Policymakers in Australia and everywhere else are now learning that COVID-19 is a resilient and aggressive disease. It can bide its time, lurk undetected and then seize any opportunity — any moment of poor discipline or weakness — to begin spreading again.
While we’re nowhere near as bad as the disaster that is unfolding in the US, we’re suffering our own relapse that has much of Melbourne locked down. And as a result, both globally and domestically, there will continue to be significant headwinds for the Australian economy.
That was underlined last Thursday by the May trade data.
Beneath a positive surface, the data showed an economy struggling with weak domestic and foreign demand. The trade surplus of $8 billion for May was the 30th monthly surplus in a row, but it was driven by a fall in the value of imports to a seven-year low in May.
Compared to December 2019, imports have slumped 22.6%. That includes motor vehicles: the value of cars imported in May slumped by $829 million or 47% from April. That offset weak demand in global markets; exports slumped to their lowest value in almost two years. The Reserve Bank’s commodity price index for June fell back to September 2018 levels.
A 12% rise in the value of the Aussie dollar in the June quarter was a factor, yes, but there was a sharp fall in coal prices too. Iron ore prices have held up well, thankfully, and rose to more than US$100 a tonne in June, but that was still more than 12% lower than this time last year.
Of greater concern was that the ABS reported there was only a 1% rise in total payroll jobs between mid-May and mid-June, suggesting the initial job gains from reopening have been locked in, and from here things might be more sluggish. So far we’ve only got back around 30% of the jobs initially loss to lockdowns, the ABS pointed out. Payroll jobs are still 6.4% below mid-March.
In the US, Donald Trump was boasting about another big jobs number in the June unemployment report (4.8 million). This saw the unemployment rate fall to 11.1% from 13.3%, but the data was gathered in the middle of the month just as several large states states were returning to lockdown.
Even so, 31 million Americans are still collecting unemployment benefits weekly, with another 1.43 million people filing for state unemployment benefits this week — down just slightly from 1.48 million last week.
The bottom line is that the US lost more than 22 million jobs during the height of the pandemic and has only restored 7.5 million of them in the past two months. Like us, the US has its own fiscal cliff: America’s jobs benefit packages start running out on July 31.
Here, the focus seems to be more on what reforms the government should be pursuing, rather than what it should do when its programs expire in September.
Reserve Bank deputy governor Guy Debelle made an overlooked contribution on that issue in a speech last week:
There is considerable uncertainty over the path from here. This uncertainty includes the behavioural responses as health restrictions are eased. There is also considerable uncertainty about the future, which will affect the decisions of businesses and households.
It has taken a long time to recover from large declines in the economy in the past. The cause of the decline this time is much different from those in the past. Many of the imbalances that exacerbated declines in previous downturns are not present this time. But it is still quite likely that this decline will have a long-lived impact that will require considerable policy support for quite some time to come.
The sentence “many of the imbalances that exacerbated declines in previous downturns are not present this time” received no attention — certainly not at outlets like the AFR, which incessantly beats the drums calling for wage reductions, company tax cuts and deregulation.
Debelle’s point is that some of the structural weaknesses that helped bring on, or aggravate, past recessions aren’t present this time: there’s been no early ’80s wage blow out, no inflationary surge requiring a crushing surge in interest rate rises to control an asset boom in housing or commercial property as there was in the early 1990s. There’s no impending disaster in the financial sector as there was in major markets before the financial crisis.
What there has been, of course, is a lot of wage stagnation that meant economic growth slowed to a crawl even before the virus. And the advocates of economic reform want not just stagnation, but real wage cuts, and a higher GST, to somehow spark a recovery.
These ideas of austerity, deregulation and punishment of workers are resilient and aggressive. They defy all evidence that they don’t work and they continue to lurk out of sight, for years if need be, waiting for any moment of policymaker weakness to start spreading once again.
And now, here we are, facing another outbreak.
Your headline is misleading. There is no analysis of neoliberal proposals such as those of the IPA or even the Reserve Bank. Hope there will be follow up articles.
Agree on the former (IPA influences, Reserve follows) and the US radical right libertarian eco-system in which it supports and is influenced by (via Koch networks); includes importing of policy, even down to bills and talking points, i.e. through their ALEC ‘bill mill’ and Heartland Institute’s take on ‘climate science’.
Further, while some government agency delivery areas could be made more efficient by sub-contracting etc., it still requires sufficient funding of regulators to oversight and have teeth on behalf of society, not just serving the interests of commissioners nor corporate sector.
This also means not relying upon the libertarians’ own veneer of academic research and promotion of the Austrian or Chicago Schools, Smith, Hayek, Rand, Buchanan (most pivotal), Friedman, et al. demanding ‘free markets’ and ‘freedom’, while expecting Keynesian policies for their own sectors and/or corporate entities….
Regarding the latter, their raison d’etre is not just have less government or regulation, lower taxes etc. but socialism for themselves and neo-liberal competition for the remainder; corporate and social eugenics which has infected, and now ‘owns’, US, UK and Australian politics.
It’s an oldie but baddie, “socialise costs, gouge profits”.
God gave us rivers & atmosphere to fill with crud – make a profit and use filters.
You two blokes need to get out more, or maybe just pay attention. Much of Melbourne is not locked down. There are 12 postcodes in an arc from north of the CBD to the west which are (Melbourne is covered by a couple of hundred postcodes). However, not all of the city’s north and west are locked down, and the sprawl to the south east is largely unaffected by stay at home orders.
Frankly, poor journalism from people who should (and are expected to) know better. More to the point, poor editing by Crikey’s Melbourne-based cohort.
I couldn’t be bothered reading the rest of the article.
Maybe you should have read further Paul.
Neoliberal austerity demands are the turds that just won’t flush.
Don’t like statistics then, Paul?
For me , the real question is what group is Morrison going to align himself with?
He is not a leader with a vision of where the country should be going. As shown in the bushfires , left to his own devices he is all at sea and makes poor judgement calls. When the pandemic came along – slow off the mark , but then the he listened to the medicos and the states and this combined with the acceptance of the general community has lead to a good result. Where to from here? Who is going to have his hand? Will it be a break from the past with acceptance of the situation and a do what it takes attitude or will it be a re hash of the past? At this stage a re hash of past philosophies appears to be in the running.
Quote “ These ideas of austerity, deregulation and punishment of workers are resilient and aggressive. They defy all evidence that they don’t work ”
Austerity is nothing more than a device to transfer wealth upwards and in that respect it has worked exceedingly well. Inequality has grown massively, in places to socially dangerous levels.
Not so much a virus, as a cancer.
The definition being unrestrained growth.