Australia's Misery Index might not be as high as during the Global Financial Crisis or the first year of the COVID-19 pandemic but it's at a less than comfortable level in 2023

At its meeting on 6 June 2023 the Reserve Bank of Australia Board decided to increase the cash rate target by 25 basis points to 4.10 per cent.

Banks and other financial institutions are adjusting their mortgage & loan investment rates upwards again and the ABS Cost Price Index (CPI) remains stubbornly high for the category labelled Food & non-alcoholic beverages.

This was the twelfth cash rate rise in the thirteen months from 4 May 2022 to 7 June 2023.

The inflation rate is hovering at 7.0, while everyone hopes that by the end of June it will stand at 6.25.

The fact that it appears inflationary pressures might still be with us in 2024 doesn’t make for happy little Vegemites in the average Australian household.

This general dark mood can be measured using the Misery Index. An economic concept created in the1960s by Okun and further refined by Barro and Hanke.

It is based on the assumption that:

1) a higher cash rate/interest rate increases the cost of borrowing;

2) which in turn drives up the cost price index for essential goods services;

3) when these factors combine with the seasonally adjusted unemployment rate (rate calculated at times two if you are a Hanke purist); and

4) there is slower/lower growth in the nation’s gross domestic product;

5) this combination goes on to create economic and social costs – or misery – for a country.

To establish where a country is on the Misery Index basically one adds the current reserve bank cash rate, cost price index & seasonally adjusted unemployment figures together and then divides that number by the year end real gross domestic product per capita to produce the Index score.

In Australia’s case the Misery Index according to Professor Guay Lim and Associate Professor Sam Tsiaplias (University of Melbourne) – writing in March 2023 – came in at a whopping 16.3 per cent in third quarter of 2008 during the Global Financial Crisis and 13.7 per cent in the second quarter of 2022, just as the global pandemic really began to bite.

The Misery Index fell sharply in in the second quarter of 2021 but began to climb again over the following months reaching 9.9 per cent in December.

The quarterly Economic Misery Index since 2000. Recent high inflation and high interest rates have caused a rapid rise in the index. Source: Australian Bureau of Statistics, and the Reserve Bank of Australia. Graph: University of Melbourne, Pursuit, “WHAT WE CAN EXPECT FROM THE 2023 ECONOMIC ‘MISERY INDEX’ ”, March 2023

By 2022 the annual economic misery index was at 9.2 per cent.

Unfortunately the Misery Index is not currently budging by much. In the first two weeks of this month, June 2023, it would seem that our quota of misery is somewhere between 9.0 and 9.11 per cent.

Columnist Van Badham writing in The Guardian on 9 June 2023 had this to say:

Australian households with the average $600,000 mortgage have been asked to find a spare $17,000 among the couch cushions since the RBA began its lifting-rates-a-thon last May.

There’s rising costs of other expenses, such as transport. The Australian Automobile Association calculated the average cost of running a car in this country went up $28.31 a week in the March quarter; in Brisbane and Melbourne, it went up $34. With associated automotive costs, using a car in Sydney now averages $510 a week.

Meanwhile, in regional Victoria, one food bank is shipping 40 tonnes of food every day to help struggling families.

Why are the price rises happening? International research conducted by the OECD concluded “corporate profits contributed far more to Australia’s rise in inflation through the past year than from wages and other employee costs”. There’s been similar analysis from the European Central Bank. The Reserve Bank of Australia and Treasury disagree, I guess because the OECD is led by notorious communist Mathias Cormann.

The RBA insists that the pay packets of Australian workers have magically, secretly swelled, and this is driving inflation – even though, as Australian economist Stephen Koukoulas has said, “real unit labour costs only rose 0.1% in the March quarter and 1% over the course of the year”.

And how is it possible wages are inflicting such terrible damage when the ACTU could observe major local employers are enjoying profits at Scrooge McDuck levels? The latest half-yearly statements had Ampol bathing in $440m, Coles $616m, Qantas $1.4bn … and the Commonwealth Bank taking a swim in the gold coins pool at a depth of $5.15bn.

Philip Lowe is the RBA governor. Although he has a whole bank board and a coterie of senior mandarins alongside him making rate rise decisions, he is certainly to blame for public statements that imply “workers pay to solve inflation they didn’t cause”, to quote (yet another) economist Jim Stanford.

The theory for the rises is neoliberal orthodoxy; apply economic pressure to cause unemployment, and make those who retain their jobs live in such valid terror of the burning tyre-pit hell that is Centrelink that they won’t make pay demands and therefore won’t drive “wage price” inflation.

Lowe has generously suggested that those households struggling to keep up with rising mortgages – 27.8% of whom are now at risk of mortgage stress – to just “pick up more work”. This is Schrödinger’s employment policy, where the RBA advocates for and against employment at the same time, while you place a box on your head and scream at your ballooning mortgage repayments. An earlier Lowe suggestion was that those struggling with exploding rents should magic up some flatmates or move back to a “home” that may or may not exist.

You, Australian, are responsible for your own misery. But that means you’re responsible for your own happiness, right?

So while you’re forced to cut spending, alleviate supermarket blues by performing a funky dance in the canned veg section the inevitable moment a Katy Perry song comes over the PA. Similarly, suppressing an instinct to ask for the wages you need to meet your costs can be a lot less painful if you hum your favourite 80s sitcom themes at work.

Automotive costs might force you into long and difficult walks to overcrowded, underfunded public transport, so maybe commute in a clown suit. If you’re facing record rent rises, you could consider reciting beautifully sad poems from the nearest window and lure flatmates to you with your tender pain.

History suggests there are alternatives, but demands for rent freezes and price controls are unconstitutional. Referendums to allow government economic intervention of this kind were defeated in 1948 and 1973. Faced with inflationary challenges in the 1950s, though, the Liberal government of Robert Menzies addressed the problem by raising taxes on the rich.

Sadly, the Australian people voted Scott Morrison into power in 2019 on a promise to implement the stage-three tax cuts, and then a promise by Labor to keep these cuts on the books arguably convinced enough swing voters over the electoral line.

There is no help coming for Australians from the RBA. Perhaps we should ask ourselves how much of this misery we might have power over, after all.

Australian Treasurer Josh Frydenberg has toned down hollow bragging lately

Federal Treasurer Josh Frydenberg has toned down his bragging about economic recovery lately, with the Financial Review on 3 September 2019 reporting that:

Treasurer Josh Frydenberg concedes the nation's economic growth for last financial year will be poor but believes activity will pick up in the September quarter because of cuts to income taxes and interest rates.

Fearing a growth number as low as 1.4 per cent for year ending June when GDP figures are released tomorrow, the Treasurer blamed several factors for what will be a sluggish quarter, including the election campaign.

He blames everyone but the federal government of which he is a senior cabinet minister for the following........

On 4 September 2019 the Australian Bureau of Statistics released its 5206.0 - Australian National Accounts: National Income, Expenditure and Product, Jun 2019.

The opening lines of its media release stated: 

The Australian economy grew 0.5 per cent in seasonally adjusted chain volume terms in the June quarter 2019 and 1.4 per cent through the year, according to figures released by the Australian Bureau of Statistics (ABS) today.

Chief Economist for the ABS, Bruce Hockman, said: “The external sector drove GDP growth this quarter, while growth in the domestic economy remains steady”.

The National Accounts release was accompanied by this graph which shows that, despite this June quarter 2019 growth, GDP growth is the lowest it has been in the last eleven June quarters:

And the decline in GDP growth between June 2018 and June 2019 looked like this:

GDP1
Infogram

Interactive graph from https://www.michaelwest.com.au

It is hardly a coincidence that GDP growth  has a sharp downward trajectory, given that once Liberal MP for Cook Scott Morrison became prime minister he spent most of his time between August 2018 & May 2019 in continuous election mode whilst presiding over a virtual policy vacuum.

In June quarter 2019 new and used dwelling investment continued to decline, the household saving ratio fell to the lowest its been since 2008, while the small growth in household consumption was the second lowest its been in the last eleven June quarters. 

Although mining activity picked up, mining gross value added as a percentage of  GDP was almost half of what it was in 2014 and mining investment in dollar terms was the lowest it had been since the June 2011 quarter.

If it wasn't for government expenditure between April and June 2019 then GDP growth would be even slimmer. Even then, neither Prime Minister Morrison nor Treasurer can claim expenditure figures as entirely the result of federal spending because it was state and local governments which did most of the heavy lifting. 

Scott Morrison delivers - but it is not good economic news

This was then Australian Treasurer Scott Morrison in 2016 with blunt warning about a future recession and dip in living standards..... 

The Sydney Morning Herald, 25 August 2016: 

A generation of Australians has never known a recession or high unemployment but unless hard decisions are taken soon, there is a "terrible risk" complacency could end Australia's 25 consecutive years of economic growth, Treasurer Scott Morrison has warned. 

In the first of three "economic headland" speeches the Treasurer will deliver in the coming weeks, designed to set out the budgetary challenges facing the nation - and the government's vision for how to tackle them - Mr Morrison will argue that it should not take an economic crisis to trigger a wake-up call, or restart the economic reform process, so that Australia enjoys a prosperous future. 

In extracts of the speech seen by Fairfax Media, which will be delivered in Sydney on Thursday, Mr Morrison made a simple plea. 

"I do not want my kids to know what a recession is and everything that goes along with that," he will say. 

"I recognise that in the absence of a 'recession we have to have', or the threat of 'becoming a banana republic', achieving necessary change will be more frustrating and more difficult. 

But it is no less necessary, and achieving it this way is far better than the alternative."  

In addition, Mr Morrison will say that on the current settings, a generation of Australians are likely to never pay tax, setting up a new divide - the "taxed and taxed-nots", prompting the Treasurer to ask: "Are we still up to the challenge of doing what we need to do to ensure another 25 years of consecutive economic growth? 

"Do we really appreciate how quickly our economic success can turn, and are we as prepared as we can be to deal with it ... my greatest concern is that we end up answering these questions the hard way." 

This is Australian Prime Minister Scott Morrison in 2019 delivering a fall in living standards and what looks like the beginning of that recession.....

The Australian, 4 September 2019:

The Prime Minister said on Tuesday that the GDP figures would show that Australia is still doing better than many other developed economies.....

“Today’s growth figures will show over the year a softness … what we will see is that in a tough climate we are actually battling away quite well.

The Guardian, 4 September 2019:

Today the government has been madly attempting to spin the GDP figures as good. So let’s cut straight to the point – the figures are terrible and are among the worst we have seen this century. 

But what makes it worse is this government would have us believe they saw them coming. 

How bad are things? Today’s figures show the worst annual economic growth for 18 years. GDP per capita is now lower than it was a year ago, productivity is plunging and the economy is pretty much staying above water purely because of government spending and a drop in imports due to weak investment and household spending. 

And yet these are the figures the treasurer, Josh Frydenberg, would have us believe are evidence of the “resilience of the Australian economy” and which the prime minister, Scott Morrison, said would “come as no surprise to me”. 

If this is how bad things get when the government says it is not being surprised, God help us if they ever get a shock. 

 That trend growth figure is the worst since March 2001. 

We have now had four consecutive quarters of trend growth below 0.5% – that hasn’t happened since the 1990s recession nearly 30 years ago. It is also the first time since the GFC that GDP per capita is lower than it was a year ago.... 

It was little wonder, in his press conference announcing the figures, that the treasurer quickly turned to talking about employment growth compared with the rest of the OECD, because there is not much to boast about on the whole economy side of things. 

Current growth has us in the bottom half of the OECD..... 

The figures also showed, despite the treasurer’s protestations, that living standards are continuing to decline. 

The treasurer suggested that “living standards continue to increase with real net national disposable income per capita rising 1% to be 2.7% higher through the year”. 

But that figure includes all income – both profits and wages. As such, when profits grow strongly due to big increases in export prices, then national income rises. But unless that flows through to households via wages growth, it is pretty meaningless to use it when talking about living standards. 

And we know that the big increase in income is coming from profits – primarily from the mining sector – and it is not flowing through to households. 

When we look at household disposable income we see that it fell not just in the June quarter but over the past year – down more than 1%. Household incomes per capita are currently at the same level they were in real terms in 2010. 

Today’s figures released by the ABS show the economy grew by 0.5% in the June quarter in seasonally adjusted terms and 0.4% in trend terms. Through the year the growth was a truly pathetic 1.4% seasonally adjusted and 1.5% in trend terms. 

Households of course know their living standards are falling, because they are showing it in how they spend their money. In the past year household consumption grew just 1.5% – again the worst result since the GFC..... 

But the treasurer, despite his talking up the figures, knows just how bad they actually are. He even noted that while profits in the mining sector rose 10.6% in the June quarter, in the non-mining sector they “actually fell 0.6%”. 

Because profits in the mining sector have grown so strongly and compensation to employees is growing so weakly, the share of national income going to workers has plunged. 

The last time the share of national income going to workers was this low, the Beatles had just toured Australia.....

Read the full article here.

The Sydney Morning Herald, 6 September 2019: 

“The crisis,” the [Reserve Bank] governor announced at a conference in 2017, “is really in real wage growth.”......

Instead of wages rising at more than 3 per cent a year, as they had in the five years to 2013, the average pay rise since has fallen to 2.2 per cent annually. 

After inflation, the average pay rise has been a scant 0.5 per cent.....

...without higher wages to pay for people’s groceries, medical care, homes and holidays, spending is weak and the economy enfeebled. 

Lowe has urged governments, state and federal, to lead the way, breaking their 2.5 per cent annual limits and paying workers more.

Then there is this headline demonstrating the folly of Liberal-National ideology......

Former failed advertising executive and Institute of Public Affairs adherent Scott Morrison clearly missing the point entirely.

Morrison, McCormack, Frydenberg & Co are hugging their projected budget surplus so tightly they are strangling the national economy.