The Age Eco­nomic sur­vey

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Every year, The Age pub­lishes a sur­vey of econ­o­mists’ opin­ions on the year ahead. Most of these are “mar­ket econ­o­mists” rather than academics—working for banks, insur­ance com­pa­nies and the like. Three aca­d­e­mics are surveyed—myself, Jacob Mars­den of Monash and Neville Nor­man of the Uni­ver­sity of Melbourne—and one econ­o­mist work­ing for a trade union, Brad Crofts of the AWU.

Peter Mar­tin does an overview of the results each year, as well as pro­vid­ing snip­pets of the answers given to sup­ple­men­tary ques­tions. He made one slip-up this year when he sum­marised views on achiev­ing a sur­plus as:

All think a return to sur­plus mat­ters, although most think it is not cru­cial that it hap­pens in 2012–13.”

That is decid­edly not the opin­ion I gave, so I’m pub­lish­ing the answers that I gave to the sup­ple­men­tary ques­tions below.


As usual, we would like to can­vass your thoughts on a num­ber of issues. (Please feel free to use a sep­a­rate sheet for your answers).

Is it important for the Commonwealth government to aim for a budget surplus in 2012–13?  Why?  Should it continue to aim for surplus even if international conditions worsen?

NO! It’s a non­sense neo­clas­si­cal fan­tasy to blame this cri­sis on gov­ern­ment debt, when its under­ly­ing cause has always been a pri­vate sec­tor debt bub­ble that has now burst. Now that the pri­vate sec­tor is finally delever­ag­ing in Aus­tralia (after the First Home Ven­dors Boost delayed the process), the last thing we need is for the pub­lic sec­tor to also be pulling money out of cir­cu­la­tion, which is what a gov­ern­ment sur­plus would do.

Where are the weak points in the economy (eg: lack of skilled workers, low productivity, imbalances due to the mining boom)

None of the above. The key weak­ness is the credit sys­tem that lent too much for spec­u­la­tive pur­poses in the last 2 decades, and will now lend too lit­tle for pro­duc­tive pur­poses while the pub­lic attempts to delever, which will reduce aggre­gate demand. Decel­er­at­ing debt—and ulti­mately falling pri­vate debt—will put us in the same camp as the rest of the West­ern OECD, with only exports to China help­ing us keep rel­a­tively afloat.

If the US and Europe go into recession what would that do to China’s demand for commodities and commodity prices? Will Australia be able to withstand a developed-world recession?

They will both fall. China’s GDP is still well under half the US’s, and with over 50% of that being invest­ment dri­ven, it is very sus­cep­ti­ble to a down­turn in export demand. Though China aims to shift to a more domes­tic, con­sump­tion dri­ven econ­omy, and I have more con­fi­dence in their abil­ity to make such a shift than I would have for any West­ern econ­omy, the scale of the shift required is huge and cer­tainly couldn’t be done as rapidly as exports would fall dur­ing a global reces­sion. So we will expe­ri­ence a fall in our export vol­umes to China and prices

What do you think will be the key drivers of interest rates over the next year?

Slow real­i­sa­tion that this is not a tran­si­tory eco­nomic cri­sis but a long term one dri­ven by pri­vate sec­tor delever­ag­ing. Decel­er­at­ing pri­vate debt will drive unem­ploy­ment up and asset prices down, and the RBA will be forced to reduce rates against its expectations—back in early 2011—that ris­ing infla­tion and falling unem­ploy­ment would require rates to rise.

Lastly, one dan­ger of being in the pub­lic eye is that one some­times cops an ear­ful from the pub­lic. Below is my favourite from last year’s sur­vey, when Jacob and I were the only ones to expect the stock mar­ket to fall from its end-2010 level of 4970: we both punted for an end of year level of 4000, ver­sus the con­sen­sus pre­dic­tion of 5300 from the other 18 pun­dits. The mar­ket has just closed for the year at 4056.6. Some­how, I don’t expect an apol­ogy for the tirade below…

Good morn­ing Steve,

I perused the above sur­vey with great inter­est and note your eco­nomic fore­casts stand out. You are way off the mark. – ASX-200 (31 Dec 2011) = 4000. Another out­ra­geous state­ment fol­low­ing the Hous­ing Bub­ble fiasco.
You can­not help your­self – you don’t know how to keep your mouth shut   You have NOT learnt from you pre­vi­ous stunt.
Aren’t you embar­rassed ?
Every econ­o­mist in the coun­try is laugh­ing at you.
You are so far off the mark – it only illus­trate your lack of knowl­edge and fun­da­men­tal rea­son­ing.
UNLESS – your fore­cast are moti­vated by polit­i­cal bias and a fun­da­men­tal desire to see the cap­i­tal­ist sys­tem fail.
Are you a “com­mu­nist” ? or at the least – a social­ist / Marx­ist ?
There must be a rea­son for your extreme views —  an unhealthy per­spec­tive for a per­son in your posi­tion to influ­ence the young stu­dents.
I sug­gest they will see you for what you are – a piti­ful, frail and twisted aca­d­e­mic ped­dling an agenda that has already proved you WRONG – The Walk of Shame”
You are mak­ing a fool of your­self.?
The sys­tem that rewards you – you are intent on prov­ing is no good. If you dis­agree with our sys­tem – why not go to CUBA and scratch out a liv­ing in that Marx­ist state. Maybe then you will appre­ci­ate the Cap­i­tal­ist sys­tem that allows you to sponge off the tax­pay­ers with your ridicu­lous fore­casts.
Peo­ple will see you for what you are and lose total respect. I sus­pect they have already done so.

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.
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  • RickW

    Decem­ber 30, 2011 at 10:22 pm | #
    .….. Keep an eye on Tassie. I thinks it will be the canary in the coal mine in 2012.
    End Quote

    It will be some­thing I will fol­low.

    I expect Tassie is suf­fer­ing from the wide­spread down­turn in tourism in Aus­tralia. Peo­ple leav­ing the big island are head­ing north not south. Most Aus­tralian tourism des­ti­na­tions are hurt­ing finan­cially.

    Rio’s deci­sion to offload Bell Bay smelter will not encour­age long-term invest­ment there. I expect this has some­thing to do with the car­bon tax. In the same area there is the clo­sure of Bea­cons­field mine.

  • It’s actu­ally a mas­sive spike when mea­sured in per­cent­age change in per­cent­age change of debt Bob–I think! It’s nowhere near as big when mea­sured against GDP, as you’ll see in the next chart.

  • Lots of great stuff from Steve Keen right now, more papers than there is time to read.

    The com­ments are hilar­i­ous, too. Poor, piti­ful cap­i­tal­ism it needs a boost to its con­fi­dence every sec­ond or it falls into a funk. Maybe it’s time for some­thing else (hint, less waste­ful.)

    Aus­tralia is lucky as is Canada, both are energy sup­pli­ers both w/ cur­rent account sur­pluses so any defla­tion­ary impulses will be muted. Look to Japan to see the lim­its of CASs. Of course they don’t last for­ever.

    See the effect of slow­ing credit impulse in the EU: even with­out ‘vol­un­tary’ aus­ter­ity, that imposed by shrink­ing credit/short-term credit ‘drought’ is mak­ing life mis­er­able. Any unser­viced debt is a hit direct to GDP

    The EU is sup­ported by the cen­tral bank: after it capit­u­lates the delever­ag­ing will (likely) take place all at once rather than hav­ing the agony stretched out over decades as in Japan …

  • cen­ter­line

    Steve / RickW / All…

    Please accept my most sin­cere apol­ogy for not catch­ing the sar­casm in Rick’s state­ment ear­lier.