Saturday Sanity Break, 6 July 2019 -Questions answered

Economy

Two rate cuts in quick succession gets cash interest rates to an alltime 1% low, much lower than in the severe recession of 1990/91. The word ‘panic’ is bandied about.

Not much room for further cuts if it turns out Australia is facing a really bad recession. ‘We need help’ says RBA but events show they needed help when house prices were rocketing up and the central bank sat still like monkeys mesmerised by a cobra. Getting local interest rates to normality would have pricked the housing boom earlier and given first home owners help to get set.

The tax cuts waved through the House and the Senate by Labor will help keep the economy bubbling along. Additional infrastructure funds may be made available but please remember, Scomo and Josh, that past infrastructure spending did not always succeed.

In any case, local issues are far less important than global ones. Share prices are still rocketing up but will crash shortly. If the USA-China trade war gets worse that will be another big negative effect on global economic activity.

The UK looks like crashing out of the EU without a deal, which will have another bad impact. Greece may be next, or Italy, and the EU will be in crisis mode.

How well is Australia’s economy travelling?

Adam Creighton lays it all out. Here is a bare bones summary.

Australia’s growth looks better than it is due to strong immigration. Since the last severe recession in 1990-91, incomes per capita have signalled three per capita recessions. Since 2010 Britain, Germany, the USA and Japan have grown faster per capita than Australia. As a result, ‘we are slowly falling down the global living standards league table.

‘Meanwhile, debt continues to mount. Home sales, prices and credit growth boomed for years until 2017, but regulators and governments did little to stop it, …’

‘The prospects for politically difficult reform aren’t great. … The Productivity Commission’s “to do” lists have been ignored, along with umpteen other reports that gather in ministerial offices.’

If you somehow add the price of gold and other assets to goods and services inflation it is not obvious that inflation is low. There has been no effort by the Reserve Bank to grapple with the problem of asset inflation, despite Philip Lowe’s fine work on this subject as a graduate student.

And, as a final awful truth, Roy Morgan puts the true rate of unemployment at 9.2 %, almost twice the official rate. This occurs when you add ‘discouraged workers’ who are unemployed but haven’t applied for a job recently. Also, people who are employed but say they would like to work longer hours are estimated to be a further 9.2 % of the population of working age.

If you find this summary just a bit scary, take in the full account here.

Q&A – Why are goods and services inflation so low?

Three factors are influential in this matter. The first is the rise of China, India and the dynamic nations of South East Asia. A great source of newly inexpensive goods and, eventually also services.

Paul Volcker’s big hit on USA inflation in the early 1980s is the second. This changed dramatically inflation expectations and this approach spread to other nations in the following decade. (In Australia the RBA, led by newbies Fraser and Macfarlane, fixed inflation accidentally by imposing a severe recession.)

Most importantly, workers around the world are too timid to demand and receive wage increases. As a result, jobs growth has increased strongly, proving in economics there are sometimes good consequences from apparent bad, or not-so-good, developments. This state of affairs will gradually disappear and inflation will rise again

Kulture

Fiona Prior surprises herself that she is recommending Richard Lowenstein’s ‘Mystify’ to Henry’s readers. More here.

Sporting life.

Rugby’s star Israel Folau is in the news again. Three senior judges in the UK have presided in a case involving a lad kicked out of a university for quoting the bible.

The headline is: ‘UK religious freedom case a godsend for Folau’.

‘A British university that banished a Christian student from its social work course after he posted a ­series of anti-same-sex marriage Bible verses on Facebook has been ordered to reconsider its decision in a landmark judgment by Britain’s Court of Appeal.’

Continued here.

Alan Jones has provided a long article on the absurdity of the whole affair. Here is the juiciest quote I have seen so far.

‘We have people playing rugby league and rugby union in this country who have abused women, traded in drugs, stripped naked on pub balconies, gouged players’ eyes, have driven vehicles when drunk — they continue to play.

‘A young Polynesian Christian quotes from his Bible and he is banned for life.’

The UK example will be, or should be, bothering Rugby Australia, its Chairman and its CEO, indeed the entire board.'

Read on here.