ANZ LitLovers LitBlog

Everything and anything to do with C_19 is a moving feast, so this Penguin Special is both timely and doomed to be out of date in no time.  Still, it’s well worth reading if you care about the state of nation…

According to their About Page, The Lowy Institute is an independent, nonpartisan international policy think tank located in Sydney, Australia. It is Australia’s leading think tank, providing high-quality research and distinctive perspectives on the international trends shaping Australia and the world. John Edwards, author of this paper, is a Senior Fellow with expertise in Australian economic policy; monetary policy; international economics; and banking.  (He’s also an author, publishing a two-volume biography of Australia’s wartime prime minister, John Curtin’s War amongst other things. That one is on The Spouse’s TBR.  Yes, he has one too, nearly as unmanageable as mine.)

Part 1 ‘Before the Pandemic’ begins by revisiting the economic shocks of 2020.  The durability of the long Australian boom was unique amongst wealthy nations.  Nearly two-thirds of Australians had no experience of a recession; almost half were not born or not resident in Australia during the last recession in 1991.  But in 2020 joblessness and government debt soared, and many had to get by on reduced incomes.  And although the alarming early predictions have turned out to be overblown, and there are signs that Australia can regain its former prosperity, there is still a need to reduce unemployment, manage government debt and navigate through the US-China competition in order to sustain our commercial and strategic interests.

Contrary to popular belief, in 2019 mining, farming and manufacturing accounted for only one job in eight.  The other seven were in services. Australia does not depend on mines and farms and factories, but on the quality of the education of its workers, in their access to technology, in their ambitions. Also contrary to popular opinion, is that in 2013 Australian investment offshore exceeded foreign investment in Australia, suggesting that one day Australia’s total assets offshore would exceed foreign-owned assets in Australia. 

By 2019, Australia was busier, better educated, more productive and wealthier.  There were a lot more Australians, and they were more diverse and more engaged in the world beyond Australia. […] With little of the resentment and antagonism evident elsewhere, Australia’s population had become considerably more diverse.  In 2019 migrants from England were still the biggest group of foreign-born living in Australia, but they were nearly matched by migrants from mainland China and India.  (p.13)

However, over the long boom, Australia became less equal, though this decline had been arrested in the decade before C_19, and bad though it is, it’s not as bad as the disparity in comparable countries.  Surprisingly (to me), stagnant wages as an issue are dismissed as not as big as it appeared and probably did not show that owners of capital were appropriating an unfair share of productivity growth.  Edwards assigns the cause of wage stagnation to a ‘productivity slowdown’ already occurring in 2019 in some sectors of the economy.  The reasons were not clear, and they were not uniform across all industries.

The causes of the productivity slowdown were unlikely to include the level or structure of tax in Australia, or the structure of industrial relations, both of which had the same shape in 2019 as they had in the decade before the slowdown. (p.19)

It seems to me that it’s important to know this because the charlatans in government never cease plotting to ‘reform’ these aspects of our economy, and unions are always having to fight them off.  And this is why it’s important to read small, helpful books like this that are in user-friendly language.  We need to know when we are being conned over ‘reforms’ that are not actually going to fix the productivity problem, which is taking place amid a growing trade war with China, in a global economy that is slowing down anyway.

And here’s another interesting thing, in Part 2 ‘The Pandemic’ which covers The Human Cost, The Economic Impact and After the Pandemic:

Much of the discussion of the discord between China and the United States supposed that America was a declining power, soon to be overtaken by China as a rising power.  In important respects these suppositions were wrong.  The United States was not declining, and while China was certainly rising and was already the world’s second biggest national economy, there was not assurance it could overtake the United States — or that it would much matter if it did. (p.38)

As you know if you are a regular reader of this blog, I read the Australian Foreign Affairs journal which while not alarmist, has a strong focus (as it should) on the state of affairs with China, and somehow, I found this comment from Edwards curiously reassuring.

And here’s an astonishing thing:

Two months before the WHO announced the novel virus, a new Global Health Security Index ranked countries by their preparedness for a major disease outbreak.  Published by a public health unit at Johns Hopkins University and The Economist Intelligence Unit, the index ranked the United States as the best prepared of the 195 nations surveyed.  Given that the United States spent 17% of GDP on health, and was the biggest, richest and most advanced economy in the world, that ranking was as expected.  The United Kingdom with its widely admired National Health Service was number two.  China came in at 51 of the 195 surveyed.  Mali was 147th. (p.35)

The expression ‘egg on their faces’ comes to mind only it’s not funny.  I was in a torment of anxiety about family in the UK.  I felt sick hearing the number of deaths in the US and I don’t even know anybody who lives there.  And as time went by ordinary people like me began to identify the root causes of the catastrophe unfolding in these countries, so I’m not really surprised to see them identified in Edwards’ book:

What really mattered, the world discovered, was not advanced medical care, top quality hospitals or advanced science.  What mattered was the quality of political leadership, prior experience of epidemics, community consent and compliance with unusual restrictions, mass testing, isolation of active cases, social distancing and, if necessary, lockdowns.  What mattered in constraining infections and deaths were simple things, guided by public health science and effected promptly.  (p.56)

(Which is why, IMO, those media outlets trying to sabotage compliance in lockdowns by emphasising minority disaffection, are utterly despicable.  It’s relevant here to note that by January 2021, 1.9 million people had died around the world, and there had been 90 million cases worldwide.)

***

In Australia, elections have been fought and lost on the issue of government debt, so it’s worth explaining here for the non-economists among us, why using it to enable economic recovery is a smart thing to do.

… so long as the interest rate on government bonds was less than the growth rate of the economy, ‘public debt may have no fiscal cost.’ Any specified level of debt would fall as a share of GDP over time because the growth rate of the debt was the bond rate, which was less than the growth rate of GDP. (p.61)

So when politicians and pundits are trying to score points about this, rate them on whether they are talking about the gap between the interest rate and the growth of the economy which is what determines the ratio of debt to national income, or the total eye-watering amount.  If the latter, either they don’t know what they are talking about, or they do but are hoping you don’t.   And you should judge them accordingly…

The other thing we all need to remember when the media swamps us with Tales of Lockdown Woe, most of the Australian workforce kept working.  The segment of the economy that suffered centred on discretionary retail such as clothing and furniture, local and foreign travel, and sports, entertainment and the arts. Very hard on those working in those sectors, but the often unreported fact is that there was a huge increase in household saving. And unlike falls in household consumption during other recessions caused by financial crises etc, this fall in spending was caused by restrictions in consumer movement.  Which means that the economy bounces back as soon as we start spending those savings again.

However, even though Australia has weathered the pandemic better than anyone had hoped for, unemployment could still be around 6% by the end of 2021, and recovery depends in part on recovery in the countries we trade with.  Again, contrary to what was expected, it was the wealthy countries that suffered the greatest economic damage—the US, UK and Western Europe.

With its opening line most countries are through the worst of the pandemic, Part 3, ‘After the pandemic’ looks a little wobbly now.  Published just three months ago in March, Edwards was not to know about the catastrophic Covid variants worldwide nor that Australia’s vaccination program would be a debacle.  The virus hasn’t finished with us yet.

There is no one to blame because the economic distress was the necessary consequence of curbing the infection.  No nation found a way of suppressing the virus without suppressing economic activity.  If they chose not to suppress the infection, they paid later.  

It seems that the longer the pandemic lasts, the more Australia is going to need very careful economic management based on first principles and not political expedience or adhering to foreign expectations and demands.  Australia has to maintain its juggling act between China and the US.  They may be rivals, but Australia has already made its choices, and long ago.  Our region which includes its largest member China, is the economic community to which we belong, while our choice of the US as defence ally is integral to our territorial independence and freedom of action.  However things play out between them, it is likely that…

… the economic relationship between Australia will deepen in the coming decades as the incomes of hundreds of millions of Chinese consumers reach advanced economy levels.  Higher exports to China will be driven by China’s increasing demand for a more varied and expensive diet, better health care services, competitive funds management, tourism, English language tertiary education, sports and entertainment, and offshore assets.  Australia is well placed to compete in all these markets.  Japan, South Korea, Taiwan and Singapore, too, will become more integral in a regional economy with China at its core.  Australia’s stance towards the US-China competition must therefore be informed by a recognition that what injures China’s prosperity injures Australia’s prosperity. (p.110)

Unlike in previous downturns, recovery from the economic consequences of the pandemic is mostly attainable.  But what I take from reading this book is that the predictions of a different, fairer kind of economy as a consequence of the pandemic were ‘pie in the sky’.  I remember an ABC reporter confidently predicting that the government would never be able to restore child care fees—and restoration of those fees were one of the first ‘adjustments’ made…

Author: John Edwards
Title: Reconstruction: Australia after COVID, a Lowy Institute Paper
Publisher: Penguin Specials, Penguin Random House, 2021
ISBN: 9781761042775, pbk., 130 pages (not counting Endnotes and Acknowledgements)
Source: personal library, purchased from Ulysses Bookstore Sandringham, $12.99