Exploding the myth of relentless Australian growth

The gushing over 25 years of supposedly recession-free growth in the economy is offset by fears over debt and deficits.

There’s a certain awkwardness between the self-congratulatory gushing over those 25 years of recession-free growth in the economy and the parallel, relentless frenzy over the chaos and collapse that ‘‘debt and deficits’’ are supposedly already delivering.

Despite the non-arrival of the “four years of (budget) surpluses” that former treasurer Wayne Swan so infamously promised us back in 2012 and the end of the resources boom, which sent our terms of trade and national income plunging, the economy would appear to have sailed smoothly on.

This does rather pose the question: has the economy prospered despite the deficits (and the consequent rising government debt), or, precisely becauseof them, Keynesian-style?

Indeed, should we take our cue from our bigger and presumably more learned peers and learn to love the deficit? Have a friendly central bank buy the government bonds issued to “fund” it, thereby turning what should be a surfeit of government paper into a veritable scarcity.

You get your Keynesian stimulus “cake” and yet also get to “eat it” in ultra-low interest rates to boot. That is in exact contrast to the high private sector rates, which the “crowding out” of big budget deficits was supposed to irresistibly deliver.

The resultant surge in asset values makes everyone — well, everyone who owns assets — richer. The music plays wonderfully on.

But has the economy really even prospered? Is the 25-year run a statistical mirage if not at least misleading? If we dig a little deeper the seeming economic prosperity loses much of its glow.

It’s more than a little silly the way we focus so keenly on two things: the quarterly GDP growth figure in itself and the desperate need to avoid two successive negative growth figures, the dreaded so-called technical recession.

Desperate? Dreaded? Do I exaggerate?

Not a bit of it: as no less significant a policy figure as then head of Treasury Ken Henry said in November 2008, justifying the Rudd government’s multi-billion-dollar stimulus splurge: “We’re trying our hardest to make sure that that happens. That we do avoid a negative quarter of growth.”

That was to avoid only one quarter of negative growth: imagine how much “harder” Treasury and political government would have tried to avoid a subsequent second negative quarter.

In both statistical and meaningful truths, a quarterly GDP growth figure, whether positive or negative, big or small, is utterly meaningless — as one would have hoped a Treasury secretary would understand.

It is at best a good guess, subject not just to subsequent and sometimes significant adjustment, but cascading margins of error, which would make a political opinion poll a paragon of exactitude in comparison. Indeed, to digress, contemplate the contrast between the earnest guess of our quarterly GDP numbers and the “accuracy” of the Chinese ones, which are custom manufactured as soon as the quarter closes.

In our context, to focus policy on getting, say, a +0.2 per cent GDP growth number in place of a -0.1 per cent is probably the neatest definition of policy stupidity and irresponsibility one could ask for. And incidentally, we carry the consequences seemingly forever.

There’s a parallel and cascading inanity with both the definition of and interpretation of the “two successive quarters of negative growth” that supposedly defines a technical recession. It marries dodginess with meaninglessness.

In broad terms, there were two substantive messages in those GDP numbers and they are best expressed in the far, far more reliable annual figures for the financial year.

The first goes to GDP, which to stress is gross domestic production. The real story of our 25 years of recession-free (production) growth — and yes, it has been recession-free in both the real and technical senses — is population growth.

To put it more bluntly, we have been living a “population Ponzi”. Bring in more people every year and of course you increase production: of houses, roads, consumer goods, services, education, health, tourism etc.

Measured in terms of growth in GDP per capita, our performance has been rather more modest. Over the past eight years, this growth has averaged well under 1 per cent a year.

The second message is that while we have recorded (mostly) continuous positive production growth, the part of the economy that really matters to Australians, individually and in aggregate — income — has been falling.

Indeed, real net national disposable income per capita has fallen for every one of the past four years. It is barely higher than it was way back in 2007-08; and it would be dramatically lower but for the two fabulous China-driven income surge years of 2010-11 and 2011-12.

This explains the yawning disconnect between the “world champion growth economy” gushing and individual lived income experiences, which for many have been decidedly negative. At the end of the day “the economy” is an artificial construct of 24 million individuals.

Much of that modest national incomes growth has been directed to some and not the many, thanks to the combination of 21st century “disruption” and deliberate policies that have enriched asset-owners.

To really comprehend the economy and its performance at the granular level, you need to accept and incorporate the three great macro forces that have been relentlessly at work.

The first is that population Ponzi. An economy of 24 million should have grown significantly from the one of 17 million, our population at the time of the last recession 25 years ago.

The second is the impact of the broad 21st century (technical) disruption. It has driven growth in so many ways, especially when for us, it merged with the third great force: China.

So far we have had three successive “China disruptions”.

Allow for them and we have much to be modest about.