How has the Chinese slump impacted the “Lucky Country”?

In the early years of the Great Recession, I pointed to Australia as an example of enlightened monetary policy.  It hadn’t had a recession in 20 years. NGDP grew at a 6.5% annual rate between 1996 and 2006, and then continued growing at a 6.5% annual rate from 2006 to 2012.  Since then Australian NGDP growth has slowed substantially, for a variety of reasons:

1.  Population growth has slowed to 1.2%, from a peak of 2.2% in 2008. (It’s actually per capita NGDP that matters)

2.  Commodity prices have plunged, leading to a fall in the GDP deflator.  (Total labor compensation per capita is probably superior to NGDP in commodity-intensive economies.)

Back in 2009-10, my critics said that Australia was just a lucky country, benefiting from booming commodity exports to China.  OK, let’s test that theory.  How has Australia done in 2015?  Recall that in late 2014 and throughout 2015, global commodity markets plunged due to falling Chinese demand for Australia’s key exports (coal and iron ore), pushing Canada into a sharp slowdown and places like Venezuela into deep depression. Here’s a news report from December 2015:

Australia’s unemployment rate has fallen to 5.8%, the lowest level in 20 months, following the strongest two-month period of jobs growth in 28 years.

Now admittedly the two month data is very noisy, but over the past 12 months the Australian unemployment rate has fallen from 6.4% to 6.0%.  So much for the theory that Australia was bailed out by China in 2008-09.  What’s the new excuse going to be?  If it wasn’t commodities, why did Australia avoid recession in 2008-09?

If you don’t like unemployment data, JP Koning sent me a nice graph comparing Australia with its most similar rival—Canada:

Screen Shot 2016-03-05 at 10.58.44 AMAussie RGDP is up 3% over the past 12 months, whereas Canada is up just 0.5%. And keep in mind that Canada is one of the best run developed economies, with one of the best run central banks—and the Aussies still blew them away.  Also recall that Canada’s economy has a larger manufacturing sector than Australia, and is thus less dependent on commodities.

Recall this anecdote:

Historical rumor has it that a subordinate once asked Napoleon, “What kind of generals do you want?” “I want lucky ones,” he replied.

I say, “Give me a ‘lucky country’s’ central bankers.”

PS.  Austrian readers may be interested in knowing that Australia’s monetary policy was much more expansionary than Fed policy during the years leading up to the Great Recession.  When will Australia pay the price for all that misallocation?  And Australia’s housing bubble was even bigger, but still hasn’t burst. When will the inevitable collapse occur?

And for all you protectionists out there, Australia’s run massive current account deficits for many decades. When I taught there in 1991, the Very Serious People told me that Australia’s day of reckoning was approaching. That was 25 years ago. So just how long can Australia keep selling condos to Chinese investors in exchange for manufactured goods?  And why do we call that sort of trade a “deficit”?  And just how many empty beaches do they have, where more condos can be built?

Screen Shot 2016-03-05 at 11.52.22 AM

PS.  I notice there’s been a lot of recent discussion of Sweden’s 4.5% RGDP growth over the past year.  I do understand that GDP growth is more volatile for smaller countries, but that seems surprisingly high.  Might it be related to the inflow of 163,000 refugees (1.7% of Sweden’s population)?  In other words, a positive supply shock?

 


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71 Responses to “How has the Chinese slump impacted the “Lucky Country”?”

  1. Gravatar of Nick Rowe Nick Rowe
    6. March 2016 at 12:18

    Scott: “And for all you protectionists out there, Australia’s run massive current account deficits for many decades. When I taught there in 1991, the Very Serious People told me that Australia’s day of reckoning was approaching.”

    I can confirm. I heard the same thing when I taught there a couple of years later (Adelaide–lovely city and uni).

  2. Gravatar of E. Harding E. Harding
    6. March 2016 at 12:36

    “So much for the theory that Australia was bailed out by China in 2008-09.”

    -I still think this is by far the most plausible theory.

    https://research.stlouisfed.org/fred2/graph/?g=3HLT

    https://research.stlouisfed.org/fred2/graph/?g=3HLO

    Interesting you show real GDP but not nominal GDP and unemployment rate graphs:

    https://research.stlouisfed.org/fred2/graph/?g=3HLA

    Canada seems to suffer greatly from oil price shocks, as it’s an oil exporter; Australia appears, if anything, to be helped by them.

    “When will the inevitable collapse occur?”

    -When China busts.

  3. Gravatar of E. Harding E. Harding
    6. March 2016 at 12:41

    Bleh, switched around bright red and blue in my third graph. Switch it around manually.

  4. Gravatar of marcus nunes marcus nunes
    6. March 2016 at 13:07

    Some illustrations on “lucky Australia” and “peers”.
    https://thefaintofheart.wordpress.com/2015/06/09/revisionist-thoughts-was-australia-just-luckier-than-most/

  5. Gravatar of Rajat Rajat
    6. March 2016 at 13:19

    Thanks for the post, Scott. Perhaps it’s true that some of us locals are too harsh on the RBA. But I can’t help being frustrated that not only NGDP, but also nominal wages growth is at multi-decade lows in Australia (http://www.tradingeconomics.com/australia/wage-growth, http://www.theguardian.com/business/grogonomics/2015/aug/13/is-australia-stuck-in-a-new-normal-of-low-wages-growth). And unemployment, which actually rose during the mining investment boom is now significantly higher than in the US or UK, despite both of those countries’ UnN rates peaking much higher than Australia’s.

  6. Gravatar of Daniel Daniel
    6. March 2016 at 13:39

    Might it be related to the inflow of 163,000 refugees (1.7% of Sweden’s population)?

    1. Productivity is directly correlated with cognitive ability.

    2. Bringing in low-IQ third world immigrants is “a positive supply shock”

    Maybe it’s my tiny racist brain, but I can’t see how these statements can be simultaneously true.

  7. Gravatar of ssumner ssumner
    6. March 2016 at 13:52

    Harding, I told you that Australia’s unemployment rate has been falling, and you say that I didn’t report their unemployment to hide something. What was I trying to hide?

    Don’t be so mysterious, what’s your point?

    Rajat, I agree that RBA monetary policy is a bit too tight. But the rising unemployment might also be partly due to minimum wages, which are relatively high in Australia.

    Daniel, You are confusing changes in total RGDP with per capita RGDP. It’s possible that the immigrants raised total RGDP while reducing per capita RGDP.

    And don’t be too hard on yourself, suggesting that Swedish immigrants have a lower IQ than local Swedes is not “racist”. Garett Jones’s new book documents substantial international differences in IQ.

  8. Gravatar of Rajat Rajat
    6. March 2016 at 14:08

    Scott, min wages are high, but they generally haven’t been increasing at a faster rate than in the past. The one exception is the reinstatement of some high weekend and holiday ‘penalty’ rates in recent years. Believe it or not, you can now earn $A50 per hour waiting a table on a public holiday. But by and large, min wages go up at around CPI, year-in year-out.

  9. Gravatar of E. Harding E. Harding
    6. March 2016 at 14:10

    I think you should have shown graphs of NGDP and unemployment for clarification. I don’t know if you were trying to hide something; I can’t read your mind. Graphs are better than verbal descriptions for your present purposes.

    My point is that NGDP alone cannot explain Australia’s exceptional RGDP performance during the Great Recession.

  10. Gravatar of ssumner ssumner
    6. March 2016 at 14:11

    Nick, I really enjoyed teaching in Australia, I was in Queensland.

    Rajat, Agreed, my claim was that the natural rate in Australia may be higher than in the US. The current unemployment rate (6%) is lower than the average unemployment rate since 1978, which suggests to me that it’s close to the natural rate.

    http://www.tradingeconomics.com/australia/unemployment-rate

  11. Gravatar of ssumner ssumner
    6. March 2016 at 14:12

    Harding, Why not?

  12. Gravatar of E. Harding E. Harding
    6. March 2016 at 14:15

    Look at my first two graphs. If it was NGDP alone, Australia would have just shown an upward blip around 2006-9 and would have already fallen back to its pre-2006 trend. Instead, it looks like something permanent, supply-side, and clearly driven by the rise of China.

  13. Gravatar of Gordon Gordon
    6. March 2016 at 15:11

    “Might it be related to the inflow of 163,000 refugees (1.7% of Sweden’s population)? In other words, a positive supply shock?”

    It looks like Sweden’s labor force grew by about 70,000 over the last year.

  14. Gravatar of Nathan Nathan
    6. March 2016 at 15:41

    Hi Scott, I’m very sceptical that unemployment here is at the NAIRU. We have had lower unemployment throughout much of the last decade or so without problematic inflation levels.

    I think the real explanation is much more boring: Australia’s central bankers aren’t supermen. They have the same psychological resistance to very low nominal interest rates and unconventional monetary policy as central bankers anywhere else. However until recently that hasn’t mattered because we haven’t needed them – note that interest rates now are lower than they were at the height of the GFC.

    Also note that the overwhelming consensus among the political and economic elite is that Rudd’s stimulus, carried out while we were nowhere near the zero lower bound, saved Australia from recession.

    We are the lucky country. We certainly can’t thank superior economic understanding.

  15. Gravatar of Sam Sam
    6. March 2016 at 16:07

    Why would Austrian readers be especially interested in Australian monetary policy? I know that they are famously cosmopolitan, that — for example — fin-de-(dix-neuvième)-siecle Vienna was a melting pot of ideas. But does Austria have a *particular* affinity for the macroeconomic travails of its similarly-named counterpart in the Southern Hemisphere?

  16. Gravatar of E. Harding E. Harding
    6. March 2016 at 16:16

    @Sam, you literally don’t know the first thing about Austrian econ. Google it.

  17. Gravatar of Rajat Rajat
    6. March 2016 at 17:16

    I agree with Nathan.

    Scott, you often say (paraphasing) that the Fed does what the consensus of elite economists thinks it should. We don’t have a significant coterie of elite-level macroeconomists in Australia, at least not outside the RBA and with any sort of public profile. There have been a few academics on the RBA board over the years, but not all of them with macro credentials. Perhaps the most prominent, Warwick McKibbin has actually published in favour of NGDP targeting; but puzzlingly, when NGDP (and wages) growth were falling in mid-2014, he was calling for rate rises.

    What we do have – the ‘ecommentariat’ as I call them – generally hold to an awful old Keynesian – Austrian framework in which fiscal policy is a key driver of AD and low interest rates can cause bubbles. It’s a miracle things have turned out as well as they have!

  18. Gravatar of Mark Mark
    6. March 2016 at 18:10

    Curious, how does the Australian housing market compare to the US’s (or Europe)? Did housing starts remain stable there while they were falling everywhere else as interest rates went up? I mean it was, after all, a housing crisis, right?

    @Sam: in recent decades, Austrians have grown so weary of being confused with the more famous Australia, that they have largely adopted the Australian identity as their own for the sake of their wounded self-esteem. They even petitioned the UN for a name change a few years ago; fun fact, if you look on a globe manufactured since 2013, you will see ‘Austria’ is now named “Northwest Australia.” I assume Scott was just being considerate toward Austrians, who tend to be very interested in the affairs of their adopted nationality.

  19. Gravatar of Jon Jon
    6. March 2016 at 18:37

    Under the EU rules the refugees are not allowed to work. It will be some years before they are allowed to work. Right now they are on the dole. The Swedish government has cut spending elsewhere to fund the refugees food and housing. So… no I don’t think there is a supply shock!

  20. Gravatar of Graham Graham
    6. March 2016 at 18:52

    In some parts of Australian capital cities, locals don’t bother bidding at auctions because they’ll be outbid by cash-up Chinese who either want some clean air for their children or want to have a quick exit door if things turn bad in China. Real estate people know the areas and are employing Mandarin speakers. With a population of only 23 million, there’s probably a lot more homes to be bought by the Chinese middle class. The direct injection of cash must be offsetting a lot of the the loss of trade from coal and iron ore.

  21. Gravatar of Benjamin Cole Benjamin Cole
    6. March 2016 at 19:35

    The Reserve Bank of Australia targets an inflation band of 2 to 3%. It is too bad the Fed cannot make even such a small change in their policy and copy the RBA.

    The extra percent of inflation is probably important, and also the idea that central bankers don’t get the heebie-jeebies at 1.6% inflation.

  22. Gravatar of Benjamin Cole Benjamin Cole
    6. March 2016 at 19:44

    The original Austrian settlers of Australia first named the land “New Austrialand” which was shortened to “Australia.” The Austrian School of Economics originated in Sydney. They also proposed, initially, an electrum monetary standard, based upon crude coinage that the Aborigines had placed into circulation.

  23. Gravatar of E. Harding E. Harding
    6. March 2016 at 20:06

    @Benjamin Cole

    -LOL.

  24. Gravatar of Ray Lopez Ray Lopez
    6. March 2016 at 20:10

    Sumner ignores small-country effects. How is Hong Kong (also small) doing relative to China? How about the Gulf States, even with the collapse of oil? Probably Dubai doing OK, as statistics lag? How about Singapore, they doing OK? Israel? If a country is only 23 M souls, as AU is, they can become outliers.

    PS–Australia–been there once, visited Sydney and Melbourne–is largely fly-over country. It’s the size of the USA but the only parts really habitable are in the south-east. Rest is desert and jungle. If they let in Asians they’d get more population density (Asians can adapt to nearly anything, there are 100+M living in a humid place called the Philippines the size of Arizona, and 30M of them in an area about the size of greater Boston (aka Manila)), but Whitey don’t want dat, do dey?

  25. Gravatar of Nathan Nathan
    7. March 2016 at 00:14

    Ray – we have an extremely high immigration rate, mostly from Asia. Something like 25% of Australians were born elsewhere. But thanks for the baseless accusation of racism.

  26. Gravatar of BC BC
    7. March 2016 at 00:32

    How has the RBA managed such monetary policy when other developed country central banks have had so much more difficulty? Rajat and Nathan suggest that the political environment and economists’ consensus is no better in Australia than elsewhere. Is it simply that the higher inflation target mentioned by Benjamin Cole decreased the probability of hitting the zero-rate bound? Alternatively, has the RBA had less inflation credibility in the past than the other central banks so that, ironically, it would have been easier for them to “promise to be irresponsible” even without actually making such a promise?

    My impression is that AUD interest rates tend to be higher than other developed market rates. A currency carry trade among G10 currencies is often long the AUD. That could be due to higher inflation or a risk premium associated with commodity-dependent countries’ currencies. That would also seem to make it less likely to hit the zero rate bound. NZD also tends to have a higher rate, and I believe Scott has also praised their central bank.

  27. Gravatar of BC BC
    7. March 2016 at 00:50

    It looks like before the crisis the RBA had been raising rates, where the RBA Cash Rate target rose from 5.50% in Dec. 2005 to 7.25% in Aug. 2008. The Fed had been raising rates from May 2004 but started cutting in July 2007. By Aug. 2008, the Fed Funds rate was down to 1.63%, so when Lehman Bros collapsed in Sep. 2008, the RBA had 5.62% more room to cut than the Fed. The RBA cut rates from 7.25% in Aug. 2008 to 3.00% in Apr. 2009; the Fed couldn’t cut rates by 4.25% due to the ZRB. Could that be the main difference?

  28. Gravatar of BC BC
    7. March 2016 at 00:57

    By the way, the RBA Cash Rate target is down to 2.00% so, if the RBA is perceived to be as hesitant as the Fed, ECB, and BoJ to use unconventional policies, then they might very well hit the ZRB if there are some more shocks from China.

  29. Gravatar of derivs derivs
    7. March 2016 at 01:01

    I’d give currency traders more credit than the CB of Australia for keeping things balanced ngdp wise. I have a home in Sydney since 03 and I remember getting killed on it in 08 under my global purchasing power accounting that I use. AUD got smoked that year. Since 13 same thing to a lesser extent. Markets are great at doing the dirty work for you. Damn markets!!!!

    Harding great debate commentary. Thanks. I dont vote and I’d rather pull out my nose hairs than watch that myself. But you keep leaving out the number one criticism of Hillary. My dad warned me as a kid, always run far and fast from chicks with googly eyes.

  30. Gravatar of Lorenzo from Oz Lorenzo from Oz
    7. March 2016 at 01:49

    BC: “How has the RBA managed such monetary policy when other developed country central banks have had so much more difficulty? ”

    Look at the RBA’s inflation target:
    http://www.rba.gov.au/monetary-policy/inflation-target.html

    An average over the business cycle is very different target than a specific inflation target. It means that the RBA is implicitly anchoring nominal spending as well.

    Think in terms of MV = Py. If y is low, higher dP will be tolerated; if y is booming, lower dP will be imposed. Hence the smoothing of the business cycle.

    The (other) joy of all this is one ends up with a central bank which actually hits its inflation target, which the narrow targeting central banks are not having a lot of success in doing. So, it turns out, broad inflation targeting actually hits its inflation target better than narrow inflation targeting does.

  31. Gravatar of Rajat Rajat
    7. March 2016 at 03:13

    I disagree with Lorenzo a bit. The RBA has tended to undershoot inflation when demand is weak (now) and overshoot it when demand is strong (2007/08). In other words, it has not interpreted its flexible inflation target in a way that has helped stabilise nominal demand. This is just like how I’ve suggested many commentators interpret the Fed’s dual mandate – as providing some margin for error to permit the Fed to undershoot inflation when UnN is high and overshoot it when UnN is low. Scott has responded that this doesn’t make any sense, but I believe it’s the way the average commentator thinks of the dual mandate or an RBA-style flexible inflation target – ie, as assisting the central bank to minimise the ‘misery index’ of UnN + inflation. People tend to think that inflation below target is a ‘good thing’ that helps compensate for UnN above target.

    I think Australia has been lucky to avoid the ZLB for several reasons Scott and others have mentioned in the past. We have had strong population growth and a higher average inflation target. But also, we were going through a serious boom when the global financial crisis hit in 2008. That meant our inflation and interest rates were even higher than usual, which gave the RBA lots of room to cut without going near the ZLB. Next time, we may not avoid the ZLB, but at least the RBA would have observed the ZLB experience of many other countries and learnt what not to do. Fingers crossed!

  32. Gravatar of Ray Lopez Ray Lopez
    7. March 2016 at 05:52

    @Nathan, who says Australian is 25% non-white: not true, Wikipedia sez: “Today, Australians of Anglo and other European descent are the dominant majority in Australia, estimated at 85–92% of the total population.”

    92% Nathan. You could make the country more brown by giving it back to the Abbos, as Midnight Oil said, but Whitey don’t want dat, do dey?

    PS–I agree with you on one thing: avoiding recession was not monetarism as Sumner claims but just plain dumb luck.

  33. Gravatar of TravisV TravisV
    7. March 2016 at 06:28

    “Interview with Emi Nakamura: Price Stickiness and Shocks”

    http://conversableeconomist.blogspot.com/2016/03/interview-with-emi-nakamura-price.html

  34. Gravatar of Ray Lopez Ray Lopez
    7. March 2016 at 09:23

    @TravisV – notice that T.Taylor does not allow comments (fascist) and that Nakamura has all sorts of intellectual baggage she carries to justify her worldview that there’s price stickiness, even when there’s no evidence of this in the data. Sample telling sentence: “And if one abstracts from the huge number of sales in retail price data, then prices look a lot less flexible than they first appear. … ” Than they first appear indeed. The lens that these e-con ideologues view stuff through are Coke-bottle thick. But they’re not brainy nerds, just humanities majors and historians pretending to be scientists…

  35. Gravatar of msgkings msgkings
    7. March 2016 at 10:53

    @Ray:

    “@Nathan, who says Australian (sic) is 25% non-white”

    He didn’t say anything of the sort, you idiot. You do that a lot, responding to quotes from others you totally make up. It’s part of what makes you so stupid, along with thinking you are rich because your parents are, or thinking it would be a good idea to live how you do when in fact you are now desperately lonely. I know you think you are smart but that doesn’t make it so.

  36. Gravatar of John Thacker John Thacker
    7. March 2016 at 12:33

    Well, Canada has Trudeau “urging global leaders to rely more on government spending and less on monetary policy to spur growth.” I think his actual comments are somewhat less stupid than this (he talks about fiscal and monetary policy needing to be complementary,) but the takeaway by the vulgar Keynesians out there is obvious.

    http://www.bloomberg.com/news/articles/2016-03-03/trudeau-s-message-to-world-let-government-spending-do-the-work

  37. Gravatar of Rajat Rajat
    7. March 2016 at 13:01

    Ok, Ray, I will give you a chance to wind me up. Here is a recent blog discussing recent migration trends to Australia: http://petewargent.blogspot.com.au/2016/03/asian-century-tees-off-in-australia.html You’ll notice that migrants from Asia have long made up the plurality (and more recently the majority) of permanent settlers.

    But in any case, if you don’t have any interest in Australia, that’s fine with me. It’s a great place to live – if you already own a house (ha!) – with cosmopolitan cities, relatively mild congestion and pollution, generally good weather, great beaches, few racial problems and moderate crime. I’ve been around the US, Europe and a fair bit of Asia (although not the Philippines). Japan is nice, but mono-cultural. In Europe and the US, not many cities can offer the wide range of cuisines we enjoy in our larger cities, especially combined with our climate. Maybe LA? New York and London are great, but even if you are a billionaire, you cannot escape people – or cold winters. Singapore is nice for a couple of days, but feels like living in the Truman Show.

    Within one kilometer of my house, I can see recent French films (on a silver screen), play cricket on a proper turf pitch on a public oval, stand in a place with no-one within a 50 meter radius of me, eat Korean, Japanese, Indian, ‘modern Asian’, Turkish, French, Italian, eat the the best baguettes and croissants outside Poilane, sink a great Negroni or Weihenstephaner, or catch a train to the CBD, catch a Grand Slam tennis match, Grand Prix, Ashes test match, or drive to surf beaches, wineries etc.

    We could increase our population more/faster, but it wouldn’t add much to the quality of life. Maybe we would get more Taylor Swift concerts (as well as more competition to get seats for them). Probably the only thing I feel lacking is plays with big-name American and British actors, and big-name art galleries. But that’s what holidays are for!

    If you’re from elsewhere, you might find the place feels too empty as my mum did when we arrived 40 years ago (when the population was half what it is now). Apart from that, even though I’m not ‘Whitey’, I think it’s great the way it is. Oh, plus we have the best central bank in the world. Hard to beat that!

  38. Gravatar of msgkings msgkings
    7. March 2016 at 13:10

    @Rajan: you’re wasting your time, Ray has to live where the rent and hookers (sorry, mistresses) are cheap while he waits for his parents to die so he can afford to live in the developed world.

    I visited Australia (Sydney, Melbourne, Brisbane, Perth) and absolutely loved it. Probably because it felt very Californian more or less. Friendliest people in the world too (along with Kiwis, I visited NZ too). One of the few countries I’d live in besides my own.

  39. Gravatar of ssumner ssumner
    7. March 2016 at 15:45

    Harding, I don’t follow your argument. China today is vastly different than China of two years ago, in terms of commodity demand. Prices have plunged sharply.

    Gordon. I am having trouble getting reliable population numbers from Sweden. Some of the data I saw on the internet was clearly wrong. But your data point does suggest my supply side explanation is wrong, if that data is correct.

    Again, we need to be careful about RGDP volatility in small economies.

    Nathan, Do you have hourly wage growth data? Also keep in mind that estimating the natural rate of unemployment is a lot harder than many people assume. Not saying you are wrong, but we need to be careful.

    Rajat, Well no one seems to understand macro, so I guess there is no reason for Australia to be different. Thanks for that info.

  40. Gravatar of Gordon Gordon
    7. March 2016 at 16:01

    “But your data point does suggest my supply side explanation is wrong, if that data is correct.”

    Actually, I assumed that it supported your claim. You mentioned that Sweden had taken in 163,000 refugees. It’s probably reasonable to assume that 40,000 to 50,000 of them entered Sweden’s labor force. As I googled to try to get current data on the labor force, I ended up at

    http://www.tradingeconomics.com/sweden/employed-persons

  41. Gravatar of E. Harding E. Harding
    7. March 2016 at 16:22

    Scott, I’m not sure what’s been going on in China, Canada and Australia over the past 15 months, as FRED isn’t being updated frequently. Finding and presenting data in some other site is probably not worth my time. I’m not too worried about this, as this stuff gets updated someday. And, in any case, what might explain Australia’s good performance in 2009 might not explain it today. Times change. I think we’ll all have a better perspective on this in a few years.

    What do you think caused Australia’s increase in the unemployment rate from 2010 to today? It seems a bit mysterious to me.

  42. Gravatar of Nathan Nathan
    7. March 2016 at 16:47

    Scott – Here: http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/6345.0Media%20Release1Dec%202015?opendocument&tabname=Summary&prodno=6345.0&issue=Dec%202015&num=&view=

    I haven’t looked at the actual data though you should find the link to it halfway through that ABS document. Headline is we’re currently experiencing unusually slow wage growth.

    Ray, not all of our immigrants are non White, dummy. Although Asians are the majority these days we still get a lot of Europeans, especially British. This was even more true in the past.

  43. Gravatar of Rajat Rajat
    7. March 2016 at 16:48

    E.Harding, my 2 cents: The RBA over-tightened in 2010 to “create room” for the anticipated boom in mining investment. Mining investment peaked in 2012 and has fallen sharply since then. The RBA started cutting rates in late 2011, but reluctantly and gradually, as it’s allergic to low rates like every other central bank. This speech (given today by the RBA Deputy Governor) has some good charts: http://www.rba.gov.au/speeches/2016/sp-dg-2016-03-08.html

  44. Gravatar of Nathan Nathan
    7. March 2016 at 16:51

    @ Harding – it’s possible there’s some sort of structural component. The Fair Work Act undid much of the Howard governments labor market deregulation so it’s possible there’s a structural component there, though the GFC occurring in the same period makes it difficult to disentangle. Possibly full employment is now more like 5% vs the 3-4% it was in the past. But I’m fairly confident it’s not 6%.

  45. Gravatar of ssumner ssumner
    7. March 2016 at 17:13

    Mark, The housing market there has remained strong.

    Jon, Thanks, I had forgotten that.

    Nathan, Just ignore Ray, we keep him around as a sort of village idiot. Notice that in his next comment he attributes to you something that you didn’t say. He does that every single time. His ability to make errors in every comment is as reliable as a Swiss watch.

    BC, You said:

    “That would also seem to make it less likely to hit the zero rate bound. NZD also tends to have a higher rate, and I believe Scott has also praised their central bank.”

    I think that’s clearly part of it.

    Lorenzo, Good observations.

    Rajat, You said:

    “Scott has responded that this doesn’t make any sense, but I believe it’s the way the average commentator thinks of the dual mandate or an RBA-style flexible inflation target – ie, as assisting the central bank to minimise the ‘misery index’ of UnN + inflation. People tend to think that inflation below target is a ‘good thing’ that helps compensate for UnN above target.”

    You may be right, but it’s a completely insane way to do things. It only makes sense if the policymakers get positive utility from unstable employment. Think about it. Start with a pure inflation target. Then add employment. With procyclical inflation you are saying that when unemployment is high, we should make it even higher by reducing inflation below target. That’s crazy. Like a negative dual mandate.

    So here’s my question; is it just pundits, or do central banks also hold that weird view?

    Thanks Travis.

    John, Vulgar Keynesians are beyond saving. There is no hope.

    Rajan, Australia is one of my favorite countries. New Zealand too, but I prefer hot sunny weather.

    Harding, I’d guess that since 2010 it’s been a mixture of NGDP growth shortfall and perhaps some supply side issues. They do have a high minimum wage, and these policies can act with long lags. But I’m actually not sure.

    On second thought, Nathan and Rajan probably know more than I do. Maybe Lorenzo also has an opinion.

  46. Gravatar of ssumner ssumner
    7. March 2016 at 17:19

    Nathan, Thanks. That wage data does suggest that slowing NGDP growth is a factor in the higher unemployment.

    Just glancing at the data it looks like it slowed from a 3% to 4% range, down to 2%. The US did as well, but the Aussie slowdown is much more recent, so wages may not have fully adjusted yet.

  47. Gravatar of Ray Lopez Ray Lopez
    7. March 2016 at 18:22

    @msgkings (stupid nym btw, like you’re obsessed with food additives) – Nathan indeed implied immigrants are non-white, are you stupid? Do you really think a white who moves to 90% white Australia is somehow a minority? He specifically implied Asians are the immigrants. Nathan: “Ray – we have an extremely high immigration rate, mostly from Asia. Something like 25% of Australians were born elsewhere. But thanks for the baseless accusation of racism.”

    @Nathan – are you stupid? Just look at your followup post: “Ray, not all of our immigrants are non White, dummy. Although Asians are the majority these days we still get a lot of Europeans, especially British. This was even more true in the past.” Do you think the British are non-white? Outside of London and Manchester I don’t think I’ve ever met of a non-white, though I’m sure there’s a Greek or Chinese in every city in the UK, just not common. Anyway, you can’t lie with statistics: 85-92% white. Whitey don do like dat, dont dey?

    @sumner: “Rajan, Australia is one of my favorite countries. New Zealand too, but I prefer hot sunny weather.” – are you stupid too? Sorry I’m on a roll. Australia’s summertime temperatures exceed the Philippines in Sydney. Further north it’s even hotter. If you like sunny hot weather move to Alice Springs. You’ll have nothing to do except look at Ayers Rock and hang out with bogans (https://en.wikipedia.org/wiki/Bogan), but that might just suit you?

    @Rajat – your mum is right. Australia is empty. It reminded me of like an artificial, contrived attempt to act like California (I visited Sydney and Melbourne). It’s like South America: forgotten. Bondi beach was much smaller than I imagined. If you enjoy solitude then live there. The Chinatown in Sydney was pathetically small. Everything in Australia is actually smaller than expected, befitting a tiny country of 22 M, about 66% the size of Greater Manila. BTW one of my best friends here in PH is Indian, very mellow, stoic guy, a horn-dog with the ladies. Indians here (not him) tend to be money-lenders and stick together. I hope you have non-White friends there as the whites probably don’t like you, typical of small minds who’ve never mingled beyond their tribe. You do know that whites used to hunt Indigenous Australians and pose with them like they would trophy rabbits? This was as recent as less than 200 years ago. Apparently these people were so stupid that they though they were hunting primates (or they were just evil, more likely). Same mentality now, sadly. Of course not all white Aussies are evil, just most. There’s a white Aussie here who married a Filipino and had kids, nice guy, heavy drinker, I drink with him on rare occasions. AU girls (“Sheilas”) are quite ignorant, tribal but pretty, those convict genes look good in jeans.

  48. Gravatar of Scott Sumner Scott Sumner
    7. March 2016 at 18:31

    Ray, You are a moron. Most current immigrants are from Asia means more than 50%, not 100%. In addition, the stock is different from the current flow. The stock is 25%, not the flow. Do you know the difference between stocks and flows?

  49. Gravatar of Nathan Nathan
    7. March 2016 at 19:40

    Scott – in terms of structural factors potentially affecting Australian employment, I think you’re overrating our high minimum wage (which varies depending on age and industry, specifically to avoid causing unemployment), and under rating other regulatory factors.

    For example: compulsory superannuation – Employers are required to pay an additional 9% of an employees wage into a retirement fund. Note that the stated goal of both major parties is to increase this to 12%. It keeps getting put off, but expectations matter.

    Unfair dismissal laws – depending on circumstances, it can be difficult to fire underperforming employees. not that the laws disallow it, but that if the employee challenges their firing it can be a problematics X potentially costly process proving that the decision was legitimate. Eg I know at least one person who definitely deserved to be fired, whose employers attempted to let her go, and who ended up keeping her job by appealing to the relevant authorities.

    Similar restrictions can apply even to reducing an employees hours or stopping giving them overtime (though I don’t think these often apply in practice).

    And so forth. I’m not saying that these things are crippling our economy – we’re mostly a reasonable and non litigious society – but it’s more likely that these sorts of issues reduce employment more than award wages do.

  50. Gravatar of Rajat Rajat
    7. March 2016 at 21:50

    Lol – you should do stand-up, Ray!

    Just one point I’ll clarify though – the Chinatowns in Sydney and Melbourne are just for show, for tourists. The London Chinatown is also a joke, isn’t it? Just like NY, London and so on, there are large Chinese (and Vietnamese and Indian, etc) communities in the suburbs.

  51. Gravatar of derivs derivs
    7. March 2016 at 23:10

    My favorite leftist govt planning econ news of the day. Venezuelans have no milk because price fixed at 70 Bolivars is now less than the cost of packaging the mountain of powdered milk sitting in Venezuela.

  52. Gravatar of Ray Lopez Ray Lopez
    7. March 2016 at 23:30

    @sssumner who sez: “Do you know the difference between stocks and flows?” – there’s little or no difference say economists. For example, classical Keynesians believed Keynesianism would affect the stock, not just the flow, of GDP (i.e., produce a permanent increase). Likewise, there’s schools of thought in your field that emphasize levels (stocks) not rates (flows). Apparently, you are in the latter camp, which means, logically, your NGDLT will become less effective as time progresses (the closer the central bank comes to the target, even by your own logic). Thus, logically, your scheme is nothing more than a temporary sop to soften any real shock (demand or supply driven). It’s about as an effective a solution as putting sawdust in the automatic transmission of a car that needs a new transmission. It might ‘soften the ride’ a bit, but it’s a ‘bubble gum and duct tape’ solution.

    @Rajat – I have done standup actually. But the best comedy has a grain of truth to it. Whitey don’t like you. And Chinatown is not just for tourists, residents actually live there. Most of the people in Chinatown looked Chinese to me.

  53. Gravatar of peter peter
    8. March 2016 at 00:15

    The proportion of overseas born Aussies is at a 120 year high of 28 per cent (6.7 million of 24 million) – & if you include those with an overseas born parent the figure is much higher – however, most of us are still Brits & Kiwis.

    Those declaring Asian ancestral background account for less than 15 per cent of the total population.

    The reason it feels like a greater proportion (apart from that there are also many other non-white migrants, such as from the Middle East) is that in the two most populous cities the Asian population is about a fifth of the total, but the share is considerably lower in Brisbane & in all other capital cities, & in the regions.

    Asian migration now accounts for a record 58 per cent share of settlers, though immigration has slowed sharply following the downtrend in resources construction, such that along with natural increase net overseas migration now accounts for only about half of total population growth, which is tracking way down from the peak at just ~1.3 per cent.

    On that basis it will take quite a long time for the Asian share of the population to hit a quarter nationally, but with the massive inflow of foreign students Sydney & Melbourne will hit that proportion imminently.

    Incidentally, Alice Springs is nowhere near Ayers Rock (now known as Uluru – except by bogans) – a common misconception – but the Territory is an excellent example of Australia’s non-white population: 30 per cent of the Northern Territory population is Indigenous Australian.

  54. Gravatar of Rob Rob
    8. March 2016 at 04:25

    To be fair, we did take one of the “lucky” central bankers when we took Stanley Fischer. Hasn’t really turned out much different though 🙁

  55. Gravatar of Jose Romeu Robazzi Jose Romeu Robazzi
    8. March 2016 at 07:48

    I think Austrian inclined commentators forget that “neutral money” (defined as not to distort relative prices) does not mean fixed amount of base money. A growing economy, with growing population just needs more base money to keep up with money demand. There is nothing wrong with creating base money when money demand goes up, and destroying base money when money demand goes down. Actually, IMHO keeping nominal spending relatively stable is the best way to not distort relative prices. E.g. when money demand goes up and nominal spending falls, that creates wild downward movements in prices, which one could call distortionary. Conversely, printing too much money and seeing wild upward movements in prices, is also distortionary. Neither situation is desirable. As Prof. Sumner has said many times, by not acting sometimes the monetary authority may create excessive tightening or excessive easing …

  56. Gravatar of Ray Lopez Ray Lopez
    8. March 2016 at 09:09

    @J.R. Robazzi- I hope you realize that the reserve and capital requirements are much more important than “printing money”, which anyway no central bank really does (that is, print money without some collateral from member banks, no bank does this to my knowledge, it last happened in the US Civil War in the USA, though Adair Turner in his latest book suggests we do it now). The reserve and capital requirements are more important than interest rates too, which anyway central banks follow the market. Think it through and you’ll see my point. Turner suggests we go from 10:1 to 5:1 capital ratios. He also suggests the USA literally print money (not just QE, but have the Fed print money and hand it over to the Treasury). I wonder what our host thinks of that?

  57. Gravatar of Ray Lopez Ray Lopez
    8. March 2016 at 09:12

    OT- from book “House of Debt” by Sufi et al. “So one fact we observe is that both the Great Recession and Great Depression were preceded by a large run-up in household debt. This pattern of large jumps in household debt and drops in spending preceding economic disasters isn’t unique to the United States. Evidence demonstrates that this relation is robust internationally. And looking internationally, we notice something else: the bigger the increase in debt, the harder the fall in spending. A 2010 study of the Great Recession in the sixteen OECD (Organization for Economic Co-operation and Development) countries by Reuven Glick and Kevin Lansing shows that countries with the largest increase in household debt from 1997 to 2007 were exactly the ones that suffered the largest decline in household spending from 2008 to 2009.14 The authors find a strong correlation between household-debt growth before the downturn and the decline in consumption during the Great Recession.” – but, if you believe Kevin Erdmann and Scott Sumner, there was no bubble of any kind either in the USA or internationally, never mind that these days banks lend about 80% of their liabilities to real estate. We’re in a structural “balance sheet” funk that Rogoff et al estimate takes about 20 years to work out, we’re roughly half way through it. And no amount of “printing money” is going to help (since money is neutral, contracts are adjusted almost instantly as they are largely securitized these days).

  58. Gravatar of James Frew James Frew
    8. March 2016 at 12:05

    I fear that for once this is slightly off target – although iron ore prices have collapsed Australian production is booming – up 13 percent you – partly as a result of previously sanctioned investments and partly by displacing higher cost producers both internationally and within China. So actually from a labour market perspective in the short run the commodity collapse us helping Australia. The proof of the pudding will come in five years once the commodity price slump hits actual production levels

  59. Gravatar of TravisV TravisV
    8. March 2016 at 12:21

    Matt Zwolinski replied to Bryan Caplan:

    http://bleedingheartlibertarians.com/2016/03/libertarianism-and-the-welfare-state

    Arnold Kling also wrote a reply.

  60. Gravatar of TravisV TravisV
    8. March 2016 at 12:21

    Noah Smith has also written some great stuff at Noahpinion and Bloomberg View lately.

  61. Gravatar of ssumner ssumner
    8. March 2016 at 12:57

    Nathan, Thanks for that info, I defer to your greater expertise in this issue.

    Ray, You said:

    “there’s little or no difference say economists.”

    Face palm.

    Peter, Thanks for that info–I once drove from Darwin to Perth, sleeping in the back of my van.

    Rob, Good point.

    James, Thanks for that info, and yes that does suggest this post was a bit off target. How about coal exports?

    Thanks Travis.

  62. Gravatar of Jose Romeu Robazzi Jose Romeu Robazzi
    8. March 2016 at 15:07

    @Ray
    1. Credit is not money, and it seems crazy to me that a lot of people can’t see it
    2. All a central bank does is QE (printing money and buying assets) or reverse QE, QT?, reselling assets and destrying money), even if it is setting and keeping 1 day rates …

  63. Gravatar of Ray Lopez Ray Lopez
    8. March 2016 at 17:55

    @Sumner – I’m just telling you the models in your field don’t seem to care between stocks and flows (or at least some of them). You should know this; your readers may not, hence they might attach some significance to your comment about my face palm.

    @Robazzi: credit is money these days; Finland uses 3% cash, the rest is credit, and the US/EU is at 10%/90%. I disagree that central banks set rates, rather, they follow the market.

  64. Gravatar of James Frew James Frew
    9. March 2016 at 12:55

    Coal production was up 1 percent in 2015 and forecast 6 percent in 2016. Similar story displacing high cost producers and also dirtier Indonesian coal

  65. Gravatar of ssumner ssumner
    10. March 2016 at 09:57

    James, Thanks, That’s interesting.

  66. Gravatar of Willy2 Willy2
    10. March 2016 at 13:25

    Lots of confusion:
    – Good monetary policy ? But that wrongly assumes that the australian central bank is responsible for letting commodity prices fall.
    – Western Australia is suffering from the falling commodity prices whereas eastern parts of Australia did benefit from the falling prices.
    – Canada has one of the best run countries in the world ? You got to be kidding. the canadian government has created a real estate bubble AFTER 2009. Oil prices have collapsed and that’s hurting the canadian economy right now. (Canada is a net oil exporter). Oil exports was (one of) the last bright spot(s) in the canadian economy.
    – More and more australians have shifted to “interest only” mortgages. Only that way (australian) mortgages remained affordable.
    – Australia could have been running Current Account Surplusses since the year say 1995. But the australian government has squandered the money Australia earned by increasing spending.
    – Yes, Australia has LOTS of beaches where people can build more & more houses. But australian local government has zoning restrictions. One simply can’t build anywhere one would like to build. And those zoning restrictions have pushed up prices even more.

  67. Gravatar of ssumner ssumner
    11. March 2016 at 05:44

    Willy2, Wow, what a comedy of errors. My favorite is the part about Australia having a big spending government.

    But right up there is the claim that there are lots of governments that are better run than the Canadian government. In your dreams.

  68. Gravatar of Willy2 Willy2
    11. March 2016 at 11:53

    – Comedy of errors ? There’s a TRULY EXCELLENT australian website called MACROBUSINESS. And that website regularly is VERY critical of what the australian government has done and is doing. That’s my source for the info above. I can (highly) recommend it to visit that website every once and a while. Never visited that website ???

    – Australia has been running CA Deficits since the early 1990s. It means that consumption was/is larger than production. Australia could have been running CA Surplusses if it were not for the australian government who Always spent more than came in as a result of commodity exports. Especially from say 2001 up to 2008.

    Australian total debt to GDP (think: real estate) is actually larger than in the US but government debt to GDP is at a mere 30 to 40%.

    – Didn’t one S Sumner look at the canadian Household debt-to- GDP ratio ? That ratio went down in the US after 2008 but in Canada it actually kept going higher. The canadian government lowered the requirements for taking out a mortgage. And the result was canadian real estate going much higher after 2008.

    – The federal australian government & the individual states (E.g. Western Australia) BOTH came with a subsidy for first time home buyers. The australian federal government doubled that (federal) subsidy, giving australian home prices a boost after 2008.
    – An australian person can buy a house, rent it out and deduct all the home related costs from the taxes due. If that house is sold with a profit then one only need to pay 50% of the capital gains tax. This tax reducing scheme is so popular that it has pushed australian real estate prices into the sky. No wonder, Sydney is one of the most expensive cities in the world.

  69. Gravatar of Willy2 Willy2
    11. March 2016 at 12:01

    MACROBUSINESS website:

    http://www.macrobusiness.com.au/

  70. Gravatar of Lorenzo from Oz Lorenzo from Oz
    12. March 2016 at 00:38

    Yep, I have some opinions 🙂

    Rajat: “The RBA has tended to undershoot inflation when demand is weak (now) and overshoot it when demand is strong (2007/08). In other words, it has not interpreted its flexible inflation target in a way that has helped stabilise nominal demand.”
    Second sentence does not follow from the first. That the RBA has not perfectly counteracted demand shifts does not mean it has not helped to stabilise nominal demand. A bit of undershooting and overshooting is perfectly compatible with the effects of policy being smoother than, for example, an explicit (narrow) inflation target. Particularly given expectations about the direction of policy, even if there is some lag in responsiveness.

    Given the wild shifts in commodity prices and the $A since 1993 (when the target was adopted), it is a remarkable coincidence that the Australian business cycle has been a lot flatter than in other countries. It is not only a matter of dealing with 2007/8 but also the Asian crisis of 1997/8 and major shifts in terms of trade. The “just lucky” claim has some plausibility if just one case, but is a lot weaker when it begins to look like a continuing habit.

  71. Gravatar of International Economic Week In Review: Is A Global Trade Slowdown to Blame? Edition | Forex News International Economic Week In Review: Is A Global Trade Slowdown to Blame? Edition | Forex News
    13. March 2016 at 05:30

    […] the last year.  This supported wage and consumption growth.  This indicates the Australia economy is not a one-trick pony, totally dependent on exports to […]

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