The recession we had to have… Again

By Andrew P Street

You wouldn’t know it from the way the government — and press — refer to the economy, but Australia is in a recession again. Technically…

Our government has been making a huge song and dance about having enjoyed 103 quarters of not-having-a-recession, which is the sort of record you celebrate when the rest of your economic records are a bit less impressive.

Like, for example, that Australia’s GDP growth hasn’t cracked three per cent since 2013, the year that the current government came into power, and that it only peeked over that less-than-stellar percentage four times in the last nine years. Although, to be fair, there was a global financial crisis in there too.

And now treasurer Scott Morrison can’t even trumpet that big shiny number since he’s presided over two quarters of negative growth, which officially means we’re in a recession — or at least a “technical recession”, because that modifier makes it somehow better, like “technical housefire” or “technical cancer” .

Similarly you’ll note that the term of choice is “negative growth”, because “shrinkage” is a term that makes most economists cross their legs and insist that it’s just been a long, tiring day and they’re under a lot of stress, OK?

The issue is that there it’s a bit pointless rejoicing in having avoided a recession if you still have all the same elements which make a recession such a negative experience.

Most notably this is seen in Australia’s wage growth — or, more accurately, the complete absence of any.

The gently flatlining wage growth happens to coincide with the thing that literally every observer of Australian economics or politics has pointed out: that housing in Australia is stupidly, insultingly unaffordable and the national zeal for investing in property (spurred by the incentives created by the conservative government of John Howard) means that’s where most of the nation’s capital has been locked away for the last 25 years.

The issue is that there it’s a bit pointless rejoicing in having avoided a recession if you still have all the same elements which make a recession such a negative experience.

The issue is partially that once upon a time the people that bought expensive housing were, well, rich. They were spending big on fancy houses because they could, and rises in house prices and the borrowing of money for more expensive properties was part of a wider pattern of increased consumption.

That’s not the case now. There’s no such thing as cheap housing in the big cities any more and the cost of housing is so wildly out of whack with the value of it, in historical terms, that when people are buying houses they’re effectively swapping one form of financial insecurity for another.

Instead of being terrified of missing out on getting into the property market before it becomes too expensive and curbing their other spending as they save for that steadily-rising deposit, Australians are now terrified of a property crash or of interest rates rising beyond their ability to service the home loan and curbing their other spending in order to put as much buffer into the mortgage as possible.

When you have every single report on interest rates using the phrase “historically low”, you are reminded that your debt could very easily balloon to excitingly unmanageable levels if they start behaving more like interest rates are typically expected to behave.

When people are buying houses they’re effectively swapping one form of financial insecurity for another.

Then again, the same lousy growth — well below the ambitious projections of Treasury, which assumed that we’d bounce back to that aforementioned and seemingly unachievable three per cent for some reason — means that the Reserve Bank will presumably keep interest rates down for another year at least. And that’ll take Australia up to around the next federal election, where the conservative government of Malcolm Turnbull is looking unlikely to retain power. So it must have crossed their minds that the financial time bomb is probably going to explode in the hands of the opposition Labor party instead, so… yay?

And Australians have good reason to feel like their debt burden is terrifying. Australia’s debt to GDP ratio is currently 189 per cent, which is… look, it’s not good. And again, it illustrates exactly why demand is no anaemic in the economy. When you owe almost double what you make, it does rather put a crimp in your spending.

And there’s a good reason why the government are putting as perky a spin on matters as possible, since there’s no obvious way to repair things without making them much worse in the immediate term.

If most of the nation’s cash and debt is in property, then the government doesn’t want to sneeze too loudly lest the bubble pop and the value of Australia’s wealth suddenly plummets. The problem is that this leaves the alternative of endlessly ascending house prices, which is also not remotely sustainable when people have less income, in real terms, than they did a decade ago — especially when there are political and diplomatic reasons why letting deep-pocketed foreign buyers take over where locals have been priced out of contention is no longer an easy fix.

And that’s why so many of the current policies on housing affordability, employment and industrial relations look less like strong, brave legislation designed to strengthen the economy and more like high-cost short-term fixes by a federal government that is simply running out the clock at this point and seeks to prop things up long enough to make it the opposition’s problem when the shit inevitably goes down.