Whatever today's economic data shows about how close Australia is to recession the truth is we are already experiencing the biggest dive in living standards in half a century — and have been for two years, writes Peter Martin.
To build more housing, we need skilled tradies, structural engineers, etc.
But there’s a problem.
Australia has skills shortages in those areas.
Okay, so we’ll bring in more skilled migrants to fill those skills shortages to build more housing.
Those skilled migrants need somewhere to live.
But there’s a problem.
Australia doesn’t have enough housing.
So we need more houses for the skilled migrants we need to build more houses to fix the problem of not enough houses.
It gets worse.
For around two years during the pandemic, the Department of Foreign Affairs and Trade needed more staff for things like hotel quarantine and border pass applications.
So DFAT basically took all staff off examining skilled migrant visa applications.
The problem is that when the borders reopened, there was a roughly two-year backlog of skilled migrant applications.
Also, Vlad decided to invade Ukraine, which meant most Western countries blocked Russian exports.
The problem is that a lot of — for example — the timber for the formwork used in concrete came from Russia. So the countries that had domestic supplies were hoarding them, while the rest of the world was scrambling to find alternative supplies.
So developers were waiting weeks or months to hire tradies, the tradies would show up on site, the parts they needed still hadn’t shown up because of the supply shortage, so they’d go home. A few weeks later, the parts would show up, but the developer would then need to book the tradies again…
Russia is also a big oil and gas supplier, so as it was shut off from the world market, energy prices surged.
So building projects were being delayed, costs were increasing, new housing supply was delayed.
But wait — what about our higher education system? Why are there skills shortages to begin with? Why aren’t our TAFEs and unis producing enough skilled workers?
Well, starting with the Keating government and accelerating under John Howard, the federal government discovered that full fee paying international students are a great way to fund higher education without raising taxes.
So higher education went from primarily training students to fill local skills gaps to exporting education.
Student migration dried up during the pandemic, but it kicked off again just as border restrictions were lifted.
Those students need housing.
At the same time, delays in processing skilled migration visas meant there were massive skills shortages in construction. And supply shortages.
@exocrinous@Longmactoppedup In a number of key industries — supermarkets, telcos, banks, airlines, electricity — Australia doesn’t have genuine competition.
Instead, we have two to four big companies that own the industry and basically act as a cartel.
They saw the supply shortages and skills shortages, and jacked up their prices.
Then when those shortages cleared, instead of lowering prices, they kept raising them and raked in record profits.
All this led to skyrocketing inflation.
Here’s where the Reserve Bank comes into play.
Back in the late 1970s and 1980s, there was a number of years where there was a wages spiral.
Basically, this was where prices were rising, so unions demanded and received higher wages, which led to companies putting up prices, which led to higher wage demands…
The thing that eventually ended that cycle was the Reserve Bank lifting interest rates to 17% and causing a recession.
At its simplest, this caused people to lose jobs and stop demanding wage increases and businesses to stop raising prices.
The Reserve Bank acted like a wage spiral was happening again, and put up interest rates.
But this time, it didn’t work particularly well, because in most industries, wages weren’t rising.
And because housing prices were one of the root causes of the inflation, and higher interest rates made it more expensive to borrow to build houses, it actually made the problem worse.
Instead, people just cut their spending right back.
Which brings us to the almighty catastrofuck of an economic mess Australia’s in right now.
At the same time, the same sorts of issues are happening across the world.
There’s global skills shortages. Housing prices are skyrocketing across the world. Inflation is surging, even as supply shortages clear. Wage growth is stagnant and isn’t keeping pace with the economy.
So in the US Federal Reserve is raising interest rates, and house prices in — say — New York are hitting record highs. Inflation there is surging, but wages are stagnant.
And that’s the simple version — there’s even more to it, but I’m already on the second post.
It’s basically the end product of 30 or 40 years of short-sighted economic policy.
We simultaneously need more skilled migration to fix this mess, but it will also make the problem worse.
The Reserve Bank is lifting interest rates to slow inflation but it’s also making the problem worse.
Consumer spending has fallen off a cliff and simultaneously inflation is running rampant.
Households are in a recession while the overall economy is overheating.
And the same things are happening in China, in Europe, in the US, in Canada.
So even if we can solve some of these issues domestically, some of these issues have a global dimension.
@exocrinous @Longmactoppedup I think there’s a few big pieces of this puzzle that you guys are missing.
Housing is too expensive.
Why? Australia doesn’t have enough housing.
To build more housing, we need skilled tradies, structural engineers, etc.
But there’s a problem.
Australia has skills shortages in those areas.
Okay, so we’ll bring in more skilled migrants to fill those skills shortages to build more housing.
Those skilled migrants need somewhere to live.
But there’s a problem.
Australia doesn’t have enough housing.
So we need more houses for the skilled migrants we need to build more houses to fix the problem of not enough houses.
It gets worse.
For around two years during the pandemic, the Department of Foreign Affairs and Trade needed more staff for things like hotel quarantine and border pass applications.
So DFAT basically took all staff off examining skilled migrant visa applications.
The problem is that when the borders reopened, there was a roughly two-year backlog of skilled migrant applications.
Also, Vlad decided to invade Ukraine, which meant most Western countries blocked Russian exports.
The problem is that a lot of — for example — the timber for the formwork used in concrete came from Russia. So the countries that had domestic supplies were hoarding them, while the rest of the world was scrambling to find alternative supplies.
So developers were waiting weeks or months to hire tradies, the tradies would show up on site, the parts they needed still hadn’t shown up because of the supply shortage, so they’d go home. A few weeks later, the parts would show up, but the developer would then need to book the tradies again…
Russia is also a big oil and gas supplier, so as it was shut off from the world market, energy prices surged.
So building projects were being delayed, costs were increasing, new housing supply was delayed.
But wait — what about our higher education system? Why are there skills shortages to begin with? Why aren’t our TAFEs and unis producing enough skilled workers?
Well, starting with the Keating government and accelerating under John Howard, the federal government discovered that full fee paying international students are a great way to fund higher education without raising taxes.
So higher education went from primarily training students to fill local skills gaps to exporting education.
Student migration dried up during the pandemic, but it kicked off again just as border restrictions were lifted.
Those students need housing.
At the same time, delays in processing skilled migration visas meant there were massive skills shortages in construction. And supply shortages.
It still gets worse. (1/2)
@exocrinous @Longmactoppedup In a number of key industries — supermarkets, telcos, banks, airlines, electricity — Australia doesn’t have genuine competition.
Instead, we have two to four big companies that own the industry and basically act as a cartel.
They saw the supply shortages and skills shortages, and jacked up their prices.
Then when those shortages cleared, instead of lowering prices, they kept raising them and raked in record profits.
All this led to skyrocketing inflation.
Here’s where the Reserve Bank comes into play.
Back in the late 1970s and 1980s, there was a number of years where there was a wages spiral.
Basically, this was where prices were rising, so unions demanded and received higher wages, which led to companies putting up prices, which led to higher wage demands…
The thing that eventually ended that cycle was the Reserve Bank lifting interest rates to 17% and causing a recession.
At its simplest, this caused people to lose jobs and stop demanding wage increases and businesses to stop raising prices.
The Reserve Bank acted like a wage spiral was happening again, and put up interest rates.
But this time, it didn’t work particularly well, because in most industries, wages weren’t rising.
And because housing prices were one of the root causes of the inflation, and higher interest rates made it more expensive to borrow to build houses, it actually made the problem worse.
Instead, people just cut their spending right back.
Which brings us to the almighty catastrofuck of an economic mess Australia’s in right now.
At the same time, the same sorts of issues are happening across the world.
There’s global skills shortages. Housing prices are skyrocketing across the world. Inflation is surging, even as supply shortages clear. Wage growth is stagnant and isn’t keeping pace with the economy.
So in the US Federal Reserve is raising interest rates, and house prices in — say — New York are hitting record highs. Inflation there is surging, but wages are stagnant.
And that’s the simple version — there’s even more to it, but I’m already on the second post.
It’s basically the end product of 30 or 40 years of short-sighted economic policy.
We simultaneously need more skilled migration to fix this mess, but it will also make the problem worse.
The Reserve Bank is lifting interest rates to slow inflation but it’s also making the problem worse.
Consumer spending has fallen off a cliff and simultaneously inflation is running rampant.
Households are in a recession while the overall economy is overheating.
And the same things are happening in China, in Europe, in the US, in Canada.
So even if we can solve some of these issues domestically, some of these issues have a global dimension.
In short, it’s a mess. (2/2)