Monday, June 11, 2012

Observations from the US: The economy and partisan politics

In his recent speech to the American Chamber of Commerce (SA), Reserve Bank of Australia governor Glenn Stevens outlined Australia's exceptional economic performance in the face of global uncertainty. Stevens urged Australians to see the glass as half full even though many Australians have been determined to see that the Australian economy is in crisis - a perception that is helped by the hysterical campaigning of the opposition parroted by a captured Australian media.

"[...]the nature of public discussion is unrelentingly gloomy, and this has intensified over the past six months. Even before the recent turn of events in Europe and their effects on global markets, we were grimly determined to see our glass as half empty. Numerous foreign visitors to the Reserve Bank have remarked on the surprising extent of this pessimism. Each time I travel abroad I am struck by the difference between the perceptions held by foreigners about Australia and what I read in the newspapers at home."
I have recently spent six weeks travelling around the United States and this has been my experience as well. I observed a deeply depressed American economy and a highly polarised political climate. There was a general feeling of malaise from locals I spoke to about the current state of the American economy. Many of them knew about Australia's excellent economic performance and were bemused by the pessimism about the Australian economy expressed by Australians.

The middle class in America has been under sustained assault from a succession of policies promulgated from rent-seekers and interest groups through Congress.

According to the Congressional Budget Office:

"[...] over the 1979 to 2007 period, the highest income quintile’s share of market income increased from 50 percent to 60 percent, while the share of market income for every other quintile declined. In fact, the distribution of market income became more unequal almost continuously between 1979 and 2007." 
Any attempt to mitigate the outcomes of these policies has been systematically blocked by the partisanship that has pervaded the American political system.

This, combined with the unemployment rate that has exceeded 8% since February 2009, has gutted the middle classes. This has reduced the spending of the middle-class that is the underpinning of the economy.

One of the locals I spoke to (a small business owner) lamented "there is no middle class in America, just the rich and various classes of poor".

Everyone I spoke to was stunned by Australia's economic figures (particularly the unemployment rate) and even more stunned that Australians were complaining about the economy. However, once I explained the partisanship that had infected our political discourse, many of them recognised the political climate that has led the American economy to its current state.

There is a lesson in this for Australia: the sort of partisanship that is being pursued by the opposition and its pandering to rent-seekers and interest groups has consequences for the wider Australian economy. When even the central bank is warning about its effects on confidence, the opposition should take note and begin to act in the National interest, rather than their own interest in gaining power at any cost.

Australians should see the glass as half full: our economy is doing well, unemployment is very low and inflation and interest rates are also low - if Australians really want a view of how "Hockeynomics" and Abbott-style partisan politics works out: go the the US and observe the future.