The K-Shaped Recovery: financial fortunes fork as JobKeeper, JobSeeker cliff looms

by | Feb 16, 2021 | Economy & Markets

A record sharemarket and bouncing property prices are a boon for many Australians yet the economic recovery is shaping up to benefit the wealthy at the expense of those less fortunate. Michael West reports on the K-Shaped Recovery. 

Josh Frydenberg has been busy. The Treasurer kicked off the week with an oped in Rupert Murdoch’s The Australian, or rather a panegyric to the brilliance of his own treasurership. Then on to a blistering volley of appearances at Sky News, Nine, Seven, ABC, 2GB’s Ben Fordham, Neil Mitchell and even Moonman in the Morning on MMM.

Things were going well, Josh told Moonman. Indeed, Australia is surviving the pandemic well, at least compared with other countries, and is emerging from the economic malaise faster than most. Yet crunch time looms – at the end of next month when Josh ratchets JobSeeker back to poverty levels and the gargantuan $80 billion business subsidy, JobKeeper, is turned off.

Things are bouncing nicely for the economy, yet it faces precisely the same risks as it did before the pandemic.

Counter to the government’s narrative, the economy was not strong before the virus. On a slew of measures, Australia was falling behind the rest of the world, even by its own cherished metrics of GDP and so forth, as the chart shows.

 

Now, the very same factors that had the economy listless are putting the economic recovery at risk. And Josh Frydenberg is getting the very same warnings from the Governor of the Reserve Bank Philip Lowe: don’t deflate the economy – stimulus, stimulus!

Before the pandemic, Josh was withdrawing money from the economy to achieve his Budget surplus, and attendant political bragging rights, despite incessant warnings from Lowe not to pursue austerity. Josh didn’t listen.

In September 2019, Josh gave up. He fell just $700 million short of his feted surplus. Now he’s $200 billion short, bang in the deepest budget hole in history.

And now that we are emerging from the pandemic, the very same warnings are flowing thick and fast. It must have been some sort of record the week before last. No less than three public appearances by the Reserve Bank governor in just one week.

His utterances are dressed in RBA governor-speak, encouragement rather than admonition. Yet unmistakably, the message is the same, do not end the fiscal stimulus. 

The April cliff

In what is shaping up as an election year, it is unlikely that Josh Frydenberg will completely switch off off JobKeeper and Jobseeker stimulus in one abrupt hit at the end of March. Though that’s the official position now, and surely in keeping with the Treasurer’s admiration for Margaret Thatcher and Ronald Reagan; admiration that is for the virtues of austerity and trickle-down economics.

The policies of both Thatcher and Reagan led to enormous transfers of income from poor to rich and that appears to be happening here right now.

Australia’s economy is in a classic K-Shaped recovery. The wealthy are doing better than ever with the sharemarket at record highs, record dividends announced daily on the ASX amid profit reporting season, business protected by JobKeeper, and property on the rebound.

Naturally Josh declined to share these unsavoury facts with Moonman in the Morning and other stops on his busy media timetable, Nor would he have been asked. Yet, inequality is rising as wages remain dead stagnant. Meanwhile, unemployment may be easing, but underemployment is rife. 

This is a long-term thing. Labor’s share of Australian national income has fallen from 55% to 52% over the past 25 years. Capital has won this rise at the expense of workers. At the same time, returns on technology have lifted labour productivity by 40%. 

How the “fair go” is faring

The latest set of jobless numbers showed a negligible increase in actual hours worked (0.05%), despite a reduction in the number of unemployed (0.2%), so there are more people doing the same amount of work. That is not a great outcome. And zero hours contracts are likely to be added to the insecure work mix.

If Josh Frydenberg’s big gift to big business has been the JobKeeper subsidy, a subsidy designed to give employers time to restructure, his gift to small business is downward pressure on wages.

So it is that while RBA’s Philip Lowe is jawboning for stimulus, trying to get wages up, Josh is fixing to cut unemployment benefits back to $40 a day, which would drive desperate workers to accept lower wages. 

Two of the Reserve Bank’s primary objectives are to get wages up and to get inflation up to the 2% band. It has been failing on both fronts. But it is financing the Government’s Budget deficit and for that they must be discreetly grateful.

Although Josh has said “there is no money tree”, and still pretends there is no such thing as free money, the RBA has now created some $70 billion in new money. 

“Printing money” is far too gauche a phrase to be used by the high-minded economic fraternity, but, in terms of layman’s understanding, this is exactly what is happening. New money is being created a record speed, the greatest speed and quantity in history.

A key design feature of Australia’s “quantitative easing”, or QE, is that the RBA is not simply buying bonds directly from the Government and, presto, new money is made.

Rather, and typical of its fetish for privatisation, Treasury has interposed the banks in the money creation scheme to provide, if you like, “plausible deniability” that the printing presses are rolling.

It works like this: the Government, via Treasury, issues bonds. The banks buy the bonds. When the Reserve Bank buys the bonds from the banks, it merely credits their accounts. That’s the new money.

Some $70 billion has already been created of the $100 billion announced first tranche of QE last November. Earlier this month, another $100 billion was announced. So that’s $200 billion earmarked in stimulus to rev up the Australian economy.

The conundrum for Scott Morrison and Josh Frydenberg is that the banks aren’t spending it. That was what was supposed to have happened. They have it sitting in their ESA accounts with the Reserve Bank, just lying idle, zero interest. The banks are keen to lend to big business but small business is too risky, so risky in fact that they are prepared to have their money earning nothing at the RBA.

The pattern in recent weeks has been for Treasury to issue $4 billion a week and the Reserve Bank buying $5 billion of old bonds. Again, Labor has been mute on this. Had it been Labor issuing all the debt and financing its own deficit with new money, just imagine the gnashing of teeth and foaming of mouths on the Coalition benches.

ABOUT THE AUTHOR

Michael West

Michael West

Michael West established michaelwest.com.au to focus on journalism of high public interest, particularly the rising power of corporations over democracy. Formerly a journalist and editor at Fairfax newspapers and a columnist at News Corp, West was appointed Adjunct Associate Professor at the University of Sydney’s School of Social and Political Sciences. You can follow Michael on Twitter @MichaelWestBiz.

23 Comments

  1. Avatar

    wow – a deliberate transfer of wealth from the poor to the rich – a la the heartless Thatcher

    next we’ll have UK type stabbings in the street as the desperately poor turn to drugs and drug dealing gangs as their only perceived way to get enough money to survive

  2. Avatar

    I’m sure you already understand this but I just want to make explicit. The corporatist agenda is to undermine democracy with voodoonomics. In the real world the deficit is a myth and there is no genuine reason for not simply giving every Aussie the income they need to rise above the poverty level. The reason the corrupt fascists resist this is because it would liberate us from slavery.
    https://youtu.be/kl39KHS07Xc

  3. Avatar

    We survived the “recession we needed to have” with no Jobkeeper, Jobseeker, Jobmaker etc or any other fancy “vote buying” stimulus. This one too will pass. Current indicators show job vacancies are soaring, and unemployment is way below forecasts.

    • Avatar

      Unlike the past, employed = anyone doing at least one hour work per week; no longer a good measure, maybe Roy Morgan’s ‘under-employment’ rate of 12% is more valid?

  4. Avatar

    I’m not clear on just how big the impact the Liberal government is having on the economy. What exactly is being measured/shown on the Y axis in the graphs?

    • Avatar

      You can discuss all sorts of analogous issues and reasons as to the ‘why’ of anything, will go on for eons, it’s called distraction and inversion, it’s what the LNP/BCA/IPA employ as de rigueur

      At the end of the day, when you have the likes of the 2nd highest paid Public Servant in Victoria actively seeking an EPC program from his Doctor for services that he can amply afford, which is akin to theft and robbing needy people from sometimes acute care. It was suggested to me that the meagre allocation of 5 appointments per annum, split between the most critical services, would increase to 8 per genuine applicant if it were not for the likes of those mentioned above, who can afford literally anything they like. So, it’s not just these miserly individuals that are most corrupt, it’s also their professional services provider’s as well who knowingly rort the system.

      The rich are way too lousy to pay for anything, hence the many skewed ‘reports’ on why substantive issues for those that need them the most go unmet, especially with healthcare and dentistry, where many health issues emerge.

      Nothing like greed at the trough from those who scream the loudest, then feel so hard done by that they also claim that expense from petty cash! Talk about double dipping, more like triple dipping.
      https://www.theage.com.au/national/victoria/top-victorian-public-servants-given-big-pay-increases-despite-economic-downturn-20200522-p54vna.html

      • Avatar

        But what is the Y axis?

      • Avatar

        As already mentioned, you can argue ‘theory’ until the cows come home.

        The simple fact of the matter is supply and demand, and once again will give you another example, one which the ‘global’ economy has never recovered from, and it seems that many do indeed have short memories, for musical chairs have reigned less than 14 months later.

        · Easy credit conditions
        · Weak and fraudulent underwriting conditions
        · Predatory lending
        · Deregulation and lack of regulation
        · Poor pricing of risk
        · Mainstream economists who failed to predict the crisis

        GFC 2007-2008 – worthless subprime mortgage backed securities repackaged into CDO’s where the money men decided to short sell the entire market, but hey, anything for a buck. Deliberate fraud. https://en.wikipedia.org/wiki/Financial_crisis_of_2007–2008#

        No one went to Prison, no one lost their licence and as usual the taxpayers bailed out the miscreants, more than 10 million lost their jobs, and six million lost their homes.

        Now we have that great mastermind Frydenburg removing the regulatory regime for outright theft. House of cards awaits.

      • Avatar

        You still haven’t explained what the Y axis is. If you don’t know that’s fine, I’ll find it out and let you know.

      • Avatar

        No I don’t, and refreshing to know you don’t either! Look forward to the explanation.

      • Avatar

        Wow! An ‘A’ for obfuscation, and a ‘F’ for explanation.

      • Avatar

        Hello John, obviously not delighted with your sarcastic comment. I’m sure you feel proud of that.

        I’m not an economist, just an avid observer of politics and all that that entails, and yes I do pay attention to what’s going on, and unlike you, and your friend, you like to pile on for the heck of it, as your comment above states you’re also none the wiser. So, unlike you and your favourite penchants, I don’t pretend to have all the answers, and I also seek to learn from others, without the sarcasm.

      • Avatar

        Why not just say, I don’t know? The question was asked in all seriousness, because I don’t know either, I plowed through your meandering irrelevant response in the vain hope of finding a clue. Thanks for nothing.

      • Avatar

        I did, my reply to Luke A, so rather than just rushing in and making rash comments, take the time to read comments, will save a lot of grief, and that response appears above your original comment.

      • Avatar

        Sorry, I did read what you wrote, and it was rude and condescending and totally inappropriate. You have accused both me and Luke of sarcasm, when we were both trying to get a simple answer to the question. Luke didn’t pretend not to know, neither did I. Seriously, you should take a long hard look at your own attitude. Good night!

      • Avatar

        Legit what I was about to type Luke hahaha

  5. Avatar

    Watch how quickly the government will go further to ditch libertarian economic ideology obsessing about debt if more Keynesian stimulus is needed to win the next election, although highly contradictory ‘economic management’.

    To be fair, Australian and state governments’ debt is moderate compared to most nations; it’s personal debt that is 2nd highest globally and being juiced up further to mostly support the inflated property market (and probably those transitioning to retirement wishing to liquidate ‘subsidised’ real estate assets).

    Further, depending upon Covid, uncertainty round the significant impact and flow on effect of missing international tourists, international students etc. who are ‘net financial contributors’ to budgets, while they also purchase many services through insurance, groceries, apt. rents, hotel stays, shopping etc.

    Throw in the end of JobKeeper and uncertain impact on the real economy that was tepid even before Covid?

  6. Avatar

    The money credited to the banks when the RBA buys the bonds from them, corresponds to the money the banks spent when they bought those bonds from the government, so it’s a net zero for the banks’ liquidity.
    The government on the other hand has extra cash (in their RBA account) from selling the bonds, which they can spend into the economy with infrastructure, rorted grants, jobkeeper, etc. So they aren’t relying on the banks to spend the money.

  7. Avatar

    Hey Michael,

    Great job but one suggestion on the graphs you have provided in the article. You need to label the axis’ as I and others don’t know what MWI exactly means. Like is MWI a flat figure or is a percentage, it is difficult to tell.

    Also not sure if you have already done so but could you look into how the Coalition have essentially brought in Work Choices into the industrial relations policy under the guise of temporary COVID measures

    Thanks

    • Avatar

      Easy, you just ‘google’ it, and this is the list of options, but I’m not any the wiser:
      MWI
      Also found in: Financial, Wikipedia.
      Category filter:
      Show All (24)
      Acronym Definition
      MWI Malawi (ISO Country code)
      MWI Mobile Web Initiative (World Wide Web Consortium)
      MWI Message-Waiting Indicator (telecommunications)
      MWI Memory Write Invalidate
      MWI Mobile Web Initiative
      MWI Message Waiting Indication
      MWI Many-Worlds Interpretation (Quantum Physics, Quantum Mechanics)
      MWI Ministry of Water and Irrigation
      MWI Medical Waste Incinerator
      MWI microwave irradiation
      MWI Media Wearout Indicator (computing)
      MWI Mafia Wars Indonesia (gaming clan)
      MWI Marriage Witness Index (UK)
      MWI Microwave Imaging
      MWI Mountain Wilderness International
      MWI Mad Wae It!
      MWI Medical Waste Institute
      MWI Magee Womancare International (Pittsburgh, PA; free preventive healthcare)
      MWI Mad With It (intoxicated)
      MWI Missouri Watershed Initiative
      MWI Manufacturing Work Instruction
      MWI Managing for Weekly Improvement
      MWI Met While Incarcerated
      MWI Management Work Instruction

  8. Avatar

    So WTF is going wrong with the Labor party? There will be an election soon and no way are they ready for it!

  9. Avatar

    Wonderful explanation Mike, just makes me angry once again as to how this keeps happening and the spin doctors and the media not asking the hard questions, then again Ben Fordham likes to speak about himself and stroke his own ego, so it will never happen on 2GB in the mornings. However as a 50 plus someone trying to secure work, I am subject to mainly part time options and ridiculous low wages, despite so much experience, let’s not mention my age as I get overlooked at nearly every corner. The unemployment figures are a farce , I can’t go on jobseeker as my husband is earning, but we like millions of others have bills and mortgages to pay and need a second wage. We just sit back and watch the fat cats get fatter.

  10. Avatar

    What are the measures that are indexed in the first 2 graphs? Thank you.

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