I have commented before, I think, on the great paradox of our time. Once we were scolded for spending too much and over-using our credit cards. We were profligate, the country was on the road to ruin, foreigners would soon own everything, and so on. Today we are being scolded for not spending, for hanging on to our money. Retailers scold us for buying things online, when we could go to the comfort of our neighbourhood megastore and actually inspect the goods. Others tell us that if we don’t spend generously this Christmas shops will have to close in January, or put off staff, or do something else that is really bad. It is up to us to save the economy.
I don’t know who it is that these messages are intended to influence. Economics tells us that we are all rational maximisers of our own utilities or, to put it another way, we all do what seems best for us at the time. So we will spend at Christmas time just what we think we ought to spend, without worrying about whether or not a particular retailer will have to put off staff if we pass him by. We are unlikely to interpret the Reserve Bank’s lowering of the cash rate as an instruction to go out and spend, because money is now cheaper. We have what money we have.
If the virtues of spending are a clear message, there are others that are rather worrying. Some of the household names in the pantry, like Allen’s and Rosella, seem to be disppearing, because the firms are broke. I am sure that we don’t feel responsible, because we (I, for one) have purchased Allen’s sweets and Rosella tomato sauce in the recent past. We have done our bit. But firms going into administration can make us nervous about our own jobs, or those of family members, and one natural reaction is to hold on to one’s purse.
At the same time our government is giving us mixed messages. There is the Treasurer desperately trying to hang on to his ‘surplus’, through spending cuts and not releasing funds that have already been appropriated. But his colleagues are adding to the sense of entitlement that is widespread in our society by proving funds for carers, for new dental services, and so on. These are all worthwhile initiatives, no doubt, but they all cost money and make the Treasurer’s task more difficult. Some of us would wonder just why it is so important to have a surplus, even if it is trivially small.
And all this is worrying to anyone rationally maximising her or his utilities. Aren’t we supposed to have one of the world’s most strongly-performing economies? And isn’t the current cash rate at the level it was at the depth of the global financial crisis? That probably means that the rest of the world is in poor shape; we do keep hearing that Greece is still a problem, and that Spain is worse, and that something bad could happen in Europe any day. That is another reason for holding on to our purse.
Finally, consumer and other surveys don’t suggest that we have much confidence about the economy and our role in it. While the ABS says that unemployment is at 5.4 per cent (October) and steady, the Roy Morgan group, which interviews people all the time, and always asks about where the respondents are with respect to work, reports unemployment at almost double that figure. Its account of the state of the workforce also points to a lot of under-employment as well — part-time workers who would like more work if they could get it. The Morgan figure puts the total of unemployment and under-employment at 18 per cent of the workforce, and the workforce consists of two in every three Australians.
The discrepancy between the two estimates of unemployment comes from the different methodologies employed, and while the Treasurer would clearly prefer the ABS account of things, he might ponder on the meaning of the Morgan figures, which tell the story of an under-employed society that is likely to be quite worried about the future. Retailers and the Treasurer might want us to go out and spend this Christmas, but I don’t think it’s going to happen.