This post was written before the COVID-19 conundrum changed a few things… and yet it still applies.
The Australian economy is in a funk. We are told that annual growth in retail trade of 2.4% in trend terms is the lowest since December 2017.
Throughout 2019 households have not increased their volume of retail purchases at all.
In short, we are all strapped for cash and are not buying stuff.
Woh, hold on. Not quite.
Of course, we are consuming, we do it each and every week.
The problem for the economy is that we are not doing more of it than we did last year. Consumption is going on all the time, it is just not growing in percentage terms.
So it’s not consumption that economist’s are worried about, it is growth in consumption. Growth is considered essential for without it everything collapses in a heap. At least that is what we are told.
Let’s just look at that 2.4% again.
In 2019, retail trade — selling merchandise in the state that it is purchased, generally to a customer base of private individuals — will be double what it was in the year 2000.
When ABBA were in the charts in 1974 consumer spending by Australians was four times less than it is today. There are more people on Australia now than in the mullet and square shoulder days, but to quadruple spending in 40 odd years.
Come on, think about it.
Growth is not sustainable. It cannot go on forever. Not least because there will be nothing left for me to consume. I’d be consumed out.
Unless prices skyrocket there is a physical limit to the stuff that one person can consume even if I am littering, throw away, who gives a shit kind of consumer.
Sooner or later everyone has all the things they can think of and wish to possess. Does it mean that they just keep going round and round upgrading every time? Are we really that shallow — maybe!
Endless growth is just an extraordinary premise when you really examine it.
It is obvious why it is there.
Companies have to keep selling or they go out of business. Unless there are new people around to buy your widgets you will need your current customers to buy widget 2.0 or you diversify into insurance and the airline business.
A business can get away with it if prices rise. Their unit costs might go up but so does the retail prices and so growth is maintained. Indeed inflation is part of the growth deal, too little being as bad as too much.
So we teeter on the delicate balance of perpetual growth being imperative to our survival
Teetering a lot
Recently there was a step-change in the Australian continent.
An extended drought in the east created hot, dry conditions in spring when frontal systems create strong westerly winds. Dry air, hot temperatures, tinder-dry forests and strong winds produced devastating bushfire.
At the time of writing more than 11 million ha of bushland has burnt in NSW alone, an order of magnitude more than the whole of the previous fire season. Across Australia, an area the size of the Netherlands and Belgium has burnt in just a few hot, scary and brutal months.
Many of the forests that went up in flames, sometimes 70m tall, were supposed to be wet, they are even called rainforest and rarely burn, some of them not for hundreds of years.
This year they did. Several of the fires are 500,000 ha each.
It will take a while to assess the consequences but I suspect that these events have nullified decades worth of conservation effort and billions of dollars worth of natural resource management actions.
It should also be a wake up to the economists who are going OMG “annual growth in retail trade of 2.4% in trend terms is the lowest since December 2017″.
If the countryside burns like it has this summer the economy will struggle to achieve any growth at all for a long time.
And now the virus
So here we are in mid-March 2020 and COVID-19 is about to be declared a pandemic.
Australians have cleared the supermarket shelves of toilet rolls because they are absolutely bonkers — the toilet roll supply for the country comes from Adelaide, not Wuhan — and are about to freak out good and proper.
Already global markets have freaked out too and taken a massive plunge. This is actually a necessary correction from an over-inflated bull run that has gone on from the GFC, partly a response to the cash injections from jurisdictions. But ni matter, we can blame nature.
This new virus will not cease economic growth. The flu virus does something similar every year, this one is just more acute. People’s reactions to this unknown make a recession is a given.
Even though there are confirmed cases of COVID-19 in the US, most people are more likely to catch and spread influenza.
In the 2019 flu season, there were nearly 30 million cases of flu and 17,000 deaths.
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