Tuesday, March 11, 2008

Economic conundrums

I often argue that most ordinary Australians know more about economics than many Americans who cal themselves economists. Not that the average Aussie really knows it, but they do pick up the essentials, and argue them without really being aware.

All too often Americans are fed markets as economics, so called economists are really finance experts. Given the US relies on ‘market economics’ and has rarely enjoyed an economic regime which includes a social dynamic.

Given that I tend to give Aussie economic commentators a decent level of respect, but just lately there are questions I can’t resolve and no one I’ve approached seems willing to deal with.

Conundrum One: Australia has nearly full employment, which apparently puts the breaks on growth because there are simply not enough workers left in the labour market. I find that odd, but again no one seems wiling to work through the statistical brambles.

Employment figures used to be catagorised, full, casual, part time casual etc. Now they are all simply expressed as employment. Yet many people I know do not work full time, i.e.; 40 hours a week. In fact 40 ours every two weeks is far more common, and often they are on call and rotating shifts, so cannot take on extra work.

Then there are the many who are working two or three jobs, but the statistics don’t factor them. Around 10% of Australians are engaged in full time caring for presumably another 10% of people with a variety of disabilities. Home care is seen as a far cheaper alternative and is probably better in many ways. But many productive people are stripped from the labour market.

Australia has a strong contingent of volunteer workers, often doing jobs which should be filled by wage earners. I know the organisations using volunteers could not operate efficiently without them, but they remain a large pool of around 5 million people sidelined from the labour market.

My point is, Australia claims nearly full employment but is still squandering a large pool of potential labour. Good economics should be recognizing this waste and look at ways to optimize our greatest resource, our people.

Conundrum Two: Interest rates and diminishing returns. Australia and the US are both in stress, but at different points in the economic cycle. The US is trying to drive activity by cutting interest rates and Australia is trying to cool things by increasing rates. Because the pressures are complex, and in some cases external, neither attempt is working.

Worse, the law of diminishing returns seems to be cutting in with the Australian situation. The reality is that consumers are consuming less anyway because of rising costs. Housing costs, including rents, are skyrocketing. Grocery prices are rising rapidly, and recent evidence suggests that standard packaging volumes are shrinking at the same time.

The major inflationary factors appear to be banks and investment houses exposed to external markets and a rush to imports to make up for our reduced production capacity in this country. The latter being a deliberate government policy.

Rather than address that the experts seem intent on holding tight to old domestic paradigms and not really look closely at the fallout from a headlong rush into the global market.

I certainly don’t claim any great wisdom on these issues, it just seems awfully curious no one is looking at the logic gaps.


lindsaylobe said...

Unemployment is always understated since anyone working just a few hours a week is considered employed and there are always a growing number of part time workers who prefer fulltime employment.

Hence as your aware there exists a vast reservoir of untapped potential. And it evident we are suffering from a decade of under resourced investment in training, in all fields of education, particularly in apprenticeships which cannot meet the demand generated from the mining boom. As export orientated industries (e.g. SA , Auto –Magna) suffer downturns, workers can take make up the slack but it involves a temporary mismatch of skills.

Training provides an answer but barely rates a mention, yet it is essential if we are to become a more productive, flexible, fully utilized, dynamic economy.

Consider the current mismatch in WA and QLD where a tradie can earn between $130K -$200K at mine sites, causing bottlenecks elsewhere due to the migration of labour to these resource States to cause shortages for investment projects elsewhere, fuelling excessive demand in the non rich resource states.

The skills shortage can also be made up by migration, and it is to some extent, with the strongest intake since the baby boomer times.
Australians are good volunteers, but we need to recognize these people far more and take heed as to their input.

In fact an unpaid position can be more productive than a paid position but in economics it is not counted. One innovation that already exists is in the not for profit sector where volunteers often exceed full time paid workers.

There is no reason why more emphasis could be placed upon this idea in the rest of industry.

Modest studies have been undertaken on social capital but there seems no reason not to keep detailed labor statistics about it.

If social capital goes down it goes down and unemployment goes down we think we are better off, but we may not be, we could even be worse off.

Another question to ask is “Why do people need to work up to 50+ hours in the one job? “ What is often overlooked is those people who are too worn out to volunteer and hence our social capital reduces, and overall our productive capital as a nation is not enhanced by a nation of workers working increasingly longer hours.

On the question of inflation, much of that increase comes from factors outside our control, oil price increases, food as consequence of the drought and world wide price increases in grains, and so on. I think the latest tightening by the Reserve Bank may be the last as we are already seeing some slackening in demand pressures and I think the next move will be to the downside. The Reserve may not have needed the last increase; economics was never an exact science, it more of art form that needs creative thinkers.

Fortunately our Reserve has a few of these as well. lets hope they are the influencers ! .

Best wishes

D.K. Raed said...

Unemployment is also skewed here by the chronically unemployed. Once they go beyond their 13-week state unemployment benefit period & whatever the fed extension is (I think an addl 13-wks), they fall off the charts. No longer unemployed? Not hardly.

Oh, so you've also noticed those shrinking grocery product pkgs. That's been the norm here for some time. Who are they fooling? What, like no one can figure out the soup can that used to feed 4 people, now only feeds 2-1/2 ? 'course, we DO tend to overeat ...

I know I know too little about total economics. Sometimes, I wonder if it's even possible to impose science on a non-science, because the data is affected by so many ongoing factors, it is only analyzable afterwards, if then. you may disagree with me there since you are doing a great job of trying to interpret the data!

Cart said...

Lindsay, thanks for your insights. You raised even more issues on the labour market, I shall note and inwardly digest. On the rate rises, I’m really starting to believe they are driving rather than dampening inflation. But as you say, we do have some good minds on the Reserve Bank board.

D.K. I love it when people make a liar out of me. So often I’ve been at loggerheads with my American friends who fall for the ‘market is booming’ argument as proof of a sound economy.
You are doing what many untrained Aussies do, recognising the daily signs of real economic stress. As Dylan once yodelled, “You don’t need a weatherman to tell which way the wind blows”.
Trying to stay positive is all very well, but recognising realities is surely a major step toward positive outcomes.

abi said...

The Los Angeles Times ran a story along these lines yesterday. The writer claims that Gross Domestic Product is not a reliable indicator of good and bad times, being too focused on money alone, and not quality of life.

This is one reason George Bush can claim with a straight face that the US economy is doing well while so many are suffering. The other reason, of course , is that he's a liar and an idiot.

abi said...

Sorry - meant to leave a link to the LA Times story:


Cart said...

abi, thanks. I promise I will stop picking on the US economic ignorance now :)
I was just posting - US Fed a sub-prime lender? - when your comment came through. The LA Times article was very encouraging.
Still, i wouldn't like to be facing the crisis you guys are set to go through.