A growth is a bad thing isn’t it?

3 12 2008

Here’s the ABC’s journalists talking to each other about some economic data from Australia today.  I’ve taken the liberty of adding my own reflections.  My comments are in purple.

GDP shows economy barely growing

The World Today – Wednesday, 3 December , 2008 12:10:00
Reporter: Stephen Long

ELEANOR HALL: But first to the grim news about the economy, the latest national account figures show that Australian economy is barely growing at all. [For whom is it grim?  Most species would probably think that humans are consuming plenty enough already without increasing their share.]

The country’s gross domestic product rose by just 0.1 of one per cent in the September quarter; and the non-farm economy is already going backwards. [Going backwards.  A loaded term surely.  If people are buying almost as much stuff as last year, I would think that we’re pretty keen shoppers still]

Joining us to analyse the latest numbers is our economics correspondent Stephen Long.

So Stephen, how worried should we be about these GDP figures? [She might have asked, should we worry at all about these abstract numbers?..but easier to go for the leading question]

STEPHEN LONG: Well they’re very weak Eleanor, they suggest that the economy recorded virtually no growth, was just in positive territory, almost grinding to a halt in the three months to September.  [That’s a rather odd thing to say.  If people are consuming a little bit more than last year then consumer activity hasn’t really ground to a halt.  Even if people bought half what they did last year….that isn’t grinding to a halt.  What a strange turn of phrase.]

But if you take out the, if you look at the non-farm economy which is where more than 90 per cent of the activity takes place and where most of us live and work, well that was going backwards significantly. So they are a worry. [The thing is the non-farm economy is not a place.  We don’t live in an economy….it’s just an abstract way of trying to sum up commercial exchanges in a place.  There’s an implicit suggestion that to not consume more than last year is to “go backwards” in some profound and overarching sense of the phrase.]

They suggest the economy was in bad straits before the worst of the global credit crunch hit and before we saw the world’s powers coming together to say we had to take drastic action to rescue the world economy, things were already looking pretty bad.

ELEANOR HALL: So what was slowing the economy so much then?

STEPHEN LONG: Household consumption was one of the main things; you’ve got a situation where basically consumers were on strike. [Geez Mum, you only bought as much crap as you did last year.  Are you on strike or something?] So you had just 0.1 per cent seasonally adjusted growth in household consumption.

But that’s a bit misleading because that was driven up by rising rent, up 0.6 per cent, rising insurance and financial services costs in the quarter [So because there’s a reason, then we leave that stuff out – if its explainable then it doesn’t count]. Purchases of vehicles were down eight per cent, people weren’t spending money in hotels, cafés and restaurants, that sector went backwards. [Really?  Not a single cafe, hotel or restaurant sold anything.  I’ll be damned!]

And you also had a big rise in inventories which peculiarly is counted as a positive contribution to economic growth but actually suggests that companies couldn’t sell stuff. [Not as bloody peculiar as spending on burglar alarms, deadlocks, road accidents,  fighter jets and kidney transplants which we count toward economic growth] So that suggests that consumers were on strike [yep haven’t seen a shop for about four months myself], there’s a couple of things going on.

Bear in mind this pre-dates the huge round of interest rate cuts that we’ve seen over the past four Reserve Bank meetings in the past three months. And also the fall in petrol prices.

So people were getting whacked at this stage by high petrol prices [sorry – what’s this climate change thingy?] and relatively high interest rates but also it suggests that consumers were getting very, very worried about the state of the economy and companies couldn’t sell things.

ELEANOR HALL: Now these figures are for the September quarter, can we expect things to be better or worse in the current quarter?

STEPHEN LONG: Well forecasting is a difficult game, I always stick by the maxim of the late American economist J K Galbraith that the purpose of economic forecasting is to make astrology look respectable [some truth and sense at last]; but it is quite possible that growth could go backwards and we could record negative growth in the December quarter. [Backwards growth…negative growth…does he mean shrinkage, contraction, decline, diminution… is that what he means..funny language].  That’s the forecast of a lot of economists [as if we trust them anymore].

In a sense it depends really how much the huge fiscal stimulus that the Federal Government pumped in, $10.4-billion actually feeds into spending and how much the rate cuts feed into consumption. And we did have relatively strong retail sales compared to what the market was expecting with the numbers out yesterday.

But it’s quite possible that the economy could quite formally go backwards in the December quarter. All of this is moot though in a sense [in a very bloody accurate sense], whether we actually technically hit a recession with two quarters of negative growth or not, the fact is, things are looking grim [unless you have an interest in the wellbeing of your grandchildren or the survival of hundreds of thousands of species of life on Earth. And ooh, there’s that euphemistic “technical recession” phrase again – had to squeeze it in there somewhere]

If you go back a year ago, we were recording a one per cent growth rate in the September quarter, now we’re down to 0.1 of a per cent in the September quarter. So things have slowed rapidly and we’ve seen a situation where employment growth is one-third of what it was if you go back to that stage. [Hang on, you’re saying that we’re still making new jobs!]

Unemployment is going to go up [hmmm.  what are the astrologers saying on that one?], as I said the non-farm economy is going backwards [so the farm economy must be doing very bloody nicely thanks]; it will feel and smell like a recession for most people [how does a recession smell?  I think I’ve forgotten.  Perhaps it the smell of fresh air, or lavender or something quite lovely]

ELEANOR HALL: And a year ago too we were very reliant on the resources boom, have we got to give up on that at this stage? [No Eleanor, we ought to just keep digging shit out of the ground like there’s no tomorrow.  Why care?]

STEPHEN LONG: Yes and one of the other things here is that, you’ve had a fairly strong contribution to economic growth over the year by capital investment from business and that’s going out the window. There was also a reasonably strong contribution in the quarter from public spending, we’ll be expecting that to go up but it shows you how weak the private economy is.

ELEANOR HALL: So how is the Treasury forecast of two per cent growth over the year to next June looking now? [Well, Eleanor it is probably as good a number as any]

STEPHEN LONG: Well I think it’s looking pretty shaky, I think it’s looking very optimistic. Of course they’ll be banking on these massive interest rate cuts by the Reserve Bank feeding into higher consumption and the Government throwing money into the economy to generate spending to get them over the line with that two per cent growth forecast. But it’s looking very ambitious right now.

ELEANOR HALL: Stephen Long our economics correspondent thank you.

Apologies for the cynic in me but I tire of opinion presented as analysis.  The agenda has been set and we know what we’re allowed to think before the interview hits its stride.  And this, from the national broadcaster.  But at least they didn’t interview Bill Evans– chief economist of Westpac, or the ubiquitous Saul Estlake of ANZ or any other number of vested interests.

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7 responses

4 12 2008
Andre Sammartino

While I enjoyed your commentary, and you raise some highly relevant issues about the misinformation tied up in the jargon, it is dangerous to miss one crucial element of all of this: growth in economic activity and employment is a necessary evil as long as there is population growth. GDP is not adjusted on a per capita level when looking at national accounts. So if the economy “only” grows at 1% and population grows at 1.1% we are not “renewing” our national wealth (i.e. we are poorer). Likewise if “only” 100, 000 new jobs are created in a year, but the net increase in the labour force (put simply school leavers plus working age migrants minus retirees) is 200,000 then a 100,000 folks are now unemployed. These a real not abstract outcomes.

As some folks who lived through the early 1930s whether they are getting a lot of belly laughs out of your semantic assessment of the irrationality of staying economically active (in terms of the production and consumption). I think you’ll find that, say a 20% drop in GDP (or 20% negative growth) isn’t just an abstract concept. In fact, it’s a whole lot of people getting kicked out into the streets, folks queuing up for food handouts, families breaking apart and lives inalterably affected.

I am comfortable with any call to use resources more sensibly and thoughtfully, but to simply dismiss growth as unnecessary is naive at best.

4 12 2008
Verdurous

I understand where you’re coming from Andre. As it stands the economic system that we presently tolerate demands growth. To not strive for growth under such a system carries with it severe short and medium term risks and penalties. We saw this in the 1930’s and are experiencing a small taste of it now. I don’t know anyone who thinks unemployment is a good thing.

Part of the problem you’ve addressed relates to the idea that population growth must accompany GDP growth. It’s true that a larger population requires a bigger pie, even if each person only gets the same sized slice. I would however, query any nations need for expanding population growth in a world of 6.7 billion people. The last thing we need is a greater population (either global or national).

But by far the bigger issue here is that it is foolish to create/tolerate/continue an economic system that collapses if it doesn’t grow and then get upset if people point out the long term disastrous consequences of this growth.

The heart of the problem relates to the way that money is created (or loaned into existence) by banks as interest bearing debts. Bank loans me $100, I owe them $110 at the end of the year. Where do we get the extra $10 – by borrowing it into existence. So debt is created faster than the money supply. By definition, debt expands faster than the money supply, and periodically there are severe contractions in the money supply. This is because this kind of system is essentially a huge pyramid scheme and is inherently unstable. Imagine a system that can “spook” itself into collapse if people “lose faith” in it. This is what we have presently.

So the question is not how do we continue to consume and produce more year on year (because this will certainly bring about ecological collapse in the mid term), but how do we create an economic system that serves the needs of people (rather than the other way around) and that allows a dignified life, useful employment of our skills, and social development and allows for (even encourages) us to conserve and reduce our ecological footprint. Fortunately the field of ecological economics allows for us to consider the different ways that we can structure economies to work in harmony with the natural world.

Can you see what I’m driving at?

4 12 2008
Andre Sammartino

I certainly can see what you’re driving at, and I admire the desire for change. There are various issues and pressures at play however.

For example, population growth curiously may be solved by economic growth. It is fairly clear that greater individual wealth removes many of the imperatives for large families. Simply moving out of subsistence agriculture shrinks family sizes as one no longer needs a family-provided workforce (and also can’t feed them when times get tough). Medical advances that lower infant mortality also reduce the needs for “back up children” (for want of a more palatable term). More financially conscious couples tend to defer and reduce their breeding also. But these changes all take decades and generations to occur. The developed world (economically) is now not much above replacement rate population wise, but is still feeling the impact of a baby boom 50 years ago. In the long-term (i.e. a century), the world’s population will have, no doubt, levelled and probably declined. But, you’re justified in worrying about the resource implications in the interim.

The debt pyramid scheme is an interesting argument. I guess my view is that everyone has choice on this front. No one holds a gun to anyone’s head and says “you must borrow”. Individuals make reasonably rationale decisions about deferment and bringing forward of consumption. It is true that we have perhaps over exuberantly built up a system that too heavily relies upon and idolises the role of finance houses as a accelerator in the system. A more tempered approach would not be a bad thing. Of course, that’s what a lower interest rate world is 🙂

6 12 2008
Steven Earl Salmony

Dear Friends,

The human-induced predicament visible in our time to the family of humanity makes one thing clear: people with eyes to see, ears to hear and no speech impediments have got to speak out loudly, clearly and often now. Silence, the greatest power the rich and powerful possess, cannot be allowed to prevail. The reckless way a few people with wealth and power maintain a “golden” silence, one that protects their greed, gluttony and hoarding, is dangerous and cannot longer be endured because a good enough future for our children and coming generations is being mortgaged and threatened by these leading elders in my not-so-great generation.

Regardless of whether or not other human beings choose to accept the “answers” to one question, I believe we must ask ourselves, “Can we teach one another to live within limits?”

It is necessary, I suppose, for human beings to recognize and affirm human limits

http://www.pubmedcentral.nih.gov/articlerender.fcgi?artid=1332674

and Earth’s limitations

http://findarticles.com/p/articles/mi_m0CYP/is_/ai_n15690553

To do otherwise and, by so doing, choose willfully and foolishly to ignore the practical requirements of biophysical reality runs the risk of putting life as we know it and our planetary home as a fit place for human habitation in peril, even in these early years of Century XXI.

Steven Earl Salmony
AWAREness Campaign on The Human Population,
established 2001
http://sustainabilityscience.org/content.html?contentid=1176

14 12 2008
Trinifar

Sarcasm has to be used with great care to have the intended effect, and you did it very well in this post. Fine work. It was just what I needed to lift my spirits today, seeing something smart, witty, and right on the money about an important topic that never gets the attention it deserves.

14 12 2008
Verdurous

Very kind Trin,

I have to try to temper my leanings towards negative posts and comments, but this tired old transcript was crying out for some ridicule. It adds nothing to the public interest and reinforces the certainty of growth as a universal good. Trinifar I wish you well with the population speak out. Amazing to see what John Feeney has been able to throw together.

Regards,

Verdurous.

14 12 2008
Verdurous « Trinifar

[…] recent posts are this video about clean coal technology — short and very engaging — and this smart, witty piece about economic […]

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