I believe the latest summary of the situation by Nouriel Roubini’s newsletter is pretty much spot on. He says without qualification that the global economy is in its worst downturn for decades, that trade has fallen more sharply than at any time since 1945, that the financial situation is clearly the worst since the Great Depression of the 1930s and that economic growth will be negative this year for the first time in living memory.
Mainstream commentators, the IMF and governments are now talking about extensions of these contractions and crises to the end of 2010. You will recall that in the last half of last year all these same voices were much more upbeat about being able to avoid recession and so on. They were all sending the wrong messages then and they still are. Next year they will be speaking about unexpected complications extending all the problems into 2011.
This will continue to happen for the next few years, into 2012 and 2013. Harry Dent anticipates ups and downs until 2020. But it’s also much more difficult to have confidence in those long-term predictions.
What effect do you think all the huge government stimulus packages are going to have?
I had to smile about the local government talking about a third policy boost this year in the budget. Before this has run its course we will see a good twenty or more boosts, each having less effect until exhaustion, and sadly, a market-led recovery. I could be wrong if somewhere in the world there is a mammoth government spending initiative in the trillions, which targets the new age industries.
Now is the time for any additional government spending to be totally targeted towards investment in future industry and infrastructure.
We just cannot afford these absurd handouts. They are a complete waste of resources. Nor can we afford strategies which put massive resources into subsidies to prop up old industries which cannot survive. Sadly, the signs are that this will continue and that our resources will just be thrown away. That is clearly the mindset we are stuck with in Tasmania.
I notice Roubini is very skeptical of some commentary suggesting a shallow recession which is already showing some signs of economic recovery.
People associated with stock markets currently advising a bottom are absolutely reckless. It’s the classical bumping and spending down to the bottom we talked about earlier this year. The stock market is not a good predictor of the state of the economy. A Reserve Bank study during the 1970s, which is an indicator approach to business cycles, showed that on average the stock market followed the economy by a whopping eighteen months.
The best indicator is the level of unemployment, and it could not be more obvious that jobs are now being shed across the Australian economy.
Roubini provides a very sober analysis about all world regional economies, including a prediction that China is in for a hard landing.
Yes, and that is without taking into account the spending wave declines that we can anticipate are also going to occur, the climate concerns and the impact of the information revolution on old industries. All these things are not going away. Quite the opposite. They will worsen the economic outlook.
Governments should be setting up community survival strategies to assist people through this time, but they must do it with a clear eye on what the future holds, not on the past. Any initiatives focusing on future infrastructures, energy efficiency and the like should be welcomed.
Given the politicization of the bureaucracy in Tasmania and the entwinement of both political parties locally with heavily subsidized backward-looking industries, it looks like we’re in for a rough ride.
We could be, but it will be a ridiculous outcome if our politicians let the country sink into a situation of unemployment of land, labour, knowledge and capital by looking backwards rather than with a vision to the future.
Politicians must look at this through the lens of social considerations. And they must do it now. This demands the development of a new economic model which places social cohesiveness at the centre, not at the margins. For example, there needs to be a systematic attempt to link government resources with organisations which have experience and expertise and an established tradition of assisting disadvantaged communities, groups and individuals. This should have a national focus which marshalls the resources we do have to allow and encourage people, particularly the unemployed, to self help when no paid work is available. Community and individual gardens, workshops and the like should be developed everywhere to ease people’s burdens and maintain their capacity for meaningful achievement. Unless there is central funding to support these people they will be overwhelmed, swamped by the difficulties.
This is a time when education of all forms must be made more accessible and encouraged, not inhibited and wound down. For example, to respond to straitened economic circumstances by cutting back resources for adult education is to actively promote the economic downturn, to feed it.
Unfortunately, there is no guarantee that governments in charge of the levers will use them well. I fear a period of waste will occur, where resources will be dissipated in propping up industries already in terminal decline, and that it will only be when this period of waste is recognized for what it is that there will be the necessary motivation for implementing what is required. In the meantime there will be a lot of social damage and needless division and conflict, and so many of our people will have suffered.
Greg Suitor speaking with Peter Henning.
It is now well into the second quarter of the year. Let’s have a quick look at the unfolding outlook for things economic.