The current conflict in France, while multidimensional, is a reflection that the neoliberal austerity system is not working for ordinary people. All sorts of cross currents feed in to this discontent, some of which (for example, distaste for foreigners/migrants) are clearly not to be encouraged. Most of the claims of the Gilets Jaunes are about the alienation, exclusion and poverty that they feel living in the neoliberal, corporatist EU world. A lot of so-called progressives are out there claiming this is a right-wing ruse advancing climate denial and anti-migrant sentiment. But I consider that to be a typical elite response to any EU discontent to avoid discussion of exit and the paint the critics as being stupid and/or racist. A replay of the Brexit accusations from the Remainers. But the writing is on the wall for the Eurozone countries. People will only tolerate being put down and oppressed for so long. And all is not well elsewhere. Even when a nation has its own currency and has the capacity to avoid the sort of stagnation that many European nations are now wallowing in, the universality of the neoliberal austerity bias is making life hard for not only the low-income cohorts, but, increasingly for the lower tiers of the ‘middle class’ (defined in income terms). Australian workers are feeling that pinch in the land of plenty.
Last week’s Australian National Accounts data showed that in the September-quarter, the Australian economy slowed considerably with an annualised growth rate recorded of just 1.2 per cent (0.3 per cent for the quarter).
If that growth rate sustains, then unemployment will start to rise rather sharply not to mention the already sky-high underemployment.
I provided a detailed analysis of the main aggregates in this blog post – Australian national accounts – economy is slowing and looking shaky (December 5, 2018).
Growth is only continuing as a result of households running down their saving to maintain a slowing rate of expenditure on consumption and several large public infrastructure projects being built by state (not federal) governments.
Corporate investment in productive infrastructure is in decline.
In this blog post, I want to extract some more insights and tie together several data sets that came out last week to show just how poorly the Australian economy is performing at present.
And, in doing so I am documenting trends and situations that are common in many advanced nations and demonstrate how dangerous the neoliberal era has become.
Things are not as bad in Australia as they are in France. But the trends are common. Neoliberalism is a global phenomenon.
Distributional trends at national level
In this blog post – Reliance on household debt and a lazy corporate sector – a recipe for disaster (September 6, 2018) – I documented, in part, that the benefits of Australian economic growth were being disproportionately captured by profits and wages were lagging well behind.
I predicted that this would lead to a further slowing in GDP growth rate, exactly what we saw in the September-quarter release last week.
The distributional trends I discussed in that blog post worsened in the September-quarter 2018.
We learned in that previous blog post that:
1. Wages growth in Australia has been very subdued over the last several years, with real wage gains difficult to achieve.
2. Wages growth is now at record low levels and real wages started falling in 2017, and in recent quarters have just kept pace with inflation.
3. There has been a massive redistribution of national income to profits and away from wage-earners as real wages growth continue to lag well behind the growth in labour productivity.
Productivity growth provides the ‘non-inflationary’ space for real wages to grow and for material standards of living to rise.
But, one of the salient features of the neoliberal era across most nations has been this on-going redistribution of national income to profits away from wages.
In other words, capital has increasingly expropriated the extra real income produced from growth in the form of profits.
The suppression of real wages growth has been a deliberate strategy of business firms, exploiting the entrenched unemployment and rising underemployment over the last two or three decades.
The aspirations of capital have been aided and abetted by a sequence of ‘pro-business’ governments who have introduced harsh industrial relations legislation to reduce the trade unions’ ability to achieve wage gains for their members. The casualisation of the labour market has also contributed to the suppression.
These policy positions are complements to the fiscal austerity these sort of governments pursue.
I considered the implications of that dynamic in this blog post – The origins of the economic crisis.
The problem is that the substantial redistribution of national income towards capital over the last 30 years has undermined the capacity of households to maintain consumption growth without recourse to debt.
One of the major reasons that household debt levels are now at dangerous, record levels is that real wages have lagged behind productivity growth and the financial market deregulation has created a host of rogue banksters who aim to push as much credit onto households as they can.
Our current Royal Commission into Banking is revealing how criminal the banks have been.
The next graph shows how the Wage Share in Total Factor Income from the March-quarter 1960 to the September-quarter 2018 has evolved in Australia.
It is clear that the share workers have been gaining has been in decline since the neoliberal period began in earnest in the 1980s.
In the March-quarter 2016, the wage share was 55.1 per cent. By the September-quarter 2018, it had fallen to a low of 52.1 per cent.
It declined by 0.1 points in the September-quarter 2018 as the profit extraction continued to gather pace.
The latest ABS – Business Indicators, Australia (released December 3, 2018) – for the September-quarter 2018, provides another perspective on this miserable outcome for workers.
The next graph show the movements in business profits from the March-quarter 2001 to the September-quarter 2018.
As the wages share started to decline rather sharply from the March-quarter 2016 – business profits started to move upwards rapidly.
The next graph shows how this escalation in profits has allowed the corporate sector to extract most of the income growth in Australia.
It shows the profits and wages aggregates deflated by the CPI to render them in real terms and indexed at 100 in the March-quarter 2016.
The results are stunning:
1. Profits have grown in real terms by 41.8 per cent since the March-quarter 2016.
2. Wages have grown in real terms by just 2.8 per cent.
In other words, a massively disproportionate share of real GDP growth has gone to profits over the last two and a half years.
That is a recipe for disaster and helps to explain what is now manifesting as slowing consumption expenditure and slowing real GDP growth.
Compounding the deteriorating income trends for workers, is the fact that the government sector in Australia is significantly reducing its net spending as part of its manic plan to generate a fiscal surplus in the coming financial year.
This is notwithstanding the large state government infrastructure projects that are currently supporting growth. The federal government is firmly in austerity mode.
Over the last 12 months (September-quarter 2017 to September-quarter 2018), the Australian Bureau of Statistics latest data – Government Finance Statistics, Australia (released December 4, 2018) – reported that:
1. Total general government revenue (all levels) averaged 35 per cent of GDP but increased by 7.9 per cent (while nominal GDP increased by 5.2 per cent).
2. Total general government expenditure rose by just 3.2 per cent over the same period and hardly at all in real terms.
3. The overall fiscal net operating deficit fell from 3 per cent of GDP to 1.5 per cent of GDP, a significant contraction.
Credit growth is now slowing
The elites knew that they had a problem suppressing real wages growth. Who would buy the products they offered for sale?
The solution was to partner with the banksters – who are nothing much more than credit sharks these days, protected by Australian government guarantees.
These guarantees mean that whenever the bankster’s greed gets them ahead of themselves and their incompetence and illegality threatens to send themselves broke the government bales them out.
The idea of banks being prudential and modest institutions that work to safeguard the hard-earned savings vaporised long ago. They are cheapskate gambling institutions that grossly overpay their mealy-mouthed bosses and executives and push risk over the cliff because they know the neoliberal game is to privatise the gains and socialise the losses.
The sooner they are nationalised and restored to serving public well-being the better.
But the financial engineers from these institutions have seen the flat wages growth as further opportunity for pushing more credit onto the household sector.
Household consumption growth has until recently been maintained by ever-increasing levels of household debt.
In fact, the latest RBA data – Household Finances – Selected Ratios – E2 – shows that the ratio of household debt to annualised household disposable income is now at record levels – each month a new record is established.
The following graph shows the ratio from 1988 (the beginning of the series) to the June-quarter 2018.
In June 1988, the ratio was 63.2 per cent. It peaked at 171 per cent in the June-quarter 2007, just before the GFC emerged.
It stabilised for a while as the fear of unemployment and the economic slowdown curbed credit growth for a while. But that didn’t last.
Over the last two years it has accelerated considerably and now stands at 193 per cent.
Please read my blog post – Australia’s household debt problem is not new – it is a neo-liberal product (February 22, 2017) – for more discussion on this point.
But there are not signs that the demand for credit is in decline.
When the September-quarter debt data comes out, I expect the pace of growth in household debt to have slowed a bit.
Well, the latest RBA credit data shows that demand for housing credit is slowing significantly and personal credit (credit cards) fell by 1.6 per cent in the year to October 2018.
Personal credit has recorded negative growth every month since November 2016.
The following graph tells the story – it shows the annual growth in total credit since January 1991 to October 2018.
The threat of the GFC really ended the credit binge and there was a modest expansion of credit growth (driven by housing) in the recovery period (on the back of the fiscal stimulus).
But that ended in April 2016 and growth has been declining since.
So the game is nearly up.
Successive governments have relied on the continued growth in household debt to drive growth as they fumbled around trying to run fiscal surpluses.
They have engineered flat wages growth.
They have pushed credit onto households.
But with the rate of growth in credit now approaching historic monthly lows, the only way growth can continue is through the run down of saving balances.
And while that has been going on, it is very finite – obviously.
Household saving ratio continues decline towards zero
The switch is now going on in Australia.
Household consumption which has been driven by credit and saving withdrawals is now relying more on the run-down in savings.
And, consumption expenditure is slowing as a result – as is overall real GDP growth.
The household saving ratio is now at the lowest level since the credit-binge days of that finished in the December-quarter 2007.
The following graph shows the household saving ratio (% of disposable income) from the March-quarter 2000 to the current period.
In the December-quarter 2008, the ratio was 10.9 per cent having risen sharply in the early days of the GFC as households tried to stabilise the record debt situation.
Once the GFC threat was contained by the massive fiscal stimulus, the saving ratio began to fall again, especially as the squeze on wages has intensified and the demand for credit started slowing.
In the September-quarter 2016, the household saving ratio was 5.5 per cent (still much lower than historical norms).
It is now down to 2.4 per cent.
The following table shows the impact of the neoliberal era on household saving. These patterns are replicated around the world and expose our economies to the threat of financial crises much more than in pre-neoliberal decades.
One of the manifestations of the flat wages growth and the decline in consumption expenditure growth is the flat retail sales environment.
There are all sorts of anecdotal accounts of shopping strips being hollowed out in capital cities as major retails rationalise their exposure to the deteriorating situation.
Large department stores are recording poor results. Major brands (particularly clothing) are registering insolvencies.
The Australian Bureau of Statistics published the latest Retail Trade data for October.
It showed that:
Australian retail turnover rose 0.3 per cent in October 2018 …
The following graph show the quarterly monthly growth (blue bars) compared to the average monthly growth between January 2000 and October 2018 (red line).
While the October result was an improvement on the very poor September result, the last four months have been below the red line average suggesting a relatively weak product market.
Car sales are down 20 per cent over the year
And the slowdown is seeing expenditure on discretionary consumption items declining rapidly.
The latest new car sales data – 2018 Sales pass the one million mark as flat market persist (December 5, 2018) – tells us that:
1. “The November 2018 market of 93,860 new vehicle sales is a decrease of 7,505 vehicle sales or -7.4% on November 2017 (101,365) vehicle sales. November 2018 (25.7) had the same number of selling days as November 2017 and this resulted in a decrease of 292 vehicle sales per day.”
2. “The Passenger Vehicle Market is down by 7,679 vehicle sales (-20.8%) over the same month last year”.
The following graph shows the period June 2009 (the previous peak in the last cycle) and November 2018 for the different vehicle types plus the total.
Total sales have been flat since 2016 and in the last 5 months have been in decline.
There has also been a fundamental shift in the consumer market in Australia with the decline passenger vehicles accompanying the popularity of the SUVs.
This trend has seen larger, heavier and higher centre gravity vehicles, usually meant for off-road use, ferrying children a few kms to school in the morning.
They reduce the safety for those who drive passenger vehicles, damage the road surface more, and use more fuel. A properly calibrated taxation system would impose a much higher sales tax on these monsters to reduce the incentive of people to buy them.
End of statement!
But the relevant point for this blog post is that new car purchases represent what we consider to be discretionary purchases, which are more sensitive to income changes than the essential goods and services we buy (food, energy, etc).
Households have clearly responded to the flat wages growth and subdued disposable income growth by cutting back on this area of discretionary expenditure.
But it is also likely that the downturn in residential housing property rpcies in the last several months is also having an effect.
In 2015, the Reserve Bank of Australia released a Research Discussion Paper (RDP 2015-08) – Housing Wealth Effects: Cross-sectional Evidence from New Vehicle Registrations – which analysed “the relationship between housing wealth and consumption”, with a specific focus on new passenger vehicle registrations.
The authors concluded that estimated :
… an elasticity of new passenger vehicle registrations with respect to gross housing wealth of 0.4–0.5 …
Which in English means that when housing prices rise by 1 per cent, new car registrations increase around 0.4 to 0.5 points.
They also found that new car purchases by low-income households have a higher responsiveness to rising housing wealth compared to high-income households.
The following graph shows the daily property prices (compiled by Core Logic) from December 10, 2017 to December 9, 2018 for the two large markets, Sydney and Melbourne, and the overall 5 state capital cities average (Australia).
The Sydney market has contracted by 8.2 per cent, Melbourne by 6.2 and the overall national market by 5.9 per cent.
The following graphic shows the situation as at November 30, 2018 across the different categories of real estate (also compiled by Core Logic).
So the RBA estimates of the sensitivity of the relationship between housing prices and new car registrations (if the relationship was linear in both directions) would suggest a ‘wealth effect’ decline in new car sales of around 4 per cent over the last year.
In actual fact, since December 2017, overall new car sales have fallen by 9 per cent.
A number of reasons could explain this large decline but flat wages growth, uncertainty of employment and falling house prices are good candidates to have some impact.
In it May Fiscal Statement (released May 8, 2018), the Federal government estimated that real GDP growth would be a steady 3 per cent out to the financial year 2021-22.
That is a quarterly rate of growth of 0.75 per cent.
The September-quarter 2018 growth rate slipped to 0.3 per cent and was held up by large state government infrastructure projects, which are finite in their impact.
With household consumption spending slowing down there is virtually no way that real GDP growth will hit the 3 per cent forecasts under current policy settings.
More broadly, the material living standards of the workers is now under sustained attack. And the citadel of the Australian middle class – housing ownership – is now being threatened.
The illusion that one could borrow to the hilt in an environment of flat wages growth, limited saving balances and an ever-increasing wealth flow from rising housing prices is now being revealed to be folly.
I don’t expect to many yellow vests to appear on the Australian streets just yet. But the same sense of disclocation is building.
Call for financial assistance to make the MMT University project a reality
I am in the process of setting up a 501(c)(3) organisation under US law, which will serve as a funding vehicle for the MMT Education project – MMT University – that I hope to launch early-to-mid 2019.
For equity reasons, I plan to offer all the tuition and material (bar the texts) for free to ensure everyone can participate irrespective of personal financial circumstance.
Even if I was to charge some fees the project would need additional financial support to ensure it will be sustainable.
So to make it work I am currently seeking sponsors for this venture.
The 501(c)(3) funding structure means you can contribute to the not-for-profit organisation (which will be at arm’s length to the not-for-profit educational venture) in the knowledge that your support will not be publicly known.
Alternatively, if you wish to have your support for the venture publicly ackowledged there will information presented on the Home Page of the MMT University to acknowledge that funding.
To ensure the project has longevity I am hoping to obtain some long-term support proposals.
At present, I estimate I will need about $AUD150k per year.
Note that most of these funds will support an administrative support staff (1 person fractional), data charges, and video editing and design staff (as needed).
I will personally take no payment for the work I am putting into the project nor will other key Modern Monetary Theory (MMT) academics, who have agreed to help in the educational program.
So I cannot do this without sufficient support. My research group does not have the financial capacity to support this venture.
I also do not wish to place advertisements on my blog posts.
You will be contributing to a progressive venture.
Please E-mail me if you can help.
I have some funding pledges already but I am not near the target yet.
I regularly receive a fair share of ‘hate E-mails’ and (deleted) comments on my blog from people purporting to be representing the ‘progressive left’ – more or less accusing me of being some ill-formed C18th conservative Tory for advocating that the government should, for example, guarantee employment.
Apparently, I am advocating a return to the poor houses – a form of institutionalised slavery.
The point of the Job Guarantee is that is the base case safety net. It doesn’t aspire to cure all ills. It doesn’t replace the need for expanded government investment in public infrastructure (and the related skilled jobs that would accompany that) or the creation of adequate numbers of skilled public sector jobs in the service-delivery areas (education, health, environment, arts and recreation etc).
It just ensures that there is enough interesting work available at all times to anyone who cannot find work elsewhere (for whatever reason).
Yes, the Job Guarantee is a palliative to the ‘capitalist hegemony’ and doesn’t advocate a violent revolution to overthrow the filthy exploiting capitalist power brokers.
This theme broadens.
On Twitter over the weekend, I learned that I am an ignorant cretin because I refer to the European Socialist Parties as being representative of the traditional left and criticise their surrender.
Some character, who styles himself as being the true defender of the Left, made some ridiculous personal statements against me – claiming I don’t know the difference between a liberal and the opposite position, that of the true Left.
Apparently, I disclose this confusion (between Left and Liberal) in all my writings and this is why the true Left of which he represents (the Marxist Left) eschew having anything to do with Modern Monetary Theory (MMT).
MMT is not attractive to these true Left characters because we do not advocate revolution for posterity!
It was a curious (and false) accusation.
Let’s be clear.
When the time is right to abandon the capitalist system in favour of a more functional and equitable system that safeguards human potential and our natural environment then I will be one of the first to the barricades.
But until that time I prefer to use my academic position (relatively well-paid and somewhat secure) to advocate policies that will make a real difference now.
I prefer not to use my secure position to drink latte in cafes in an assembly of self-styled progressives and discuss how the revolution will pan out while ignoring the every day reality that people want work and do not have it and are poor and socially excluded as a consequence.
I prefer not to condemn the unemployed to years of this sort of macroeconomic tyranny while I wax lyrical about post-modern interpretations of what Marx said and how it relates to the struggle towards revolution.
When I receive E-mails (or comments on the blog) which attack the Job Guarantee as a fascist or Tory plot and the correspondents claim they represent the true progressive position and tell me that I am a progressive quisling – I think about the 1971 poem/song – The Revolution Will Not Be Televised – by Gil Scott-Heron.
The lyrics contain the following refrain:
The revolution will not be televised, will not be televised,
will not be televised, will not be televised.
The revolution will be no re-run brothers;
The revolution will be live.
It is a very stark commentary on the so-called progressive side of the political struggle.
You can see the full lyrics at this blog post – A new progressive agenda? (September 28, 2010).
And I updated my political compass assessment at the weekend which demonstrates that the meaning of liberalism is along a different plane to Left and Right in economic terms.
You can see that assessment HERE.
That is enough for today!
(c) Copyright 2018 William Mitchell. All Rights Reserved.