When Sky News asked Australian Labor MP Anne Aly why she opposed the Coalition’s tax cut plan, she cited ‘the fact that our economy is now in a recession, or it looks like it is going into a recession’. She didn’t seem to realise that a recession is exactly the time to cut taxes, because tax cuts stimulate demand. Aly’s call to hoard resources during a recession is the kind of nineteenth century reasoning that ultimately led to the Great Depression.
But how could she even think that Australia was in recession, when the Reserve Bank says that the economy is growing at 1.7 per cent? That’s easy. The economy may be growing at 1.7 per cent, but Australia’s population is growing at 1.6 per cent, leaving only a 0.1 per cent margin of safety between economic growth and population growth. Any lower, and the country could fall into a ‘per capita recession’, during which the economy fails to keep up with a growing population.
Labor’s shadow treasurer Jim Chalmers came to Aly’s defence, pointing out that Australia had recently experienced a per capita recession in the second half of 2018, as economic growth fell behind population growth and average output per person declined. Notably, he still didn’t defend Aly on tax cuts. Like Anne Aly, Jim Chalmers has a PhD, but Chalmers’ is in political science. That’s a little closer to economics than Aly’s PhD in media and culture.
Treasurer Josh Frydenberg, who also is not an economist, but holds master’s degrees in international relations and public policy from Oxford and Harvard, has also admitted that Australia fell into a per capita recession last year under the Coalition’s watch.
Undaunted, he points out that when you focus on ‘real net national disposable income per capita’ instead, the economy looks just fine. So please everyone: just focus on real net national disposable income per capita. ‘Build our economy, secure your future’.
I’m not an economist either. If you want to build our economy, talk to the Reserve Bank. But as a sociologist, I can tell you why per capita recessions are so dangerous for your future. In fact, I was the first person to use the term ‘per capita recession’ in a major international publication, and the first to apply it to Australia. (Full credit to self-described ‘unconventional economist’ Leith van Onselen for beating me to it in a blog post on the NZ economy.) And I was the first to warn about the long-term consequences of slow per capita growth.
In an October 3, 2018 article for Foreign Policy magazine, under the title ‘The World’s First Immigration Economy’, I pointed out that far from posting a miracle record of 27 years of unbroken growth, Australia had actually experienced per capita recessions in 2000, 2008, and 2013. In those years, only Australia’s rapid population growth kept the economy moving forward at all.
And here we are again, with a per capita recession in the second half of 2018 and very little per capita growth so far in 2019. If you’re trying to sell widgets, no problem: the economy is growing at 1.7 per cent. But if you’re trying to evaluate the success of the government in managing the country’s economy to meet the needs of its citizens, per capita growth, sustained over the long term, is what really matters.
It matters, because widgets don’t vote. Managing quarterly growth rates is the Reserve Bank’s job (good luck). The fiscal and regulatory policy levers available to governments operate too slowly to fight recessions anyway. But making the economy work for the people at large is the government’s job (double good luck). And that’s where per capita figures come into play.
Despite 27 years of solid economic growth, Australia’s per capita figures depict an economy that has ceased to serve the needs of its citizens. Tallying up per capita economic growth since the 1991 recession that you ‘had to have’ (I’m not Australian) gives a rough annual average of 2.5 per cent under Keating, 2.4 per cent under Howard, 0.9 per cent under Rudd-Gillard-Rudd, and 1.1 per cent under Abbott-Turnbull-Morrison. Or, in simple terms: high, high, low, low.
There are obvious political implications there, but there are demographic ones, too. The equivalent annual population growth figures for Australia were 1.1 per cent for Keating, 1.2 per cent for Howard, 1.6 per cent for Rudd-Gillard-Rudd, and 1.7 per cent for Abbott-Turnbull-Morrison. Or summing up: low, low, high, high.
Paul Keating and John Howard kept the economy going with pro-growth policies that improved average living conditions for people already living in Australia. The next six relied on immigrants like me to keep business booming. We’ve done a good job, and most of us are very happy to live here, thank you very much. But immigration-fuelled growth isn’t quite the same as the real thing.
In Foreign Policy, I called Australia ‘the world’s first immigration economy’ because no country in history has ever before based its long-term economic strategy on the simple but nonetheless somehow bizarre idea that if you just let more people in, the economy will grow. Yet since 2008, that has been Australia’s strategy in a nutshell.
That’s a Ponzi scheme that can’t last forever. Australia is far from ‘full’, but exponentially expanding immigration is no way to manage an economy. The problem is that once you get on on that path, your children can’t get off it. Either Australia’s population has to keep doubling every fifty years, or fifty years later the country will have to deal with a tidal wave of Medicare-dependent retirees they used to call ‘immigrants’.
Australia has long been an immigrant country, but Australia’s immigration policy only went from ‘ambitious’ to ‘haywire’ after John Howard left office in 2007. If the country scales back soon, it can restore some sanity to its demographic profile before things get too far out of hand. It may even avoid a per capita recession. But the real risk for Australia isn’t slow growth in 2019 or 2020. It’s a zombie economy in the 2060s or 2070s.
Take it from a sociologist: demography is destiny. Right now, Australia’s destiny is looking pretty bleak. But I’m not worried. When I’m old, your kids will pay my hospital bills. The question is: who will pay theirs?
Subscribe to The Spectator Australia today for a quality of argument not found in any other publication. Subscribe – Try a month free