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How we were robbed of an economic boom

We were robbed of an economic boom. Source: Getty Images
We were robbed of an economic boom. Source: Getty Images

One recent Saturday morning I walked passed quite a festive gathering on the footpath of an intersection not far from where I live.

There was plenty of cheer, broad smiles and coffee. No one seemed to notice the cold weather. If anything, the brisk air added to the energy of the moment.

The group were celebrating the opening of a new supermarket. Along with the construction of the grocery store, new apartments and boutique retail outlets have also graced the same area. It’s a brand spanking new retail complex.

This, my friends, is what a boom looks like. New money, renewed infrastructure, the community coming together, and happy endings.

The problem with this picture is that it’s happening on a small corner on Sydney’s north shore, and only affecting a few thousand people at best.

In normal boom times, many more people feel that sense of a fresh new start and optimism.

Many, in recent years, have been robbed of those fuzzy feelings.

The reality

According to the latest quarterly NAB Business survey, business conditions and confidence are only just holding above the long run-average and are not expected to improve any time soon.

Another recent NAB survey also produced the first negative result in NAB’s commercial property index in over four years. Overall confidence levels also dipped to new survey lows in the first quarter.

Bottom line: businesses are profitable, on the whole, but they’re not at all confident about the future. That’s especially the case in the property and retail sectors. Retail is basically flat, and the property sector is contracting.

There’s also plenty of what’s called ‘spare capacity’ in the jobs market, meaning while bosses are quite happy to take on new staff, they’re no where near in a position to offer competitive salaries.

That, in turn, makes shoppers less willing to part with their money, which in turn hurts the retail sector, and the cycle continues.

What’s gone wrong?

In the months after the global financial crisis hit, policy makers did everything in their power to stop the world from sinking into a deep economic depression. A global depression was unavoidable in the 1930s, after the 1929 stock market crash, and it was so bad, no one wanted to see a repeat of that.

The problem of course is that going into an economic depression would have been a natural consequence of the extraordinary excesses, and illegal behaviour, that had gone on for too long.

But it was too painful. We couldn’t do it.

Instead, governments rescued the international banks that had led us into the mess into the first place, and central banks printed money to get the economic engine fired up again.

It’s produced a dysfunctional global economy – an economy that relies too much debt, pushes investors into a risky share market to avoid receiving next to nothing from a bank deposit, produces next to no inflation, and leaves many on low incomes living from pay cheque to pay cheque.

It doesn’t feel right

Australia is in its 27th consecutive year on uninterrupted economic expansion. We’re the envy of the developed world.

We also have several struggling industries, including manufacturing, construction and retail, and stubbornly low wage growth.

The economy has become such a sore point, it’s become the centrepiece of discussion heading into the federal election.

Why, with decades of economic growth behind us, don’t we feel a sense of wealth and financial euphoria?

The answer is that the growth hasn’t been all that it could be. All boats are meant to rise in the tide, but in this case, many have been left stuck on the rocks.

In avoiding the pain that was staring us in the face, we’ve foregone the spoils that a real boom has to offer.

Righting the wrong

There are several possible roads to take from this point.

We could continue the way we are going. This would mean accepting the status quo with no real understanding of how we will be able to engineer higher wages, higher inflation and, ultimately, stronger economic growth that we can all enjoy.

Another option is to throw more at the economy. That would include dropping interest rates to zero, ramping up spending on schools, hospitals, roads and transport, and significantly lifting wages across the board.

Of course another path is one we cannot control. It would see a global economic shock wave hit Australian shores in the near future, and the country slipping into a long, protracted recession.

This is my least preferred option, but it’s one path that makes some logical sense given recent history. It would also ultimately pave the way for the sort of economic boom we haven’t been able to enjoy.

Finally, there is the possibility we have grossly underestimated China’s ability to maintain its economic prowess. If the Middle Kingdom’s economic prosperity continues for decades to come, it’s possible we’ll continue as we are, and have to settle for little pockets of economic joy here and there.

It could be worse.