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Cheaper mortgages, tamed inflation and even higher home prices: how 29 forecasters see Australia’s economic recovery in 2024-25

<div class="theconversation-article-body"><em><a href="https://theconversation.com/profiles/peter-martin-682709">Peter Martin</a>, <a href="https://theconversation.com/institutions/crawford-school-of-public-policy-australian-national-university-3292">Crawford School of Public Policy, Australian National University</a></em></p> <p>Australia’s top economic forecasters expect the Reserve Bank to start cutting interest rates by March next year, taking 0.35 points of its cash rate by June.</p> <p>If passed on in full, the cut would take $125 off the monthly cost of servicing a $600,000 variable-rate mortgage, with more to come.</p> <p>The panel of 29 forecasters assembled by The Conversation expects a further cut of 0.3 points by the end of 2025. This would take the cash rate down from the current 4.35% to 3.75% and produce a total cut in monthly payments on a $600,000 mortgage of $335.</p> <p>The forecasts were produced <em>after</em> last week’s news of a higher than expected <a href="https://theconversation.com/australias-inflation-rate-jumps-to-4-putting-an-rba-rate-rise-back-on-the-agenda-233331">monthly consumers price index</a>.</p> <p>Several of those surveyed revised up their predictions for interest rates in the year ahead, while continuing to predict cuts by mid next year.</p> <p>Only two expect higher rates by mid next year. Only four expect no change.</p> <hr /> <p><iframe id="6eIe8" class="tc-infographic-datawrapper" style="border: none;" src="https://datawrapper.dwcdn.net/6eIe8/" width="100%" height="400px" frameborder="0"></iframe></p> <hr /> <p>Now in its sixth year, The Conversation survey draws on the expertise of leading forecasters in 22 Australian universities, think tanks and financial institutions – among them economic modellers, former Treasury and Reserve Bank officials and a former member of the Reserve Bank board.</p> <p>Eight of the 29 expect the first cut to come this year, by either November or December.</p> <p>One of them is Luci Ellis, who was until recently assistant governor (economic) at the Reserve Bank and is now at Westpac. She and her team are forecasting three interest rate cuts by the middle of next year, taking the cash rate from 4.35% to 3.6%.</p> <h2>Reserve Bank a ‘reluctant hiker’</h2> <p>Ellis says inflation isn’t falling fast enough for the bank to be confident of being able to cut before November. But after that, even if inflation isn’t completely back within the bank’s target band but is merely moving towards it, a “forward-looking” board would want to start easing interest rates.</p> <p>Another forecaster, Su-Lin Ong of RBC Capital Markets, says in her view the bank should hike at its next board meeting in August after the release of figures likely to show inflation is still too high. But she says the bank is a “reluctant hiker” and keen to keep unemployment low.</p> <p>Although several panellists expect the Reserve Bank to hike rates in the months ahead, almost all expect rates to be lower in a year’s time than they are today.</p> <hr /> <p><iframe id="2xF3M" class="tc-infographic-datawrapper" style="border: none;" src="https://datawrapper.dwcdn.net/2xF3M/" width="100%" height="400px" frameborder="0"></iframe></p> <hr /> <p>The panel expects inflation to be back within the Reserve Bank’s 2-3% target band by June next year, and to be close to it (3.3%) by the end of this year.</p> <p>Twelve of the panel expect inflation to climb further when the official figures are released at the end of this month, but none expect it to climb further beyond that. And all expect inflation to be lower by the end of the financial year than it is today.</p> <p>One, Percy Allan, a former head of the NSW Treasury, cautions that the tax cuts and other government support measures due to start this month run the risk of boosting spending and falling progress on inflation.</p> <hr /> <p><iframe id="LGJa7" class="tc-infographic-datawrapper" style="border: none;" src="https://datawrapper.dwcdn.net/LGJa7/" width="100%" height="400px" frameborder="0"></iframe></p> <hr /> <p>The panel expects wages growth to fall from 4% to 3.5% over the year ahead, contributing to downward pressure on inflation, but to remain higher than prices growth, producing gains in so-called <a href="https://www.investopedia.com/terms/r/realincome.asp">real wages</a>.</p> <p>It expects wages growth to moderate further, to 3.2%, in 2025-26.</p> <hr /> <p><iframe id="iV7mZ" class="tc-infographic-datawrapper" style="border: none;" src="https://datawrapper.dwcdn.net/iV7mZ/" width="100%" height="400px" frameborder="0"></iframe></p> <hr /> <p>Consumer spending is expected to remain unusually weak, growing by only 1.7% in real terms over the next 12 months, up from 1.3% in the latest national accounts.</p> <p>Mala Raghavan, from the University of Tasmania, said even though inflation was falling, previous price rises meant the prices of essentials remained high. AMP chief economist Shane Oliver expected the boost from the <a href="https://treasury.gov.au/tax-cuts">Stage 3 tax cuts</a> to be offset by the depressing effect of a weaker labour market.</p> <h2>Unemployment to climb modestly</h2> <p>The panel expects Australia’s unemployment rate to climb steadily from its present historically low 4% to 4.4%.</p> <p>Moodys Analytics economist Harry Murphy Cruise said although the increase wasn’t big, the effect on pay packets would be bigger. Employers were shaving hours and easing back on hiring rather than letting go of workers.</p> <hr /> <p><iframe id="SM8PI" class="tc-infographic-datawrapper" style="border: none;" src="https://datawrapper.dwcdn.net/SM8PI/" width="100%" height="400px" frameborder="0"></iframe></p> <hr /> <p>Panellists expect China’s economic growth to slip from 5.3% to 5% and US growth to slip from 2.9% to 2.4%.</p> <p>Australia’s economic growth is expected to climb from the present very low 1.1% to 1.3% by the end of this year and to 2% by the end of next year. Although none of the panel are forecasting a recession, most of those who offered an opinion said if there was a recession, it would start this year when the economy was weak.</p> <p>Some said we might later discover that we have been in a recession if the very weak economic growth of 0.1% recorded in the March quarter is revised and turns negative when updated figures are released in September.</p> <hr /> <p><iframe id="3I49o" class="tc-infographic-datawrapper" style="border: none;" src="https://datawrapper.dwcdn.net/3I49o/1/" width="100%" height="400px" frameborder="0"></iframe></p> <hr /> <p>Home prices are expected to continue to climb notwithstanding economic weakness. Sydney prices are expected to increase a further 5% in the year ahead after climbing 7.4% in the year to May. Melbourne prices are expected to rise a further 2.8% after climbing 1.8% in the year to May.</p> <p>Percy Allan said Sydney had fewer homes available than Melbourne, and Victoria’s decisions to extend land tax and boost rights for tenants had upset landlords, many of whom were offloading their holdings.</p> <h2>Home prices to climb further</h2> <p>Julie Toth, chief economist at property information firm PEXA, said rapid population growth was colliding with an ongoing decline in household size since COVID. At the same time, fewer new homes were being commissioned and long delays and high construction costs were also keeping supply tight.</p> <hr /> <p><iframe id="JzLaY" class="tc-infographic-datawrapper" style="border: none;" src="https://datawrapper.dwcdn.net/JzLaY/" width="100%" height="400px" frameborder="0"></iframe></p> <hr /> <p>The panel expects non-mining business investment to continue to climb in the year ahead, by 5.2%, down from 6.9%.</p> <p>It expects the Australian share market to climb by a further 5.6%</p> <p><strong>Read the answers on <a href="https://cdn.theconversation.com/static_files/files/3350/2024-25_The_Conversation_AU_Forecasting_Survey.pdf">PDF</a>, download as <a href="https://cdn.theconversation.com/static_files/files/3351/2024-25_The_Conversation_AU_forecasting_survey.xlsx?1719478737">XLS</a></strong></p> <hr /> <h2>The Conversation’s Economic Panel</h2> <p><em>Click on economist to see full profile.</em></p> <p><iframe id="tc-infographic-1066" class="tc-infographic" style="border: none;" src="https://cdn.theconversation.com/infographics/1066/93fb29ba32e178ec2dcda111f014a50cf7ea1f49/site/index.html" width="100%" height="400px" frameborder="0"></iframe><!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/233244/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><em><a href="https://theconversation.com/profiles/peter-martin-682709">Peter Martin</a>, Visiting Fellow, <a href="https://theconversation.com/institutions/crawford-school-of-public-policy-australian-national-university-3292">Crawford School of Public Policy, Australian National University</a></em></p> <p><em>Image credits: Shutterstock </em></p> <p><em>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/cheaper-mortgages-tamed-inflation-and-even-higher-home-prices-how-29-forecasters-see-australias-economic-recovery-in-2024-25-233244">original article</a>.</em></p> </div>

Money & Banking

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Five tips for developing and managing your budget – even in tough economic times

<p><em><a href="https://theconversation.com/profiles/oluwabunmi-adejumo-1370664">Oluwabunmi Adejumo</a>, <a href="https://theconversation.com/institutions/obafemi-awolowo-university-2843">Obafemi Awolowo University</a></em></p> <p>There’s nothing quite like a new year to prompt us to take stock of our lives, our health, our goals – and our finances. Many people will start a new year by contemplating how best to budget, plan and save. This is always a good set of aims, but it’s especially important in the inflation-prone and unpredictable economies we’re seeing <a href="https://www.statista.com/statistics/268225/countries-with-the-highest-inflation-rate/">all over Africa and the world</a>.</p> <p>Budgeting is especially key. It is the most effective method to <a href="https://www.thebalancemoney.com/how-to-make-a-budget-1289587">monitor income and expenditure</a>. <a href="https://www.uslendingcompany.com/blog/key-differences-in-writing-a-household-budget-vs-a-personal-budget/">Personal budgets</a> can help you to monitor your resources in pursuit of larger financial goals. Budgeting also offers <a href="https://www.acrwebsite.org/volumes/v46/acr_vol46_2411998.pdf">more opportunities</a> to save money, reduce your debts and live a comfortable life. It can even <a href="https://prucomm.ac.uk/assets/uploads/blog/2013/04/Personal-Budgets-review-of-evidence_FINAL-REPORT.pdf">improve your mental health</a>.</p> <p>But where should you start? What questions do you need to answer in creating a budget? Here are some tips that I’ve learned – not just as an economist, but as a research cost analyst and someone who keeps a budget too.</p> <h2>1. Understand the broader economic conditions</h2> <p>It is imperative that individuals keep themselves aware and up-to-date on the realities of their country’s economic landscape. You don’t have to be a professional economist, but keep an eye on new developments like free business registration, small business development funds and printing of new money notes. What is the current exchange rate? What’s the political landscape and what international factors, like the price of crude oil, are at play? You should also watch the inflation rate and have a sense of unemployment trends.</p> <p>This economic awareness will prepare you to draft your own budget and you’ll have a sense of when external factors mean it’s time to revisit your plans.</p> <h2>2. Review your income sources</h2> <p>The ability to earn income is critical to sustaining livelihoods. Having a definite source of income is the bedrock of budgeting.</p> <p>Some important questions you should ask about your income – and how you might budget with it – include:</p> <ul> <li>What is my current income?</li> <li>What do I use my income for?</li> <li>Am I able to save, given my current income?</li> <li>What proportion of my income do I save and what proportion do I spend?</li> <li>Do I have the capacity to earn more than this?</li> <li>How can I improve my income?</li> </ul> <p>Your answers can help you to identify gaps or untapped potential. Those with irregular or unpredictable income should factor in the element of time-gap in their income, for effective budgeting. Time gap is when they are not earning income. And everyone should make allowance in their budgets for uncertainties like health issues, social engagements, inflation, unemployment, recession and price shocks.</p> <h2>3. Appraise your expenses</h2> <p>Expenses can be broadly categorised into “variable” and “fixed”.</p> <p>Fixed expenses recur within a short period: housing, food, transport, medical costs, electricity, utilities, toiletries and clothing. Variable expenses are more long-term and irregular, such as investment in property or interest-yielding assets, and the purchase of machinery.</p> <p>The main essence of revising our expenses is to analyse and possibly improve our spending habits. In reviewing our expenses, we can consider issues such as:</p> <ul> <li>What is the proportion of consumption-savings ratio from my income? This is how much do I spend compared to how much I save.</li> <li>What are my regular expenses?</li> <li>What are my fixed, capital or investment expenses?</li> <li>What are my extraordinary expenses that need modification?</li> <li>Have there been emergency or extraordinary expenses?</li> </ul> <p>A careful response to the issues raised above offers an occasion to re-evaluate the pattern and direction of our expenses. For instance, overspending, unplanned or extraordinary expenses can be identified. This can lead to an optimal, efficient reallocation of available resources.</p> <h2>4. Stabilise your finances through savings</h2> <p>Savings have been <a href="https://klinglercpa.com/bedrock-principles-for-saving-money/">described</a> as a financial stabiliser, given their potential to cater for urgent needs and create opportunities for investments.</p> <p>Of course, savings have more value when they grow faster than the rate of inflation. Inflation erodes the value of savings. For instance, an amount of 300,000 naira (US$676) saved to purchase an autorickshaw today may be impossible in two months’ time with an inflation rate of 10% when the tricycle price rises to 330,000 naira (US$744). The reverse is the case when there is deflation.</p> <p>Therefore, it is advisable to improve the value of savings through investments in interest-yielding assets such as stocks, shares, bonds, microfinance and production.</p> <p>That’s not to say it’s always easy to save. Many income earners spend as they go, not seeing savings as part of their budgets. Harsh economic realities can also make it difficult – sometimes seemingly impossible – to save. But it’s not impossible: savings can be made in small amounts, through a daily, weekly or monthly contribution to collections, cooperative schemes or microfinance affiliations. For instance, a point of sale business in Nigeria can permit a daily contribution of 500 naira (US$1.13) over 25 work days, giving an average saving of 12,500 naira (US$28.18) per month.</p> <p>The Point-of-Sale business started in Nigeria in 2013 when the Central Bank of Nigeria introduced the agent banking system. A POS agent operates and processes transactions through a POS service provider. Providers of such services include banks, microfinance banks and fintech companies.</p> <h2>5. Run a flexible budget</h2> <p>Once your budget is created, remember that it’s not set in stone. It should be flexible if anything changes in your life. For instance, an amount saved to buy a car can be invested in a promising venture buying shares through public offerings or private placements in multinational organisations like Nestle or Unilever.</p> <p>Also, health emergencies or career advancement programmes can require taking some money out of our savings.</p> <p>In all, budgeting should be flexible enough to incorporate exigencies, especially when catering for the current situation will culminate into a greater good.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/195590/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><em><a href="https://theconversation.com/profiles/oluwabunmi-adejumo-1370664">Oluwabunmi Adejumo</a>, Lecturer/Researcher, <a href="https://theconversation.com/institutions/obafemi-awolowo-university-2843">Obafemi Awolowo University</a></em></p> <p><em>Image credits: Getty Images </em></p> <p><em>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/five-tips-for-developing-and-managing-your-budget-even-in-tough-economic-times-195590">original article</a>.</em></p>

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Is Valentine’s Day worth the romantic investment? Here’s what we can learn from economics

<p><em><a href="https://theconversation.com/profiles/selma-wather-1510222">Selma Wather</a>, <a href="https://theconversation.com/institutions/university-of-sussex-1218">University of Sussex</a></em></p> <p>Expressing affection can be expensive. Spending on heart-shaped gifts, romantic cards, chocolates and flowers (other gifts are available) to celebrate Valentine’s Day has reached <a href="https://www.statista.com/statistics/510981/valentines-day-total-spending-great-britain/#:%7E:text=In%20the%20United%20Kingdom%20%28UK%29%20alone%2C%20Valentine%E2%80%99s%20Day,increased%20by%20just%20over%20300%20million%20British%20pounds.">close to £1 billion</a> in the UK.</p> <p>So the value of Valentine’s to retailers seems clear enough. But just how valuable is the annual ritual to consumers? What return can you expect for the money you invest in that bouquet of roses or candle lit meal?</p> <p>Broadly speaking, and depending on your relationship status, buying into Valentine’s Day traditions suggests two possible scenarios. You might be sending a card or gift to a potential partner to inform them of your interest; or you might be giving something to your current partner to remind them of your continuing love.</p> <p>Research suggests that both options have intrinsic economic value.</p> <p>For those seeking to express interest, sending a card is like dipping your toe into what economists might refer to as the “marriage market” – the search for someone you like, who likes what you have to offer in return.</p> <p>This search can happen smoothly, with plenty of information about your potential match, or it can be paved with obstacles, where you may not know much about who is available, and <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1703310">learning about potential partners</a> takes time.</p> <p>So suppose you are searching for a partner, and comprehensive information about potential matches is not freely available. What do you do?</p> <p>One option might be to put all your hopes into meeting someone on your daily journey to work. You pray that one day, just like in the movies, you will simply bump into “the one”.</p> <p>A second option might be to focus your search on single work colleagues, or people you know socially, and send Valentine’s Day cards to those you are attracted to.</p> <p>The option with the highest chance of success is the second one. You are using reliable information – knowledge of who is single. And sending a card to them can provide them with important information about you – that you’re also single, and that you’re interested. This is why research suggests that sending a Valentine’s Day card can be a <a href="https://www.jstor.org/stable/2938374?origin=crossref">logical investment</a> of time and money.</p> <h2>‘Match quality’</h2> <p>Fast forward five years or so and imagine you are happily married to the recipient of one of those cards. Is it worth repeating the gesture now that you’re settled down together?</p> <p>Economists think of marriages or partnerships as having an inherent “<a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1468-2354.2006.00385.x">match quality</a>”, which reflects how good (or bad) your relationship is – and the likelihood of you breaking up.</p> <p>If match quality falls below the level of happiness you might expect to have if you were to leave, a <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2759255">separation may well follow</a>. But many studies also show that <a href="https://www.jstor.org/stable/2535409">match quality is malleable</a> – that it can change, for better and indeed for worse, over time.</p> <p>You can invest in trying to improve match quality in various ways. It might be starting a family, sharing hobbies and interests, or gestures such as cooking a special meal or exchanging gifts on the 14th day of February. Improving your match quality <a href="https://www.researchgate.net/publication/228431914_How_Does_the_Change_of_Marriage_Quality_Affect_Divorce_Decisions">directly reduces the probability</a> of a separation.</p> <p>Then there’s the question of commitment – the willingness to stay in a relationship rather than walking away. And again, gestures can make a difference.</p> <p>Imagine you have just started a new job, and your employer asks you to complete an intensive training session in your free time, for a skill that would only be useful for that particular role. If you expect to hold the job for a long period, you might happily invest your time. But if your employer is struggling financially and redundancy is on the cards, you are much less likely to agree to perform the task.</p> <p>Relationships work in a similar way. People are more prepared to invest in things like having children or buying a house together if they expect the relationship to last. Given that commitment is not guaranteed by a marriage certificate, people <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=950688">need to find other ways</a> to signal their continued devotion.</p> <p>Celebrating Valentine’s Day is one way of making such a signal. It can show faith in your shared commitment, signify that you wish to continue investing in the relationship and improve match quality, further stabilising the partnership.</p> <p>So even if deep down you think that Valentine’s Day has become over commercialised and meaningless, research suggests it makes good economic sense to send that card.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/223128/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><a href="https://theconversation.com/profiles/selma-wather-1510222"><em>Selma Wather</em></a><em>, Senior Lecturer in Economics, <a href="https://theconversation.com/institutions/university-of-sussex-1218">University of Sussex</a></em></p> <p><em>Image credits: Getty Images </em></p> <p><em>This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/is-valentines-day-worth-the-romantic-investment-heres-what-we-can-learn-from-economics-223128">original article</a>.</em></p>

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Nobel economics prize: insights into financial contagion changed how central banks react during a crisis

<p><em>This year’s <a href="https://www.nobelprize.org/prizes/economic-sciences/2022/prize-announcement/" target="_blank" rel="noopener">Nobel prize in economics</a>, known as the Sveriges Riksbank Prize in Economic Sciences, has gone to Douglas Diamond, Philip Dybvig and former Federal Reserve Chair Ben Bernanke for their work on banks and how they relate to financial crises.</em></p> <p><em>To explain the work and why it matters, we talked to Elena Carletti, a Professor of Finance at Bocconi University in Milan.</em></p> <p><strong>Why have Diamond, Bernanke and Dybvig been awarded the prize?</strong></p> <p>The works by <a href="https://www.nobelprize.org/uploads/2022/10/popular-economicsciencesprize2022.pdf" target="_blank" rel="noopener">Diamond and Dybvig</a> essentially explained why banks exist and the role they play in the economy by channelling savings from individuals into productive investments. Essentially, banks play two roles. On the one hand, they monitor borrowers within the economy. On the other, they provide liquidity to individuals, who don’t know what they will need to buy in future, and this can make them averse to depositing money in case it’s not available when they need it. Banks smooth out this aversion by providing us with the assurance that we will be able to take out our money when it’s required.</p> <p>The problem is that by providing this assurance, banks are also vulnerable to crises even at times when their finances are healthy. This occurs when individual depositors worry that many other depositors are removing their money from the bank. This then gives them an incentive to remove money themselves, which can lead to a panic that causes a bank run.</p> <p>Ben Bernanke fed into this by looking at bank behaviour during the great depression of the 1930s, and showed that bank runs during the depression was the decisive factor in making the crisis longer and deeper than it otherwise would have been.</p> <p><strong>The observations behind the Nobel win seem fairly straightforward compared to previous years. Why are they so important?</strong></p> <p>It’s the idea that banks that are otherwise financially sound can nevertheless be vulnerable because of panicking depositors. Or, in cases such as during the global financial crisis of 2007-09, it can be a combination of the two, where there is a problem with a bank’s fundamentals but it is exacerbated by panic.</p> <p>Having recognised the intrinsic vulnerability of healthy banks, it was then possible to start thinking about policies to alleviate that risk, such as depositor insurance and reassuring everyone that the central bank will step in as the lender of last resort.</p> <p>In a bank run caused by liquidity (panic) rather than insolvency, an announcement from the government or central bank is likely to be enough to solve the problem on its own – often without the need for any deposit insurance even being paid out. On the other hand, in a banking crisis caused by insolvency, that’s when you need to pump in money to rescue the institution.</p> <p><strong>What was the consensus about bank runs before Diamond and Dybvig began publishing their work?</strong></p> <p>There had been a lot of bank runs in the past and it was understood that financial crises were linked to them – particularly before the US Federal Reserve was founded in 1913. It was understood that bank runs made financial crises longer by exacerbating them. But the mechanism causing the bank runs wasn’t well understood.</p> <figure class="align-center zoomable"><a href="https://images.theconversation.com/files/489027/original/file-20221010-11-on0vn4.jpeg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/489027/original/file-20221010-11-on0vn4.jpeg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px" srcset="https://images.theconversation.com/files/489027/original/file-20221010-11-on0vn4.jpeg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=600&amp;h=405&amp;fit=crop&amp;dpr=1 600w, https://images.theconversation.com/files/489027/original/file-20221010-11-on0vn4.jpeg?ixlib=rb-1.1.0&amp;q=30&amp;auto=format&amp;w=600&amp;h=405&amp;fit=crop&amp;dpr=2 1200w, https://images.theconversation.com/files/489027/original/file-20221010-11-on0vn4.jpeg?ixlib=rb-1.1.0&amp;q=15&amp;auto=format&amp;w=600&amp;h=405&amp;fit=crop&amp;dpr=3 1800w, https://images.theconversation.com/files/489027/original/file-20221010-11-on0vn4.jpeg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;h=509&amp;fit=crop&amp;dpr=1 754w, https://images.theconversation.com/files/489027/original/file-20221010-11-on0vn4.jpeg?ixlib=rb-1.1.0&amp;q=30&amp;auto=format&amp;w=754&amp;h=509&amp;fit=crop&amp;dpr=2 1508w, https://images.theconversation.com/files/489027/original/file-20221010-11-on0vn4.jpeg?ixlib=rb-1.1.0&amp;q=15&amp;auto=format&amp;w=754&amp;h=509&amp;fit=crop&amp;dpr=3 2262w" alt="Police controlling an angry crowd during a Paris bank in 1904" /></a><figcaption><span class="caption">A bank run in Paris in 1904.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/paris-police-hold-back-crowd-making-242294071" target="_blank" rel="noopener">Everett Collection</a></span></figcaption></figure> <p><strong>How easy is it to tell what kind of bank run you are dealing with?</strong></p> <p>It’s not always easy. For example, in 2008 in Ireland it was thought to be a classic example of bank runs caused by liquidity fears. The state stepped up to give a blanket guarantee to creditors, but it then became apparent that the banks were really insolvent and the government had to inject enormous amounts of money into them, which led to a sovereign debt crisis.</p> <p>Speaking of sovereign debt crises, the work by Diamond and Dybvig also underpins the literature on financial contagion, which is based on a <a href="https://www.jstor.org/stable/10.1086/262109" target="_blank" rel="noopener">2000 paper</a> by Franklin Allen and Douglas Gale. I worked with Allen and Gale for many years, and all our papers have been based on the work of Diamond, and Diamond and Dybvig.</p> <p>In a similar way to how state reassurances can defuse a bank run caused by liquidity problems, we saw how the then European Central Bank President Mario Draghi was able to defuse the run on government bonds in the eurozone crisis in 2011 by saying that the bank would do “<a href="https://qz.com/1038954/whatever-it-takes-five-years-ago-today-mario-draghi-saved-the-euro-with-a-momentous-speech/" target="_blank" rel="noopener">whatever it takes</a>” to preserve the euro.</p> <figure><iframe src="https://www.youtube.com/embed/tB2CM2ngpQg?wmode=transparent&amp;start=0" width="440" height="260" frameborder="0" allowfullscreen="allowfullscreen"></iframe></figure> <p><strong>The prize announcement has attracted plenty of people on social media saying we shouldn’t be celebrating Bernanke when he was so involved in the quantitative easing (QE) that has helped to cause today’s global financial problems – what’s your view?</strong></p> <p>I would say that without QE our problems would today be much worse, but also that the prize recognises his achievements as an academic and not as chair of the Fed. Also, Bernanke was only one of the numerous central bankers who resorted to QE after 2008.</p> <p>And it is not only the central bank actions that make banks stable. It’s also worth pointing out that the changes to the rules around the amount of capital that banks have to hold after 2008 have made the financial system much better protected against bank runs than it was beforehand.</p> <p><strong>Should such rules have been introduced when the academics first explained the risks around bank runs and contagion?</strong></p> <p>The literature had certainly hinted at these risks, but regulation-wise, we had to wait until after the global financial crisis to see <a href="https://www.ecb.europa.eu/pub/pdf/fsr/art/ecb.fsrart201405_03.en.pdf" target="_blank" rel="noopener">reforms such as</a> macro-prudential regulation and more stringent micro-prudential regulation. This shows that regulators were underestimating the risk of financial crises, perhaps also pushed by the banking lobbies that had been traditionally very powerful and managed to convince regulators that risks were well managed.</p> <p><strong>If retail banks become less important in future because of blockchain technology or central bank digital currencies, do you think the threat of financial panic will reduce?</strong></p> <p>If we are heading for a situation where depositors put their money into central banks rather than retail banks, that would diminish the role of retail banking, but I think we are far from that. Central bank digital currencies can be designed in such a way that retail banks are still necessary. But either way, the insights from Diamond and Dybvig about liquidity panics are still relevant because they apply to any context where coordination failures among investors are important, such as sovereign debt crises, currency attacks and so on.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/192208/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><em><span id="docs-internal-guid-b64a001e-7fff-6de9-427e-bf63c137d340">Written by Elena Carletti. Republished with permission of <a href="https://theconversation.com/nobel-economics-prize-insights-into-financial-contagion-changed-how-central-banks-react-during-a-crisis-192208" target="_blank" rel="noopener">The Conversation</a>. </span></em></p> <p><em>Image: The Nobel Foundation</em></p>

Money & Banking

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Ukraine war: what history tells us about the effectiveness of sanctions

<p>The west has responded to the invasion of Ukraine by <a href="https://theconversation.com/ukraine-sanctions-can-still-make-a-difference-but-only-if-done-right-177783">imposing economic sanctions on Russia</a>. There has been plenty of discussion about whether economic sanctions are an appropriate response, what they hope to achieve and what the results will be – not only for Russia but for the world. </p> <p>Economic sanctions have been used as a tool of war for centuries. In 17th- and 18th-century Europe, when warfare was widespread, economic sanctions were frequently implemented. They included prohibitions on trade, the closure of ports against belligerent enemies, and bans on trade in certain commodities. </p> <p>Economic exchange was affected in more indirect ways, too, by increased privateering and piracy at sea, high taxes, and conscription. The economic consequences of war were felt not only by governments, but by merchants, manufacturers, consumers and wider society, as business and daily life were thrown into chaos.</p> <p>When Britain and France were at war during the Nine Years’ War (1688-97) and the War of the Spanish Succession (1702-13), both sides imposed economic sanctions on the other.</p> <p>England entered the <a href="https://www.nam.ac.uk/explore/nine-years-war">Nine Years’ War</a> by declaring war on France on May 17, 1689, in response to Europe-wide concerns that France – and its absolutist monarch Louis XIV – was growing too strong. In its declaration of war, parliament authorised officials to “arrest all ships and vessels conveying any goods or merchandise in them belonging to the French King or to his subjects and inhabitants”. </p> <p>When Scotland followed suit on August 6, the declaration of war forbade any Scottish subjects “to trade or correspond … with the said French king or any of his subjects”.</p> <p>France and Britain again found themselves on opposing sides during the <a href="https://www.nam.ac.uk/explore/Spanish-succession">War of the Spanish Succession</a>, a conflict fought over the disputed succession to Spain’s vacant throne and control over that country’s vast global territories. Similar economic sanctions were imposed. In January 1701, the Scottish parliament embargoed “the importation of all French wines, Brandy and other strong waters and vinegar made in France from any place”. </p> <p>The potential for broader ramifications are clear – not only would this harm France, but economic consequences would be felt by any nation doing business in French produce. There were social consequences, too, for anyone who enjoyed drinking French wine.</p> <p>This resonates with current fears over the price of oil. As prices soar as a <a href="https://www.bbc.co.uk/news/business-52188448">direct result of the Ukraine conflict</a> and <a href="https://www.bbc.co.uk/news/world-us-canada-60666251">global bans</a> on Russian oil imports, it is feared that prices of crude oil could <a href="https://oilprice.com/Latest-Energy-News/World-News/Russia-Says-Energy-Embargo-Could-Send-Oil-Prices-Over-300.html">rise as high as US$300 (£228) a barrel</a>. Just like in 1701, this economic sanction does not only harm the nation against whom it is aimed, but has consequences across the globe.</p> <h2>Turning a blind eye</h2> <p>But these early-modern sanctions met with mixed success. Individual merchants used a variety of tactics to circumvent them, including sailing in neutral ships or carrying falsified documents, as well as entering goods through different ports. In addition, governments on both sides of the channel were complicit in permitting activities that undermined economic sanctions.</p> <p>In 1692, three years into the Nine Years’ War, the Scottish privy council issued six passes for ships to travel to Bordeaux on a commercial venture. Again, in May 1693, Scots were allowed to trade with and travel to France with “express leave” of the monarch or privy council of Scotland. French admirals, too, ignored their own sanctions, granting passes for British ships to trade in La Rochelle and Bordeaux throughout the Nine Years’ War.</p> <p>Similar patterns emerged during the War of the Spanish Succession. The British monarch, Queen Anne, earned herself a reputation for granting passes that allowed trade with France to continue despite wartime embargoes. And in 1702 the English treasury reported that French wine was being brought over from the Spanish port of St Sebastian: “It was taken there from Bordeaux, a Spanish name given to it, and reshipped in Spanish casks”. </p> <p>There was also widespread bribery of port officials. In 1703, <a href="https://www.british-history.ac.uk/cal-treasury-papers/vol3/pp99-127">the English treasury noted that</a>: "This management seemed to be carried on in concert between the consuls in foreign parts and some officers in the Customs … who for private gratuities undertook for and passed such wines as were of the growth of Spain. "</p> <p>In 1704, in England, the House of Lords <a href="https://www.google.co.uk/books/edition/The_Wine_Trade/4QONQgAACAAJ?hl=en">undertook an enquiry</a> that found that 15 ships in Bordeaux, mostly from the West Country, had loaded French brandies and wines. The resulting report stated that the government discouraged informers and was inclined to hush the matter up rather than pursue the offenders.</p> <p>The stringent economic sanctions imposed during these early-modern conflicts were not consistently upheld, even as bold public statements were made about the strength of enmity. The importance of international economic relationships meant that trade had to be allowed to continue, and governments needed to reconcile their political aims with economic necessity. Early-modern economies were interdependent, so it was in nobody’s interests to destroy established trading routes, whatever the political context.</p> <p>We are already seeing the broader consequences of sanctions imposed on Russia, particularly in terms of the rising prices of oil and <a href="https://www.bbc.co.uk/news/business-60653856">food</a>. As the world watches Ukraine, it is worth remembering that in the past, the cost of upholding economic sanctions was often seen as too high a price to pay.</p> <p><em>Image credits: Getty Images</em></p> <p><em>This article originally appeared on <a href="https://theconversation.com/ukraine-war-what-history-tells-us-about-the-effectiveness-of-sanctions-178835" target="_blank" rel="noopener">The Conversation</a>. </em></p>

International Travel

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The economics of ridiculously expensive art

<p>What would possess someone to buy Leonardo da Vinci’s Salvator Mundi for <a href="https://www.nytimes.com/2017/11/15/arts/design/leonardo-da-vinci-salvator-mundi-christies-auction.html">US$450 million</a>? You might think it’s an investment - after all it was previously sold <a href="https://news.artnet.com/market/timeline-salvator-mundi-went-45-to-450-million-59-years-1150661">for just US$10,000</a> in 2005. </p> <p>From an economic point of view, art can be an investment. Although the research shows art investing has mixed results. Art also has what economists refer to as “<a href="https://www.amazon.com/Beyond-Price-Economics-Institute-Political/dp/0521183006">psychic benefits</a>”. It is something to be enjoyed, experienced or flaunted, and this may be the key to the high price paid for Salvator Mundi. </p> <h2>Art as an investment</h2> <p>As an investment, art’s performance varies wildly, depending on a number of factors. For instance, artworks associated with movements that are currently fashionable will outperform other types of art.</p> <p><a href="https://theconversation.com/au/topics/contemporary-art-1519">Contemporary art</a> is <a href="http://www.artagencypartners.com/market-analysis/impressionist-and-modern-2/">currently outperforming</a> <a href="https://theconversation.com/au/topics/impressionism-29990">impressionist art</a>, for example. The strong demand for contemporary art coupled with limited supply has resulted in some previously overlooked artists, such as <a href="http://www.haring.com/">Keith Haring</a>, being embraced by collectors.</p> <p>But it is typically the works of leading artists that are in hot demand.</p> <p><a href="https://news.artnet.com/market/25-artists-account-nearly-50-percent-postwar-contemporary-auction-sales-1077026">Recent analysis</a> found that just 25 artists (including <a href="http://basquiat.com/">Jean-Michel Basquiat</a>, <a href="https://www.warhol.org/andy-warhols-life/">Andy Warhol</a> and <a href="https://www.gerhard-richter.com/en/">Gerhard Richter</a>) account for US$1.2 billion of the US$2.7 billion in worldwide art auction sales for contemporary art sold at auction this year.</p> <p>Only two women, <a href="http://www.artnet.com/artists/agnes-martin/">Agnes Martin</a> and <a href="http://yayoi-kusama.jp/">Yayoi Kusama</a>, made it onto the top 25 contemporary artists list. This is indicative of issues around <a href="https://theconversation.com/the-gender-pay-gap-is-wider-in-the-arts-than-in-other-industries-87080">gender representation in the arts</a> and the processes by which artists careers and reputations are established.</p> <p>Academic studies of art as an investment have mixed results. For instance, <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=563587">research</a> of the Canadian art market found that the returns are lower than investing in the stock market. However, the study identifies other benefits to having art in your portfolio, such as it being more diversified.</p> <p>But <a href="http://www.emeraldinsight.com/doi/abs/10.1108/10309610810891346">research</a> based on around 35,000 paintings by leading Australian artists show the financial returns average between 4% and 15%. Returns for paintings by leading Australian artists including <a href="http://www.australia.gov.au/about-australia/australian-story/brett-whiteley">Brett Whiteley</a> and <a href="http://www.artnet.com/artists/jeffrey-smart/biography">Jeffrey Smart</a> exceed stock market returns. The study also found that oil and watercolour paintings, as well as those sold by certain auction houses, had higher prices.</p> <p>So-called “masterpieces”, such as those by Leonardo da Vinci, actually <a href="https://www.deepdyve.com/lp/american-economic-association/art-as-an-investment-and-the-underperformance-of-masterpieces-p7UeNVweF6">perform worse</a> financially than the art market as a whole. </p> <p>However, because art also provides benefits through consumption (prestige, decoration etc.), it is different to shares and bonds. The returns may be lower, but art is still attractive to invest in.</p> <p>The Australian art market reflects what has happened in the global market for contemporary art. For instance the five highest priced Australian works sold in 2017 <a href="https://www.aasd.com.au/index.cfm/annual-auction-totals/">account for almost 10%</a> of the total value of all works sold. </p> <p>And while the recent sale of Earth Creation 1 by the late Indigenous artist Emily Kame Kngwarreye has not attracted the attention of the Leonardo sale, its <a href="http://thenewdaily.com.au/entertainment/arts/2017/11/17/emily-kame-kngwarreye-aboriginal-art-record-auction/">price of $A2.1 million</a> is nearly double what it sold for at auction a decade earlier.</p> <h2>Art for consumption</h2> <p>The aesthetic pleasure of art, a feeling of being challenged or inspired, is subjective and <a href="https://www.sciencedirect.com/science/article/pii/B9780444537768000040">difficult to measure</a>. But that doesn’t mean the consumption of art doesn’t add to its value. </p> <p><a href="https://www.amazon.co.uk/Beyond-Price-Economics-Institute-Political/dp/0521183006">Economists</a> use the terms “psychic returns” or “psychic benefits” to describe the benefits of consuming art. This is broken down into three main areas. </p> <p>One area is the satisfaction of supporting the arts and artists. This motivation is especially important for those who donate their collections to museums or otherwise support the arts. While this motivation is important it is not directly related to auction prices. </p> <p>Then there’s the psychic benefit comes from the “functional” (or decorative) benefits of art that is used to adorn spaces. This is generally the closest to the artists intention when they create the work in the first place. </p> <p>There’s also the prestige that comes from possessing art - especially as it is used to display good taste, wealth and power. For instance, entrances and foyers of offices often display large striking works of modern or contemporary art. </p> <p>This is what <a href="https://www.aeaweb.org/articles?id=10.1257/aer.99.4.1653">economists</a> call “conspicuous consumption”. As people become wealthier, their demand for high-end art increases. Indeed, art has a long tradition of being used as a statement of power, including by the church.</p> <p>What drives the art market, especially at the upper echelons, is a curious mix of investment and consumption, fuelled by a limited supply.</p> <p>The work of famous artists provides a signal of quality and assurance to the market and so their work is coveted by the rich and powerful. The uniqueness and rareness of these pieces not only spurs demand, but restricts supply, creating a perfect storm to drive prices up. </p> <p>Although, even this doesn’t entirely explain the high price paid for Leonardo’s Salvator Mundi. <a href="https://news.artnet.com/market/the-gray-market-salvator-mundi-sale-1117208">Analysis</a> of the sale suggests the market campaign by the auction house was significant in achieving such a high price.</p> <p>But aside from its trade value, art can have cultural value and social significance that do not neatly translate to market prices. So while Leonardo’s Salvator Mundisold for US$450 million, non-tradable masterpieces such as Michaelangelo’s ceiling of the Sistine Chapel aren’t worthless. They’re “<a href="https://www.amazon.com/Beyond-Price-Economics-Institute-Political/dp/0521183006">beyond price</a>”.</p> <p><em>Image credits: Getty Images</em></p> <p><em>This article originally appeared on <a href="https://theconversation.com/the-economics-of-ridiculously-expensive-art-87668" target="_blank" rel="noopener">The Conversation</a>. </em></p>

Art

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Don’t look Up! has a surprising amount to tell us about economics, much of it useful

<p>In the new Netflix sensation <em><a rel="noopener" href="https://www.netflix.com/au/title/81252357" target="_blank">Don’t Look Up</a></em>, two astronomers, played by Jennifer Lawrence and Leonardo Di Caprio, discover a massive comet heading towards Earth, and desperately try to warn the US president, played by Meryl Streep.</p> <p>Their hope is the government will take action to avert catastrophe while there is time. Their efforts are subverted by a combination of self-serving political cynicism, billionaire business interests, a media that sees its job as respecting those interests and that cynicism, and a population conditioned not to look up.</p> <p>It is an obvious metaphor for the threat of climate breakdown, where warnings and pleadings from climatologists and scientists and from a growing number of campaigners, ecological economists and others, are being ignored, trivialised and sometimes even ridiculed by political insiders.</p> <p>But after 40 years marked by the dominance of <a rel="noopener" href="https://www.investopedia.com/terms/n/neoliberalism.asp" target="_blank">neoliberal</a> pro-market economic policies, the metaphor can be extended to almost any challenge requiring a serious response, particularly where it involves standing up to vested interests.</p> <p>There’s more amiss than vision and courage. Public services no longer have the capacity they did to respond to problems like long-term climate change and short-term pandemics.</p> <p>Their administrative and decision-making capacity has been stripped away, as has the surge capacity in health systems and in many countries the ability to react to disruptions to supply chains – all in the name of efficiency, but with the effect of creating fragility while contributing to inequality and extremism.</p> <p><strong>Hayek, Friedman and Buchanan got us here</strong></p> <p>Neoliberalism is rooted in the work of three Chicago School economists: Friedrich Hayek, Milton Friedman and James Buchanan.</p> <p><a rel="noopener" href="https://plato.stanford.edu/entries/friedrich-hayek/" target="_blank">Hayek</a>, though a famous name, was probably the least influential of the three. He saw mixed economies, market-based but regulated by governments, as inevitable steps on the road to totalitarianism.</p> <p><a rel="noopener" href="https://www.investopedia.com/terms/m/milton-friedman.asp" target="_blank">Friedman</a> espoused a naïve and outdated theory of money, which was no sooner adopted than abandoned in the early 1980s, but like Hayek saw freedom in low taxes and championed privatisation and deregulation. It was Friedman who argued that many people had to remain unemployed in order to suppress wages.</p> <p><a rel="noopener" href="https://www.libertarianism.org/topics/james-m-buchanan" target="_blank">Buchanan</a>, like Friedman, argued that politicians and public servants could be trusted to act in in their own interests at a cost to society, and that almost anything that could be done by public servants could be done better by the private sector.</p> <p>In the 1980s the trio effectively took over the conservative side of politics in high-income countries. Their ideas also helped intimidate those on the other side, including the Hawke-Keating Labor government in Australia, and every Labor front bench that succeeded them. That influence persists to this day.</p> <p><strong>Mazzucato, Kelton and Raworth want to get us out</strong></p> <p>In her book <em><a rel="noopener" href="https://marianamazzucato.com/books/mission-economy" target="_blank">Mission Economy</a></em>, the University College London economist Marianna Mazzucato imagines a different relationship between the public and private sectors: a proactive, problem-solving government cooperating with the private sector to address, among other things, climate change and the problems and opportunities associated with a rapid transition to sustainability.</p> <p>This would require rebuilding public capacity and an approach to government experimentation and risk-taking not seen for 40 years.</p> <p>Aligned with her are modern monetary theorist Stephanie Kelton and ecological economist Kate Raworth.</p> <p><a href="https://images.theconversation.com/files/439590/original/file-20220106-27-iufaef.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/439590/original/file-20220106-27-iufaef.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=237&amp;fit=clip" alt="" /></a> <em><span class="caption">Stephanie Kelton, at Adelaide university in January 2020.</span> <span class="attribution"><span class="source">John Staines</span></span></em></p> <p>Kelton’s <em><a rel="noopener" href="https://theconversation.com/bernie-sanders-economic-adviser-has-a-message-we-might-just-need-130182" target="_blank">The Deficit Myth</a></em> describes how modern monetary systems work and demolishes the metaphor of the government as a household used by neoliberals to push for balanced budgets and minimalist governments.</p> <p>Kelton points out it is normal for governments to run deficits (Australia’s Commonwealth government <a rel="noopener" href="https://theconversation.com/memories-in-1961-labor-promised-to-boost-the-deficit-to-fight-unemployment-the-promise-won-115376" target="_blank">nearly always has</a>) and that these deficits allow the private sector to avoid building up debt.</p> <p>Governments that create their own currencies such as America’s or Australia’s are well-placed to guide the private sector to serve a public purpose.</p> <p>While both Mazzucato and Kelton discuss what this means, and give examples, it is Raworth’s book that most clearly identifies the goal governments should aspire to.</p> <p>That book is called <em><a rel="noopener" href="https://theconversation.com/stay-in-the-doughnut-not-the-hole-how-to-get-out-of-the-crisis-with-both-our-economy-and-environment-intact-151917" target="_blank">Doughnut Economics</a></em>. It sets out a framework for providing everyone with an opportunity to enjoy a secure, dignified and connected life, while respecting nine environmental planetary boundaries that are prerequisites for the maintenance of the planet.</p> <p><a href="https://images.theconversation.com/files/374713/original/file-20201214-19-1wp3kad.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/374713/original/file-20201214-19-1wp3kad.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /></a> <span class="caption"></span> <em><span class="attribution"><a rel="noopener" href="https://doughnuteconomics.org/" target="_blank" class="source">doughnuteconomics.org</a></span></em></p> <p>The framework requires a shift of focus away from the goal of economic growth as defined by gross domestic product towards a set of indicators of a successful society. The indicators are similar to the UN <a rel="noopener" href="https://sdgs.un.org/goals" target="_blank">sustainable development goals</a>.</p> <p>Both Kelton and Raworth are members of the World Health Organization’s <a rel="noopener" href="https://www.who.int/groups/who-council-on-the-economics-of-health-for-all" target="_blank">Council on the Economics of Health for All</a>, chaired by Mazzucato. Its guiding principle is that health should be seen not only as a human right but also as an investment in continued prosperity. It is an approach that would have led, among much else, to better preparations for the long-predicted pandemic.</p> <p><strong>Deficit-funded spending pays dividends</strong></p> <p>With Kelton and others, including leading medical researcher Steve Robson and health economist Martin Hensher, I have discussed the implications of modern monetary theory for health in an article for the <em>Insight</em> magazine of the <a rel="noopener" href="https://insightplus.mja.com.au/2021/21/whos-afraid-of-the-deficit-what-it-means-for-health-care/" target="_blank">Medical Journal of Australia</a>, and in a position paper for the <a rel="noopener" href="https://iht.deakin.edu.au/wp-content/uploads/sites/153/2021/06/IHT_Position_Paper.MMT_healthcareinAust_140621.pdf" target="_blank">Institute for Health Transformation</a> at Deakin University.</p> <p>As a nation, we should not have been worried by the prospect of health spending climbing above 10% of gross domestic product as it did in 2015-16, nor by the prospect of it climbing higher in future decades. We should be investing in resources including the skills, health infrastructure and technology we will need to deal with future pandemics and the consequences of climate change.</p> <p>On climate change, it is gradually dawning on people that the outcome of COP26 in Glasgow was not up to the challenge we face and that many countries will not even achieve what they committed themselves to at Glasgow.</p> <p>To a greater or lesser extent, every leader of a high-income country is failing to articulate a mission in regard to climate change, to drive that mission with the right public investments, and to locate the problems of climate change within the broader context of the planetary boundaries identified by Raworth – the most obvious of which is biodiversity.</p> <p>The attitude is “Don’t Look Up!”, we have got this. Or “technology will save us”, as President Orlean (Meryl Streep) believed in the movie.</p> <p><strong>Few leaders any better than Streep</strong></p> <p><a href="https://images.theconversation.com/files/439603/original/file-20220106-15-gnu99g.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/439603/original/file-20220106-15-gnu99g.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=237&amp;fit=clip" alt="" /></a> <em><span class="caption">Meryl Streep as President Orlean.</span> <span class="attribution"><span class="source">Tavernise/Netflix</span></span></em></p> <p>A search by Raworth’s colleagues at the University of Leeds has failed to identify any country anywhere in the world that is providing its citizens with the social foundations for a good life while remaining inside planetary boundaries.</p> <p>If that was to be the definition of a developed economy, none of our economies are developed.</p> <p>We are either not meeting the needs of our people or exceeding the carrying capacity of our planet, or (in the case of about <a rel="noopener" href="https://www.nature.com/articles/s41893-021-00799-z" target="_blank">a third</a> of countries) doing both at once.</p> <p>Therein lies both a warning and a challenge; a threat and an opportunity.</p> <p>Our mission ought to be to meet social foundations everywhere without destroying the environment of which we are a part and on which we depend.</p> <p><strong>We have an opportunity to govern differently</strong></p> <p>Governments, and especially monetary sovereign governments in high income countries such as Australia, will have to lead the way.</p> <p>They will have to throw off the neoliberalism of Friedman, Hayek and Buchanan, and the baggage which goes with it and buy into the new economics of Kelton, Raworth, Mazzucato and their colleagues.</p> <p>Then we can look up, with some confidence that we can deflect the metaphorical comets that threaten the lives of millions and the quality of life for us all.</p> <p>The resources and the technology to do what’s needed already exist. But until now we have been trapped in an outmoded way of thinking about both the role of government and the purpose of economic activity that has held us back to the point where the comet is bearing down upon us.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/174399/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: https://theconversation.com/republishing-guidelines --></p> <p><em><a rel="noopener" href="https://theconversation.com/profiles/steven-hail-1302961" target="_blank">Steven Hail</a>, Adjunct Associate Professor, <a rel="noopener" href="https://theconversation.com/institutions/torrens-university-australia-899" target="_blank">Torrens University Australia</a></em></p> <p><em>This article is republished from <a rel="noopener" href="https://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a rel="noopener" href="https://theconversation.com/dont-look-up-has-a-surprising-amount-to-tell-us-about-economics-much-of-it-useful-174399" target="_blank">original article</a>.</em></p> <p><em>Image: Netflix</em></p>

Movies

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A little ray of sunshine as 2021 economic survey points to brighter times ahead

<p>Suddenly, economic forecasters are optimistic.</p> <p>Six months ago the forecasting team assembled by The Conversation was expecting Australia’s recession to continue into 2021, sending the economy backwards a further 4.6% throughout the year.</p> <p>This morning, in the survey prepared ahead of the Reserve Bank board’s first meeting for the year and an address by the Reserve Bank governor to the National Press Club on Wednesday, the same forecasting team is upbeat.</p> <p>It expects the recovery that began in the</p> <p> September quarter of last year to continue, propelling the economy forward by a larger than normal 3.2% throughout 2021, with growth slowing to more sedate 2.1% per year by the middle of the decade, still well above than dismal 1.7% per year expected six months ago.</p> <p>The unemployment rate is now expected to remain near its present 6.6% throughout 2021, instead of soaring to almost 10% as expected six months ago.</p> <p><span></span>But improvement in the unemployment rate is expected to be slow, and as house prices and share market prices climb, most of the panel expect the Reserve Bank to lose its patience and begin to lift interest rates from their emergency lows before the end of next year, ahead of its published schedule.</p> <p>The 21-person forecasting panel includes university-based macroeconomists, economic modellers, former Treasury, IMF, OECD, Reserve Bank and financial market economists, and a former member of the Reserve Bank board.</p> <p><strong>Economic growth</strong></p> <p>Only two of the panel expect the economy to shrink further in 2021.</p> <p>The rest expect the economy to grow, two of the panel by at least 5%, something that isn’t out of the question given that the economy shrank by 7% during the worst three months of the 2020 coronavirus restrictions and clawed back only<span> </span><a href="https://theconversation.com/it-isnt-right-to-say-we-are-out-of-recession-as-these-six-graphs-demonstrate-151210">3.3%</a><span> </span>in the three months that followed.</p> <hr /> <p><iframe id="bH5sm" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/bH5sm/3/" height="400px" width="100%" frameborder="0"></iframe></p> <p>Panellist Saul Eslake who forecast growth of 3.5% in 2021 six months ago is now forecasting growth of 5.25%, saying the transition away from JobKeeper and other supports has been going more smoothly and the property market and residential building market have holding up much better than he had expected.</p> <p>Growth will be constrained by unusually slow population growth, a gradual tightening of government purse strings and anticipation of higher interest rates.</p> <hr /> <p><iframe id="WPE9k" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/WPE9k/2/" height="400px" width="100%" frameborder="0"></iframe></p> <hr /> <p>China’s 2021 growth, expected to be 4% six months ago, is now expected to be 6.3% as it reaps the fruits of having recovered early from its coronavirus crisis with its production systems intact. Panellist Warren Hogan cautions that longer term China is likely to place less importance on economic growth and more on military adventurism.</p> <p>The continuing COVID crisis in the United States is expected to push its recovery out into the second half of the year as vaccination programs and President Biden’s stimulus measures take hold.</p> <p><strong>Unemployment</strong></p> <p>Although few on the panel expect unemployment to get much worse, most believe it will be many years before the unemployment rate shrinks to the 4.5% to 5% the Reserve Bank has adopted as a target.</p> <p>Panellist Julie Toth says the end of JobKeeper in March will reduce the ability of struggling businesses to keep their employees. Closed boarders mean skill mismatches and shortages will grow alongside persistent unemployment and underemployment.</p> <p>Other panellists warn of a “jobless recovery” as large organisations that held onto labour during the crisis start to shed staff as part of digitisation programs.</p> <hr /> <p><iframe id="qaVR7" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/qaVR7/3/" height="400px" width="100%" frameborder="0"></iframe></p> <hr /> <p><strong>Living standards</strong></p> <p>Annual wage growth, at present a minuscule 1.4% – the lowest in the 23 year history of the index – is not expected to improve at all in the year ahead, ending 2021 at 1.4%.</p> <p>At the same time annual inflation is expected to climb from last year’s unusually low 0.9% to 1.6%, putting it above wage growth for the first calendar year on record, sending the buying power of wages backwards.</p> <hr /> <p><iframe id="NSbFV" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/NSbFV/4/" height="400px" width="100%" frameborder="0"></iframe></p> <hr /> <p>A broader measure of living standards, real net national disposable income per capita, which takes account of the hours worked in each job and other sources of income, is expected to continue to climb in 2021, continuing the recovery begun in last year’s September quarter after the precipitous slide of 8% during the first half of last year.</p> <p>Household spending is expected to climb a further 3.4% in real terms, continuing the recovery begun in the September quarter after a slide of 13.8% in the first half of last year.</p> <hr /> <p><iframe id="GqSAx" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/GqSAx/2/" height="400px" width="100%" frameborder="0"></iframe></p> <hr /> <p><strong>Interest rates</strong></p> <p>The panel expects the Reserve Bank to lift its cash rate from the present all-time low of 0.10% well ahead of the “<a href="https://www.rba.gov.au/media-releases/2020/mr-20-32.html">at least three years</a>” timeframe set out by the bank.</p> <p>The bank had promised not increase the cash rate until actual inflation was “<a href="https://theconversation.com/5-ways-the-reserve-bank-is-going-to-bat-for-australia-like-never-before-149311">sustainably within</a>” its 2% to 3% target range.</p> <p>And it had moved the<span> </span><a href="https://theconversation.com/5-ways-the-reserve-bank-is-going-to-bat-for-australia-like-never-before-149311">three-year bond rate</a><span> </span>to 0.10% as a sign that it expected the cash rate to stay at 0.10% for at least three years.</p> <p>Although few on the panel expect inflation to climb back to the Reserve Bank’s target range by the end of next year, most expect the bank to begin to lift its cash rate by then.</p> <hr /> <p><img src="https://images.theconversation.com/files/381256/original/file-20210129-13-1ifkzho.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /><span class="caption"></span><span class="attribution"><span class="source">The Conversation</span>,<span> </span><a href="http://creativecommons.org/licenses/by-nd/4.0/" class="license">CC BY-ND</a></span></p> <p>Panellist Mark Crosby says rising home and other asset prices will put the bank under pressure to backtrack on its commitment in the knowledge that the economy is in a position to withstand more normal rates.</p> <p>Long-term interest rates are already higher than they were at the start of this year.</p> <p>The panel expects the ten-year benchmark used to set the rates at which the government can borrow to gradually climb from last year’s all-time lows.</p> <hr /> <p><iframe id="hWglQ" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/hWglQ/2/" height="400px" width="100%" frameborder="0"></iframe></p> <p><strong>Asset prices</strong></p> <p>Sydney home prices are expected to climb 4.9% after climbing<span> </span><a href="https://www.corelogic.com.au/sites/default/files/2021-01/CoreLogic%20home%20value%20index%20Jan%202021%20FINAL.pdf">2.7%</a><span> </span>in COVID-hit 2020. Melbourne prices are expected to climb a lesser 4.4% after slipping 1.3%.</p> <p>Saul Eslake says Melbourne’s economy has been far more reliant on interstate and international migration than any other part of Australia and has damaged its image as a desirable destination by its handling of the pandemic.</p> <p>Other panellists draw a distinction between apartment price growth, which should be weak because of lower demand for international student rentals, and freestanding home prices which should be supported by an implicit Reserve Bank guarantee of three years of ultra-low interest rates.</p> <p>The panel expects housing investment to climb 3.8% after falling 5% during the first nine months of 2020.</p> <hr /> <p><iframe id="Q1Dwo" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/Q1Dwo/3/" height="400px" width="100%" frameborder="0"></iframe></p> <hr /> <p>The Australian share market collapsed 37% in just over a month in the early weeks of the coronavirus crisis and spent the rest of 2020 recovering.</p> <p>Although opinion is split about 2021, the panel’s average forecast is for growth of 3.5%</p> <p>Panellist Mala Raghavan says low interest rates are forcing long term investors to take positions in companies with strong fundamentals. Craig Emerson says he expects the equities bubble to burst at some point, but probably not while low interest rates continue.</p> <p>At US$160 a tonne, the iron ore price has almost doubled since the start of 2020.</p> <p>On balance the panel expects it to ease to US$133 throughout 2O21, noting that at some point Brazil is going to return to full production after a series of dam collapses and pandemic-related problems. China is thought to prefer to buy from Brazil.</p> <hr /> <p><iframe id="7qg2U" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/7qg2U/3/" height="400px" width="100%" frameborder="0"></iframe></p> <hr /> <p><strong>Business</strong></p> <p>The panel expects Australian businesses to find any lift in the share market and consumer spending uninspiring.</p> <p>After collapsing 24% in the first nine months of 2020 the panel expects non-mining business investment to climb by only 2% in 2021 and 3.1% in 2022.</p> <p>It cites low immigration and uncertainty over COVID and the shape of new business practices as more important in determining investment decisions than the government’s generous tax incentives.</p> <hr /> <p><iframe id="9GSTa" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/9GSTa/2/" height="400px" width="100%" frameborder="0"></iframe></p> <p><strong>Government</strong></p> <p>The panel’s central budget deficit forecasts are not too far from the latest government forecasts<span> </span><a href="https://theconversation.com/so-far-so-good-myefo-budget-update-shows-recovery-gathering-pace-152227">released in December</a><span> </span>at A$192 billion in 2020-21 and $114 billion in 2021-22.</p> <p>Panellists note that the government will have little opportunity to restrain spending in the lead up to the election and will be under pressure to boost the JobSeeker unemployment benefit which is due to sink back to its pre-COVID level on<span> </span><a href="https://theconversation.com/top-economists-want-jobseeker-boosted-by-100-per-week-and-tied-to-wages-150364">April 1</a>.</p> <hr /> <p><iframe id="ZzfIZ" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/ZzfIZ/2/" height="400px" width="100%" frameborder="0"></iframe></p> <p class="p1"><em>Written by Peter Martin. This article first appeared on The Conversation.</em></p>

Retirement Income

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Figures reveal postcodes hit hardest by COVID-19 economic fallout

<p>New figures to be released by Treasurer Josh Frydenberg reveal the postcodes most at risk amid the COVID-19 economic fallout.</p> <p>The data, seen by News Corp, has listed the <a href="https://au.finance.yahoo.com/news/jobkeeper-postcodes-claiming-most-223952219.html">postcodes claiming the most JobKeeper payments</a>.</p> <p>The Sydney (2000) CBD is the region that has claimed the financial assistance the most in the country, with 10,290 businesses receiving the $1,500 fortnightly wage subsidy for each eligible employee.</p> <p>It was followed by the Melbourne (3000) CBD region – which has 6,693 businesses claiming the subsidy – and Liverpool (2170) regions with nearly 4,000.</p> <p>Melbourne’s south west suburbs, Hoppers’ Crossing and Werribee also have more than 3,000 businesses on JobKeeper.</p> <p>In Queensland, Cairns (4870), the Brisbane CBD (4000) and Gold Coast (4217) have the highest number of businesses on JobKeeper.</p> <p><img style="width: 500px; height: 281.25px; display: block; margin-left: auto; margin-right: auto;" src="https://oversixtydev.blob.core.windows.net/media/7836461/treasury.jpg" alt="" data-udi="umb://media/90936ecf46904ec683685a5af486a076" /></p> <p style="text-align: center;"><em>Source: Treasury / Yahoo Finance Australia</em></p> <p>The figures come as the Organisation for Economic Cooperation and Development (OECD) advised Australia to <a href="https://www.abc.net.au/news/2020-06-10/coronavirus-oecd-calls-for-extension-to-jobkeeper-gdp/12340832">extend JobKeeper payments to support households and businesses</a>.</p> <p>In its latest economic outlook report, the OECD said Australia’s economy could contract by 6.3 per cent this year if there is a second wave of coronavirus infections.</p> <p>“Should widespread contagion resume, with a return of lockdowns, confidence would suffer and cash flow would be strained,” the report said.</p> <p>“Even in the absence of a second outbreak, [gross domestic product] could fall by 5 per cent in 2020.”</p> <p>After the Federal Government announced that payments to workers in childcare sector would end this month, Treasurer Josh Frydenberg said other sectors could also be removed from JobKeeper <a href="https://thenewdaily.com.au/news/coronavirus/2020/06/11/oecd-australia-jobkeeper-support/">when the finding of a review is announced on July 23</a>.</p> <p>Around 3.5 million Australians have received support from the $70 billion scheme.</p>

Money & Banking

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Economic snap-back? Not so fast

<p>With the virus on the back foot, it’s tempting to declare victory. Provided we stay vigilant on the public health front, we do have a good chance of keeping the pandemic at bay. But there’s another enemy still to defeat.</p> <p>The public health measures have worked so much better and faster than expected that calls to reign in the economic measures have already begun. The prime minister has said he wants to get the patient <a href="https://theconversation.com/australian-economy-must-come-out-of-icu-scott-morrison-139347">out of the intensive care unit</a> as quickly as possible.</p> <p>But these calls take for granted an economic snap-back that is far from assured.</p> <p>Last month’s stunning revelation that the JobKeeper wage subsidy will cost <a href="https://theconversation.com/treasury-revises-jobkeepers-cost-down-by-massive-60-billion-sparking-calls-to-widen-eligibility-139231">A$60 billion less than expected</a> has been taken by many as good news.</p> <p>But this might not be because there is no need for further aid but rather because there are too many <a href="https://theconversation.com/performers-and-sole-traders-find-it-hard-to-get-jobkeeper-in-part-because-they-get-behind-on-their-paperwork-137997">barriers</a> to accessing it, or business owners have decided it is futile.</p> <p>Even with this underspend, JobKeeper is propping up the wages of a quarter of the workforce. An extra half a million Australians have lost their jobs. While JobKeeper has saved many businesses, still thousands have failed.</p> <p><strong>It’ll be a three-step recovery</strong></p> <p>Reserve Bank Governor Philip Lowe said last week it would be a <a href="https://parlinfo.aph.gov.au/parlInfo/download/committees/commsen/a3af0917-dc51-4d01-a86f-69153eb93040/toc_pdf/Senate%20Select%20Committee%20on%20COVID-19_2020_05_28_7741.pdf;fileType=application%2Fpdf#search=%22committees/commsen/a3af0917-dc51-4d01-a86f-69153eb93040/0000%22">mistake</a> to withdraw the fiscal stimulus too quickly.</p> <p><em>If the economy picks up more quickly, that can be withdrawn safely, but, if the recovery is very drawn out, then it’s going to be very important that we keep the fiscal support going.</em></p> <p>We see the battle plan for a full recovery progressing through three phases: (i) shutting down the economy until the pandemic is under control, (ii) bringing the economy out of the ensuing deep recession, and (iii) putting the economy back on a strong growth path.</p> <p>If we’re lucky, we’re nearing the end of phase one.</p> <p><strong>We’re ready for step two</strong></p> <p>This crisis is unusual. We deliberately engineered an enormous decline in activity in order to achieve the social distancing required to bring the pandemic under control.</p> <p>During this first phase, conventional stimulus would have been of limited help and could have been counterproductive. We needed tools such as JobKeeper to freeze much of the economy with the hope it would thaw once the pandemic was under control.</p> <p>The second phase is the more conventional vicious cycle of workers who lose income spending less causing other workers to lose income.</p> <p>It is best dealt with by fiscal stimulus.</p> <p>Broad-based cash transfers to households, like those implemented in the <a href="https://www.irs.gov/coronavirus-tax-relief-and-economic-impact-payments">United States</a>, would be a powerful complement to existing measures. They could paper over cracks in JobSeeker and JobKeeper over the coming months, and help prevent any relapse as those schemes expire.</p> <p>Economists <a href="https://theconversation.com/vital-signs-the-gfc-and-me-ten-years-on-what-have-we-learned-103514">widely acknowledge</a> the role of the cash stimulus component of the Rudd government’s response to the 2008 global financial crisis in helping Australia avoid recession. The Morrison government could pick the best part of that response while avoiding the less effective parts.</p> <p>Some worry about heightened levels of <a href="https://www.afr.com/policy/economy/kevin-rudd-did-not-save-the-economy-in-2008-20181015-h16ne3">government debt</a>.</p> <p>These concerns are unwarranted. Australia went into the crisis with low debt by international standards, and can borrow at historically low fixed interest rates.</p> <p>It can borrow for ten years at a rate close to 1%, less than the rate of inflation.</p> <p><strong>More debt, sooner, can cut debt</strong></p> <p>The more successful we are at getting the economy out of recession, the less we’ll spend on programs like JobKeeper and JobSeeker.</p> <p>Provided we keep the pandemic at bay, the quicker the economy recovers the sooner earnings and taxes will pick up and the sooner the budget will be back in black.</p> <p>A turn to austerity triggered by debt and deficit concerns of the kind seen in Europe after the global financial crisis could deliver us a <a href="https://www.kansascityfed.org/~/media/files/publicat/sympos/2017/auerbach-gorodnichenko-paper.pdf">slower</a> rather than a faster recovery in our debt to GDP ratio.</p> <p>Phase three in our recovery is the search for programs to increase the <a href="https://www.pc.gov.au/inquiries/completed/productivity-review/report">productive capacity</a> of the economy. They can help make up for lost time, getting the economy back to where it would have been without the crisis. And they can help deflate away the debt.</p> <p>How best to set our economy up for the decades ahead is an important debate. We look forward to it.</p> <p>But let’s not get ahead of ourselves. Now is the time to use the best recession-fighting tools we have to get the economy back on the path to recovery.</p> <p><em>Written by Steven Hamilton, Bruce Preston and Chris Edmond. Republished with permission of </em><a href="https://theconversation.com/economic-snap-back-not-so-fast-139855"><em>The Conversation.</em></a></p>

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Economic growth near an end as Treasury talks of prolonged coronavirus downturn

<p>Australia’s three-decade run of near continuous economic growth is set to end, with treasury warning of a hit to growth of “at least” 0.5% in the first quarter of this year, potentially followed by a “prolonged downturn”.</p> <p>If it came to pass, treasury’s preliminary assessment would most likely mean economic growth vanished and went backwards for several quarters, producing what is commonly known as a “<a href="https://www.smh.com.au/politics/federal/the-really-lucky-country-talk-of-recession-as-australia-takes-world-record-20170601-gwiiwl.html">technical recession</a>” – two quarters or more in which income and spending shrink.</p> <p>Providing the <a href="https://treasury.gov.au/speech/opening-statement-march-2020-senate-estimates">assessment</a> to a Senate estimates committee on Thursday morning, treasury secretary Steven Kennedy said the COVID-19 coronavirus would take “at least half a percentage point” from economic growth during the current March quarter and more beyond that.</p> <p>In recent quarters economic growth has been about half a percentage point.</p> <p>Treasury’s preliminary estimate of a hit of at least half a per cent took into account only the direct impacts of the virus on tourism and education, and some exchange rate effects.</p> <p>It did not take into account broader economic effects or the impact of the coronavirus on supply chains.</p> <p>The half a percentage point hit to growth would come on top of a hit of 0.2% from the summer bushfires, most of which would be felt in the March quarter.</p> <p>Dr Kennedy, a former nurse who retrained as an economist, stressed that the impact of the bushfires would extend well beyond the immediate hit to economic growth.</p> <p>“Evidence from past episodes suggest bushfires can lead to long-lasting physical and mental health effects and destroy cultural heritage,” he said.</p> <p>“Research by the University of Melbourne after the Black Saturday bushfires in 2009 found mental health problems continued for three to four years.”</p> <p>The bushfires made clear the increased probability of such events in a world of climate change.</p> <p>“The CSIRO predicts climate change will make bushfires more likely, as fire weather patterns worsen as a result of an increase in weather patterns with hot and dry winds and fuel becoming drier.”</p> <p>Deeper, wider and longer lasting than SARS</p> <p>As of Wednesday there had been 91,868 confirmed COVID-19 cases worldwide and 3,131 deaths, most in China. COVID-19 had spread to 77 countries.</p> <p>When the virus first emerged in China in December, the treasury saw it through the lens of the 2002-04 Severe Acute Respiratory Syndrome (SARS) pandemic.</p> <p>It was now clear COVID-19 would be different.</p> <p><em>The impact of SARS took on a V shape, a relatively contained reduction in activity, mostly in Asia, followed by a quick bounce back.</em></p> <p><em>The economic impact of COVID-19 is likely to be deeper, wider and longer when compared with SARS.</em></p> <p><em>It will create more risk of a prolonged downturn, and fiscal support will be needed to accelerate the recovery of the economy, especially once the health and health management effects of COVID-19 begin to fade.</em></p> <p>The first phase of the economic support package to be delivered next week would target assistance to the businesses and sectors most affected in order to keep people in jobs.</p> <p>After that, support for aggregate demand (overall spending) would become more important.</p> <p> “A very substantial part of the impact is actually confidence among consumers and the business sector because of the uncertainty,” Dr Kennedy said.</p> <p>“Frankly, effective health management will be very important. The economy is actually quite solid. One of the key things will be to to explain to the community how well placed the economy is to manage such a short-term shock.”</p> <p>The shock would last for some time but the economy would “recover on the other side”.</p> <p>Keeping workers employed would be very important.</p> <p><em>Written by Peter Martin. Republished with permission of </em><a href="https://theconversation.com/economic-growth-near-an-end-as-treasury-talks-of-prolonged-coronavirus-downturn-133053"><em>The Conversation</em></a><em>.</em></p> <p> </p>

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Why the economic impact of Wuhan coronavirus is likely to be limited

<p>The Wuhan coronavirus has had a significant human toll. More than 100 people have <a href="https://www.bloomberg.com/news/articles/2020-01-27/who-chief-heads-to-china-as-efforts-to-contain-virus-accelerate">died</a> and <a href="https://www.reuters.com/article/us-china-health-virus-risks-factbox/factbox-what-is-known-about-the-new-coronavirus-idUSKBN1ZQ0K5">nearly 3,000</a> are known to be infected, including some in <a href="https://www.9news.com.au/national/coronavirus-sydney-scare-as-china-heads-into-shutdown/71c2e099-d49b-42b9-b4b1-02bc4a0457a6">Australia</a>. The number actually infected will be <a href="https://www.theguardian.com/science/2020/jan/26/what-is-the-coronavirus-wuhan-china-virus-sars-symptoms">higher</a>. People experiencing only mild symptoms often don’t report them.</p> <p>The economic cost is as hard to tease out as the health cost, but there are clues.</p> <p>They suggest the coronavirus will have little impact on the global economy, quite a bit in China, and some in Australia, which will most likely be short-lived.</p> <hr /> <p><strong>Confirmed cases of Wuhan coronavirus</strong></p> <p><a href="https://images.theconversation.com/files/312201/original/file-20200128-81362-og8o5w.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/312201/original/file-20200128-81362-og8o5w.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="" /></a> <span class="caption">Data included until January 27th 2019.</span> <span class="attribution"><span class="source">The Conversation</span></span></p> <hr /> <p><strong>China is bearing the immediate brunt</strong></p> <p>The impact in China is already apparent, with 35 million people under effective lockdown, air travel curtailed, and some tourist destinations closed. In a sign the virus might spread, five million people <a href="https://www.businessinsider.com.au/5-million-left-wuhan-before-coronavirus-quarantine-2020-1?r=US&amp;IR=T">reportedly</a> left Wuhan before the lockdown.</p> <p>The Shenzhen and Shanghai composite stock market indexes fell 3.52% and 2.75% before they closed for what turned out to be an <a href="https://www.scmp.com/business/markets/article/3047765/hong-kong-markets-open-normal-amid-wuhan-coronavirus-fears-bourse">extended</a> Lunar New Year break.</p> <p>While China’s steps to contain the coronavirus will hurt its economy in the short term, in longer term they might contain the damage.</p> <p><strong>Previous pandemics suggest scale</strong></p> <p>The world has changed significantly since the the Spanish Flu pandemic of 1918, the Asian Flu pandemic of 1957-58 and even the Severe Acute Respiratory Syndrome (SARS) pandemic of 2002-04.</p> <p>On one hand the world has become better at containment and treatment; on the other, it has become more connected. But previous <a href="https://www.verywellhealth.com/difference-between-epidemic-and-pandemic-2615168">pandemics</a> can tell us a lot.</p> <p><strong>1918 Spanish Flu:</strong> According to the US <a href="https://www.cdc.gov/flu/pandemic-resources/1918-pandemic-h1n1.html">Centers for Disease Control and Prevention</a>, the Spanish Flu hit <a href="https://www.stlouisfed.org/%7E/media/files/pdfs/community-development/research-reports/pandemic_flu_report.pdf">500 million</a> people worldwide, killing as many as 50 million worldwide, including 675,000 in the United States.</p> <p>The US Congressional Budget Office believes such an event in 2006 would have cut US gross domestic product <a href="https://www.cbo.gov/sites/default/files/109th-congress-2005-2006/reports/12-08-birdflu.pdf">4.25%</a> below where it would have been.</p> <p>World Bank calculations suggest a severe pandemic, killing 71 million people, would cut world GDP by <a href="http://documents.worldbank.org/curated/en/977141468158986545/pdf/474170WP0Evalu101PUBLIC10Box334133B.pdf">about 5%</a>.</p> <p><strong>1957-58 Asian Flu Pandemic:</strong> The 1957-58 pandemic killed about <a href="https://www.cdc.gov/flu/pandemic-resources/1957-1958-pandemic.html">1.1 million</a> people worldwide. A follow-up 1968 pandemic had a <a href="https://www.cdc.gov/flu/pandemic-resources/1968-pandemic.html">similar</a> effect.</p> <p>The Congressional Budget Office believes a recurrence would cut United States GDP to <a href="https://www.cbo.gov/sites/default/files/109th-congress-2005-2006/reports/12-08-birdflu.pdf">about 1%</a> below where it would have been. Similar countries would be affected in a similar way. The World Bank believes such a scenario would cut world GDP by between <a href="http://documents.worldbank.org/curated/en/977141468158986545/pdf/474170WP0Evalu101PUBLIC10Box334133B.pdf">1% and 2%</a>.</p> <p><strong>2002-04 SARS pandemic</strong>: <a href="https://www.cdc.gov/sars/about/faq.html">According to the US CDC</a>, SARS infected around 8,100 people, with 774 dying, which was a 9.4% mortality rate. Its economic impact is open to debate. SARS mainly affected mainland China and Hong Kong, with <a href="https://www.ncbi.nlm.nih.gov/books/NBK92473/">one study</a> estimating it cut their GDPs by 1.1% and 2.6%.</p> <p>But because the event coincided with the recovery from a global recession, the effect is hard to estimate. <a href="https://doi.org/10.1016/j.healthpol.2008.03.003">Other estimates</a> are less pessimistic.</p> <p>The economic impact was limited, with little impact outside of China and Hong Kong, as Australia’s Treasury <a href="https://treasury.gov.au/publication/economic-roundup-winter-2003/the-economic-impact-of-severe-acute-respiratory-syndrome-sars">noted</a> at the time.</p> <p><strong>This one should be smaller</strong></p> <p>Here’s what we know.</p> <ul> <li> <p><strong>It’s not yet severe</strong>. Fewer than 100 people have died so far. The mortality rate is just under 3%. China has moved aggressively to contain the virus meaning it should have have less impact on gross domestic product than earlier pandemics.</p> </li> <li> <p><strong>There’s been minimal global impact</strong>. There have been few cases outside China. The countries with few if any reported cases are likely to suffer little impact, as correctly predicted by a Treasury <a href="https://treasury.gov.au/publication/economic-roundup-winter-2003/the-economic-impact-of-severe-acute-respiratory-syndrome-sars">discussion paper</a> on the impact of SARS.</p> </li> <li> <p><strong>China and Hong Kong are the worst hit</strong>. The impact is likely be less than SARS because the coronavirus is less severe, because of China’s forthright containment efforts and because the outbreak has coincided with the Lunar New Year break. However, the aggressive steps taken to contain the virus might have a significant short term impact. Travel has declined significantly. Tourist attractions, such as <a href="https://edition.cnn.com/2020/01/24/business/disneyland-china-wuhan-virus/index.html">Disneyland in China</a> have closed. Wuhan is likely to see a significant economic decline.</p> </li> <li> <p><strong>The impact should be short-lived</strong>. With SARS, the economies of both China and the rest of the world rebounded shortly afterwards. To some extent, this coincided with the world emerging from an economic downturn. But other <a href="https://www.stlouisfed.org/%7E/media/files/pdfs/community-development/research-reports/pandemic_flu_report.pdf">estimates</a> suggest that even the impact of the severe 1918 pandemic was short-lived.</p> </li> <li> <p><strong>Different industries will be impacted differently</strong>. In impacted regions, tourism and consumer spending are likely to be the most significantly hit, <a href="https://www.stlouisfed.org/%7E/media/files/pdfs/community-development/research-reports/pandemic_flu_report.pdf">as was the case in 1918</a>. China has already suffered a significant reduction in <a href="https://www.cnbc.com/2020/01/26/how-coronavirus-is-beginning-to-hit-chinas-economy.html">travel expenditure</a>. Other industries, including medical industries, will experience positive impacts. But given that the coronavirus is relatively contained, the impact is unlikely to spread those industries in other countries.</p> </li> </ul> <p>Taken together these points suggest the coronavirus is unlikely to significantly affect the world economy.</p> <p>Based on what we know so far, the impact on China is likely to be short-lived.</p> <p>The flow-on effect to countries with a relationship with China such as Australia is likely to modest and and also short-lived.</p> <p>Should infection or mortality rates spike, the impact could worsen.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/130598/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: http://theconversation.com/republishing-guidelines --></p> <p><em><a href="https://theconversation.com/profiles/mark-humphery-jenner-118505">Mark Humphery-Jenner</a>, Associate Professor of Finance, <a href="https://theconversation.com/institutions/unsw-1414">UNSW</a></em></p> <p><em>This article is republished from <a href="http://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/what-we-know-suggests-the-economic-impact-of-wuhan-coronavirus-will-be-limited-130598">original article</a>.</em></p>

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"Dismal": 2020 economic survey predicts bleak year ahead

<p>2020 is shaping up as a dismal year for the economy, with no progress on many of the key measures that matter for Australians.</p> <p>Unemployment will stay above 5% and probably rise rather than fall.</p> <p>Economic growth will continue to have a “1” in front of it, instead of the “2” or “3” that used to be common, and living standards will grow more slowly.</p> <p>Wage growth, forecast in the budget to climb to 3%, will instead remain stuck near 2.2%, where it has been for half a decade.</p> <p>Those are the <a href="https://cdn.theconversation.com/static_files/files/857/2020___CONVERSATION_ECONOMIC_SURVEY.pdf?1579661077">central forecasts</a> of a panel of 24 leading economists from 15 universities in six states assembled by The Conversation to review the year ahead, a year they expect to be marked by one only more interest rate cut, more modest growth in house prices, and a return to slower growth in the share market.</p> <p>The panel comprises macroeconomists, economic modellers, former Treasury, IMF, OECD, Reserve Bank and financial market economists, and a former member of the Reserve Bank board. Combined, their forecasts are more likely to be correct than those of any individual member. One-third are women.</p> <p>They expect the long-promised budget surplus to all but disappear as a result of responses to the bushfires and weaker-than-predicted economic growth.</p> <p><strong>Economic growth</strong></p> <p>The Treasury believes the Australian economy is capable of growing at a sustained annual pace of <a href="https://www.smh.com.au/business/the-economy/australias-economy-grew-08-per-cent-in-june-quarter-20170906-gybpqu.html">2.7%</a>, but it hasn’t grown that fast since mid-2018. Growth slipped below 2% in March 2019 and hasn’t recovered. It now has been below 2% for <a href="https://theconversation.com/gdp-update-spending-dips-and-saving-soars-as-we-stash-rather-than-spend-our-tax-cuts-128297">three consecutive quarters</a>, the longest period since the global financial crisis.</p> <p>The panel’s central forecast is for economic growth to stay at or below 2% for at least another year, producing the longest period of low economic growth since the early 1990s recession. The average forecast for the year to December is 1.9%.</p> <p>Panellist Saul Eslake says it will be the result of persistently slow growth in household disposable incomes, reflecting “very slow growth in real wages, the increasing proportion of gross income absorbed by tax, and weakness in property income (interest and rent) as well as (at the margin) the impact of the drought on farm incomes”.</p> <p>It will be domestic rather than overseas conditions that hold back Australian growth. US economic growth is expected to remain little changed at 2.1% notwithstanding trade friction with China, and China’s officially reported growth is expected to ease back only slightly from 6% to 5.8%.</p> <hr /> <p><iframe id="2I7gi" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/2I7gi/3/" height="400px" width="100%" style="border: none;" frameborder="0"></iframe></p> <hr /> <p><strong>Living standards</strong></p> <p>One of the best measures of overall living standards (the one the Reserve Bank watches) is real net national disposable income per capita, which takes better account of buying power than gross domestic product does. In the year to September it climbed an unusual 3.3%, pushed up by a resurgence in iron ore export prices.</p> <p>The iron ore price has since slid from US$120 a tonne to around US$90 a tonne, and the panel’s average forecast is for it to fall further.</p> <p>As a result it expects growth in living standards to slow to 2.4% in 2020, a result that will still be better than between 2012 and 2016 when a dive in export prices sent it backwards.</p> <p>Growth in nominal GDP, the raw total unadjusted for inflation, is also expected to slow, slipping from 5.4% to 4.4% as export prices weaken, producing a decline in revenue growth the government has already factored in to the budget.</p> <p>The unemployment rate is expected to end the year near the top of the 5%-to-5.5% band it has been stuck in for the past two years, rather than falling to the 5% forecast in the budget or towards the <a href="https://www.rba.gov.au/publications/smp/2019/nov/overview.html">4.5%</a> the Reserve Bank believes is possible.</p> <p>Only one of the panel, Warren Hogan, expects the unemployment rate to end the year below 5%.</p> <hr /> <p><iframe id="5RnFy" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/5RnFy/3/" height="400px" width="100%" style="border: none;" frameborder="0"></iframe></p> <hr /> <p><strong>Wages and prices</strong></p> <p>The panel’s central forecast is for inflation to remain below the bottom of the Reserve Bank’s 2-3% target band, where it has been for most of the past five years.</p> <p>One panellist, Margaret McKenzie, breaks ranks. She expects the drought and bushfires and floods to sharply push up the cost of food and essential items including energy, quickly pushing inflation into the range the authorities have long wanted, but not for the reasons they wanted.</p> <p>“I don’t think people have thought about it, because there hasn’t been inflation for so long,” she says. “The problem is that the fires are likely to contract an already weak economy, impelling the Reserve Bank to cut interest rates further, even though its inflation targeting regime would tell it not to.”</p> <p>Wage growth is forecast to be well below the highest inflation forecast and only a little above the central forecast, resulting in continued low real wage growth and seeing the budget miss its wage growth target for the eighth year in a row.</p> <hr /> <p><iframe id="GN8R8" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/GN8R8/3/" height="400px" width="100%" style="border: none;" frameborder="0"></iframe></p> <hr /> <p><strong>Business</strong></p> <p>Household spending barely grew in the year to September, inching ahead by a shockingly low 1.2%, the least since the financial crisis, and not enough to account for population growth.</p> <p>The panel’s central forecast is for a recovery in spending growth to a still-low 2.4%, with spending held back by low consumer confidence and what former Organisation for Economic Co-operation and Development director Adrian Blundell-Wignall calls a “sense that we are living on borrowed time”.</p> <p>“China is slowing, bank-financed housing has been pushing the envelope and is very expensive, and the governments have never had a plan for the next phase of sustainable growth,” he says. “This perception of no confidence in the government has not been helped by the bushfire events.”</p> <p>There are few signs of a recovery in business investment, notwithstanding record-low interest rates.</p> <p>The panel’s average forecast is for investment by mining and non-mining companies to grow by only 1.7% and 1.9% in 2020, which will represent a turnaround for mining, in which investment fell 11.2% in the year to September.</p> <hr /> <p><iframe id="rUx3F" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/rUx3F/3/" height="400px" width="100%" style="border: none;" frameborder="0"></iframe></p> <hr /> <p><strong>Markets</strong></p> <p>Financial markets should provide less support to households in the year ahead, with the ASX 200 share price index expected to climb only 6.4% after soaring 20% in the year just ended.</p> <p>None of the panellists expect last year’s growth to continue.</p> <p>The Australian dollar is expected to end the year at 68 US cents, close to where it is at present. The iron ore price is expected to fall to US$75, a smaller slide than was assumed in the budget.</p> <hr /> <p><iframe id="WFAig" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/WFAig/3/" height="400px" width="100%" style="border: none;" frameborder="0"></iframe></p> <hr /> <p><strong>Home prices</strong></p> <p>Housing investment (homebuilding) is expected to stabilise in 2020, falling only slightly from here on, after sliding 9.6% in the year to September 2019.</p> <p>Sydney and Melbourne home prices are expected to continue to recover, growing by 5% in 2020.</p> <p>Panellist Nigel Stapledon says the higher home prices will in time boost perceptions of wealth, opening up the possibility that consumer spending will “surprise on the upside”.</p> <hr /> <p><iframe id="sVb2U" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/sVb2U/6/" height="400px" width="100%" style="border: none;" frameborder="0"></iframe></p> <hr /> <p><strong>Interest rates and budget</strong></p> <p>The panel’s central forecast is for only one more cut in the Reserve Bank’s cash rate this year, in the first half, followed by no further cuts in the second half. This would allow the bank to avoid so-called unconventional monetary policy or “quantitative easing” in which it forces down longer-term rates by buying government and private bonds, an option Governor Philip Lowe said it would only resort to after it had cut its cash rate to 0.25%.</p> <p>The single cut would take the cash rate to an all-time low of 0.5%. In anticipation the ANZ cut its online saver account rate from 0.1% to <a href="https://www.smh.com.au/politics/federal/anz-cuts-deposit-rates-to-all-time-low-20200123-p53tzd.html">0.05%</a> on Thursday.</p> <p>The cut could come as soon as next week when the board holds its first meeting for the year on February 4. Governor Lowe has scheduled an address to the National Press Club for <a href="https://www.rba.gov.au/media/">the following day</a>.</p> <p>Most of the panel think quantitative easing will not be needed and many question its effectiveness, saying the government could achieve much more by fully abandoning its commitment to surplus in order to stimulate the economy.</p> <p>The panel expects the government’s 10-year bond rate to remain historically low at 1.3%. That makes it about as cheap as it has ever been for the government to borrow for worthwhile purposes.</p> <hr /> <p><iframe id="9nmRo" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/9nmRo/3/" height="400px" width="100%" style="border: none;" frameborder="0"></iframe></p> <hr /> <p>Treasurer Josh Frydenberg has abandoned his absolute commitment to return the budget to surplus this financial year, saying his first priority is “<a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/transcripts/doorstop-interview-treasury-canberra">meeting the human cost of the bushfires</a>”.</p> <p>The 2019-20 surplus was forecast at A$7.1 billion in the May budget and then downgraded to $5 billion in the December update.</p> <p>The panel’s average forecast is for a bushfire-ravaged $2.2 billion.</p> <hr /> <p><iframe id="9ON15" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/9ON15/2/" height="400px" width="100%" style="border: none;" frameborder="0"></iframe></p> <hr /> <p>Most of the panel believe that with good management the government can avoid a recession for another two years, propelling the Australia economy into what will be its 30th straight year of expansion.</p> <p>On average they assign a 27% probability to a recession within the next two years, down from their average forecast of 29% in June.</p> <p>Several point out that, whereas the main risks to continued growth come from overseas, China appears to be managing its slowing economy better than expected, although the emergency triggered by the new and deadly <a href="https://theconversation.com/should-we-be-worried-about-the-new-wuhan-coronavirus-130366">Wuhan coronavirus</a> might change that.</p> <p>Among those who do fear a home-bred recession is Julie Toth who has lifted her estimate of the likelihood of a recession from 25% to 50%, saying growth is already so weak that it won’t take much to send it backwards.</p> <p>“The bushfire disaster presents the real and immediate possibility of two quarters of negative growth for the fourth quarter of 2019 and the first quarter of of 2020,” she says.</p> <p>“Even if disaster relief and fiscal stimulus are delivered swiftly, resource constraints (a lack of skilled tradespeople, water, equipment and appropriate building materials) mean reconstruction will be very slow.”</p> <hr /> <p><iframe id="WPaz5" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/WPaz5/2/" height="400px" width="100%" style="border: none;" frameborder="0"></iframe></p> <hr /> <p>The panel began compiling its responses when the bushfires weren’t as bad as they subsequently became and before the emergence of the Wuhan coronavirus.</p> <p>It delivered its final forecasts on January 20 when the worst of the bushfires appeared to have passed but before the coronavirus had <a href="https://theconversation.com/the-wuhan-coronavirus-is-now-in-australia-heres-what-you-need-to-know-130580">spread</a> to Australia.</p> <p>The effects of both won’t be known for some time.</p> <p>2020 is turning out to be a year of uncertainty, as well as low expectations.</p> <hr /> <h2>The Conversation 2020 Forecasting Panel</h2> <p><em>Click on economist to see full profile.</em></p> <p><iframe id="tc-infographic-457" class="tc-infographic" height="400px" src="https://cdn.theconversation.com/infographics/457/bf44ce885daf5a3f6f0c3f21add509bc262c561f/site/index.html" width="100%" style="border: none;" frameborder="0"></iframe></p> <hr /> <p><span><em><a href="https://theconversation.com/profiles/peter-martin-682709">Peter Martin</a>, Visiting Fellow, <a href="https://theconversation.com/institutions/crawford-school-of-public-policy-australian-national-university-3292">Crawford School of Public Policy, Australian National University</a></em></span></p> <p><em>This article is republished from <a href="http://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/2020-survey-no-lift-in-wage-growth-no-lift-in-economic-growth-and-no-progress-on-unemployment-in-year-of-low-expectations-130289">original article</a>.</em></p>

Retirement Income

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Prince Charles meets Greta Thunberg before addressing World Economic Forum

<p>Donald Trump might not have wanted to meet Greta Thunberg but the future King of England was thrilled to meet <em>Time Magazine’s</em><span> </span>Person of the Year.</p> <p>Prince Charles, an environmental campaigner himself, looked overjoyed to meet the teen activist at the World Economic Forum in Davos, Switzerland.</p> <p>Clarence House shared two photos on their social media page, showing the pair shaking hands and beaming at the cameras.</p> <p>As the media gathered around them, Thunberg said to the Prince of Wales: “I guess you’re very used to this.”</p> <p>“Very true, it’s taken me years to get used to this,” said Charles, to which Thunberg replied: “I am still not used to this.”</p> <blockquote style="background: #FFF; border: 0; border-radius: 3px; box-shadow: 0 0 1px 0 rgba(0,0,0,0.5),0 1px 10px 0 rgba(0,0,0,0.15); margin: 1px; max-width: 540px; min-width: 326px; padding: 0; width: calc(100% - 2px);" class="instagram-media" data-instgrm-captioned="" data-instgrm-permalink="https://www.instagram.com/p/B7oByWLAgYf/?utm_source=ig_embed&amp;utm_campaign=loading" data-instgrm-version="12"> <div style="padding: 16px;"> <div style="display: flex; flex-direction: row; align-items: center;"> <div style="background-color: #f4f4f4; border-radius: 50%; flex-grow: 0; height: 40px; margin-right: 14px; width: 40px;"></div> <div style="display: flex; flex-direction: column; flex-grow: 1; justify-content: center;"> <div style="background-color: #f4f4f4; border-radius: 4px; flex-grow: 0; height: 14px; margin-bottom: 6px; width: 100px;"></div> <div style="background-color: #f4f4f4; border-radius: 4px; flex-grow: 0; height: 14px; width: 60px;"></div> </div> </div> <div style="padding: 19% 0;"></div> <div style="display: block; height: 50px; margin: 0 auto 12px; width: 50px;"></div> <div style="padding-top: 8px;"> <div style="color: #3897f0; font-family: Arial,sans-serif; font-size: 14px; font-style: normal; font-weight: 550; line-height: 18px;">View this post on Instagram</div> </div> <p style="margin: 8px 0 0 0; padding: 0 4px;"><a style="color: #000; font-family: Arial,sans-serif; font-size: 14px; font-style: normal; font-weight: normal; line-height: 17px; text-decoration: none; word-wrap: break-word;" rel="noopener" href="https://www.instagram.com/p/B7oByWLAgYf/?utm_source=ig_embed&amp;utm_campaign=loading" target="_blank">The Prince of Wales meets environmental activist @GretaThunberg at @worldeconomicforum 2020. #wef</a></p> <p style="color: #c9c8cd; font-family: Arial,sans-serif; font-size: 14px; line-height: 17px; margin-bottom: 0; margin-top: 8px; overflow: hidden; padding: 8px 0 7px; text-align: center; text-overflow: ellipsis; white-space: nowrap;">A post shared by <a style="color: #c9c8cd; font-family: Arial,sans-serif; font-size: 14px; font-style: normal; font-weight: normal; line-height: 17px;" rel="noopener" href="https://www.instagram.com/clarencehouse/?utm_source=ig_embed&amp;utm_campaign=loading" target="_blank"> Clarence House</a> (@clarencehouse) on Jan 22, 2020 at 6:33am PST</p> </div> </blockquote> <p>The photos seem to have been taken backstage before the Prince of Wales spoke to a room full of political leaders from around the world, including Trump.</p> <p>Prince Charles gave the keynote speech at the 50th Anniversary of the World Economic Forum and officially launched his Sustainable Markets Council.</p> <p>The project aims “to work towards a more inclusive, equitable and green market for all.”</p> <p>In his speech, the royal said: “We are in the midst of a crisis that is now, I hope, well understood. Global warming, climate change, and the devastating loss of biodiversity are the greatest threats humanity has ever faced – and one largely of our own creation.</p> <p>“I have dedicated much of my life to the restoration of harmony between humanity, nature and the environment, and to the encouragement of corporate social and environmental responsibility.</p> <p>“Quite frankly, it has been a bit of an uphill struggle. But, now, it is time to take it to the next level.”</p>

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Why economic growth isn't enough to guarantee more prosperous Australia

<p>Despite <a href="https://theconversation.com/vital-signs-sure-economic-growth-is-low-but-think-about-whats-gone-right-122973">28 years</a> of uninterrupted economic growth, future generations of Australians face <a href="https://www.sdgtransformingaustralia.com/#/2788/1276//">being worse off</a> due to <a href="https://www.sdgtransformingaustralia.com/#/1249/2659//">increasing household debt</a>, <a href="https://www.sdgtransformingaustralia.com/#/1252/1347//">cost-of-living pressures</a>, <a href="https://www.sdgtransformingaustralia.com/#/1251/1372//">rising wealth inequality</a>, <a href="https://www.aidr.org.au/media/6682/national-resilience-taskforce-profiling-australias-vulnerability.pdf">climate change impacts</a> and <a href="https://soe.environment.gov.au/key-findings-all">environmental degradation</a>.</p> <p>But our <a href="https://www.nature.com/articles/s41893-019-0409-9">new research</a> finds a fairer, greener and more prosperous Australia is possible – so long as political leaders don’t focus just on economic growth.</p> <h2>Evaluating Australia’s progress by 2030</h2> <p>We modelled four development scenarios for Australia through to 2030:</p> <ul> <li>“Growth at all Costs”, emphasising economic growth</li> <li>“Green Economy”, emphasising environmental outcomes</li> <li>“Inclusive Growth”, emphasising social equality</li> <li>“Sustainability Transition”, balancing economic, social and environmental outcomes.</li> </ul> <p>Each scenario involved different policy and investment settings, particularly around tax and subsidies, government expenditure and private investment.</p> <p>We then evaluated each scenario against the <a href="https://www.un.org/sustainabledevelopment/sustainable-development-goals/">Sustainable Development Goals</a>, an internationally recognised set of targets and indicators that measure national progress in 17 major areas. These include economic growth, poverty, inequality, education, health, clean water and clean energy.</p> <h2>Goals, targets and indicators</h2> <p>Each goal involves multiple targets and indicators. Goal 8, for example, is “Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all”. This involves 10 targets including per capita economic growth, decoupling economic growth from environmental degradation, and protecting labour rights. Each target comes with at least one indicator (for example, the growth rate of real GDP per capita, material consumption per GDP, and the rate of occupational injuries).</p> <p>In all, the 17 goals cover 169 targets. Because Australia has not adopted SDG targets, we chose 52 of those (with about 100 indicators) then modelled Australia’s progress in 2030 using our four scenarios.</p> <p>The graph below shows each scenario’s score (with 0% meaning no progress, 100% target achieved) on each of the 17 goals. We also calculated an average score for each scenario across all goals to aid comparison.</p> <h2>Growth alone is not the answer</h2> <p>Our model projects a business-as-usual approach will achieve progress of about 40% across all goals and targets. The “Growth at all Costs’ scenario scored only slightly better: 42%.</p> <p>Economic growth – defined as an increase in a nation’s production of goods and services – is generally measured by the annual change in real gross domestic product (GDP).</p> <p>Our "Growth at all Costs” scenario involves accelerating economic growth through higher population growth and lower taxes. Net migration is modelled as being 350,000 a year by 2030, with the population reaching just over 30 million. The government’s tax revenue as a proportion of GDP is 10% less than now as a result of lower tax rates.</p> <p>Government spending is about 15% less (as a percentage of GDP), with cuts particularly to health, education and social security, but more spending on transport infrastructure. There are no new measures to tackle greenhouse gas emissions, land degradation or other environmental concerns.</p> <p>In our modelling this scenario increases GDP growth to about 2.6% a year, with low unemployment and declining government debt. But it comes at the expense of income inequality and the environment.</p> <p>Even on the one goal it might be expected to do relatively well – Goal 8 – this scenario performs quite poorly. That’s because the goal measures per capita GDP growth, not just the total GDP growth most politicians talk about, along with a range of social and environmental indicators.</p> <p>The following graphs show how the four scenarios compare on real GDP (i.e. adjusted for inflation), per capita GDP, income inequality and greenhouse gas emissions.</p> <h2>Sustainability transition</h2> <p>With an overall score of 70%, the “Sustainability Transition” scenario is the clear winner.</p> <p>This scenario modelled slower population growth and higher taxes on consumption, income and profits and trade. With net migration of 100,000 a year by 2030, the population reaches about 28 million. Tax revenue as a percentage of GDP is about 8.5% higher than now. This funds more spending on health, education and social security, as well as the equivalent to 1% of GDP on the sustainability of transport, water, energy, agriculture and energy systems.</p> <p>The overall result is economic growth of about 2.1% a year, with government debt 10% higher than our business-as-usual projection.</p> <p>But per capita GDP is higher. Unemployment and income inequality are lower. Fewer people live in relative poverty, and life expectancy is higher. Energy, water and resource consumption is down. So are greenhouse gas emissions. There is more forested land. This delivers a more prosperous, fairer and greener nation in 2030.</p> <h2>Possible futures</h2> <p>These results run contrary to the “growth and jobs” narrative that <a href="https://www.businessinsider.com.au/heres-how-many-times-scott-morrisons-budget-speech-used-the-catchphrase-jobs-and-growth-2016-5">dominates political debate in Australia</a>. Both sides of politics emphasise economic growth as the key to prosperity. But this narrative is clearly flawed when we look at a broader set of issues.</p> <p>The Sustainable Development Goals seek to capture all of these issues in a coherent way. Our study explores four plausible futures, and there are many other possible combinations that could be explored with worse or better results.</p> <p>What is clear is that business as usual certainly won’t ensure Australia has a more prosperous, fairer and environmentally sustainable society.<!-- Below is The Conversation's page counter tag. Please DO NOT REMOVE. --><img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/126823/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /><!-- End of code. If you don't see any code above, please get new code from the Advanced tab after you click the republish button. The page counter does not collect any personal data. More info: http://theconversation.com/republishing-guidelines --></p> <p><em>Written by <span>Cameron Allen, Researcher, UNSW; Graciela Metternicht, Professor of Environmental Geography, School of Biological Earth and Environmental Sciences, UNSW, and Thomas Wiedmann, Associate Professor, UNSW</span>. Republished with permission of </em><a rel="noopener" href="https://theconversation.com/we-modelled-4-scenarios-for-australias-future-economic-growth-alone-cant-deliver-the-goods-126823" target="_blank"><em>The Conversation</em></a><em>.</em></p>

Retirement Income

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Honesty is the best policy? Research reveals when people are most likely to return a lost wallet

<p><span style="font-weight: 400;">According to classic economic theory, if you find a wallet on the street and find money in the wallet, your self interest in keeping the cash is likely to override the more honest behaviour of returning the wallet.</span></p> <p><span style="font-weight: 400;">However, new research in 40 countries has found that people are more honest than they think, at least when it comes to returning money to strangers.</span></p> <p><span style="font-weight: 400;">A study of 17,000 “lost” wallets in 355 cities revealed that people are more likely to return a wallet if it had money in it than when it was empty.</span></p> <p><span style="font-weight: 400;">The study also found that if there was more money in the wallet, the more likely people were to return the wallet.</span></p> <p><span style="font-weight: 400;">The study was published in the journal </span><a href="https://science.sciencemag.org/lookup/doi/10.1126/science.aau8712"><span style="font-weight: 400;">Science</span></a> <span style="font-weight: 400;">said that a team of people handed in wallets that they claimed to find on the street in front of major institutions, such as banks or post offices.</span></p> <p><span style="font-weight: 400;">The wallets contained no money, or the equivalent of US$13.45 in local currency, a grocery list and three identical business cards in the local language which made it possible to return the wallet.</span></p> <p><span style="font-weight: 400;">In 38 out of 40 countries, people were more likely to return the money if it has money in it.</span></p> <p><span style="font-weight: 400;">"This is something we didn't expect," said behavioural economist Alain Cohn of the University of Michigan to the </span><a href="https://www.abc.net.au/news/science/2019-06-21/people-are-more-likely-to-return-a-wallet-if-it-has-money-in-it/11227766"><span style="font-weight: 400;">ABC.</span></a></p> <p><span style="font-weight: 400;">Dr Cohn said that there were two factors to explain the findings.</span></p> <p><span style="font-weight: 400;">"One is altruism — where you care about the other person even though they are a stranger."</span></p> <p><span style="font-weight: 400;">The second finding is that people didn’t like to view themselves as dishonest.</span></p> <p><span style="font-weight: 400;">"They said the more money in the wallet, the more they would feel like a thief if they didn't return it," he said.</span></p> <p><span style="font-weight: 400;">"The larger the amount of money, the more worried you are about your self-image — the more difficult it is to convince yourself that you're still a good person."</span></p>

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