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The Forum > Article Comments > Economy heads for a grim recession > Comments

Economy heads for a grim recession : Comments

By Henry Thornton, published 6/8/2013

But no one, not even the RBA, is coming to grips with the main problem facing Australia, which is double-digit cost disequilibrium - a severe lack of international competitiveness.

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Well said. I couldn't agree more.

I wonder if most of the electorate will agree though. We have become a nation that expects all these entitlements without considering who is going to pay for them. The amount that the government ( meaning us) is going to have to pay in interest alone on the borrowed money "pissed up against the wall" over the last few years, is going to run into billions alone.
Posted by snake, Tuesday, 6 August 2013 9:41:27 AM
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A good piece that goes to a lot of the things I've been banging on about for ages.

However, it talks around the real issue, which is that we have built our economy over the past 40 years on consumer spending using money released by the breakdown of the family as a primary driver.

That money is released in several ways.

First, savings held in common are released. some of that money goes to lawyers, some of it goes to reestablish each of the partners, some of it is spent as a way of ameliorating the emotional distress of the breakdown.

Second, the costs of two separate families are much higher than the costs of a couple of parents living together. Housing is obvious, but where a family may have only one car, two families need two cars. Where a couple will mostly eat at home, a single eats out more. The fixed costs of utilities are doubled.

Third, a single mother has a much greater incentive to find work than a coupled one. She also needs services to allow her to do that, including childcare most notably, but often lots of other things as well.

Fourth, the family home is often awarded to the primary carer for the children, which can mean that it ends up being sold when the mortgage cannot be serviced and the funds are not then used to buy another home, but consumed in trying to maintain a lifestyle. Both former partners end up renting.

Fifth, money is transferred from the parent who is not the primary carer to the other, usually from the man to the woman. Since some 80% of consumption spending decisions in Australia are made by women, this directly increases the money available for consumption spending.

[continued below]
Posted by Craig Minns, Tuesday, 6 August 2013 9:52:18 AM
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Another impact is that the men who are in this position are often driven into depression or so traumatised that they become unable to work. As a result the money released as described above declines over time, while the tax those men would have paid is gone and they become dependent on welfare. Their former partners don't replace that because they only work part-time and often pay little net tax. Since 2010 we have paid out more in redistribution than we have taken in personal income taxes, propped up by other tax income paid by corporates.

Much of the part-time work - the vast majority of it, in fact - is paid for directly by the public purse and a high proportion of the rest only exists because of regulation imposed on businesses.

We have taken a very wrong turn and we need to look at the problem honestly. Going on the same way is madness and will be disastrous.

It's negative-sum all the way.

I'm a supporter of Kevin Rudd, but I fear that the ALP will not allow a rational approach for cynical political reasons. I may yet have to change my allegiance.
Posted by Craig Minns, Tuesday, 6 August 2013 9:54:43 AM
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Glad I'm not the only one who thinks this! Already big expensive promises have been made for this election and has so many saying "oh that would help me!". Well me, be prepared to pay for it! I have no issue with paying more tax...if I felt confident that they were going towards worth while expenses. I'm not sure how I feel about the Government continually bailing out the Automotive industry. Is there proof that in the long run the Auto Industry will recover or are we just delaying the inevitable? If not, retrain! There are quite a few industries screaming for qualified people, assess the shortages and give people a good incentive to retrain to one of those fields.
I think Australia needs to put a higher value on a lot of resources we have an abundance on and selling extremely cheap overseas. Australia needs to become a lot more sustainable, else we will all be in trouble.
Posted by Bec_young mum of 2, Tuesday, 6 August 2013 10:13:47 AM
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Geez, it seems that, for years, I've been in some kind of fantasy world. I've been told constantly that OZ is the lucky country, that it survived the Global Depression with no harm, that we have triple-A credit rating, that there was a gigantic mining boom that Australia was riding on, etc, etc.

Now I'm confronted by this depressing article about an imminent recession written by members of a society who laud the thoughts of someone who died many, many years ago. No, I'm not talking about Jesus but someone called...was it Thornton!

Struth, it's enough to make me look up the yellow pages and contact some blonde who won't care if I'm depressed but will give her all to me in exchange for some change. But hang on! A recession is coming so I'd better be prudent.

I should instead cancel my order for a snazzy European limo, the luxury holiday around the world. But hey, my term deposits are going to levied and the interest rates today are going to be dropped even further. I know what I'll do, I'll rob a bank!

Knowing my luck, it will end in me being arrested and jailed but, hell, at least I'll be fed in jail and some hulk with a five o'clock shadow will probably throw himself upon my aged body and have his way with me but at least I won't have to listen to lying politicians any further or worry about recession destroying my Lucky Country.

On second thoughts..., "Hullo, Charmaine, do you do old blokes? You even have wheelchair access, eh! How thoughtful!"
Posted by David G, Tuesday, 6 August 2013 10:19:14 AM
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Henry, my good fellow, in your attempt to bring to light some of the blindness in the minds of our economic masters, methinks that you demonstrate one huge blind-spot yourself.

You speak of disequilibrium. But, you seem to have entirely blind-spotted the disequilibrium between supply and demand. If we were to greatly reduce the rate of increase in the demand for everything, wed surely be on an economic winner, even if overall economic growth slowed considerably.

Currently (and throughout most of our recent history) weve had very high immigration which has been implemented in order to increase economic growth. But of course it has also increased the need for economic growth, and has led to very small (if any) average per-capita gains from very high economic growth!

We need to stop having to pay for massive new infrastructure and duplication of services, as well as constant repairs and upgrades to overburdened infrastructure and services. We need to be able to put our economic gains into improvements for the existing populace instead of into providing the same standard of living for ever-more people.

This is surely of absolutely fundamental importance, eh Henry?

Id be most interested to know what you think about this.

I mean; how on earth can we have a meaningful discussion about economics if the demand side is left open-ended and is rapidly increasing with no end in sight and with not even a thought of addressing it, while everything is geared towards increasing supply, endlessly, in order to try and keep up with demand? ?

It is just so extraordinarily non-sensical!
Posted by Ludwig, Tuesday, 6 August 2013 10:24:09 AM
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