Prosperity for Australian households goes south, Keir Starmer praises Margaret Thatcher – William Mitchell – Modern Monetary Theory

Since I used yesterday's post space to analyze the release of the National Accounts, I will discuss a few topics today. There is one further point I would like to make regarding the latest national accounts data. The focus on real household disposable income shows the full impact of monetary policy (raising interest rates) and fiscal policy (climbing tax brackets) on household prosperity. The Australian government, aided and abetted by the Reserve Bank of Australia, is experiencing one of the worst declines in household prosperity in recent history. The only thing the Treasurer has announced this week is his intention to amend the RBA Act to remove his power to change monetary policy if it is contrary to the national interest. Meanwhile, the British Labor leader praised Margaret Thatcher and equated her shock therapy with his own attempt to purge the Labor Party of anything resembling progressive voices. After all, I have some spiritual jazz for us to listen to.

real household disposable income

Yesterday’s blog title—— Australian National Accounts – Growth fell to 0.2% in September – only because of fiscal support measures (December 6, 2023) — Tell the story.

Household spending contributed zero to the latest GDP growth results, with the economy growing only due to the federal government's special (ending) cost-of-living support program for households.

Household spending growth was flat and household savings rates plummeted to zero.

As a result, households try to maintain spending levels (rather than grow) by consuming more and more of their disposable income, which means they undermine wealth accumulation by cutting back on savings.

This process is limited – the savings rate is now down to 1.7% and is falling rapidly, which means we should not be surprised to see the savings rate slip into negative territory in the coming months – which means household wealth is being Devour in pursuit of survival.

Apparently those at the top don't face the same problem, as their incomes continue to grow with interest rate returns from RBA rate hikes and their share of profits from their share portfolios.

So when we calculate the results across the household sector, we're now talking about worsening trends that are hitting low-income households hard.

Once the savings rate falls below zero, we can expect a sharp drop in spending, which will tip the economy into recession.

I investigated the family situation further this morning and this is what I found.

The chart below shows the annual change in real total household disposable income since the September quarter of 1960 to the September quarter of 2023.

Real total household disposable income decreased by 5.14% annually in the September quarter of 1977 and by 5.13% in the June quarter of 1983.

It was the worst quarter since the September quarter of 1959, when modern national accounts were first published.

In the current period we see:

This is the worst period in the history of national accounts in terms of real disposable income for households.

Since the third quarter of 2022, real disposable income of households has fallen by 5.4%.

There are several reasons:

1. The inflation rate accelerated in the ninth quarter of 2022 and is still higher than normal levels.

2. Since May 2022, there have been 11 interest rate increases, increasing the average monthly mortgage payment by 52%.

3. Nominal inflation has pushed many workers into higher income tax brackets—so-called “bracket creep”—which has increased the amount of taxes families pay.

Since the March 2020 quarter, we have observed:

1. Interest payments on housing debt increased by 123.9% (nominal).

2. Consumer debt interest payments increased by 12.7%.

3. Income tax payments increased by 47%.

Part of the problem is the government's refusal to change tax brackets to eliminate bracket creep.

It prefers rhetoric about how it is running fiscal surpluses and acting responsibly, when in fact its current policy parameters are driving the country into economic collapse and disproportionately punishing low-income families.

Another point is that its touting will be counterproductive, because if current conditions persist – household spending from rising RBA rates and fiscal drag from grade climbing – then household spending will fall sharply, pushing the economy further down the line. Entering recession.

The temporary fiscal measures put in place by the government – the difference between low and no growth in the September quarter – will end and the impact of falling household spending will really be felt.

Then, as rising unemployment reduces income tax payments and welfare spending increases to support more unemployed workers, the federal government will run into a massive deficit.

The problem then is that after convincing everyone that fiscal deficits are bad and surpluses are good, the government will not be able to get out of this situation.

They will then have to accept the political criticism they deserve now for forcing the economy into this dangerous state.

Asked yesterday about sluggish economic growth, flat household spending growth and a rapidly falling household savings rate, the Finance Minister said:

….the Reserve Bank can explain what today’s results mean for their own forecasts…

So you see active depoliticization happening.

Blame the RBA not us!

Of course there is nothing we can do about the RBA because its policy committee is unelected and unaccountable.

Therefore, the transfer measures of the “independent” central bank are a treat for now.

That is, until the recession hit.

Keir Starmer pushes UK Labor further to the right

On December 2, 2023, the leader of the British opposition party published a column in the Sunday Telegraph entitled “Voters betrayed on Brexit and immigration.” I am always ready to deliver”.

I won't link to it because it's behind a paywall.

But it was a most unusual comment from a Labor leader in any country.

He rightly points out that, after more than 13 years of Tory rule, the UK is in chaos (although he makes no mention of the damage done by the Blairites when Labour was last in power).

Signs of social collapse are everywhere:

… crumbling public services no longer serve the public, families are anxious about rising mortgage bills and food prices, and communities are plagued by crime and anti-social behavior. Any one of these alone would cause outrage. Taken together, they coalesce into something more insidious: Our country no longer serves the people it is supposed to serve.

Then it starts to go downhill:

Every moment of meaningful change in modern British politics begins with the recognition that politics must serve the British people, not dictate to them. Mrs Thatcher sought to pull Britain out of its coma by unleashing our natural entrepreneurial spirit. Tony Blair reimagined an old, outdated Labor Party as a party that captured the optimism of the late 1990s.

There is no doubt that Margaret Thatcher brought “meaningful change” to Britain, but meaningful does not mean “good” as Starmer implies.

The Thatcher years (I lived in the UK for a while) were a disaster for the country and caused the collapse of the system we now observe.

Privatization, outsourcing, cuts to local councils, cuts to the NHS.

These initiatives are now being harvested by the British people, and their products are sour, rancid and destructive.

He wrote that Brexit was a disaster, but failed to mention how Mrs Thatcher undermined Britain's manufacturing system and oversaw the wholesale sale of its manufacturing equipment to European competitors while strengthening the financial system through deregulation. sector wealth and power.

I think he can rest assured that his praise of Thatcher will upset progressive British voters, a group of people he has largely disenfranchised through “Stalinian purges” over the past few years.

He linked Mrs Thatcher's “shock therapy” to the British people and country to his own current strategy:

It is on this sense of public service that Labor has changed dramatically over the past three years. Our shock therapy for our party has one purpose: to ensure that we are once again rooted in the priorities, concerns and dreams of ordinary British people. Put country before party.

That is, purging the Labor Party of progressive elements and installing neoliberal yes-men in their place is seen as advancing the country, and it is the voices of these yes-men who reflect the policies that have crippled the country. .

All the hallmarks of an ongoing destructive fiscal strategy are hinted at in the article:

– “Taxpayers’ money must be spent wisely.”

– “The Conservatives talk a lot about fiscal prudence while wasting untold billions of dollars, burdening the country with debt and raising tax burdens to record highs.”

– “They leave public finances more like a minefield than a solid foundation.”

– “Labour’s ironclad fiscal rules will solve this problem – but it won’t be quick or easy.”

– “This is non-negotiable: every penny must be accounted for. Public finances must be addressed so that we can grow the UK economy and make people live better.”

I can say that it is pointless to talk about “fixing” public finances.

All Labor has to do is fix the country and move it into a low-carbon future.

As I understand it, it is impossible for a Labor government to achieve this “fix” and stay within the fiscal rules under the current fiscal rules that Shadow Chancellor Rachel Reeves has been advocating for.

There is simply no way.

As the policy platform becomes more specific, I expect to write more about it.

Music – the creator has a master plan

This is what I heard at work this morning.

When I started college in the early 1970s, I started listening to a lot of jazz and bought the 1969 album – Karma – American tenor saxophonist – pharaoh sanders.

Pharaoh Sanders is one of the outstanding contributors to: free jazz – move

Here are part 1 and part 2 of the epic tracks from the album – The Creator has a master plan ——This is a masterpiece that I often listen to.

Total 32 minutes.

Other players on this track are:

Rolling Stone review (March 4, 2019) – Songs You Need to Know: Joey DeFrancisco and Pharaoh Sanders, “The Creator Has a Master Plan” – calling this classic “spiritual jazz” – John and Alice Coltrane and Pharoah Sanders are among its leaders.

Reviews describe the track as:

…a blend of blissful, meditative auras and fiery abstractions—along with some ecstatic yodeling from singer Leon Thomas.

I just thought it was a really good game.

That's enough for today!

(c) Copyright 2023 William Mitchell. all rights reserved.