The global economy – where is the demand?
This week we broaden the scope of discussion to the global economy to look at lack of demand. It seems that policy makers and economic commentators all around the world are suddenly reconsidering their positions. The mantra of “There is no alternative” (TINA) left to the world by Maggie Thatcher has proven less robust than its author led many to believe. And many commentators who normally would be assailing government expenditure and opposing any Keynesian fiscal intervention, are now calling for governments to bring forward infrastructure projects to inject some activity.
Record low interest rates are not stimulating business investment in the countries where the central bank has taken this route.
But what’s the real problem? Well, businesses will only invest in additional capacity, or new technology, if there’s going to be a return. So it seems like the problem may be linked to insufficient demand. But how has this come about?
As always there won’t be one simple answer. But we can identify some components. One would be the impact of ongoing reform of employment conditions. In business’s search for flexibility, many more workers now are on a part time or casual basis. At the bottom of the pay scale, this means little or no expenditure that could in any way be described as discretionary. The most immediate effect is seen in the retail sector.
Combine this with policy settings that favour property development to the extent that prices, particularly in Sydney, Melbourne and Brisbane, have been rising out of the reach of the average worker.
Still at the workplace, the numbers of jobs either offshored or now able to be handled by robots is rising. Further, these jobs are now relatively well-paid skilled jobs, not factory floor. Add in the rorting of the 457 visa scheme and you have a declining middle class that has less security and won’t be spending; indeed many will be hoarding for retirement, especially as superannuation policy is always up for change.
So how to restart growth? Some governments overseas are resorting to “helicopter money” – direct payments to citizens. This was tried in Australia after the onset of the Global Financial Crisis, with arguably minimal effect. There are always calls for “less red tape” (although in my experience those who respond in these terms often struggle to identify specifics). Perhaps some extended form of micro-credit is needed at a regional or business level.
Unfortunately, otherwise well-intentioned programs aimed at improving business efficiencies and effectiveness will be lost in the face of continuing weak demand.
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