By Joe Montero
So Treasurer Josh Frydenberg has confirmed Australia is in the midst of its first recession in 29 years. There can be no denying that this has been a bad year. But seriously, the 29 year bit implies that everything was alright before then. It wasn’t.
The reality is that the Australian economy has been performing badly for decades. Were it not for the rise of debt tied up with the banks and financial system, the export of fossil fuels and iron ore in the main, the score card for the Australian economy would look a lot worse.
There is a big problem here. This side of the economy is parasitical. It does not create real value and imposes major costs through the impact on the overall economy and damage to the environment. In other words, it eats away what sustains the economy in the first place.
Circulating money does not create that which society uses and therefore constitutes its material wealth. It changes ownership of things. At the point where a failure to create new value is insufficient to cover the cost of lending out money, debt grows, becomes problematic, and eventualy tends towards a crisis. Has this not been the situation in Australia for some time?
Reliance on the use and exporting that which creates unnecessary carbon emissions, brings an enormous cost in terms of cleaning up the mess and maintaining dependency on obsolete and increasingly costly technology and methods.
The circulation of money and carbon creating industries are bound together because, those who own the banks and other major financial institutions own the controlling shares in the carbon creating companies.
In connection with the performance of the Australian economy, we should be calling this the parasitical economy.
When considering the numbers released by the Treasurer this week, the impact of the parasitical economy should be factored in.
The Australian economy is said to have shrunken by 0.3 percent in the March quarter and had been predicted to go down down by 8.5 percent in the June quarter. This includes the increase to GDP of 1.8 percent through government spending. There is no doubt that the bushfires earlier this year and the Coronavirus outbreak have had a big impact.
The graph below shows that even without discounting the parasitic economy, bushfires and corona virus outbreak, the GDP was already stagnant for the last decade, and turned to a sharper downhill slide before this year begun.
The trouble is that over emphesising these latest shocks, to the exclusion of already existing systemic problems, leads to the wrong conclusion, and this is dangerous in the current climate. It feeds the pretence that the underlying reality is a perfectly sound economy, and that a return to where we were, is the way to recovery from a temporary difficulty.
This is exactly why the narrow definition of a recession of two consecutive quarters of a fall in economic growth is misleading. The short-term is over emphasised and it enables the use of misleading numbers.
According to these numbers, the economy grew by just 1.4 percent in the 12 months leading to last March, measured by the Gross domestic Product (GDP). This was far less than a strong performance, which in itself, began from a fairly dismal prior base.
Take out the parasitical economy and what is left is much less real growth.
Given that with it the provided GDP statistics have been edging toward zero for some time, the absence of the parasitical economy in the count, would have pushed them below the line, well before the last two quarters.
A far more accurate portrayal of the Australian economy would be given if it excluded money changing through the creation of debt, dealing in shares, the purchase of bonds, the inflation of real estate prices, earnings from futures markets and the sale of already exisitng assets. Add the cost of pollution creating industries.
The fiction about 29 years of consecutive growth is exploded with this. Bushfires and the Coronavirus have only made an already existing problem even worse. And this is a fundamental that must be grasped, if a strategy to successfully turn it around, is going to be developed and applied.
Such a strategy must focus in building an economy much less reliant on the creation of debt and the excessive dominance of finance, real estate prices, share dividends, speculation and creating pollution, and on an economy that builds its manufacturing base, environmental sustainability, the creation of jobs, through creating real wealth for everyone.
It must take on and put an end to dependence on the parasitical economy.
This will not come about through an excessive reliance on market forces and without giving everyone a fair stake in the benefits. Only this will promote more participation. It means an ideological shift and challenging those who profit form the way things are. This is the hard part.
To say that our present crop of political leaders are not keen to go in direction is an understatement. After all, they have benefactors to please, and they are locked into a certain view of the world.
An effective change ultimately means popularising and involving people in a social economy, where at the basic level, we share in the decision making, the effort and the rewards. Achieving this would be a huge step forward, and because it is difficult, must be a longer-term aim. But there is no reason to not take the first steps towards this now.
Meanwhile, there is a good argument for increased government stimulus spending, so long as it is properly directed. This should not take the form of handouts to the private sector. It will not get rid of the systemic problems.
Stimulus spending must be carefully directed towards building Australia’s manufacturing base, developing a better agricultural economy, as well as providing better services for the community, and a more equitable distribution of income, to encourage participation.
In a case where public financial support for a major private corporation is unavoidable. This should take the form of buying shares, to gain a public sector say on how the corporation is run and pay back through a share of future profits. Big money handouts to corporations does not guarantee that they will be used to stimulate the economy.
All of this should occur on the foundation of building environmental sustainability and weaning off reliance on the parasitic economy.
The federal budget is due in September and there is talk of a mini-budget before then. In both cases, the matters that have been raised here, should be kept in mind.