The Great Australian Whinge is alive and well in our market and economic commentary. America is just so much better, the likely suspects regularly tell us. Michael Pascoe reckons they are selectively blind.
Wall Street has performed so much better than the ASX, American productivity growth is vastly superior to Australia’s, American GDP growth shames us, nobody would want to invest here, may the last entrepreneur relocating to Singapore please turn off the lights, and it’s all Labor’s fault.
Or so our petshop galahs increasingly screech. “We’ll all be rooned,” said Hanrahan and much MSM commentary and guest opinion pieces in the national dailies.
The question such commentary poses is whether it is wilfully ignorant or just selectively blind.
Yes, lies, damned lies and statistics; there are measures by which the US shines brightly, and Australia is dull, but the standard partisan whinge ignores the ugly facts that add up to a sane person preferring the Australian economy to the American.
First and foremost but rarely mentioned: the American economy is hyper-juiced by unsustainable fiscal stimulus. The US federal government deficit this year is heading towards and beyond $US1.9 trillion ($2.7 trillion) – about 5.8% of America’s GDP.
Hilariously, many of the same people forever decrying the Australian Government’s budget deficit running at 1% of GDP and demanding immediate action to cut it are the same people envious of American corporate profits.
Budget deficit spending
If Jimmy Chalmers was to cut loose and blow the budget deficit out to, say, 3.25% of GDP – half of the brief peak of COVID stimulus – domestic spending and profits would also soar.
In rough terms, government deficit spending of one per cent of GDP ends up as an extra one per cent of GDP flowing through to corporate profits.
America’s economic craziness, though, has eaten into that equation. Half of the annual deficit (i.e. government borrowing) is now going to service the debt Washington has built up: $US40 trillion in round numbers, $57 trillion if you keep the change, numbers that have moved beyond mortal comprehension.
So as the US deficit heads towards $US2 trillion, half of it goes in interest to bondholders, the other half inflates the economy with corporate profits and spending power.
Too bad that America’s dedication to trickle-down economics means Joe and Joanna Sixpack don’t get much of that profit and spending power, that it is concentrated in the 0.1% first and the 1% secondly.
That has been the pattern steadily accelerating under Trump 1.0, Biden and now Trump 2.0 with a rocket. The Trump recipe of tax cuts for the rich and wild spending on defence, war, mates and self-aggrandisement means it can only delay the reckoning so long.
Bond market warnings
The bond market is ringing warning bells, the 30-year bond yield running around 5.16%, the highest since the GFC.
Right now, US consumer spending is holding up in the face of higher oil prices by households eating into savings, apparently in the belief that Trump’s Iran war will be over any day now, or so he keeps saying…
Beyond the deficit spending stimulus, there’s another little economic problem with America’s investment surge being concentrated in the AI-related tech boom – a boom that will have the same collision with reality as every other boom. Cue China doing it as well for less.
Investment figures look rosy, but non-tech investment, in factories that actually make things, has been declining since 2024.
Secondly, there’s the petshop’s very favourite word: productivity. America is so much better at productivity growth, and Australia’s weak performance is all the government’s fault.
Yes, America is enjoying a productivity boom and Australia’s productivity growth is not good. But that American productivity boom also is superconcentrated.
Take the AI summary of McKinsey research: U.S. productivity gains are exceptionally concentrated. Just 2% of U.S. firms account for over 60% to nearly 80% of positive national productivity growth. A tiny fraction of large, highly efficient companies such as major tech, logistics and retail giants drive the vast majority of gains.
Fair enough, better to have some productivity stars than none, but it is part of the distorted picture painted by local galahs.
Chalmers’ Budget in search of more productivity and less rent-seeking
Which leads to the third area: Wall Street’s outperformance compared with the ASX.
Some of that comes from the first two factors; most of it comes from American market indices being supercharged by a handful of major tech companies. And also don’t forget how nearly all comparisons ignore Australian companies’ more generous dividends and the impact of franking on investors’ pockets.
Our market is concentrated on traditional sectors, dominated by banks and resources that are not enjoying AI gloss.
Anyone with perspective and memory might recall the commentary as the dot bomb boom took off, the bemoaning of Australian companies not having “.com” or “e-“ in their names.
When normal transmission was resumed, traditional companies that used technology continued to grow and prosper while the bubblers burst.
The Great Australian Whinge that dominates commentary tends to blame government for all alleged failings. It deserves blame for some but the main reason for Australia not having the productivity growth it wants is management – the private sector.
Productivity is something achieved or not achieved on every individual factory floor and workplace. It is the responsibility of management, boards and shareholders to invest and be smart instead of continuing to take the money for doing mediocre jobs.
But screeching that doesn’t fit the petshop galahs’ agenda.
Michael Pascoe is an independent journalist and commentator with five decades of experience here and abroad in print, broadcast and online journalism. His book, The Summertime of Our Dreams, is published by Ultimo Press.