No. 121

Australia’s economically literate electorate

STONE the crows! When wonks aren’t whingeing they are complaining that the rest of us are.

Last month, George Megalogenis got stuck into Australians for whining about the economy.[i] And on Friday Reserve Bank Governor Glen Stevens, said the same:

An objective observer coming from outside would, I think it must be said, feel that Australia”s glass is at least half full. Yet the nature of public discussion is unrelentingly gloomy, and this has intensified over the past six months. … Numerous foreign visitors to the Reserve Bank have remarked on the surprising extent of this pessimism. Each time I travel abroad I am struck by the difference between the perceptions held by foreigners about Australia and what I read in the newspapers at home.” [ii]

This is a bit rich given the citizenry’s sensible response to an economic environment which isn’t bad but is certainly uncertain, at least if you read the economists. As David Uren put it on Saturday, what with house prices drifting lower and sorry superannuation returns, “people have good reason to be wary”. [iii]

This week’s winner of the Jessica Irvine Award for woeful writing, Jessica Irvine, also agrees we could be more optimistic than we are:

In the international economic bodybuilding contest, Australia’s muscle-bound economy wears the medal. Of all the washboard-stomached warriors of ancient Greece, Australia is Achilles, the most handsome and fearsome of all. So why do we feel so puny?”

The answer, she writes, is poor prices for our parthenons, sorry properties. [iv]

But instead of being cross at our caution, manifested in retail sales (up just 0.3per cent in trend terms in April) and capital city house prices (down 7.4 per cent since 2009-10), economics writers should all be dancing in the streets (although the Crows suspect economics writers consider dancing an inefficient use of resources).[v] It shows we pay attention and adjust expectations to reality.

For most of the last 20 years, economists warned we were all living beyond our means. In 1981, we saved 20 per cent of household disposable income, 20 years later it was half that and it halved again the following year. [vi]

As for the housing boom, pessimists proclaimed it would end in negative equity mortgaged misery. The Economist regularly warned housing was over-valued. In 2010, the magazine described Australia as the “most over-valued of the markets we track”. [vii]

But then we saw sense. We watched and learned from Europe and the US in 2008 and started paying down consumer debt and reducing what we pay for property.

Short of rent seeking business leaders and economically illiterate unionists and apparatchiks being struck dumb, it is hard to imagine a better outcome for the economy as it confronts the folly foisted on us by the European and US obsession with unsustainable welfare spending.

We are, or are at least having a go at, living within our means. And we have accepted that there is no clause in the constitution guaranteeing home ownership and negatively geared investment flats will make us all rich.

This is a happy surprise for the Crows who were once foolish enough to over-estimate the avarice of the electorate and prophesied the voters would punish whoever was in power when house prices stopped rising. “If prices fall, the propertied classes won’t just chat about the judgement of the free market. They will howl in anguished outrage that they have been robbed,” they foolishly flapped.[viii]

We were wrong. People are smart enough to accept economic reality, by saving more and not looking at their house or flats in three story red brick blocks in Randwick and seeing magic puddings.

It demonstrates that we do listen to what the economists say, it just takes us a while to translate it into English.

As Governor Stevens said on Friday:

People are saving a reasonable amount from current income and placing the proceeds into various assets (especially, of late, deposits in financial institutions). That is, they are building wealth the old fashioned way. Ultimately these flows will be reflected in higher holdings of real and financial assets, at least once debt levels are regarded as comfortable.[ix]

This is very good news indeed, demonstrating yet again ordinary Australians are not dills and that they adjust spending to circumstances once the facts are before them.

And it creates a political opportunity for anybody with the balls to have a go at tax reform and adjusting health and welfare spending to suit our circumstances.

Of course the self-selected smarties suggest we will not stand for it, that John Howard created insatiable expectations of endless payments that no government dare defy, that Kevin Rudd did not deliver on his promises to provide more and better public services, that we get angry when our aspirations are not met.

According to Laura Tingle:

Politicians set expectations. They are also the conduit through which people’s expectations about the state flow. But expectations also build up insidiously over time. We may not know why the givens of any particular policy debate are given. They seep in quietly over the years until someone comes along to challenge the entire edifice that has built up without our realising it. [x]

At which the Crows caw.

The millions of Australians receiving welfare bonuses this month are going to spend the cash but this does not mean they do not know how to adjust expectations and expenditure as circumstances change.

These new bribes, sorry family assistance, are meant to compensate people for the carbon tax, (which funnily enough is not mentioned in the TV advertisements).[xi] But Australians have already adjusted to (unrelated) increase in power prices. In NSW, one power provider saw households cut consumption by 8 per cent over four years. [xii]

It demonstrates what the social engineers hate – that people think for themselves and generally make economically rational decisions, when they have the evidence in front of them.

An economically literate electorate is less a cup half full than running over.

stephen4@hotkey.net.au

ENDNOTES


[i] George Megalogenis, “The war on whinging” May 24 @  http://blogs.theaustralian.news.com.au/meganomics/index.php/theaustralian/comments/the_war_on_whingeing recovered on June 9

[ii] Glenn Stevens, “The glass half full: Address to the American Chamber of Commerce (SA)” June 8 @ www.rba.gov.au/speeches/2012/sp-gov-080612.html recovered on June 9

[iii] David Uren, “Only too easy to understand economic anxiety,” The Australian, June 9

[iv] Jessica Irvine, “Housing proves to be nation’s Achilles heel,” Sydney Morning Herald, June 8

[v] Australian Bureau of Statistics, “Retail Trade Australia, April 2012,” May 30 @ http://www.abs.gov.au/ausstats/abs@.nsf/mf/8501.0 recovered on June 9, Turi Condon, “Hope of rebound after house prices hit,” The Australian, June 9

[vi] Philip Lowe, “Changing patterns and household savings and spending: Australian Economic Forum, 2011” September 22 2011 @ www.rba.gov.au/speeches/2011/sp-ag-220911.html recovered on June 9

[vii] “Global houses prices: floor to ceiling,” The Economist, October 21 2010

[viii] Stephen Matchett, “Squattocracy in the suburbs,” The Australian, March 18 2002

[ix] Stevens, ibid

[x] Laura Tingle, “Land of the angry and entitled,” Australian Financial Review, June 2

[xi] www.youtube.com/watch?v=77Vu62z0kgg recovered on June 10

[xii] ABC News, “Power consumption makes historic drop,” August 15 2011, @ www.abc.net.au/news/2011-08-15/power-consumption-makes-historic-drop/2839394 recovered on June 10

'2012