Some months the current-account deficit goes virtually unnoticed; other months it hits the front pages and is even the main page one story in some papers.
This trend has been going on for several years. The prominence of its coverage, however, has had less to do with the seriousness of any particular month’s figures than with the news value of other events which happen to occur on the day the figures come out.
The foreign-trade figures that came out last week are a good example. They hit page one in nearly all capital city papers. It is January and that was a very slow news day. As it happened, they probably deserved page 1 anyway for reasons that will unfold.
The trouble is that the current-account deficit has been routinely bad for so long now that it is no longer news. Worse than that, like all horrific things, we shut them out by changing definitions, as Orwell so definitively pointed out. The test of good or bad current-account figures has been turned on its head in the past six or seven years. The figures have been bad every month for 14 years. We can’t face that reality. So we replace the simple test of whether the current account is a surplus or deficit with a different test: did it meet market expectations?
Thus the figure issued last week showing November’s deficit was $1.6 billion was seen as a “”good” figure because “”it came in below market expectations”.
Testing the current-account figures by market expectations rather than reality has a further asprin effect. When an appalling figure comes out, the sharp and painful results that should follow immediately usually do not. This is because the expectation of an appalling figure has already been “”factored in to market considerations”. The asprin dulls the pain; the headache goes away. But we all know that asprin only treats symptoms not causes. The binges of the night before must stop if we are to treat the recurring headaches.
The binges, of course, are the spending binges using the international Bankcard.
Sometimes using the asprin of “”market expectations” is not enough. That’s when we turn to the Panadol of believing the assurances of Government Ministers.
As the obscure poet Hughes Mearnes said: “”As I was going up the stair, I met a man who wasn’t there. He wasn’t there again today. I wish I wish he’d stay away.”
It is a question of dealing with reality. Ministers do not like doing that. They call bad figures good figures in a variety of ways. They point to a rosy future, knowing that few will hold them accountable when it is not realised. All that matters is today’s image, as long as it is not tarnished by reality all is well.
Paul Keating is the master at it. Remember the J-curve. It illustrated that the figures would get slightly worse before they would get a whole lot better. Well if the J-curve is true and the intervening deficits have merely been the small left-hand dip of the J, can anyone imagine how big Australia’s boom will be when we finally move to the right-hand upswing? The upturn will be fantastic, more fantastic than we ever dreamed. Have another asprin.
In fact, why not have one of those effervescent asprins? Remember that one? When the J-curve dropped out of sight the continuing high imports were called effervescence. The economy was bubbling with activity which caused high imports of machinery and capital that would lead to jobs and growth.
Remember the beautiful numbers.
John Dawkins was less colourful, but still a Panadol man. He was keen on saying that monthly figures were erratic and not reliable for showing general trends. Today’s bad news is conveniently neutered.
The days of reckoning, however, have arrived. Since 1978 our current account has been negative every month. The current account has three parts: goods, services and capital. Services (transport, insurance etc) have always been a negative, but not a very large one. Up until 1988 the goods part was often positive. Capital, however, has been a large negative since 1988.
The lion’s share of the capital deficit has been interest on the international Bankcard run up from mid-1984 to the end of 1986.
In 1987 things improved a little. Generally we sold more goods than we bought overseas. Then in 1988 and 1989 goods went into the negative. Things got alarming, especially as we had by no means paid off the interest bill on the Bankcard.
From January 1990 to August 1992, Australia bounced back again and we exported more goods than we imported. Once again the interest from past debts had not been paid. Indeed, there was interest on interest. Despite the interest, Paul Keating pointed to the goods figures and was pleased with himself.
None the less, up to last week when November’s figures came in, there was some reason for long term optimism: that ultimately the goods surplus would pay off the Bankcard. Now, there is less reason for optimism. It seems, as the graph shows, that the trend is downward again on goods and therefore will be further downward in total.
The interest on the huge amount of capital Australia owes overseas (now about $170 billion or 42 per cent of one years gross national product) is constantly undermining what would otherwise be a redeemable trade performance.
But redemption now is a long way off. The chronically bad overall current account performance affects other elements in the economy _ profoundly, the value of the dollar and interest rates in particular.
These cannot be treated with asprin. They mean continued declining standards of living: more costly imports, higher housing repayments and so on. They mean consuming less or working harder and smarter to pay for the present level of consumption.
Mr Keating’s comment last year that “”the recession is over” was nonsense. Unlike the J-curve, however, it was proved nonsense very quickly. There is a long way to go yet to pay off past folly, as the figures issued last week show.
We have trade cycles (they are more cycles or psychology than economics), and there is little governments can do about them. However, governments need not make them worse.
But that is what happened in Australia. Having wisely opened the country to international competition with tariff, currency and financial deregulation policy, other government policy failed to enable industry to meet the competition. Government tax, industrial relations, employment and general industry policy made it too hard for get an enterprise off the ground or continue one that was, especially compared to the position in many overseas countries.
In failing in that it made things even worse in responding to the effects of that failure. As imports surged it increased interest rates making it still harder to begin or continue an enterprise.
So there are fewer Australian enterprises producing things Australians want to buy. If they want them they have to import them, though that will get increasingly difficult as the dollar falls. So Australians will have to go without. In other words their standard of living will fall.
The Government continues to kid itself that it can lower interest rates to help exporting industries, but that will only cause the dollar to fall further. It seems incapable of changing tax policy, industry policy and labour-market policy. It is an ideological brick wall.
The success of a policy on imports and exports depends on overall policy. Last week’s figures and the import-lust feeding them are showing that Australia’s tax, employment and industry policy have been far too slow in catching up with the currency and financial-markets changes of mid-1980s.
But government ministers are unlikely to acknowledge that.
Remember February, 1991, when people were sick of the balance of payments. Mr Keating, then Treasurer, said, Australia had an “”exportable surplus”. He said the upward trend in imports would not continue indefinitely.
“”We won’t go on importing as we have this month,” he said then. “”So the general impact of policy on imports is obviously working.”
Obviously.