Monday, July 10, 2017

Wages, Debt and Theft – Is Anyone Listening ?

If you want to understand why the developed world is in such upheaval, and why politics has become so volatile, this graph of Australian wages explains it all.

Macquarie analyst Viktor Shvets, whose analytical powers have upset many in the corporate world during the past three decades, reckons that low productivity throughout developed economies ultimately is to blame for where we are now.

We're at record levels of household debt, but it's not just debt that's threatening the housing market, writes Ian Verrender.
Rather than accepting less income — both corporates and wage earners — the response during the 1980s was to deregulate, to get government out of the way. And it was the financial sector deregulation in the 1980s that unleashed the great tide of debt that now threatens to drown the global economy.

"The purpose was to give people the freedom to try to make money through greater flexibility, asset prices, and leveraging rather than through conventional wages and earnings," he said in a recent interview.

The problem with debt is that all it does is bring future consumption forward. At some stage, the debt must be repaid. As Shvets notes, it pushes asset prices such as real estate higher.

For the generation that rode that boom, it's been an era of wealth creation like no other. But for the following generation, it's a situation that bodes ill and breeds discontent. They will pick up the tab, in the form of higher prices. Many believe their future has been stolen.

The role of technology

The conventional wisdom is that productivity is driven by technological innovation. Better tools make for smarter work practices. You can dig a lot more ground with one of Kerry Stokes' Caterpillars than a shovel.

But technology has a corresponding negative social impact. Workers are displaced, and rising unemployment results in lower wages.

Which jobs will AI take over?

Machines have long been replacing blue collar factory workers, but now artificial intelligence is threatening white collar jobs. When that technology crosses borders and breaks down barriers, as the internet has done, the economic impact is accentuated. It allows corporations to exploit cheaper labour in other countries, laying waste to industries and communities in other areas.

That results in lower wages and a greater proportion of workers who give up looking for work because it simply isn't there. That, in turn, makes the workforce less productive.

In the past few months, almost every economist in the country, including Reserve Bank governor Philip Lowe, has come to realise that our low wages growth has begun to stifle our growth prospects.

With Australian household debt at Olympic gold standards, the prospect of a sharp rise in defaults — either in housing or other areas such as power bills — has become a real threat.

What irony then that a fortnight ago, after a vigorous campaign by vested interests, the country's lowest paid workers were delivered a pay cut via a reduction in penalty rates.

Wage cut could backfire

Businesses are hoping to profit from the Sunday penalty rate cut, but their workers are also ultimately their customers.
At some stage, Australian business leaders may come to realise that their workers are also their customers. Lower wages will hit consumption. And that will hit profits.

The gleeful support for the Fair Work Australia decision to slash penalties from those within the Federal Government may be short lived. Budget repair depends on bracket creep from wage and salary earners. You don't get that by cutting wages.

Fourth industrial revolution

There's no turning back the tide of technology. The internet won't be unwound. In fact, the pace of innovation is likely to accelerate.

As the ABC's The Business highlighted in last week's three part series The Rise of The Machines, automation and artificial intelligence soon will sweep through the white collar world.

Money for nothing

Is a universal basic income the answer if robots create mass unemployment?
That raises questions about how we will support an economy, if even larger numbers of worker are displaced. Taxing the wealthy to support the unemployed has never been a vote winner.

And while the new industrial revolution will create a whole series of new jobs competition and pressure on wages except for those at the peak will only intensify.

For years, the Occupy movement was dismissed as nothing more than a piece of theatre from idle youth and an odd assortment of professional protestors.

Globalisation, deregulation and technology have combined to alienate vast numbers of workers and otherwise model citizens. They're now demanding answers and action from the state. They want their governments to act.

But is anyone really listening?

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