The K-Shaped Recovery: financial fortunes fork as JobKeeper, JobSeeker cliff looms

by Michael West | Feb 16, 2021 | Economy & Markets

A record sharemarket and bouncing property prices are a boon for many Australians yet the economic recovery is shaping up to benefit the wealthy at the expense of those less fortunate. Michael West reports on the K-Shaped Recovery. 

Josh Frydenberg has been busy. The Treasurer kicked off the week with an oped in Rupert Murdoch’s The Australian, or rather a panegyric to the brilliance of his own treasurership. Then on to a blistering volley of appearances at Sky News, Nine, Seven, ABC, 2GB’s Ben Fordham, Neil Mitchell and even Moonman in the Morning on MMM.

Things were going well, Josh told Moonman. Indeed, Australia is surviving the pandemic well, at least compared with other countries, and is emerging from the economic malaise faster than most. Yet crunch time looms – at the end of next month when Josh ratchets JobSeeker back to poverty levels and the gargantuan $80 billion business subsidy, JobKeeper, is turned off.

Things are bouncing nicely for the economy, yet it faces precisely the same risks as it did before the pandemic.

Counter to the government’s narrative, the economy was not strong before the virus. On a slew of measures, Australia was falling behind the rest of the world, even by its own cherished metrics of GDP and so forth, as the chart shows.


Now, the very same factors that had the economy listless are putting the economic recovery at risk. And Josh Frydenberg is getting the very same warnings from the Governor of the Reserve Bank Philip Lowe: don’t deflate the economy – stimulus, stimulus!

Before the pandemic, Josh was withdrawing money from the economy to achieve his Budget surplus, and attendant political bragging rights, despite incessant warnings from Lowe not to pursue austerity. Josh didn’t listen.

In September 2019, Josh gave up. He fell just $700 million short of his feted surplus. Now he’s $200 billion short, bang in the deepest budget hole in history.

And now that we are emerging from the pandemic, the very same warnings are flowing thick and fast. It must have been some sort of record the week before last. No less than three public appearances by the Reserve Bank governor in just one week.

His utterances are dressed in RBA governor-speak, encouragement rather than admonition. Yet unmistakably, the message is the same, do not end the fiscal stimulus. 

The April cliff

In what is shaping up as an election year, it is unlikely that Josh Frydenberg will completely switch off off JobKeeper and Jobseeker stimulus in one abrupt hit at the end of March. Though that’s the official position now, and surely in keeping with the Treasurer’s admiration for Margaret Thatcher and Ronald Reagan; admiration that is for the virtues of austerity and trickle-down economics.

The policies of both Thatcher and Reagan led to enormous transfers of income from poor to rich and that appears to be happening here right now.

Australia’s economy is in a classic K-Shaped recovery. The wealthy are doing better than ever with the sharemarket at record highs, record dividends announced daily on the ASX amid profit reporting season, business protected by JobKeeper, and property on the rebound.

Naturally Josh declined to share these unsavoury facts with Moonman in the Morning and other stops on his busy media timetable, Nor would he have been asked. Yet, inequality is rising as wages remain dead stagnant. Meanwhile, unemployment may be easing, but underemployment is rife. 

This is a long-term thing. Labor’s share of Australian national income has fallen from 55% to 52% over the past 25 years. Capital has won this rise at the expense of workers. At the same time, returns on technology have lifted labour productivity by 40%. 

How the “fair go” is faring

The latest set of jobless numbers showed a negligible increase in actual hours worked (0.05%), despite a reduction in the number of unemployed (0.2%), so there are more people doing the same amount of work. That is not a great outcome. And zero hours contracts are likely to be added to the insecure work mix.

If Josh Frydenberg’s big gift to big business has been the JobKeeper subsidy, a subsidy designed to give employers time to restructure, his gift to small business is downward pressure on wages.

So it is that while RBA’s Philip Lowe is jawboning for stimulus, trying to get wages up, Josh is fixing to cut unemployment benefits back to $40 a day, which would drive desperate workers to accept lower wages. 

Two of the Reserve Bank’s primary objectives are to get wages up and to get inflation up to the 2% band. It has been failing on both fronts. But it is financing the Government’s Budget deficit and for that they must be discreetly grateful.

Although Josh has said “there is no money tree”, and still pretends there is no such thing as free money, the RBA has now created some $70 billion in new money. 

“Printing money” is far too gauche a phrase to be used by the high-minded economic fraternity, but, in terms of layman’s understanding, this is exactly what is happening. New money is being created a record speed, the greatest speed and quantity in history.

A key design feature of Australia’s “quantitative easing”, or QE, is that the RBA is not simply buying bonds directly from the Government and, presto, new money is made.

Rather, and typical of its fetish for privatisation, Treasury has interposed the banks in the money creation scheme to provide, if you like, “plausible deniability” that the printing presses are rolling.

It works like this: the Government, via Treasury, issues bonds. The banks buy the bonds. When the Reserve Bank buys the bonds from the banks, it merely credits their accounts. That’s the new money.

Some $70 billion has already been created of the $100 billion announced first tranche of QE last November. Earlier this month, another $100 billion was announced. So that’s $200 billion earmarked in stimulus to rev up the Australian economy.

The conundrum for Scott Morrison and Josh Frydenberg is that the banks aren’t spending it. That was what was supposed to have happened. They have it sitting in their ESA accounts with the Reserve Bank, just lying idle, zero interest. The banks are keen to lend to big business but small business is too risky, so risky in fact that they are prepared to have their money earning nothing at the RBA.

The pattern in recent weeks has been for Treasury to issue $4 billion a week and the Reserve Bank buying $5 billion of old bonds. Again, Labor has been mute on this. Had it been Labor issuing all the debt and financing its own deficit with new money, just imagine the gnashing of teeth and foaming of mouths on the Coalition benches.

Michael West established Michael West Media in 2016 to focus on journalism of high public interest, particularly the rising power of corporations over democracy. West was formerly a journalist and editor with Fairfax newspapers, a columnist for News Corp and even, once, a stockbroker.

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