Greg Suitor:

I think people have a pretty good understanding now of what happened with the global real estate bubble, unless they don’t read, think or listen.  But they are less informed about the developing (I should say deteriorating) economic consequences which are flowing from that, such as where the equities and commodities markets will end up, and this is associated with high debt levels and the subsequent credit crisis.

Oil and other commodity scenarios are very much part of this, including battles for supply and control, and the ramifications of peak oil.

This in turn cannot be divorced, as some commentators are trying to do, from the global economic and social effects of climate change uncertainties, and also continuing population growth.

All these things intersect with each other in determining the economic and social circumstances we will be facing, but there are other less publicly discussed issues which are part of this mix.

There is a rapidly widening gap in income and wealth distribution, both within individual countries, and this is happening globally, and between nations and regions.

Political instability, madmen or incompetents or ignoramuses in control is a global phenomenon, not just confined to one type of political system, but part of the scene across the global landscape, including within some of the so-called western democracies.

There are also potential and rapid shifts in spending patterns from a number of underlying causes, such as Harry Dent’s baby boom spending wave, other spending wave interpretations, the influence of various dogmas, religious or otherwise, about cataclysm or apocalypse or some other ordained disastrous eco-political event.

There are no doubt other factors feeding into this complexity of circumstances, but there is one which is very often overlooked, but is very relevant and significant, in my view, and that is the global shift taking place from the industrial age to what can be called the knowledge-information age.

Peter Henning:

Let us focus on some of these interrelationships in a bit more depth, beginning with that last point you make about the industrial shift, because it is fundamental, isn’t it, to decision-making at every level, both public and private.

Greg Suitor:

This shift - the information revolution -  just rolls along, and has been for some time.  However the impacts of the current economic crisis will speed things up, compressing the time-frame of change.

Organisations that stick with management styles, products and services of the past industrial age will find themselves in more trouble. Governments generally are unable to see the emerging new age organisations and they are continuing to pour many public resources into the old inefficient industries.

Governments are trying to prop up old industries in a vain attempt to protect the profits, income and employment that these have generated in the past, for example the car manufacturing giants, and banks.  You can see what is happening in the US with billions of dollars being poured into the vehicle dinosaurs, but that’s not stopping them from closing down operations all over the world.

Over the next five years or so we should see many of these organisations disappearing, never to rise again. It is not apparent yet which specific businesses and organisations will survive, but there are some signs in the sectors of transport, energy, education and health of future trends, particularly those taking on new IT technology,. Those with low debt are better positioned. Financial institutions which survive will be those that reform. The same applies to the food industry. Old fashioned organisations are dying fast.

Peter Henning:

This seems to me to present a comparison with what happened in the 1930s.  Victorian historian Robert Murray has recently commented that it wasn’t until the huge government spending of wartime that mass unemployment ended.  Of course, what the war did was immediately destroy trade with Germany, which killed off exports such as skins and minerals from Tasmania, but it prompted the development of new industries. 

The lesson from that time of recovery – and it shouldn’t require war to provide it – was the need for change, new industry, new direction.  Not a return to the past.  The Australia of 1946 was a very different place to the Australia of 1939.

Bearing that in mind, to what extent are we still stuck in old paradigms, like we were for most of the 1930s, and as you (I think) are suggesting with your references to the Rudd government’s support of the car industry?

Greg Suitor:

This brings us back to the broadening economic consequences of the busted bubbles.

This has burst out of the markets into the whole global economy. Governments have now recognized the situation and are engaged in fiscal and monetary policies aimed at economic stimulus. But the downturn started in October-November of 2007.  It has taken at least 15-18 months for governments to recognize, accept, and take action about this.  Initial responses were puny and have had little effect.

Slow official responses and implementation lags means we will not know the impact of the measures for another six months.  This means that the show will have been going for two years before governments know if their policy action has been sufficient.

Given the size and extent of the crisis, my view is that they will find that they will need more and bigger economic policy strategies before things hit bottom. They will chase the decline down rather than stop it and turn it around.

The reason for this is because there still does not seem to be any recognition of the interrelationship of the factors we are discussing as being integral causes to this decline. Governments are treating the crisis as a “phenomenon”, isolated and separate in its own little box. 

There is talk and discussion about climate change but no policy action as part of any overall strategy. That being the case, this will be a long way down and a long time down before we rise out of it. Share prices will probably halve again. Real estate prices, on average, must fall further, especially in Australia.  And debt levels must be lowered one way or another. We should also see commodities fall lower in price.

As you say, there will be much huffing and puffing about how much better off our economy is in relation to others.  Comments will range from (and it doesn’t matter where, claims will still be made) “this is serious” to “we are going well”, while not getting to the heart of the matter.

There will be some really good policy here and there, especially in developing infrastructure for a new economy and industries, and some really bad policies too.  The continuing support for the pulp mill, which you can see from that speech of Daniel Hulme, is a good example.  This is like advocating a return to employment in intensive rabbit trapping, propping up something which is never going to have any outcomes, just a wasted opportunity.

Another thing which I think we are observing relates to an observation JK Galbraith made of the 1930s. As the markets fell people kept buying in at what they considered, and the brokers considered, the bottom, through the whole period from 1929 to 1932,  until they had no money left to buy with. Bargain basement prices all the time. It’s a bit like an addicted gambler putting money into poker machines until he has none left.  We are seeing this taking place now in the stock markets.

Peter Henning:

Well, that’s not a scenario which inspires much confidence in government led recovery, or of implementation of a coherent strategy for the future.

Greg Suitor:

When you look at oil and other commodity scenarios, the picture isn’t too much different. The fall in commodity prices has recently stabilized at much lower levels, but the consequence of the fall has been a drop in production and therefore a significant short term contributor to unemployment and a drop in spending.

We should anticipate more commodity-based organisations going out of business because of the drop in prices and high debt levels, built on the speculative boom.  These will take a lot of time to start up again. Because of the decline cycle we are now in, commodities generally will drop much further even though there may be some short term spikes.

The reason for this is that producers of commodities will try to generate as much income as they can in a declining market. Unity, as for example expressed through OPEC pricing of oil, will break up under pressure, and self interest will become more dominant.  Individual states will seek to protect what they perceive as their own. 

This may slow down any shift to alternative energy development and production. Towns built on single commodities are now starting to close down. Unemployment has risen dramatically in just a few weeks, and this will continue. We can expect to hear and see more stories about this, and with more regularity.

Peter Henning:

Some commentators are now saying that despite much talk, nothing is being done that seriously re-regulates, or that even seeks to address the circumstances faced by the real victims.  One Australian commentator, David Hirst, has recently argued that the neo-liberals who engineered the whole mess have so far been the main beneficiaries of the publicly funded rescue packages, and are likely to maintain that status, at a cost to those who can least afford it. 

He refers to the views of American economist Michael Hudson, who believes that all the rhetoric about a return to a Keynesian regulatory framework are empty and hollow, a mere mask to shield the real agenda, which is to use the crisis to actually strengthen the neo-liberal grip.  Despite the political rhetoric of reigning in executive salaries, for example, it is clear that bonuses for these people has actually increased since rescue packages were put in place, despite massive housing foreclosures, increased unemployment and mass sackings of workers.

Greg Suitor:

Well, I did mention at the outset that one of the important factors that we need to understand is the widening gap in the distribution of income among the total population both within western economies and between world economies.

This is highlighted by the ridiculous payments to executives of companies, as you have made clear yourself in your condemnation of absurd salary levels enjoyed by Gunns’ board members and managers, while they are sacking workers or reducing their hours of work or changing their contracts and so on. 

They just don’t get it.  Well, that’s not right, they do know what they are doing, and they do it because they can. They can do it because the majority of their shareholders are institutional investors or themselves.  They control the vote.  Mates’ rates. 

We propagate the notion of the trickle down effect.  And that is what is it, just propaganda. Lower taxation for the higher income half of the population is the standard line. There is no debate about redistribution of income policy to readjust the imbalance. 

It is a false claim that the market will redistribute income.  What has happened in the last 30 years under neo-liberalism and unfettered free markets has been the opposite.  Ironically, the widening gap between rich and poor actually slows down spending than if the gap was closer. An economy with equal distribution is more vibrant.  As a general rule, the richer you are the more you hoard, and the poorer you are the more you spend, and the faster you spend. A more even income distribution means less disruption to the ongoing circular flow of income and expenditure.

In other words, the pressure on governments to allow the rich to get richer and the poor to get poorer has overall depressive economic consequences. During this coming depression social mobility will mainly be downwards and that will cause eventually a more equal distribution of income, which will be economically beneficial in assisting recovery.

Peter Henning:

At the same time, there are other underlying social factors at work which you mentioned at the beginning of this discussion. 

Greg Suitor:

Apart from the issue of climate change, some of these social factors are probably the least understood of the current phenomena, in terms of their likely impacts, and they are little discussed, yet they could have crucial significance.

One question is associated with consumer spending patterns.  The post-war baby boomers in the western world have just finished their peak spending years and this will continue to decline, with some ups and downs, through the next decade into the 2020s, when the next rise in spending from generational change will occur.

The current economic decline will be exacerbated by this, and according to demographers such as Dent and others, this change will really start impacting from around 2010 and get worse for three or four years before bottoming out.  Dent, for example, discusses in great detail these trends into the future in his latest book, The Great Depression Ahead.

Elliot wave theorists Krondraieff and various chartists who follow these demographic and generational patterns are claiming similar trends in economic activity. They predict a serious and long-term depression over the next decade, bottoming at around 2012-2014 and sitting there with the odd bounce until the 2020s.

The key thing to appreciate from this is that are they describing firmly established in-built trends which will result in reduced spending and more economic decline.

The same argument applies to other groups of people who believe for various reasons that economic calamity is ahead . I am referring to large population groups who share belief systems which can strongly influence spending patterns.

Times like this tend to reinforce existing superstitions, throwing up spokesmen for all sorts of apocalyptic views, which can attract large followings.  Their prophecies can be self-fulfilling and don’t dissipate until the timing of the event has passed - much akin to those who thought everything would stop on computers at midnight at the end of 1999.

Peter Henning:

It seems to me that there are other aspects to this as well.  For instance, there is now some commentary about the cultural aspects of the crisis.  Guy Rundle has argued at some length that what has happened in the western world, particularly since the 1970s, as manufacturing has been relocated in low-wage countries, like China, is a gradual economic stagnation, a gradual running down of infrastructure, and a gradual transformation of cultural attitudes which “increasingly asks people to shape their identities around consumption rather than production”.

Again, this is one side of the crisis that has gone unrecognized, because this cultural shift has encouraged large numbers of people to ignore the debt trap, and to identify themselves with what they buy, on huge amounts of borrowed money.

Louis XVI of France infamously said, “L’etat, cést moi”.  Similarly, we as a society have increasingly said, “The car, the mansion, the huge debt, cést moi”, and I suspect with similarly disastrous results arriving soon. But like Loius, we seem oblivious to the trap we have dug for ourselves.  It hasn’t registered.

Associated with this malaise is the fact that the crisis will accelerate the shift of manufacturing to the east, especially China.  In the US over four million workers have been sacked since the financial crisis hit, and that number is growing by thousands every week.  These are jobs, as you say, that aren’t coming back.  They’ll either disappear off the map altogether or be relocated in another country. 

As Guy Rundle points out, China has had a deliberate strategy of export-oriented production, lending money to the West to buy their goods, which in turn enables them to keep their own workers’ wages low.  But in addition to this, it is true isn’t it, that we have fallen behind in education and training and research.  For example, Australia once led the world in solar technology, so we’re on the back foot there as well.

Let’s face it, we cannot even come to terms with what is happening to Australia’s food bowl and the Muarray-Darling River system.  Our federal political system is mired in a paralysis of argument and inaction and disunity.

This raises another issue you mentioned – political madness, I think you called it. 

Greg Suitor:

Notice oil prices whenever there is conflict or the chance of conflict in any area of significant oil production. These fluctuations immediately put downward pressure on economic activity. In isolation things quickly recover but when they coincide with the other phenomena then the outcome is more difficult.

There are serious conflicts occurring on just about every continent.  Generally speaking, the people living in the immediate vicinity of conflict areas have a low standard of living and are a drain on the economies of countries involved directly or indirectly. The chances of wider conflicts increase during such period of economic downturn and this climate causes in itself a reduction in spending.  It also makes it extremely difficult, if not impossible, to deal with any of the problems that need to be addressed.

There is already a significant proportion of the world’s population living in frightful economic conditions, in severely depressed economies.  About two billion of the world’s six billion people are living in conditions of extreme poverty.  It is reasonably certain that another two billion will be joining their ranks soon.

It is not unusual for unemployment rates to be over 50% is many places.  More than a third of humanity is living without adequate sanitation, security, food, money, education, housing and medical facilities.  This is all going to get worse.

In the more wealthy countries tensions will also increase.  Violence is becoming more common on the streets of European cities for example, such as in Greece and France.  That is already happening, and is likely to become more widespread. 

Peter Henning:

Even when it doesn’t reach the level of civil violence or military conflict, political incompetence, ignorance and corruption are all part of this equation, and all cause disunity, distrust and social division. 

One of the characteristics of World War II which was very important in lifting the Anglo-American countries out of depression, including Australia, was the social unity engendered by the danger.

Before the outbreak of war that unity was lacking.  Robert Murray comments in a recent article that in the post-war years there was a lot of bitterness among older people that money could be found to finance the war and the full employment it generated, but could not be found in the long years of the depression.  One reason for that, I would suggest, was the social division and conflict that existed during the 1930s.

In that sense I wonder if there is really a political will in Australia at the moment to look past short-term political agendas, and whether that can be changed.  Looking at the Tasmanian situation as a microcosm, it seems to me to be very unlikely.

Greg Suitor:

And we haven’t even got to the issues of climate change and population growth. 

Peter Henning:

I notice that Kenneth Davidson has just written about the dangers of allowing the economic decline to prevent action being taken on climate change.  But I suspect it will, and even if it doesn’t, the action that is currently being considered internationally, an emissions trading scheme, has every indication of not being designed to address the problem.

If you are right that the current economic circumstances we are facing are much more serious than politicians and the media believe or are prepared to admit, and that we are headed for a decade of world-wide depression, perhaps being at its worst between 2010 and 2014, but who knows, then the chances of the world dealing with the need to address climate change don’t look too promising.

You might not agree, but in the mix of factors we have discussed – and we haven’t addressed the water issue, by the way – climate change is the global issue that should be central and paramount in attempts to gain political unity among nation-states.

Let me finish by quoting from a talk given by Pete Hay at the Evatt Foundation conference held in Launceston last year.

“The British Scientist, James Lovelock – described by New Scientist as ‘one of the great thinkers of our times’, tells us that, by the close of the century, the current population of Planet Earth will have been reduced by 80 percent.  This will come about because our rapacity, our greed, our fetish with the raw level of economic throughput – growth – as the indicator by which we assess public wellbeing, has set us on a course to destroy the life-sustaining integrity of our collective home.  We have pushed the planet past the points of no return – what the literature calls the ‘tipping points’.  Already.

Scientists don’t say this in public.  This is because of a misguided view (‘misguided’ in my opinion) that to not offer people – and politicians – hope is to deprive them of the necessary motivation to strive, politically, for change.  The scientists don’t say this in public, but they most emphatically do so, most of them, in private.  The tipping points have already been reached.  It is too late, now, to halt the melting of the Arctic ice.  And this means, feedback loops being what they are, that it is now too late, as well, to halt the thaw of the heat-reflecting Greenland ice sheet.  And as this cooling mechanism is lost, the rate of temperature rise will inexorably accelerate still further.  CO2 storing-algae that float on the surface of the oceans and are crucial to the production of rainclouds, die.  At a 4°C average planetary rise (on what already exists) the tropical rainforests – the lungs of the earth – ‘melt away to be replaced by scrub and desert’.  It is technically possible that such an event might bring on the collapse of the nitrogen cycle and the end of life on earth.  Assuming this doesn’t happen, we can anticipate a planet from which most oceanic life will have disappeared, and a baking, diminished land surface on most of which any mode of agriculture will not be possible.  And for most of the globe, no water.

This is known.  It has been known for two decades, even if the new, speeded-up timeframe over which this is happening has taken us by surprise.  If you were to sit where I sit, and had to deal with the avalanche of evidence that I confront on a daily basis, you would know it, too – even the most sceptical of you.  You would insist that dealing with the consequences that attend this issue (‘consequences’ because it is already too late for prevention) must become the clear and overwhelming priority of democratic governments everywhere, and that this priority should brook no deflection, not even when assailed by dire economic circumstance.”

Looking at this overall scenario, Greg, do you think there is any hope for the future?

Greg Suitor:

Well, there is hope, but there does need to be a wider understanding of the seriousness of what is taking place, and a much stronger concerted effort to look beyond the local, to look beyond the short-term, to try to gain a unified, strategic approach.

Perhaps we need to have another conversation in the near future which looks in more depth at how some of these problems could be tackled, whether as an individual, or a community or at a wider level.

Peter Henning:

Okay, let’s do that.


Peter Henning and Greg Suitor


Greg Suitor is a Tasmanian economist and educator.  He taught in Tasmanian schools and secondary colleges for over 30 years, and between 1992 to 2002 was Principal, consecutively, at Geeveston District High School and Elizabeth College.  Since then he has been Senior Principal, South Ocean Schools, incorporating Dalian, Taiyuan, Louyang and Kunming, in China, responsible for curriculum implementation for 20,000 students.  He is Chairperson of the Tasmanian Teachers’ Registration Board, and has been since 2004.  He is also Education and Strategy Adviser to a Chinese-based entrepreneurial company specializing in educational services, and author of “The Good School Manifesto – China’s Educational Path to the Information Age”, soon to be published in both English and Chinese.  Greg holds a national title as a champion surf life saver.  He has established and operates, in conjunction with his wife Jean, a successful mixed farm near Sorell.

Peter Henning is a Tasmanian historian.  He is author of “Doomed Battalion” (Allen and Unwin, 1995), a history of the largely Tasmanian 2/40 Battalion which was captured by the Japanese in Timor in early 1942, its members subsequently splintered through prison camps across the Asian region, including Japan.  He has contributed to the Australian Centenary History of Defence (Vol. VI: “Australian Defence Sources and Statistics”, ed. Joan Beaumont, OUP, 2001), “The Companion to Tasmanian History” (ed. Alison Alexander, UTAS, 2005), various periodicals, including “Leatherwood”, “40 Degrees South” and “The Journal of the Australian War Memorial”.  He has written extensively on issues associated with Tasmanian politics since 2007 for on-line sites such as TT, On-Line Opinion and New Matilda.  He has been a history teacher in Tasmanian secondary colleges and was an Assistant Principal at Launceston College during the 1990s.  In conjunction with his wife Diane he has established and operates an award-winning olive grove and processing plant in the Tamar Valley.

Henning and Suitor have known each other for over 40 years.  They once played football together in the northern B-grade amateurs, a premiership experience, and have been in general and gradual decline ever since.

 

 

 

Peter Henning:
Greg, there have been millions of words written about what is happening in the world since the Wall Street financial collapse, what is likely to happen in the future, and what we need to do as the depression around the world continues to deepen.  One problem, as usual, is a lack of clarity about what is actually occurring, the interrelationships that we should understand, and a coherent sense of what we could be facing.  As you have said often in the past, we get misleading information from politicians – such as we recently heard from the Tasmanian Premier, that Tasmania was sure to deal better with economic problems than other parts of Australia, a sort of mirror image of what politicians are saying everywhere, in every state, at national level here and in other countries.