The three F-words that sum up Australia’s economic malaise

For decades, economists and treasurers have been banging on about the importance of “the three Ps”: population, productivity and participation.

Population in terms of the number of consumers and workers. Productivity in terms of doing things smarter and getting more bang for our economic buck. And participation in terms of the proportion of our population who hold a job or want one.

There’s evidence to suggest our economy has become more concentrated, Treasury says.Credit: Dionne Gain

Economic growth, and improved living conditions over the past three centuries, have been built on the three Ps.

But it’s time for our economic policymakers to focus on another trio, this time brought to you by the letter F: financialisation, fertility, and frustration.

In modern terms, “the three Fs” explain many of the problems that are dogging our economy, and other economies around the world.

Financialisation is the way our economy is increasingly dominated by finance and financial products. The best example of this is the way our banks, rather than being a place to store our cash and take loans from, have become behemoths of interconnected transactions that effectively add nothing concrete to our ways of life.

But financialisation isn’t just about banks. It’s about how investment and business decisions are no longer predicated on what is produced but on how something can be turned into a financial product. It’s got to such a point that cryptocurrencies, which despite their name are nothing like real money, are now an investment opportunity with more similarities to a casino than building economic value.

Anyone who has read Michael Lewis’ book The Big Short or seen the film adaptation of the same name would recognise the issue. Banking, up to the 1980s, played an important role in spreading money from those with it to those who didn’t. It was boring and safe.

Then it got sexy and exciting as the middlemen and women between the haves and have nots worked out that they could create products such as collateralised debt obligations or credit default swaps.

Since the Hawke government opened the country to foreign banks in 1985, the Australian economy has expanded by more than 200 per cent. The fastest growing part, by almost 860 per cent, has been information media and communications, due to the huge advances in technology since then. The second has been professional and scientific services (550 per cent), followed by finance and insurance services (461 per cent).

Financialisation has also accompanied, if not driven, the issues playing out in the housing market.

Last month, for instance, shadow treasurer Angus Taylor gave a keynote address to the Australian Financial Review’s Superannuation and Wealth conference, where he talked about making the “great Australian dream of home ownership achievable again”. But it was done within the context of the home being a financial asset. The importance of a home as shelter didn’t get a look in.

Here, the second F – fertility – comes into play.

Along with most advanced countries, Australia’s fertility rate is collapsing. Last year, the national rate dropped to an all-time low of 1.5, with fears it is likely to fall further still.

As ANU demographer Liz Allen has noted, a fall in fertility itself is not the problem. People may have a multitude of reasons for not wanting children. But surveys constantly show that people either do want to start a family, or have larger ones, but are not. And one of the major driving factors behind this is that we’ve made housing so bloody expensive.

We’ve somehow managed to make it tougher for young people to own a home to the point where many now face a choice between a mortgage and a baby. To boot, there are more people retiring with a mortgage, adding to the financial pressures on older Australians.

All of which culminates in the third F – frustration. It may be frustration over housing costs. It may be frustration over the cost of living. It may be frustration over job security, or crowded public transport, or the “woke agenda”, or right-wing billionaires with anti-democratic agendas. Whatever is driving it, frustration and its close friend anger is everywhere.

Millions of American voters just showed how frustrated they are on these very issues. In the midst of complaints about the cost of living, voters went with a guy who is actively going to increase taxes on every imported good they buy because they felt the alternative was more focused on other issues.

Economists and technocrats who discount frustration, and how it guides policy responses, need a lesson in history, stat. And they need to start coming up with better answers to increasingly difficult questions.

While the three Ps remain vital to the way our economy works, it’s time for the policy agenda to broaden to another letter.

Shane Wright is a senior economics correspondent.