 2.8 percent through this year, suggesting that Australia is “back up towards the top of the pack for major advanced economies”.
Besides the claim that Australia is one of the major advanced economies is over stating it, by a long shot, the assertion of economic growth is fundamentally wrong. Critics, including myself, may have for some time been lampooning the notion that Australia’s economy is performing well. This is not merely a bad mouthing exercise. There is good reason for it. Something systemically wrong and this is not changing.
A distinction must be made between economic growth on paper and real economic growth. Economic growth on paper measures the change in the level of investment or economic activity overall. Real economic growth measures the coming into being of value that had not existed before. There is a tremendous difference between the two.
Secondly, where the investment is going is important. The National Accounts say that 18 percent of new investment has gone into non-residential construction. The accuracy of this is questionable. Even if this was not the case, there is no boom in manufacturing. New construction has bot involved much in the way of building new factories. Perhaps this is about building new shopping centres. But retail sales have been stagnant for some time. This leaves offices. For what? Is this about speculative activity, lifting the quantity of unused offices? There may be some economic growth in this, but is it good?
These points are made to highlight that everything may not be as it seems and to point out that the quality of investment is vitally important. When investment is based on what is not good for the economy or society, it should be distinguished from positive growth. Damage or the environment should be factored in. These impose costs that should be subtracted form the overall gains. Another factor that should be considered is that changing ownership of existing assets does not contribute to real economic growth. It only does so when it contributes to an increase of new value.
What do we mean by value? This is important too. Basically, this measures an increase in the quantity and usefulness of those things that we use up to give us our lifestyle. If there is no increase in these, there is no real economic growth.
Of course, Scott Morrison does not make this distinction.
Another claim made by the treasurer is that profits are up. Again, this is a paper claim. This is not quite what it looks like on the surface. Profit can be seen in two distinct ways. There is the quantity of profit and there is the rate of profit.
If the quantity of profit is up, it can mean that business is doing well overall, or it can mean that the profit of one is being made at the expense of the another. In the macro sense, the loss must be discounted from the gain. The rate of profit is a much better measure of the economy’s performance. Scott Morrison has nothing to say about this. What is this rate of profit? It is the percentage return on each dollar invested.
A good indicator of the rate of profit is the rate on of interest. This measures the value of money and it is sitting on an historically low 1.5 percent. If the rate of profit deviated upward and significantly ahead of this number, it would translate to an immediate upswing in the demand for credit and this would push up the rate of interest. This is not happening, and we must conclude from this that the rate of profit is low and not increasing.
Even if this wasn’t true, Scott Morrison forgets to mention that although the quantity of profit may have gone up in the first half of the year, it has declined in the second half and is expected to decline further next year, across virtually all sectors.
Another problem is the very poor retail sales figures. Last month, they increased by a mere 0.1 percent, the lowest monthly increase since the melt down in 2008. The figure is so low that it is well within the bounds of statistical error and there may not have been any growth at all.
This tells us that what most Australians as a whole can buy is has stagnated and is now falling. A big factor in this has been stagnant wages growth. This also means that the existing level of profit, whether quantity or rate, is being to a significant extent held up not by new economic activity, but through business usurping a portion of the wages share. The best way to get an idea of how much this is
Australia Institute analysis shows the wages share was 46.2 per cent share of GDP in the middle of the year. This is the lowest level since records started in 1959. Australians on wages received less than ten cents of each extra dollar in GDP that they produced. This means that the employer received just over 90 cents.
Another issue is the claimed increase in the number of jobs. It doesn’t consider that many of jobs these are precarious and replacing permanent, full time jobs.
The true picture is not as Scott Morrison would have us believe. We need to know the truth. With this, Australians can understand the need to change direction.
Back to the big question. What is fundamentally wrong? It is that the Australian economy is not being managed to meet those needs that are most important for Australian society, but to meet the sectional desires of the most privileged and wealthiest individuals that have the political connections. This makes the economy parasitical, and ultimately work against itself. We need to be talking about an alternative.