Aaaah, the good old days…
We live in economically tenuous times. Almost daily, whenever the RBA releases new statistical results on consumer confidence, balance of trade, housing industry starts and the like, we see economists racing around reading tea leaves, poultry entrails, casting runes or whatever other mechanisms economists use in interpretation of said results, in order to tell us that interest rates will go up, down or remain static. The truth of the matter is that no-one, from the RBA down, can accurately predict the fiscal future of this country, or indeed globally any longer. Whether or not the US defaults, which would seem unlikely, the much vaunted free market capitalists are so jumpy and pessimistic, it’s little wonder there is a growing gap between disposable income and consumer spending. At the end of the line, we consumers are the ones carrying the real burden of past profit taking-and-making on the part of faceless traders around the world. Is it any wonder we’re being cautious with what little resources we have control over?
The good old days are indeed gone, at least for as long as it takes the collective memory of the GFC to fade. It took a decade and World War 2 for the US, and most other westernised nations to recover from the Great Depression. The world economy cannot withstand another global conflict and as much as the adage ‘nothing aids a country’s economy like a good war’ might hold true in some circumstances, those circumstances don’t currently exist. To wage a war, spending must come before productivity and according to Glenn Stevens, we’re lacking productivity. Therefore, we cannot afford to spend in order to boost consumer confidence. We also don’t want to be involved in any more wars, thanks very much.
So, why is productivity becoming the watch word? Look at it this way. When a company wants to increase profits for shareholders, what’s the first line of attack? Cost, of course. What’s the first target in the cost-cutting campaign? Staff. Cut your staff, save salary costs and work the remainder that much harder in the name of efficiency and voilà! Improved profits, happy shareholders and everyone bow to the great deity Productivity. This is what Stevens is alluding to when he broaches the subject of productivity. Industrial Relations reform. A tough subject for the current conservative leader, and yet one which his party hierarchy are screaming at him to deal with. Labor aren’t likely to approach the subject, believing they’ve amended the Howardian legislation sufficiently and Unions wouldn’t support further tightening anyway.
In reality, are disposable incomes really rising? Maybe for the minority engaged in the mining & resources game, but certainly not for the rest of us. There has been no feared wages breakout, we’ve all been very well behaved and made do with what we have. If there is an answer to the decline in consumer spending, I believe it’s down to people just like me. Baby Boomers. The GFC cut almost a third from my superannuation, and the recovery economists tell us has already taken place, isn’t mirrored in a recovery of my superannuation balance. I’m only one person, aged 53, worked for 38 years and squirreled away super. I can’t afford to cop the loss a-la-GFC, but what does one do? Simple. Not spend and pump more into super whenever I can. There’s the answer to the widening gap between income and spending, in my view. The gap has little to do with consumer sentiment, and a whole lot to do with boomers like me saving as hard as we can to ensure some kind of security in retirement. If I ever get to retire.
How accurate am I in my postulation? Probably a lot more accurate than the chicken gizzard diviners.