Monday, September 26, 2016
Fortunately, the wonders of the internet allow us to read for ourselves what they're being told by the trumps at the Organisation for Economic Co-operation and Development and the International Monetary Fund.
It's clear those at the leading edge are getting increasingly worried about the outlook for the world economy and are urging a marked change of policy direction.
But while the trumps see a need for policy to swing back to the centre, our unruly Coalition is intent on drifting off to the far right.
Our preoccupation is with protecting the aspirations of the richest superannuants, changing the Racial Discrimination Act, delaying same-sex marriage, protecting negative gearing and blaming the budget deficit on greedy welfare recipients.
Back where they still care about the economy, the OECD is worried that "the world economy remains in a low-growth trap, with poor growth expectations depressing trade, investment, productivity and wages.
"This, in turn, leads to a further downward revision in growth expectations and subdued demand. Poor growth outcomes, combined with high inequality and stagnant incomes, are further complicating the political environment, making it more difficult to pursue policies that would support growth and promote inclusiveness," last week's OECD interim economic outlook said.
Here's where you're supposed to think of Donald Trump, Brexit and the resurrection of One Nation. That's really gonna help.
What's turning the prolonged period of weak global demand into a trap – a Catch 22 – is the adverse effect on the growth in supply from weak business investment spending, weak productivity improvement and the atrophying skills of the long-term jobless.
The OECD estimates that, for its 35 member countries as a whole, their "potential" growth rate per person – the average rate of growth in their capacity to produce goods and services – has halved to 1 per cent a year, relative to their average growth in potential during the two decades before the financial crisis.
The organisation is worried that growth in global trade is "exceptionally weak" and that "exceptionally low and negative interest rates" are distorting financial markets – including overblown share and housing prices – and creating risks of future crises.
So what should we do to escape the low-growth trap? Change the mix of policies.
We've relied too heavily on loose monetary policy, which won't be sufficient to get us out of trouble. Worse, it's "leading to growing financial distortions and risks".
Rather, we should move to "a stronger collective fiscal [budgetary] and structural [micro reform] policy response". Note the word "collective" – fiscal stimulus always works better when every country acts at much the same time.
The goal with fiscal and structural measures is to boost demand and raise the economy's productive capacity.
"All countries have room to restructure their spending and tax policies towards a more growth-friendly mix by increasing hard and soft infrastructure spending and using fiscal measures to support structural reforms," the organisation says.
The OECD and the IMF have argued that Australia has plenty of "fiscal space" to increase borrowing for productivity-enhancing infrastructure; space that's been increased by the very low interest rates payable on our existing and any further debt.
The latest OECD economic outlook continues: "Concrete instruments include greater spending on well-targeted active labour market programs and basic research, which should benefit both short-term demand, longer-term supply, and help to make growth more inclusive."
And, in the present environment of weak demand, supportive macro-economic policies would create a more favourable environment for the short-term effects of structural reforms, we're told.
Now get this: easing the fiscal stance through well-targeted growth-friendly measures is likely to reduce the debt-to-GDP ratio in the short term, we're told. How? By adding more to nominal GDP than it adds to public debt.
"Furthermore, provided that fiscal measures raise potential output, a temporary debt-financed expansion need not increase debt ratios in the longer term," the organisation concludes.
To be fair, both our retiring and our new Reserve Bank governor (who also go to all the international meetings) have told the government monetary policy has done its dash and we need to rely more on spending on infrastructure.
The question is how long it will take our politicians to realise that their survival in government is more likely if they improve our economic performance and improve their electoral appeal by returning to policies of the "sensible centre" and ensuring growth is more "inclusive" – as they say in Paris and Washington, but not Canberra.