Before we go any further, let’s just note that an unemployment rate below 5% is a stunning achievement.
The unemployment rate is never the only number that matters, but to go through a pandemic that has smashed businesses, and which still sees us prevented from travelling not just overseas but across state borders, and be in a position where the unemployment rate is not only lower than it was before the pandemic but than any time in the past decade is astonishing.
So let’s all give a large round of applause to John Maynard Keynes.
That economist who saw the way to end the Great Depression through deficit spending and who was discarded by so many after the 1970s has triumphed in such a clear way that surely only the intellectually indolent still think there is an active debate.
After 40 years of Liberal party politicians, conservative media types – and indeed many within the Labor party – telling us that “governments don’t create jobs” and that we need to worry about debt and interest rates rising because of budget deficits, it turns out that, well, governments do create jobs and we have spent far too long worrying about debt.
To be fair this was obvious after the GFC, but some people need to learn the same lesson twice.
Thankfully, even the Morrison government was able to discard their spurious scare tactics about debt and ensured that when the economy went to hell, the government started spending.
In one year we went from a government budget nearly in balance to one with an $85bn deficit and then added another $161bn in the following year.
If you can’t view the graph click here
In the past we would have had politicians like Barnaby Joyce crying about rising interest rates, and yet what do we find – the bond yield (or interest rate) for Australian government 10-year bonds is now lower than it was before the pandemic.
What is also lower is the unemployment rate. On Thursday, the Bureau of Statistics announced that in June just 4.9% of the labour force was unemployed – the lowest rate since December 2010. That is undoubtedly a good thing.
Less good is that the underemployment rate rose from 7.4% to 7.9%, but that is almost totally due to the snap lockdown in Victoria that saw underemployment in that state rise from 7.7% to 10.1%.
Even still the current level of underutilisation in Australia of 12.8% (which counts both underemployment and unemployment) is as low as it has been for seven years.
Fiscal stimulus works.
So too does having interest rates at effectively zero and the Reserve Bank doing all it can to reassure businesses that those rates will stay low – even as people around the traps are eager for them to be raised.
But while these numbers are good, one issue with the massive stimulus is that the big growth since the pandemic in hours worked is in the non-market sector.
In the June quarter workers in the health, education and public service sectors worked around 5% more hours than they did in the last three months of 2019. By contrast, workers in the market sector (excluding the seasonal agriculture sector) worked the same amount of hours.
It is good that the private sector is back to where it was before the pandemic – but as the amount of hours worked is supposed to keep growing, that means we’re still around 1% to 2% below where we would have expected to be before the pandemic.
But that is still an amazing recovery given a year ago the amount of hours worked in the market sector had fallen around 12% in six months.
Governments do create jobs, and they can prevent massive recessions. They can keep people out of poverty, they can provide necessary services and they do not need to worry about their budget like they are a household.
Let us hope these lessons are not forgotten when the pandemic is over.