For those devoid of quality literature or just lacking a real life, take a look at page 6 of the Australian Financial Review (the good ol’ AFR) for today. Tucked away in the corner you will see a tiny little article looking something like this…
For the past year or so i have spoken with many people here in Perth about money and money issues. Apart from those in the direct firing line of the commodity price boom, there has not been much sign of booming times. In fact, for some sections of the community it has been a particularly difficult time.
So if you were one of the politicians in charge of the state, how would you react to this news? How about rejecting it entirely, as being nothing more than a ‘technical recession’?
The Perth Now website has this headline “WA not in recession – Barnett”, and points out that Mr Barnett has previously worked as an economist for CCI, so it’s reasonable to assume that he is more than familiar with such issues. So who are you to believe?
Here is where you’ve gotta love the internet because with it, you can just type a phrase into Google and every announcement of the past is available to embarrass one person or another. Perish the thought that it should ever be used to ridicule yours truly but as a lover of all things history, i’d be rather foolish to think the day won’t come… Anyway, back to the story. Google has this gem to offer from the ABC AM radio, dated 10th March 2001, titled “WA Recession?”. It includes these transcripts :
“DAVID WEBER: When Bureau of Statistics on demand showed reduced activity in Western Australia for two consecutive quarters, the Treasurer Eric Ripper said it didn’t mean the state was in recession. But then Mr Ripper was advised of new figures showing a downturn in exports. Now he concedes that at least some sectors of the economy are in recession.
ERIC RIPPER: The figures show two quarters of declines in state final demand and two quarters of declines in net merchandise exports in Western Australia. However, those figures, while concerning, do exclude some aspects of economic activity – for example, services exports and interstate trade. So I can’t say on the basis of those figures whether or not Western Australia is in recession, although I am concerned about these declines in economic activity.”
So it seems that we have a bit of argy-bargy going on here. Todays version being not a lot different to that of ten years ago. A recession is defined as two consecutive quarters of negative growth (ok, try not to split your sides laughing at the ridiculous nature of “negative growth”… we all know it should be “falling GDP” or some such thing but standard terminology rules my little part of the financial world). If WA’s economy has gone backwards two quarters in a row then we have had a recession. Technical or not.
Why am i pointing to this? Surely this is just another soap-box rant? Nay, ’tis not so.
This is one of those little things that counts. Terminology is important, and we should be careful of side-issues being used to change terminologies. If a two consequtive quarters of negative growth occur then there has been a recession. It may be short lived, it may be in the face of conflicting evidence but there has been a recession.
Another example of this terminology importance can be seen in the usage of the term “bubble”. There are all sorts of arguments raging around Australia and around the world about whether or not our residential property is in a ‘bubble’. The long term growth figures (especially for Perth) are substantially above returns for active equity. The returns charts look chillingly like those of the US and Ireland before those countries encountered large falls. Groups such as politicians, bank spokespersons and the occasional economist keep coming up with all sorts of reasons why this time it is different, and why Australia’s prices can be sustained at current levels or even rise. All of these points are used to confirm that Australian residential property is not in a bubble. My own preference would be to say that it is a bubble. There may be reasons why the prices are justified, and there may be reasons why comparisons between Australia and the rest of the developed world are flawed. These really just become disclaimers and notes to be annotated to any mention of a property price bubble. If wording was kept clean and clear then everyone has a little more information on which to gain understanding.
Another example again is the price of gold. We won’t go into it too much today because it has been covered before – but the current price movement is indicative of a ‘bubble’. That doesn’t mean the price will fall (most commentators are suggesting large rises even from this historically high level) but it does mean that any purchases at current levels should be seen in the light of the historical record.
Same again for Australia’s ‘terms of trade’. And a host of other issues.
All i’m suggesting is that a little more plain talk would be a good thing. If anything financial looks all distended and bloated and bigger/larger/more than average then chances are that it is a bubble. If it waddles like a duck and flies like a duck – it’s probably a duck, and no amount of quibbling or pontification is going to change it from remaining, a duck.