Whatever today's economic data shows about how close Australia is to recession the truth is we are already experiencing the biggest dive in living standards in half a century — and have been for two years, writes Peter Martin.
@exocrinous@Longmactoppedup In a number of key industries — supermarkets, telcos, banks, airlines, electricity — Australia doesn’t have genuine competition.
Instead, we have two to four big companies that own the industry and basically act as a cartel.
They saw the supply shortages and skills shortages, and jacked up their prices.
Then when those shortages cleared, instead of lowering prices, they kept raising them and raked in record profits.
All this led to skyrocketing inflation.
Here’s where the Reserve Bank comes into play.
Back in the late 1970s and 1980s, there was a number of years where there was a wages spiral.
Basically, this was where prices were rising, so unions demanded and received higher wages, which led to companies putting up prices, which led to higher wage demands…
The thing that eventually ended that cycle was the Reserve Bank lifting interest rates to 17% and causing a recession.
At its simplest, this caused people to lose jobs and stop demanding wage increases and businesses to stop raising prices.
The Reserve Bank acted like a wage spiral was happening again, and put up interest rates.
But this time, it didn’t work particularly well, because in most industries, wages weren’t rising.
And because housing prices were one of the root causes of the inflation, and higher interest rates made it more expensive to borrow to build houses, it actually made the problem worse.
Instead, people just cut their spending right back.
Which brings us to the almighty catastrofuck of an economic mess Australia’s in right now.
At the same time, the same sorts of issues are happening across the world.
There’s global skills shortages. Housing prices are skyrocketing across the world. Inflation is surging, even as supply shortages clear. Wage growth is stagnant and isn’t keeping pace with the economy.
So in the US Federal Reserve is raising interest rates, and house prices in — say — New York are hitting record highs. Inflation there is surging, but wages are stagnant.
And that’s the simple version — there’s even more to it, but I’m already on the second post.
It’s basically the end product of 30 or 40 years of short-sighted economic policy.
We simultaneously need more skilled migration to fix this mess, but it will also make the problem worse.
The Reserve Bank is lifting interest rates to slow inflation but it’s also making the problem worse.
Consumer spending has fallen off a cliff and simultaneously inflation is running rampant.
Households are in a recession while the overall economy is overheating.
And the same things are happening in China, in Europe, in the US, in Canada.
So even if we can solve some of these issues domestically, some of these issues have a global dimension.
@exocrinous @Longmactoppedup In a number of key industries — supermarkets, telcos, banks, airlines, electricity — Australia doesn’t have genuine competition.
Instead, we have two to four big companies that own the industry and basically act as a cartel.
They saw the supply shortages and skills shortages, and jacked up their prices.
Then when those shortages cleared, instead of lowering prices, they kept raising them and raked in record profits.
All this led to skyrocketing inflation.
Here’s where the Reserve Bank comes into play.
Back in the late 1970s and 1980s, there was a number of years where there was a wages spiral.
Basically, this was where prices were rising, so unions demanded and received higher wages, which led to companies putting up prices, which led to higher wage demands…
The thing that eventually ended that cycle was the Reserve Bank lifting interest rates to 17% and causing a recession.
At its simplest, this caused people to lose jobs and stop demanding wage increases and businesses to stop raising prices.
The Reserve Bank acted like a wage spiral was happening again, and put up interest rates.
But this time, it didn’t work particularly well, because in most industries, wages weren’t rising.
And because housing prices were one of the root causes of the inflation, and higher interest rates made it more expensive to borrow to build houses, it actually made the problem worse.
Instead, people just cut their spending right back.
Which brings us to the almighty catastrofuck of an economic mess Australia’s in right now.
At the same time, the same sorts of issues are happening across the world.
There’s global skills shortages. Housing prices are skyrocketing across the world. Inflation is surging, even as supply shortages clear. Wage growth is stagnant and isn’t keeping pace with the economy.
So in the US Federal Reserve is raising interest rates, and house prices in — say — New York are hitting record highs. Inflation there is surging, but wages are stagnant.
And that’s the simple version — there’s even more to it, but I’m already on the second post.
It’s basically the end product of 30 or 40 years of short-sighted economic policy.
We simultaneously need more skilled migration to fix this mess, but it will also make the problem worse.
The Reserve Bank is lifting interest rates to slow inflation but it’s also making the problem worse.
Consumer spending has fallen off a cliff and simultaneously inflation is running rampant.
Households are in a recession while the overall economy is overheating.
And the same things are happening in China, in Europe, in the US, in Canada.
So even if we can solve some of these issues domestically, some of these issues have a global dimension.
In short, it’s a mess. (2/2)