The great slowdown

Written By: - Date published: 8:00 am, August 11th, 2016 - 68 comments
Categories: China, Economy, Europe, Financial markets, Globalisation, International, monetary policy, overseas investment - Tags:

slow economy

Is this the great slowdown that we needed? Has the global economy decided to go a long-term course in mindfulness? It’s never recovered since the GFC almost a decade ago.

For anyone who has savings in a bank, you will have noticed that global financial markets continue to fail to reward savers or investors, with historically low rates (albeit rewarding the mortgage and housing industry). They look very likely to stay low the world over. Inflation rates are also reflecting stagnation.

In global energy markets, excess crude oil production is abating very slowly, and global stockpiles are still brimming. Shell missed its profit forecast last month by over $1b. Oil almost doubled in price between February and June as experts said declining U.S. oil production and disruption from Nigeria to Canada were finally ending years of oversupply. Instead, prices are heading for their biggest monthly loss in a year amid growing recognition that the surplus will take years to clear.

China is by no means in economic decline, but its exports remain sluggish, signalling tepid global demand. Its deteriorating imports also signal concerns of weakening domestic conditions.

The U.S. is similarly in no danger, but is not growing significantly. It faces manifold headwinds on productivity growth (a mass retirement of the most experienced workers, a prolonged period of rising oil prices before a sharp retreat, the slow integration of new innovative technologies into production processes, and above all, soft business investment).

Then there’s Brexit. According to the International Monetary Fund’s July global economic update:

The outcome of the U.K. vote, which surprised financial markets, implies the materialisation of an important downside risk for the world economy. As a result, the global outlook for 2016-17 has worsened. This deterioration reflects the expected macroeconomic consequences of a sizeable increase in uncertainty, including the political front.”

The Australian situation with respect to all bulk mineral prices – including oil and gas – and their cumulative effect on the economy is well known. As is the great boom-bust of dairy commodities in New Zealand. 2-2.5% GDP growth in New Zealand looks optimistic.

The global economy is not failing. But it is not improving or stabilising either.

Which is a long-winded way of saying that the long-range effects of the GFC have brought the world to a sustained new questioning about the likelihood of perpetual economic growth, anywhere, anytime soon.

I can’t yet tell if this is overall good or bad. But if it remains as entrenched as it looks to be, it upends many things. States rely on ever-increasing economic growth to generate tax revenue to support policy programmes such as social welfare for growing populations. Super funds and the multi-millions they support need it. Workers, shareholders, and unions rely on businesses growing to get better wages and salaries from profits to redistribute. Even fewer of our ‘boats’ feel a lift, because there is no rising tide. Politics itself is completely dependent upon attributing causality and blame to the other for economic rises and falls, booms and busts. All of the above will be much harder to make work if this global economic stagnation stays around awhile.

We haven’t seen conditions head to this since the 1970s. As it did then, this great slowdown may even change our mindset about what an economy is even for.

68 comments on “The great slowdown”

  1. weka 1

    “States rely on ever-increasing economic growth to generate tax revenue to support policy programmes such as social welfare for growing populations.”

    Can you explain that? Is it a fact or more an ideology? Any good reasons why we can’t serve the people via taxation within a steady state economy?

    • Ad 1.1

      Population goes up, service demands go up, costs of maintaining everything goes up, depreciation, insurance, rates, etc etc.

      • Draco T Bastard 1.1.1

        And how does that actually work?

        • Ad 1.1.1.1

          Best you interrogate either the Auckland or Christchurch City budgets for that.
          Those are the most detailed public budgets you will see anywhere in New Zealand. They are ten-year forecasts, with some indications further out that depend on growth projections.

          Also, the recently released ATAP reports give you a fair idea of the full integrated central-local government cost consequences, just for servicing population growth and the transport and water infrastructure costs alone. They go out to 2040 I understand.

          • Draco T Bastard 1.1.1.1.1

            In your previous comment you made a lot of implications either assuming that everyone knew them or hoping that you wouldn’t have to explain because you couldn’t.

            It now appears that it was the latter.

            • McFlock 1.1.1.1.1.1

              or some people choose to avoid rewriting das Kapital to illustrate a fairly straightforward point

              • Draco T Bastard

                He was actually wrong though.

                Costs of producing and maintaining things goes down in relation to increased productivity.
                Population goes up pushing up demand – except that in places like NZ where population would be pretty much static if not for immigration.
                Rates are going up because of sprawl. A compact city could have rates going down (real economies of scale). Also, the government putting in place policies that shift more costs on to the councils.

                • McFlock

                  Costs of producing and maintaining things goes down in relation to increased productivity.

                  only if demand for the provision and maintenance of those things remains constant

                  Population goes up pushing up demand – except that in places like NZ where population would be pretty much static if not for immigration.

                  Only if individual demand remains constant.

                  Rates are going up because of sprawl. A compact city could have rates going down (real economies of scale).

                  That’s nice. How will you make cities become compact? In what timeframe?

                  Also, the government putting in place policies that shift more costs on to the councils.

                  To a certain degree, yes.

                  • Draco T Bastard

                    only if demand for the provision and maintenance of those things remains constant

                    In real terms, ie in physical requirements, they go down as productivity increases. This is why I call our present system delusional as it doesn’t relate to reality.

                    Only if individual demand remains constant.

                    See above.

                    That’s nice. How will you make cities become compact? In what timeframe?

                    Years and decades but we could start now – if the councils/central government would allow medium and high density development and the developers would actually build it.

                    • McFlock

                      So demand will keep increasing and compact cities are decades away.

                      So in the world we live in growth in demand and expenditure requires growth in production. However growth in innovation means growth in production does not necessarily require growth in resource use.

                • Ad

                  The reply was in response to what I was asked to respond on:

                  “States rely on ever-increasing economic growth to generate tax revenue to support policy programmes such as social welfare for growing populations.”

                  So what I said is quite true. And as noted, if you interrogate those Long Term Plans, or indeed the AMP of any major utility, that’s what you’ll find.

                  Population is going up everywhere, and is forecast to do so in New Zealand as well. We are not an island in which fantasists can sit in isolation from the world, stick their fingers in their ears and pretend the world is in a steady state. It is not and will never be.

                  Rates are going up because the full cost of running cities that are expanding rapidly is going up. It would do so irrespective of the form of the city. You can go and check any growing city you like.

                  Note also the post is not about cities per se, but about national economies.

                  Have a go at the post itself rather than retreating to meaningless half-baked abstractions.

                  • Draco T Bastard

                    The reply was in response to what I was asked to respond on:

                    And I asked you how that worked which you then failed to address. I didn’t ask for references to plans but for you to explain the logic behind what you said.

    • Pat 1.2

      to pay interest you require real growth…no growth equals no interest….what happens to the basis of the worlds financial system in that event?

      • Draco T Bastard 1.2.1

        Perhaps we need to be changing the financial system then.

        • Pat 1.2.1.1

          don’t think theres any perhaps about it….the question is to what?

          • Draco T Bastard 1.2.1.1.1

            Government spending becoming the entire basis for the economy including a UBI
            No interest rates
            A maximum income
            Effective capital taxes to prevent excessive ownership
            Effective standards to apply to international trade thus producing a level playing field
            An acceptance that people shouldn’t be working 40+ hour weeks – return of Penal Rates
            An acceptance that increased productivity reduces incomes thus incentivising people to train up and work in other areas

            How an Economy Works

            • Pat 1.2.1.1.1.1

              ok…so how does any of that control growth? If you have no interest rates how do you service borrowing or is there none? If the gov spending is the entire basis for the economy why do you need capital taxes to prevent excessive ownership, as there will be none? Where does the 40 hour work week come from? how is the issue of inability to work/retirement addressed? what of education?

              and importantly is all this occurring while the rest of the world continues on its current model and are we trading with them?

              • Draco T Bastard

                ok…so how does any of that control growth? If you have no interest rates how do you service borrowing or is there none?

                The amount of money in the system will be about the same year on year thus you don’t get demand growth from excessive monetary stimulus and the lack of interest means that growth isn’t needed to cover the interest.

                If the gov spending is the entire basis for the economy why do you need capital taxes to prevent excessive ownership, as there will be none?

                There would only be no ownership if private ownership was banned. The problem we have is that once someone owns something that they can get an income from then they can continue buying up more such assets which channels yet more money to them. The end result is that a few people own everything and everyone else is in poverty – see Piketty.

                We actually want to prevent that but we don’t want to ban private ownership thus we need a way to put a cap on how much someone can own. Capital taxes can do that if they’re correctly constituted.

                Where does the 40 hour work week come from?

                From people understanding that working too much was bad for individuals and society.

                how is the issue of inability to work/retirement addressed? what of education?

                UBI and support services both of which come under the heading ‘Government Spending’.

                and importantly is all this occurring while the rest of the world continues on its current model and are we trading with them?

                Yes. Trade would be if they meet the standards that we set and those standards could include the financial system.

                • Pat

                  “he amount of money in the system will be about the same year on year thus you don’t get demand growth from excessive monetary stimulus and the lack of interest means that growth isn’t needed to cover the interest.”

                  you confuse “money” with growth….money is only the measure.
                  If say the population increases the demand for resource use increases, if the money supply remains the same the “price” just decreases (or deflates) but the real growth continues. You also haven’t clarified whether there is borrowing or not.

                  ‘There would only be no ownership if private ownership was banned. The problem we have is that once someone owns something that they can get an income from then they can continue buying up more such assets which channels yet more money to them. The end result is that a few people own everything and everyone else is in poverty – see Piety.”

                  No need to see Pikety….the natural consequence of unchecked free markets is monopoly…. if all economic activity is through the government (monopoly) then ultimately the government will be the owner of all assets so in effect it is a removal of private ownership.

                  “From people understanding that working too much was bad for individuals and society.”

                  Yes but you mention productivity increase (not sure why) …if productivity increases surely we require less hours worked, particularly if there is no growth.

                  “UBI and support services both of which come under the heading ‘Government Spending’.”

                  Ok, but then everything is under government spending….so we still expect retirement and education under this model?

                  ‘Yes. Trade would be if they meet the standards that we set and those standards could include the financial system.”

                  two points, first we would have to produce something they want and at a price they were willing to pay and second we would have to be able to pay for what we want to buy with a medium of exchange acceptable…..how are those conditions met? They may decide its not worth the trouble.

                  • Draco T Bastard

                    if all economic activity is through the government (monopoly) then ultimately the government will be the owner of all assets so in effect it is a removal of private ownership.

                    I didn’t say that it would be. In fact, what I said was: Government spending becoming the entire basis for the economy including a UBI
                    Such does not preclude private businesses. It just means that the economy is based upon government spending rather than the government being dependent upon taxes. Taxes then become a means to control behaviour and the amount of money in the system.

                    If say the population increases the demand for resource use increases, if the money supply remains the same the “price” just decreases (or deflates) but the real growth continues.

                    A UBI is part of government spending and thus an increase in population results in an increase of money but the amount remains around about the same on a per capita basis.

                    Yes but you mention productivity increase (not sure why) …if productivity increases surely we require less hours worked, particularly if there is no growth.

                    That would actually be dependent upon development. Take farming. Awhile back we needed about 50% of the population farming just to feed the nation. Productivity increases have dropped that down to 2% of the population. Now, we could have simply reduced the number of hours that the farm workers worked or we could have developed the economy and have the people freed up become doctors, nurses, police, teachers, scientists etcetera.

                    What we’ve actually done is a bit of both. We’ve developed the economy so that it produces different things but we’ve also kept farm workers high at around 7% of the population so that we can export farm produce. And we’ve done that across the entire economy which has reduced the amount of development we’re capable of and we’ve actually done so in the name of Growth.

                    …how are those conditions met?

                    Same way that they are now. They either accept NZ dollars and we accept their currency or not.

    • Gosman 1.3

      The issue (which most on the left fail to understand) is not how much revenue the government gets in but the size of it compared to the rest of the economy. This is why growth is generally regarded as a good thing as it allows increased revenue without increasing the proportional size of the State sector.

      You can follow another path which is what you suggest. Low growth but increasing the proportion of the economy dominated by the State. France has attempted that path. Generally the outcome is not hugely positive. This is because it drowns out private sector innovation.

      Your question would be better phrased to can we have a less innovative society where the State plays a bigger role.

      • Pat 1.3.1

        lol….bollocks. both models require growth.
        As to outcomes there are many examples where a higher proportion of gov spending to GDP have provided superior outcomes…all the Scandinavian countries for example.

      • Draco T Bastard 1.3.2

        The issue (which most on the left fail to understand) is not how much revenue the government gets in but the size of it compared to the rest of the economy.

        And that’s a load of bollocks as well. The state could make up 100% of the economy and it would work fine but there wouldn’t be any rich people which is why the rich don’t like it.

        Of course, the real problem we have happens to be the rich as they bludge off of everybody else.

        This is because it drowns out private sector innovation.

        Which is, more often than not, funded by the state anyway. This is why NZ innovation has dropped over the last few decades – we dropped the state funded innovation.

        And, of course, state funded innovation is far cheaper than private as well as it doesn’t have the dead-weight loss of profit in it.

      • spikeyboy 1.3.3

        I would suggest that private sector innovation is an oxymoron…

        • Phil 1.3.3.1

          Tell that to Silicon Valley?

          • McFlock 1.3.3.1.1

            which stands on the shoulders of DARPA

            • Infused 1.3.3.1.1.1

              You’re an idiot. you only have to look at some of the initiatives going on in Wellington. Some of the businesses in Petone which are exporting high end services and products around the world.

              Massive innovation here.

              • McFlock

                Yup.

                But the true innovation that their work is built on comes from blue-skies research, which is not the private sector’s strong point.

                Pokemon go is all well and good, but it’s not a man walking on the moon.

                • Draco T Bastard

                  But the true innovation that their work is built on comes from blue-skies research, which is not the private sector’s strong point.

                  Yep, the government does the basic research that the private sector then bases its applied research on. Without the first you cannot have the latter.

                • Lloyd

                  Getting Nintendo to populate the Moon with Pokemon would probably be the quickest and cheapest way to populate the Moon with young people.
                  You would need to install a Lunar GPS and satphone network – you’d need that for any Lunar colonisation – then the Pokemon (making sure there are a few Lunar only models) – and sit back and watch the Pokemon Go addicts arrive.
                  Of course this is a model dependent on independent investment but it doesn’t need blue-skies research – we know how to get to the Moon, it just has to be worth going.

                  • McFlock

                    We know how to get to the moon thanks to decades of literal blue skies research. By several governments 🙂

          • Draco T Bastard 1.3.3.1.2

            Silicon Valley exists because of the research that the US Federal government did and funded. And because the US Federal government also built the worlds first commercially viable silicon wafer integrated circuit fabrication plant (The Entrepreneurial State by Mariana Mazzucato) which, IIRC, was also developed by the US Federal government.

            If it had been left to the private sector our tech base would be very seriously behind where it is now.

    • Bill 1.4

      A little nugget from a Kevin Anderson presentation touched on the bullshit of growth. If you took a person from the beginning of the Egyptian pyramid period and plopped them down at the end of it, then they’d be familiar with the society they were transported to.

      That’s a time travel of some 2000 years. And during that time, Egypt didn’t exactly stand still in terms of advances in medicine, engineering etc. It had a growing population and a steady state economy.

      Way I see it, you only need growth if production is being bled to support a ruling class. A moment’s thought suggests that the supposed need to generate profit for shareholders etc, dampens innovation. Stuff gets dumbed down to maintain profit levels – in-built obsolescence, the deliberate with-holding of “best” in order to get return on unnecessary “second best” stages of development etc.

      And those profits just keep on getting bled off in the from of financial return to investors. So to stay ‘ahead of the game’ in a competitive environment, it pays (quite literally) to elevate a culture of “shoddiness” – eg, over time bus seats become ‘cheaper’ shitty nylon covered bits of foam or whatever when they used to be leather and horse hair (or whatever) and to boot, we still have a polluting mode of transport based on 150 year old technology.

      And that’s before we get to the dynamics of exploitation or a 1001 other examples that would illustrate just how much “growth” and the necessary economic basis for it, is both a destructive and unnecessary “ball and chain” dragging back human progress and development.

      There’s a myth that says cut throat competition encourages innovation. Obviously I don’t buy that. Competition can be healthy or unhealthy. Our economically based form of financial competition is disastrous.

      How many truly useful advances have come from state funding as opposed to from that competitive, growth and profit orientated private sector?

      • Ad 1.4.1

        To your last question, you might want to have a look at the relationship between the French government and its automotive industry, defence industries, and electricity generation industries, since WW 2.

        The relationship between state development and innovation is a massive field of study.

        • Bill 1.4.1.1

          The last question was rhetorical 😉

          • Ad 1.4.1.1.1

            In which case, the answer to every economic question is not “the state”.
            It didn’t work.

            • Bill 1.4.1.1.1.1

              heh – the answer to every contemporary economic question would be “not this type of economy”. Why? Because it doesn’t work.

      • Macro 1.4.2

        ^^^^ THIS

        For more on the case for a steady state economy I suggest starting here

  2. Pat 2

    “We haven’t seen conditions head to this since the 1970s. As it did then, this great slowdown may even change our mindset about what an economy is even for.”

    the 70s were notable for “stagflation”….a different beast altogether….is perhaps the cause of a lack of willingness to invest in growth the (perhaps subconscious) realisation that the planet cannot take it? If the existing model is broken and replacement not apparent where do investors go? An economic version of anxiety disorder, or dithering if you prefer.

    • Kevin 2.1

      Investors or speculators?

      The line between seems rather blurred these days.

      • Pat 2.1.1

        lol…both. Leadership is lacking, the reality is the overwhelming majority of investment is by “followers” and they are being given no direction because imo no one knows what to do or wants to be the first to take a risky decision, because lets face it, it is bloody risky. Which government wants to implement a new model (assuming they develop a potentially workable model) while the rest of the world still operates under the current one?

        • One Anonymous Bloke 2.1.1.1

          This government is besotted by the notion that the market will provide leadership.

      • AmaKiwi 2.1.2

        “Investors or speculators?”

        The herd are chasing:

        1. High yield bonds, which are high yield because they are extraordinarily risky (high risk of default) and
        2. Real estate (a bubble for sure)

        The professionals (large corporations) are hoarding cash. That’s the smart move. Unfortunately, it is bad for the overall economy because it means further economic contraction (job layoffs, smaller businesses fail, less tax revenue, etc.)

        It’s called a deflationary depression. We are in it now. It will get a lot worse before it bottoms.

        The solution: Hope and pray NZ stays out of war.

        • RedLogix 2.1.2.1

          And some of us are effectively ‘hoarding cash’ by deleveraging down on our debt. Every dollar I pay back on my loan principle is effectively ‘destroyed’ as a bookkeeping entry by the bank, and not circulated in the real economy.

          • Ad 2.1.2.1.1

            Disincentive to savers and diligent mortgage payers. Even those with low debt or with savings sufficient to offset against the mortgage aren’t rewarded.

        • Lloyd 2.1.2.2

          The solution is to tax the rich and give the money to the poor. Simple.

    • aerobubble 2.2

      Worse. Unwillingness or incapable, having supped on the neo-lib cool aid for to long, elites are incapale of using govt, if it still exists, to manage what they left to the markets to do. Markets stagnating and so out of the game. A vacuum etched out by thirty years of non-governance, no-govternment, incomplete misaligned govt.

      • Pat 2.2.1

        the failings of neoliberalism aside, it is the growth model that needs addressing and all current economic models (in so far as Im aware) are predicated on growth.

        We need a model that is workable without growth and that means more than just adjusting a few rules around governance, taxation and the freedom of money movement…..not a simple task, and then it has to be successfully promoted.

        • aerobubble 2.2.1.1

          Growth? You mean people building furtniture for the first time? Or railways? Or having kids, or finding new food sources, or writing apps. The growth is happening all the time. Things wear out. Iron rusts. Sure accelerating owth from cheapening fuel, that growth spurt is over, but there’s huge potential growth in online potential, but we dont have interventionists govts that remove monopolistic practices. Monopolists that kniw everyones name, their habit, even their sexual fetishishes. Its our lack of government that has created our stagnate growth. Taxes used to be very high for the wealthiest, taxes had to go up for them to come down, history also shows that government created the opportunity for growth, building highways and removung highway men and local barons. Ur growth prospects from the 70s was NOT due to neo liberalism opening markets, thst would have happen naturally, it was due to the flow of cheap high density fuels. Govt stopped governing, and so did not invest reasearch into when oil peaked or worse climate limits were to hit, instead govts locked up and went home. Growth was short term like the people who ran our media and finance. Now we need the lights on, the govt serving the people again, not corporations. And no not TRump who wants to lower taxes and hand yet more tax windfalls to the richest. Or Key who claims to be bring kiwis home when its quite natural kiwis in the face of gfc uncertainity would take profit and find safety at home. Its the stupidity of our present leaders, media, finance, that created the gfc in the 70s by giving up on balanced social governance.

          • Pat 2.2.1.1.1

            ‘ Its the stupidity of our present leaders, media, finance, that created the gfc in the 70s by giving up on balanced social governance.”

            It was the stagflation of the 70s that created the conditions where the short termism of neoliberalism was able to be successfullly sold to the voters. It was not all sweetness and light living with stagflation as some would have you believe.

            “Growth? You mean people building furtniture for the first time? Or railways? Or having kids”

            In the aggregate, exactly that. Growth (real or inflation adjusted) involves the increasing use of resources….if you accept all resources are limited then you also have accept that endless growth is impossible…..and yet that is the basis of our economic system….of all schools.

            Go figure

            • aerobubble 2.2.1.1.1.1

              Book clubs? Share a bunch of books and you have a book club, its just we dont tap into social value just environment degredation, product obsolescence, etc. We used to have a govt that got the idea of a rich diverse free people, marketeers hate them, uniformity, newly discovered boring trends make instance short term profits. Consumerism aint the problem, its the negatively structure govt regulatiins that incentivize unformity. Take housing, food retail hate scocial housing because social networks can scale up to bulk buying from the centeal markets and avoiding their premises. Our quarter acre dream is a comformity imposed to extract rent for a few from the most atomized of communities.

  3. RedLogix 3

    Steven Keen looks at it like this:

    This illustrates the logic behind the empirical pattern uncovered by Richard Vague. Vague found that every major financial crisis since 1850 has involved the private debt to GDP ratio exceeding 150% of GDP, and rising by 17% or more of GDP over a 5-year period prior to the crisis: only when debt is that high does a slowdown in its rate of change cause a serious economic calamity.

    The 2007-8 crisis was a global crisis because (a) the collapse in credit growth in the USA alone caused a 7% of global GDP fall in aggregate demand—the change in credit in the USA went from plus 5% of global GDP in 2007 to minus 1.7% of global GDP in 2010; and (b) many other developed nations were in a similar situation, so the decline in credit growth in the rest of the developed world was actually more severe than in the USA (see Figure 3: America’s credit growth went from plus 15 to minus 5 per cent of GDP across the crisis; the average for the advanced economies was from plus 25 to minus 12 per cent).

    The dilemma the global economy finds itself in now can be explained by the following three realities. First, almost all leading OECD nations are facing the aftermath of such crises, and have not de-levered sufficiently to allow credit growth to resume. Second, aggregate private sector debt peaked in 2010 at a level well in excess of the first of Vague’s two criteria for crisis, and while the second is not fulfilled at the global level, credit growth is now stagnant, so that demand from credit growth at the global level has ceased—see Figure 10. And third, the one major global economy that has not yet experienced such a crisis—China—is, based on its current data, certain to experience one in the near future (see Figure 11).

    http://www.privatedebtproject.org/view-articles.php?Are-We-Facing-a-Global-Lost-Decade-14

    Or in short, excessive private debt.

    For NZ Private Credit to GDP is sitting at about 140%. We are debt saturated and extremely vulnerable to either a rise in interest rates or a fall in GDP.

    http://data.worldbank.org/indicator/FS.AST.PRVT.GD.ZS?locations=NZ

    • Ad 3.1

      The question is not crisis, but the form, shape, and timing of recovery.

      We may face other GFC’s, but the current global pattern of recovery is very different to what Mr Keen is used to.

      • aerobubble 3.1.1

        You mean? That recovery will come? Where people take up credit to grow the economy rathet than Auckland house prices? Really? Aint the problem that before the gfc families could get on a housing esculator like their parents and engage in an economy gear to churning out a new generation of fiscal buoyant families.
        Our crisis is we’ve built an economy efficient in cornering any prospect of gain and handing over to markets to trade in, wages stagnate, price rise (hidden by lower quality and other bait switching practices), producs now come with expensive services agreement, even free tv is costing us more, it ain’t hard to figure out the crisis, we the people can’t get ahead because the free market has gotten far to good at extracting value leaving nothing for society breath free off.

        • Ad 3.1.1.1

          Exactly the opposite.

          Recovery worldwide overall isn’t happening. Hasn’t been happening. Isn’t forecast to happen. It’s a cooling and brittleness to global economic growth.

          Entirely different kind of crisis.

  4. Draco T Bastard 4

    States rely on ever-increasing economic growth to generate tax revenue to support policy programmes such as social welfare for growing populations. Super funds and the multi-millions they support need it.

    Which is simply an insane position to be in. The world cannot support infinite growth.

    Workers, shareholders, and unions rely on businesses growing to get better wages and salaries from profits to redistribute.

    Which probably worked before there was enough productivity to produce everything we need and desire. Now that that level of productivity exists and can easily be introduced into nations businesses will no longer be able to grow as exports decline. A manufacturing businesses market will be local and that’s that. E-business may be able to go global but the competition will be fierce ensuring almost no profits (that really is the result of competition).

    We’re at the point where we should be looking at a stable state economy and not looking to growth to provide an improved living standard.

  5. One Anonymous Bloke 5

    The IMF and World Bank have pointed out that ‘neoliberalism’ and its inevitable shitty outcomes stunt economic growth.

    Pull down the temple and bury its priests in shame.

  6. McFlock 6

    Some really interesting comments.

    My impression, and not much more than that, is that part of the problem is in how our economies are being run, especially in the US (the consumption engine room).

    Basically, the measurements of and interventions in the economy are all largely used in the aggregate: GDP, interest rates, unemployment, house prices, etc.

    What this doesn’t reflect is that increasing portions of society are essentially excluded from the economy (poor, out of work, transactions exist largely in an underground capacity), but the aggregate numbers are inflated/deflated by massive expenditure that benefits a narrow sector of society. Not just bankers, but the US Treasury for example has been paying trillions on defense. Much of this money goes into factories, but the bulk is taken as profits or high-level management fees. Paying a few people to develop ultra-high tech that might or might not work before the next generation replaces it.

    But the day to day consumables in the US come either from low pay / low condition workers in developing nations, or from prison labour. The aggregate figures can be gamed for a while, unemployment counted differently and defense spending increases GDP for example, but the bulk of the US economy is slowing down and going bankrupt. This lowers demand, so Asia’s slowing down, and that means that raw resource producers are in the shit. The lag times disguised the problem, but it’s approaching with a vengeance.

    • Ad 6.1

      Your first point about those excluded from GDP measurement is pretty valid. I have an instinct that the black and grey economy in New Zealand is really large. Maybe not on a Greek scale, but every time you see that tax on cigarettes go up for example you see robberies go up. IRD must surely have some sense of this.

      Also, since both New Zealand and the U.S. have such a high jailed population – and hence post-jailed population – there are surely tens of thousands of close-to-unemployable bouncing along the bottom of the economy surviving on cash jobs.

      I do have a sneaking suspicion that the decline of the middle class signals a decline in the economic propulsion of the economy. What the decline of unions signalled, is a reality when home ownership really slips. Your point about defence spending locking out other spending options probably works in the US but nowhere else to that extent.

      • McFlock 6.1.1

        I think the defense thing is a problem for everyone because it hides the fact that americans just ain’t buying as much shit as they used to.

        Crap that everyone else would have sold them. The market for middle-class goods is drying up – it’s either box store or high end.

      • Craig H 6.1.2

        If you want to see the grey economy in action, pay cash at a small shop e.g. dairy, fish and chip shop etc. If they just put the cash in the till without ringing anything on a register, they are skimming the cash (pocketing it without declaring it as income or on their GST returns).

        I was looking to buy a small business recently, and the number of owners who freely admitted that the financial statements under-reported the actual figures because they were skimming cash sales was staggering.

  7. adam 7

    Thanks for the post Ad.

    I think you glossed over the issue of confidence in the economy. The NZ economy has been at times, super confident since 2008, which I find a little disturbing. I think that myth making will be undone, I hope it does not unravel soon, but the trade war erupting with China, and a prolonged retraction in Australia have to bite us at some stage.

    Not forgetting how much money that this government is borrowing to stay afloat. Going back to confidence, how long can it last? It seems to be slipping almost every week, at some point this collapse in confidence will bear a poisoned chalice for us all.

    • Craig H 7.1

      It always surprises me how the overall business confidence is high under National and low under Labour, but individual business confidence is high under Labour and low under National. It shouldn’t surprise me, but for some reason, it does.

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