From MacroBusiness.
David Llewellyn-Smith
Did it happen if a tree fell in the woods but no one was around to hear it?
More crucially, did an economy contract in the midst of a growing population?
This dilemma is currently at the heart of the Australian economy.
We learned last week that per capita GDP decreased in the March quarter. In other words, your economic pie has shrunk.
You most likely missed this fact because the whole pie grew, and that’s all anyone reported.
This was not always the case. GDP per capita was once a much more relevant statistic for policymakers than GDP since it shows how well your living standards are performing.
However, in these post-truth days, your standard of life has taken a back seat to the requirements of poisonous politicians who would prefer you not know when you are going poorer.
Taking a rabbit from a hat
Politicians employ a simple ruse to conceal your declining economic portion. In times of hardship, they increase mass immigration to drive population expansion.
More people equals more transactions and, as a result, higher GDP. A bigger pie.
Of course, more people during a slump equals a smaller share of economic activity for you than would otherwise be the case, but since no one reports the latter, it doesn’t matter.
The pollsters get to assert that there is no recession and showcase themselves as wonderful success stories.
How did this happen?
During recessions, politicians used to reduce immigration numbers. This lessened the impact of a recession on Australian living standards.
However, following the big mining slump of 2012, the Coalition Government kept its foot on the immigration accelerator for the first time during a downturn. Immigration has evolved from an economic supplement to an economic driver.
As a result, per capita GDP has been falling for an unprecedented ten years. Your share of the GDP pie grew slowly but declined in actual terms since things like housing shortages, overburdened public services, and the environment were never counted.
As the great inflation bust unfolds, a Labour government is employing the same ruse.
They’re both horrible, but one can wonder if a political party that claims to protect workers is worse.
How terrible will things get?
With population growth caused by mass immigration currently at 2%, GDP must expand at least that much to keep your portion of the pie from diminishing.
As the RBA breaks the economy in the inflation struggle, the next two quarters will almost certainly be below that rate, resulting in the longest per capita recession in history.
This will push unemployment well above 5% and sink your hoped-for pay increase. That’s another setback for your standard of living.
To have a headline GDP recession, the economy must contract by more than the 2% that the population rises.
That is not an easy task. Though the Reserve Bank is working hard on it.
It is less likely until the housing market experiences a double-dip correction. It’s unlikely because of, you guessed it, mass immigration.
This also explains why our poisonous landlord politicians adore their new economic paradigm.
If we do see a headline recession, the unemployment rate will rise to around 8%.
Worse, as Chinese growth slows to that of developed economies, our commodity prices are collapsing and will continue to do so in trend terms. This is a replay of the post-2011 mining slump, with national income falling heavily.
So, even if the economy recovers enough to outpace the population increase, it will only be by a small margin, and your living standards will continue to deteriorate as the squeeze on public services and the environment resumes.
A stern word with your local pollie may be in order if he or she is not too preoccupied with interviewing prospective tenants.
