Always look on the bright side of … economic data?

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If things are real­ly grim, it helps to have an inde­fati­ga­ble nature, and there’s no doubt that RBA Deputy Gov­er­nor Ric Bat­telli­no has that in spades—at least in the speech­es he makes at pub­lic con­fer­ences. Were I being cru­ci­fied, I’d like to have Ric up there with me, singing “Cheer up Bri­an!…”, to take my mind off the nails.

But were I still in the Gar­den of Geth­se­mane, and actu­al­ly try­ing to avoid the Romans (and an extend­ed Pilates ses­sion the next day), I think I’d want some­one else on look­out duty.

Last month, in his Address to ITSA’s 7th Nation­al Bank­rupt­cy Con­gress in Syd­ney, Bat­telli­no looked at the data on Aus­tralian house pric­ing, and saw no rea­son to expect them to fall all that much.

Curi­ous­ly, he argued that the Aus­tralian mar­ket was actu­al­ly ahead of the US—that we’d already peaked in 2003, three years before the US mar­ket hit the peak from which it is still pre­cip­i­tous­ly falling:

First, the cycle in the Aus­tralian hous­ing mar­ket, rather than fol­low­ing the US mar­ket, is in fact at a more advanced stage; it is prob­a­bly lead­ing the US mar­ket by three years or so. The Aus­tralian hous­ing mar­ket was at its hottest in 2003, where­as the US mar­ket peaked in 2006.”

Strange then that the ABS data put the index of Aus­tralian house prices at 101.5 at the end of 2003, ver­sus 130.7 in June of this year. So … Aus­tralian house prices fell minus 27 per­cent from their peak? We indeed live in a Lucky Coun­try, if house prices rise when the mar­ket cools.

In fact, the index did reached a mini-peak at the end of 2003, and fell 1.5 per­cent in 2004. But it then regained momen­tum, and rose anoth­er 30 per­cent above the tiny dip in 2004.

Bat­telli­no’s con­sid­er­a­tion of oth­er data was not so obvi­ous­ly Orwellian—he not­ed the short­age of sup­ply here ver­sus an over­sup­ply in the USA, and that is clear­ly the case.

But he also ignored oth­er read­i­ly avail­able data when pre­sent­ing what he described as “an objec­tive look at the state of house­hold finances”.

How about the objec­tive data, as record­ed in the Demographia sur­vey, that Aus­trali­a’s medi­an house price, at 6.3 times medi­an income, is the most unaf­ford­able in the OECD? Or the RBA’s own data that which shows that, rel­a­tive to house­hold dis­pos­able income, house­hold debt in Aus­tralia is actu­al­ly slight­ly larg­er than in the USA?

Clear­ly our eco­nom­ic man­agers are torn between not want­i­ng to spook the mar­ket, and want­i­ng to present objec­tive guidance—so much so that debat­ing whether eco­nom­ic pro­jec­tions reflect sci­en­tif­ic fore­sight, or polit­i­cal­ly inspired spin, has become the con­test du jour in Ques­tion Time.

In this, both sides of our House are miss­ing the point. If Trea­sury and the RBA had got it right, we would­n’t be in the Gar­den of Geth­se­mane in the first place—we’d be in the Gar­den of Eden instead

The US Con­gress’s Over­sight Com­mit­tee got clos­er to the mark, when it forced Greenspan into the admis­sion that the eco­nom­ic phi­los­o­phy he’d been fol­low­ing for the pre­vi­ous 40 years was wrong.

This phi­los­o­phy led him to not mere­ly ignore asset bub­bles, but to renew Wall and Main Streets’ spec­u­la­tive manias after each bub­ble burst, by rekind­ing the growth of pri­vate debt until it hit the unsus­tain­able lev­els that have pre­cip­i­tat­ed this cri­sis.

At least Greenspan—though admit­ted­ly in retirement—had the gump­tion to admit fault. Our eco­nom­ic man­agers, caught in a cri­sis they did­n’t see com­ing, are still using the same mod­els that did­n’t antic­i­pate this mess, and still look­ing for the glim­mers of bright­ness amidst the sta­tis­ti­cal gloom.

Days after Bat­telli­no’s speech, the ABS released its update to the house price index, which showed that prices had fall­en 1.84 per­cent in the Sep­tem­ber quar­ter.

Cheer up Bri­an!…”

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About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.