Keeping on pretending the economy is good is self-defeating

Contributed by Joe Montero

Australian Bureau of Statistics (ABS) retail sales figures released on 2 August confirm that the nation is entering the worst retail trade period ever recorded. In a nutshell, the Australian the economy is in real trouble.

It may be true that most other countries and the global economy aren’t doing well either, and that this has an influence over what happens in Australia. Maybe. But it is also true that Australia’s is doing worse than other most industrialised economies.

This tells us that domestic factors are important.

Last June’s rise in retail turnover, was just 2.7 percent. The average rise, for the same month over the last 36 years for which the ABS has data, has been 5.8 percent. Factor in a population increase over the year of 1.6 percent and inflation of around 0.7 percent, and the real performance is even worse.

Nor is this merely a blip. There has been a downward trend for some time, as shoewwn in the graph below.

An examination of sectors shows that those involved with basic necessities just managed to hang in. Those dealing with non-essentials are staking the hit. People are focusing on their priorities.

Those that did the worst are furniture, textiles, electrical and electronic products, household goods, newspapers and books, and recreational goods. Liquor, restaurants, cafes, take away food, footwear personal accessories, hardware, building and gardening also went backward.

The danger with keeping on saying that the economy is not going well, it can all too easily sound like gloom peddling. It still has to be said, because to persist in denial means to fail to do what has to be done to bring better times.

To begin with, retail sales are falling because the disposable income of most Australians is shrinking in real terms. The cost of housing has gone through the roof, the wages share of national income is shrinking, and on average, household are surviving on a high and ultimately unsustainable level of debt.

The graph below shows that both disposable income and consumption have been falling for some time.

Until we deal with these matters, nothing is going to change. Most of Australia is becoming worse off and this inevitably reached a point, where something started to give.

Top with rising job insecurity. Even those on relatively good incomes feel less secure and less prepared to spend. Small businesses and even some larger ones are starting to close due to a lack of customers.

A part of the denial is being fooled by fooled by the existing Gross Domestic Product (GDP) measure. It is too faulty to show what is really going on.

Real growth is about creating something new that wasn’t there before. Anything that doesn’t contribute to the new shouldn’t be counted in. The problem is that such things are counted in.

Transactions that pass what already exists into new hands are not growth, merely a change in ownership. Inflated prices caused by holding onto assets are not growth. Nor is rising debt. Both might be profitable for those in the right position. But this is something entirely different.

Carrying out business incurs certain costs. Damage to the environment must be prevented and cleaned up when it occurs. Education health and other services needed to keep the economy operating costs money, even if in the longer term increasing the capacity of the economy to perform. Even if the private sector doesn’t pay itself, these remain costs on the economy.

We need a new measure based on real growth to tell us how the economy is really performing. If we sued such a system now, we would have to admit that the Australian economy is at the best, on zero growth.

To be sure of turning this around, Australia must both admit the truth and understand the most fundamental cause of the problem.

This fundamental cause is not merely about the distribution of income and people not buying enough. A more even distribution of our national income through a more progressive taxation system, increasing the wages share and providing better Centrelink payments would help, but on its own, this is likely to prove insufficient.

The problem is that the individual and short-term interest of the private monopoly part of the economy is running at odds with the rest of the economy and therefore the interests of society, creating blockages and misalocating of resources, and holding back retail turnover.

The mechanisms through which these occur can be explained through what is called the production function and how resources are distributed across the economic sectors. There is no space to elaborate on these here. Only to suggest that the solution involves bringing into play an anti-monopoly policy, gaining public control over the financial system and a plan to build a new economy.

Weaknesses in the economy have been around ever since the post war boom came to and end by the late 1960’s. The difference now, is that they have become more intense.

Nevertheless, the problem was serious enough back then to put an end to the Keynesian consensus in economic management, and bring in its replacement by corporatism, deregulation of finance, dismantling of the welfare state.

This gave rise to the neoliberal consensus, and its trademarks of austerity and redistributing income upward, as the given answer given by the corporate world and political system to fix the economy.

By intensifying the problems that were already there, the impact of neoliberalism has been destructive instead of providing a solution.

A solution must involve measures to curb the dominant influence of private monopoly, and a good starting point, is instituting an effective system of regulation of the financial sector. This would bring the ability to eliminate blockages and ensure investment goes where it is needed according to the priorities of society.

Other measures that restrict the unhealthy power of monopoly can be put in place.

Australia needs an economic plan that charters a course towards a modern economy, harnessing the benefit of new and sustainable technology and systems of organisation.

At the same time, putting the economy in the hands of bean counters and killing off initiative is not the answer either.

Attention must be put into the rise of a new decentralised and democratic economy. We could call this a social economy, where local initiative and joint effort can be put together to create new opportunities, and ensure the benefit is shared around fairly. Proper growth and consumption can be put into harmony.

A social economy can try out new ways of organising economic activity. Cooperatives can be set up. Existing operations can be supervised by locally elected committees of management. There can be a mix of private, public and social enterprises working in harmony with each other.

The financial system must be geared to provide the capital needed for the rise of this new economy.

Other than this, the role of government should be to ensure essential services, provide necessary infrastructure, take on the responsibility of macro management of the economy, ensure as even as possible distribution of the benefits, help provide a secure environment for us all to live in, and ensure, we all have a say in building the future.

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