“Sometimes, money. Just. Stops” said Warren Buffet, billionaire investor, in May at the Berkshire Hathaway Annual Shareholders meeting. The phrase “money stopping” refers to ceasing of trading of money for goods and services between people. Effectively the flow of money dries up, much like water in a drought. This is what happens in recessions and depressions of the economy. Money. Just. Stops.
This year, nations around the world have been plunged into recession due to the pandemic — but recessions hit some cities and regions harder than others (Day and Jenner 2020). In countries like Australia and the United States, small towns can be most affected (Lawrence 1982). I should know, I grew up in a small country town in Australia during the 1990s recession.
With many people out of work, residents stop spending — putting pressure on local businesses to close (Fishback, Haines, and Kantor 2007 cited in Fishback 2012). Local businesses are crucial for employment in a small town, especially if the town is relatively isolated (Lawrence 1982). Consumer spending is a vital part of our economy, typically making up about 55% of the total economy in Australia and 60% in the United States (CEIC Data 2020). If consumers don’t spend — businesses close — end of story.
During the Great Depression the federal and state governments in Australia and the US offered relief funds (Fishback 2012), but relief can be difficult for some local governments to access. What if there was something we could do to prevent “money stopping”? In the onset of a recession or depression — could a town just print its own money?
During the Great Depression of the 1930s, one town in the United States came up with a novel solution to this problem. That town was Tenino, Washington: estimated population 1865 (United States Census Bureau 2020). Small towns like Tenino cannot issue federal currency, that is they can’t issue United States Dollars — but there is nothing legally stopping them from issuing their own local currency — and so, in 1931 the “Wooden Dollar” was born.
Photo: One printed Tenino “wooden” W$25 dollars exchangeable for $25 US (City of Tenino).
Tenino is a relatively isolated town in between Portland and Seattle. According to the Mayor Wayne Fournier (interviewed on Bloomberg’s Odd Lots 2020) when the 2020 pandemic hit, for about 3 months, people, cars, and traffic disappeared from the local streets. Shops in town closed their doors, and there was almost no economic activity in the town other than the local supermarket.
Ingeniously, the Mayor decided to bring back the wooden dollar to inject a flow of money into to the town. Wooden dollars (W$) were circulated by the local government, who gave W$300 to each negatively affected town resident. Wooden dollars can only be used as currency in participating local businesses, so the benefit of the extra cash stays in the town. If the local government had just given US $300 to citizens, much of it might have been spent online, and not helped the local economy. Restrictions on the Tenino dollar mean it can’t be used to pay for alcohol, gambling, cannabis, or lottery tickets.
The residents of Tenino have taken up the wooden dollar enthusiastically, some Tenino businesses offer twice as many goods for Tenino dollars as they would for US dollars (Fournier 2020). The mayor believes there may be a future for Tenino dollars in the town post COVID-19 (Fournier 2020). The city of Tenino is liable for the wooden dollars it prints; however, it will not pay more than US $1 for a wooden dollar (Fournier 2020). A peg on the exchange rate of the Tenino dollar for US dollars limits the liability and risk on the local authority.
Photo: One printed Tenino “wooden” W$25 dollars exchangeable for $25 US (City of Tenino).
The wooden dollars were printed using the original printing machine from the 1890s, used to print the first wooden dollars in the 1930s (Fournier 2020). The press had been housed at a local museum for almost a century (Fournier 2020).
Since the Great depression various forms of wooden dollar have been used around the world both in good times such as the ‘Ithaca Hour’ in New York (Meckley 2015, Rietz 2019), and in times of crisis, such as Argentina in 2001 – 2002 (Colacelli and Blackburn 2009). My hometown of Maleny created its own local currency called ‘Bunyas’ in 1987. Community Exchange System (2020) stated there are a total of 38 local exchange groups operating in Australia. Exchange trading systems are particularly useful for people who are unemployed, underemployed, self-employed, or retired (Sunshine Coast LETS n.d.).
Australian politician Peter Baldwin, Keating Government Social Security minister, encouraged the use of exchange systems like ‘wooden’ dollars because they allow unemployed people to borrow to make purchases or to start their own businesses (Wilson 2015). In Argentina alternative currency use was found to increase monthly income by over 15% (Colacelli and Blackburn 2009). Just like conventional income, taxes apply to income earned through exchange systems (Australian Taxation Office 2020). As Milton Friedman says, there is no such thing as a free lunch.
A recession is the name we give a downturn in the economy that has lasted at least 2 consecutive quarters. Usually an economy is in a recession well before the official statistics are released that prove it. In a recession, many people loose their jobs. We have seen huge job losses this year here in Australia, and abroad in places like the United States, and our respective countries are indeed in recession. When an economy enters a recession, people don’t feel as confident to spend, or they may have lost their job and they don’t have the means to spend as much as they once did.
This reduction in spending causes a vicious cycle of downturn in the economy, as about 60% of the economy is made up of consumer spending. As an individual it is arguably more important to save money and reduce spending when faced with a job loss or an economic downturn, but for the economy this is painful. If people don’t spend in shops, then there wont be work for people in retail. If people stop buying goods, then there wont be demand for goods, and this can lead to further job losses all the way down the supply chain.
So what can you do as an individual in these times? My best advice is to first make sure your finances are in order. Step 1: Pay down your debt and don’t acquire additional debt you don’t need. Step 2: Make sure you have a good financial safety net in savings in cash to cover any emergency expenses that come up. Step 3: Save for purchases rather than borrowing, and enjoy spending some of your own money. Step 4: Insure what you love.
Step 1: Pay down your debt
It’s a recession — it is a bad idea to borrow money because we don’t know what is going to happen. No-one has a crystal ball and we cant see into the future to know how long these times will endure. The last thing anyone should be doing is taking on bad debt in a recession. So what is bad debt? Bad debt is taking out debt for things that give you no return and that you will have to pay back whether or not you can afford it. Bad debt is credit card loans, payday loans, loans on platforms such as AfterPay, ZipPay and similar, housing loans, new car loans, margin lending loans and similar.
A recession is not the time to take on additional debt. What happens if you loose your job? How will you service the loan? It’s so easy to rack up huge debts on credit cards or payment deferring platforms, but it is not financially savvy. What might have once been easy to pay off recurring debts when you were fully employed can become painful or even impossible once underemployed or unemployed. It is much better to save for the things you want.
If you do already have credit debt, try to pay it off as fast as you can manage. Be very wary of seemingly cheap balance transfer credit cards, because often the interest rate reverts back to a much higher rate after a set period. If you need a balance transfer because your credit card interest rate is unacceptably high, look for a card with an ongoing low rate and a low or zero annual fee, which means you will have predictable repayments and no shocks. Some examples of no annual fee, ‘low rate’ cards with their base interest rates quoted at time of writing this article in brackets, are the ING Orange One card (11.99% p.a. on purchases, 9.99% p.a. on installments), Heritage Gold Low Rate Credit Card (10.80% p.a.), or ME bank Low rate credit card (11.99% p.a.). Note these are base interest rates, and are often compounded daily by the bank. My advice is don’t take on extra debt with the card. Once your balance is paid off and you have a cash safety net saved up close your credit card account and chop up your credit card(s).
You shouldn’t need a credit card or payment deferring platform to live happily.
So bad debt is a thing, is there a such thing as good debt? Good debt can probably be reduced to education loans, such as HECS in Australia, and reasonably priced housing loans for somewhere to live in retirement — but only if you can afford to make the ongoing repayments. You can further your education, improve your mind, keep occupied, and you don’t have to pay them back until you are earning over a certain amount, currently about $46,000 each year. My advice is if you are considering higher education, really think hard about what are your best skills, what do you enjoy doing, what were your favourite subjects in school, how you picture yourself in the future, what job or industry you want to work in (if you know), and how you can get there through education (if education is the answer to that question). If you are not sure, it might be good to take some time off to really think about what you want before you spend any money. Perhaps take a few free courses and see what you enjoy before enrolling into an expensive university degree.
There are lots of freely available online degrees put out by top universities. They are called Massive Open Online Courses or MOOCs, and many of the worlds top institutions give out free or very cheap materials online, so that wherever you are in the world, and whatever your financial position, you can access great courses and education.
Universities like MIT, Yale and Stanford as well as many others, offer these cheap or free courses. A simple internet search for MOOC and the type of course you are interested in, say, Bachelor of Finance, should bring up a range of options. It’s true some employers wont recognize these free courses, but many employers are beginning to accept them, because they acknowledge that not everyone can afford an ‘Ivy League’ or ‘Group of 8’ education. Some businesses offer a structured platform for these courses on a paid subscription, such as Coursera.com. I have trialed an introductory Russian course from Saint Petersburg State University on Coursera.com and I have to say I enjoyed it and the modules were well designed. I do prefer the free courses though put out by places like MIT, I think they are much more accessible. I also think it is wise to be a little weary when signing up for subscriptions. Look for things like early exit fees.
Step 2: Create a financial Safety Net
‘We don’t want to be dependent on the kindness [of strangers or] of friends even… There are times when money almost stops…’ — Investor Warren Buffet, speaking at the Berkshire Hathaway 2020 AGM, paraphrasing Blanche DuBois in A Street Car Named Desire.
In times like we are seeing, in financial crises, in deep recessions — for example Greece during the GFC, in times like the Great Depression, or during times of war — money just stops. It’s not possible to get a line of credit because banks do not want to loan out money, or cannot loan out money. It becomes impossible for normal people, and even large businesses to borrow money. For many people, it doesn’t need to be one of these crises times for it to be difficult to obtain credit, for many people, such as those on low incomes or unemployment benefits, not having access to credit is just a daily reality. It is important to try to save some kind of cash safety net for yourself for emergencies, so you won’t need to rely on the kindness of others. An extreme example of what can go wrong when you have no safety net (and no social security in France in 1815), is the character Fantine in Victor Hugo’s Les Misérables, who sold her teeth and hair to pay strangers to care for her child.
If you don’t have a safety net, it is a good idea to start saving for one now, even if you just start with $1 in a dedicated zero fee bank account, preferably with a good interest rate, and always in a bank you trust. Set a goal for how much you need in your safety net. This might be the money you need for a rental-bond, or a new fridge or washing machine.
It is good to start with a goal that is attainable, so if you currently have no savings, setting a goal like $1000 is a good place to start. Putting a little away each week, for example $20, and making a rule for yourself that the money in that account money is only used in the case of a real emergency, will help motivate you to save your safety net and not spend it.
Start to think about how much cash you might need in an emergency if you didn’t have access to credit. Set a goal to save a safety net in cash of that much. For me, it is at a minimum the excess on my insurance policies and the cost of a bond for a new rental apartment.
An easy way to boost your savings is to immediately add any bonuses you might receive, for example a one off stimulus payment or a bonus from work. The best way to save however, is putting a little aside each time you are paid and then not touching that saved money.
Zero fee bank accounts I can recommend are ING Bank Savings Maximiser, which has a current variable interest rate of 1.80% p.a. — if you can afford to open a transaction account with ING that you deposit at least $1000 into a month. Or the Suncorp BankeOptions Savings Account or Everyday Options Account which allow you to access what Suncorp calls a ‘flexi rate’ which is like a no-minimum term deposit, currently the 12 months term is 0.95% p.a. I do think at times like these, when interest rates are falling it is good to ‘lock in’ an interest rate you can rely on, so I do lean towards the Suncorp accounts for that reason.
If you are in a good financial position and have your safety net sorted out then it is possible to start also setting a little aside for purchases if you can afford it. This will bring a bit of happiness, since being able to occasionally have a coffee or meal out with friends is a lovely thing. Occasionally buying yourself a special treat with money you saved yourself can also bring a lot of satisfaction. Also knowing that even by spending a little here and there on these little luxuries or buying a coffee from a cafe you like, you are helping the economy and helping keep others in jobs. It’s good to spend a little, but only so long as it is not placing yourself into potential financial hardship.
It’s a good time to take a look at your spending and see if there is room for savings. If you have time have a look at your transaction history for the past 3 months, and try to categorize your spending into different areas, such as rent, bills, groceries, health, school, and entertainment. Is there any unnecessary spending that can be reduced? Can you switch to a cheaper electricity or gas provider, or a cheaper phone and internet plan to save you money? Can you substitute some purchases of groceries for lower cost items of the same product? For example switching from brand names to ‘no-name’ or generic brand items, like Black and Gold or Homebrand in Australia. Can you afford to start buying in bulk to save money at the grocery store? Trimming a few dollars here and there can really make a difference. My main transaction account is with ING Bank, and they recently introduced something called ‘everyday roundup’ which transfers the difference between any card purchases you make and the nearest dollar to a linked ING savings account. You can choose this automatic saving to round up to the nearest dollar or $5, depending on what is more suitable for you. This way every time you spend, you save a few dollars or cents.
Another good way to save is to set up an automatic savings transfer that will transfer money from your transaction account, say on the day you are paid or the day after. Just be sure before setting this up there is money in your account and there are no ‘dishonour fees’ if there are insufficient funds in your account. I remember being charged $35 by a bank years ago for a dishonour fee, and I was only $20 overdrawn, completely ridiculous. Most banks in Australia have been forced to get rid of unfair fees such as this after the Banking Royal Commission, but be aware there are still plenty of fees around.
Step 4: Insure what you love
If you have set up a bit of a safety net for yourself, it might be a good idea to also think about insurance and your superannuation [in the US I think this is called 401(k)]. Check your super balance and see how it is going. For information about how to check your super in Australia click here to visit the ATO website info page on super. If you have more than one super account, decide which one is best and transfer your balances from your other funds to that one, and close off those unwanted accounts. When deciding which fund is best, look at their fees (lower is better), insurance (more cover is better), and returns (higher return on the ‘same’ balanced portfolio product is generally better). When you get a new job, make sure to give your new employer your superannuation fund details, so they don’t just make you an new account in their default fund. This process is called consolidation. It reduces your fees and means you will in the long run get higher returns on your super, which is what you want because it is your savings for retirement and it is really important. If you have a lower balance it can be eaten away by fees. The minimum amount a super account can have before it is transferred to a low fee government super holding account is about $100, so you could potentially loose hundreds of dollars or more if you don’t act on it early. I think from 2019 on-wards if there is period of inactivity in a super account, the super balance needs to be transferred by the super fund to a holding account for the individual at the ATO. This was designed to reduce losses to individuals caused by inactive accounts accruing fees.
Decide if you can start making a fortnightly payment to your super, even if it is only $10. This will make sure your superannuation account stays open even if you loose your job and your employer no longer pays contributions. It is important, because for many people super is how we are also insured in case of terminal illness or permanent disability. If you are on a low income in Australia and meet the eligibility criteria, the government will make a co-contribution of up to $500 each year if you make voluntary contributions to your super account. That is even more motivation to save, because it’s a huge free boost for your super savings.
If you stop paying your contributions into your super, and your account is closed, for example due to a low balance (because fees are often still deducted even if you don’t make contributions), you won’t be covered by that insurance anymore. I admit, a lot of super insurance policies are not the best, but some insurance is often better than no insurance. We never really know when we might be struck down by some terrible event, so it is much better to be covered by a life insurance policy, and superannuation often offers very affordable policies compared to what else is available.
Outside of super, you can have a look at things like home and contents insurance. If you lost everything, could you afford to replace or rebuild from your savings? For most people the answer to that question is no, definitely not. Even if you are only renting it is a good idea to have contents insurance to cover your possessions, especially if you are well established or have children. It’s a good idea to shop around for home and contents insurance policies, until you find one that suits you best. Some are very low cost, for example ING Bank contents insurance for tenants, which is around $25 a month for cover of up to $120,000 in contents (with $500 excess), but they don’t have the more extensive of the cover of other policies. The ING insurance is basically a no-frills insurance, which is actually really good value for renters, because typically you are not going to need things like ‘motor-burnout’, but you might want to think twice about it because it doesn’t include pretty standard things like ‘flood cover’. Personally I went for a more expensive policy that also gives me more extensive cover and optional cover on items like my laptop and other valuables away from home (which you can also get with ING), and up to 10% of my insurance cover for temporary accommodation for up to a year should something happen to my home that makes it unlivable. ING Bank does also offer 10% of total insured as temporary accommodation. The insurer only pays the difference between your regular rental payments and the cost of your temporary accommodation. I think this is quite standard across insurers covering temporary accommodation, they only cover ‘costs actually incurred’. ING Bank contents insurance also pays for storage of ‘some’ items while you are in temporary accommodation.
This type of temporary accommodation policy under a home or contents insurance policy is also available from insurers such as St. George Bank and Suncorp Bank for around $50 a month for $120,000 of cover (and $2000 excess). The policies differ slightly and have different levels of excess. Often you can reduce your monthly or annual premium by increasing your excess, just make sure the excess is an amount you have in cash easily covered in your safety net account, as you will have to pay the excess before the insurer pays a dime. You will also need to start keeping itemised receipts for every purchase you make. It is a good idea to keep an electronic copy of these receipts, saved to ‘the cloud’, in case your home is destroyed, your receipts will be saved.
It is a great peace of mind to know that if my house burns down, my child will have a roof over his head and I will have most, if not all, of any additional rent paid in temporary accommodation for a year by my insurer.
I guess my advice is it is good to think about possible scenarios that life might throw at you, think about the future and prepare for it. Once you are prepared, it’s a huge weight off your shoulders to feel financially more secure and safer in the event of some undesirable outcomes. Then you can go out and enjoy the world, worry a little less, and enjoy the little pleasures in life.
Please read this blog knowing that the advice I give is general in nature. I don’t know your individual financial circumstances, and this advice might not be suitable for you. If you are going to make any big financial decisions consider taking financial advice from an independent financial advisor.
Disclosure: I only recommend products that I either use or would consider purchasing for myself or a loved one. I currently am a customer of Suncorp bank, St. George Bank, and ING Bank Australia. I own shares in Suncorp Bank.
What Australia needs going forward is a decent and fair welfare safety net. Not a punitive one. We need to take care of each other and not allow people to live in relative poverty in Australia. The JobSeeker rate should be permanently raised to its current coronavirus #covid19 level. We don’t know that all those jobs that were lost will be recreated. We don’t know the economy will reset. What I do know is that people cannot live above the poverty line in Australia on ~$300 a week if they have to pay rent. That is just a reality. If we return JobSeeker to the previous Newstart rate, we will I think, risk much higher homelessness, inequality, and relative poverty of young people, and increasingly families and children in Australia.
If you are living in poverty — how are you to find your way out of it without a helping hand? I hope that if coronavirus has taught us anything is that these social safety nets were created after the war for a reason. We should work as a society and care about each others welfare. Every person is important. Every job is critical. Government and super funds should be investing now in the 350,000 to 500,000 affordable housing needed in cities across Australia. People need a safe place to live and they need work.
We are currently building only 3000 affordable dwellings a year (1). A flaccid and weak attempt to deliver what the nation and it’s people need. A failing on our people. Impotence in the investment into affordable housing over the last 25 years across the the nation has a created a shortfall of 433,000 homes (1). Just mull on the number for a while, 433,000. That is almost half a million homes that should have been built already. Homes we needed yesterday. Homes that would help millions from falling into poverty. Homes that would raise hundreds of thousands, maybe over a million, in this country out of poverty (2). Just before the pandemic hit, there were 3, 000, 000 — that’s 3 million people — in Australia living in poverty, that is 1 in 8 adults and 1 in 6 children. Living. In. Poverty (2). With another 1 million unemployed now, that number could rise substantially, maybe by a quarter or even double if something isn’t done soon.
The nation needs stimulus — right now — at this moment. What better thing could we as a nation do than secure the future safety of shelter to our young and at risk populations? I can’t think of a better way to stimulate the economy. Much better return in the long run than tax cuts to big companies that we, at this time, can’t afford.
The picture I chose for this article is a wonderfully beautiful Art Deco — Depression era building in Sydney. An example of one of the many fine structures built back then. We can build to stimulate our economy. We have done it before. We just need to prioritise what we need.
In a recent interview with The Bloomberg podcast OddLots, economist Nouriel Roubini predicted that the US would have a bad recovery from the Covid-19 pandemic, inflation and then a ultimately a depression (1). That outlook is bleak. Perhaps not over-reactionary. Over 20 million people were newly unemployed in the US last month. The US has by far been the hardest hit country by the pandemic. It was arguably still somewhat fragile, with low interest rates and high federal debt leading up to the pandemic. In recent days, large companies like Neiman Marcus have filed for bankruptcy. I think it wont be much surprise if in the coming weeks and months weak businesses will continue to go into administration or file for bankruptcy.
In my native Australia we have also seen a worrying trend over the last year of established businesses going into administration or filing for bankruptcy in the midst of increasingly low consumer confidence. Virgin Australia, Jeans West, EB Games and Kikki-K just to name a few. Many retailers, such as department store Myers and airline businesses such as Qantas have closed their doors and stood down tens of thousands of employees as a consequence of the pandemic. In Australia it seems the pandemic has been the straw, all be it the hay bale, that has broken the camel’s back for these retailers that were already struggling beneath the surface, especially after the tough Christmas we had with bush fires ravaging the nation.
Is recession in the US and Australia likely? Yes, it is imminent. Is another Great Depression likely? Nouriel Roubini described the possibility of the “I” as opposed to the “V” or “U” shape “recovery”, by “I” shape that refers to straight down into a depression. There could be over 2 million unemployed in Australia right now (2). When I saw the queues outside Centrelink (the jobless office) here in Sydney, that stretched for ~100 m or more — I seriously worried depression was around the corner. But, the outcome likely depends greatly on government policy and how well it works to alleviate the stress on the economy caused by the pandemic — arguably the biggest economic shock on record. Definitely the biggest shock in the last 100 years. Why government? Because government (rightly) shutting down the economy, has been the force that has stopped so much economic activity. Shutting down or partly shutting down huge sectors of the economy such as tourism, retail, airports and transport. Business can only try to hold out at this time, but it is government pulling all the strings, and for that reason, like it or not we are more reliant than ever on good government economic fiscal policy.
In Australia, quantitative easing policy set out by the RBA should help finance government debt and prevent liquidity drying up. JobSeeker and JobKeeper payments will help people afford their living costs during the pandemic, stay engaged with their employer where possible and hopefully to spend a little to boost economic activity, however spending is probably a pipe dream, with the Australian Bureau of Statistics releasing statistics that over half of people saved their $750 stimulus payment rather than spending it (3). A strong indication in my opinion that people do not feel confident to spend even additional money coming in from a stimulus payment and that consumer confidence is probably still about as low as in April when it walked off a cliff.
Job advertisements in Australia have also walked off a cliff in May. Unemployment, consumer confidence and job advertisements have, to paraphrase Greg Jericho of the Guardian Australia, broken the scale by which we measure them (4). The same can easily be said for the numbers out of the US. As Greg Jericho has said, the scale is broken.
But can governments of the US and Australia hold things together when they have spent so much effort over the past decades dismantling social security and making government smaller? Australia is in a better position considering it has achieved less dismantling than the US, but even we in Australia have put ourselves in a precarious position through the past three decades of policy that targeted cuts to welfare payments, education and healthcare.
So if we are not using Tariffs to artificially boost our competitiveness, how are we meant to make money with international trade?
Competitive advantage is the principle that a country will produce something it better at producing than anyone else. It could be a pricing advantage. Maybe the country has low wages and can make goods cheaply. It could be a technological advantage. The country could have advanced technologies that other countries do not know how to use as well.
In the Perfect Capital Market, a place with no taxes, government and free trade (think Capitalist), countries produce what they have a competitive advantage in. The country will sell some of those goods as exports to other countries. The other countries will trade goods that they have a competitive advantage in.
For example, imagine a world of only two countries. They are called the United States and Australia. The United States is really good at making computers. The United States makes the best, most advanced computers in the world. Far better than what Australia can make. The United States has a competitive advantage in computers. Australia has a competitive advantage in solar panels. Australia’s solar panels are the most efficient in the world.
Australia produces solar panels at a cost of $10 and exports them to the United States. The solar Panels are sold to the United States for $20. The United States uses those solar panels to make it’s computers at a cost of $10. The United States exports it’s computers to Australia who buys them for $20. Australia in turn designs even better solar panels. Both countries are trading where they have a competitive advantage. Both countries benefit. In this case they benefit equally. Each country makes $10 profit.
What if there was a third good? Wheat. Both the United States and Australia are good at producing wheat. Australia is really efficient at producing wheat. The United States wants to trade it’s wheat with Australia instead of computers. Australia has cheap wheat because it is so efficient at producing wheat. Wheat costs $5 to produce in Australia and is sold for $10 in Australian shops. Australia will only pay the United States $10 for it’s wheat.
Wheat in the United States costs $6 to produce. The United States will only make $4 profit in Australia but Australia will make $5 profit. Australia has a competitive advantage for wheat. But it is small. The United States can try to sell it’s wheat to Australia, but it will never make as much money selling wheat as Australia. Eventually Australia will be ahead as all those dollars start to add up.
What would the United States be better off producing to make the most possible profit? Computers. Because that’s where the United States has a competitive advantage.
There is a lot of talk about the US and China and other countries raising Tariffs against each other. So what is a Tariff anyway?
A tariff is a kind of tax placed on imports, sometimes from all countries and sometimes just from one country. Usually trade arrangements are made between two countries so the tariffs will be at a country level.
In the past most countries had a lot of tariffs, sometimes really high ones. These taxes encouraged people to buy goods made in their home country rather than imports with expensive taxes on them. In Australia this system propped up the Textiles, Clothing and Footware industry until reforms were made and the tariffs reduced to almost zero, and in some cases zero.
Tariffs fall under an economic strategy called trade-barriers or protectionism. Protectionism aims to protect the home countries industries, even if they are not competitive and would not survive without the taxes on their competitors.
While tariffs are perhaps good for companies that are in protected industries, and they can continue to employ people, protectionism is bad for consumers and often forces them to pay more for the things they want to buy. In the 1980’s the cost of a T-shirt was much more expensive than the cost of a T-Shirt today. Wages of factory workers in Australia were and still are much higher than wages in China and other manufacturing competitors, and so consumers in Australia were forced to pay more for their T-Shirts.
If you only have $100 to spend and a T-Shirt is $50 it only leaves you with $50 to spend on other things. If there are no Tariffs and the T-Shirt is now $40 you have $60 left to spend on other things you want. Basically you can’t buy as much under protectionism. In Australia the price of a T-Shirt got much cheaper than $40, because eventually the foreign goods were so much cheaper and more competitive than the local goods. This soon put most of the Textiles, Clothing and Footware industry out of business. That isn’t necessarily a bad thing, it’s bad for a while for the people who loose their jobs, the factory owners and their investors. But remember, those factory workers were also having to buy a $50 T-shirt under protectionism, and now they don’t have to spend as much either. The businesses were not competitive and were being propped up by an artificial advantage. Generally the standard of living of people increases as protectionism is removed.
However like all things, it’s not black and white and not all people benefit equally from removal of trade barriers. Governments role in this type of situation where there is a massive restructure of the workforce due to change of government policy is to help affected workers find new jobs. A task government doesn’t always get right. It is also the responsibility of Industry to be open to employ people from declining industries and to the workers themselves to retrain or gain new skills.
These kinds of changes are worse when they are implemented too quickly, without time for people to adjust and find new work. Another thing that can exacerbate the situation is when protectionism is removed when there is no other work around. This can turn structural unemployment, as it is called, into long term unemployment. This makes life very difficult for workers in affected industries. They may never find employment again. Due to unemployment they do not benefit as much from the rising living standards as people who remain in work gain from removing tariffs.
The world is waiting for the outcome of key talks at the G20 Summit in Buenos Aires in Argentina. Primarily investors around the world are waiting for the outcome of the Trump – Xi Jinping talk in the hope that there will be some positive outcome to the trade wars that have placed markets around the world in a state of perpetual fear since they began.
There is a chance that tariffs will be reduced (small), a chance they will be increased (small) or a big chance there will be no change, there is even a small chance of a new Cold War breaking out but I don’t think that is at all likely anymore. Usually at these summits it’s more important what goes on behind the scenes with the advisors and delegates, but Trump is very independent and doesn’t always follow advice and Trump makes deals on his own terms, so this meeting could be crucial. It could also be just a rosey photo opportunity with no substance. We are all waiting.
What can the disciplines of science, engineering and technology do to increase their female workforce and stop the well documented drop-off of women from the workforce over time? In the fields of science and technology (STEM) the phenomenon of the so called Gender Scissors or “Jaws- of-Death” or “Scissors-of-Death” is widespread. The Jaws-of-Death phenomenon is a measurement of male and female participation rates in the disciplines of science and engineering throughout their careers, measured by age. Due to encouragement of young female students to study STEM subjects in high-school and increased enrollment of female students in STEM courses at university, the gender gap has closed significantly over recent years and almost closed completely in some sciences at this early career stage. However looking into the future lives of female and male scientists and engineers, female participation rates drop off significantly in comparison to male participation rates. The Jaws-of-Death graph blatantly shows the loss of women from the field of science and engineering as they age. In scientific academia there is a marked difference between female and male participation rates, in the EU, only 33% of researchers are female and only 21% of top level academic roles were filled by women in 2015 (1). In science and engineering the number of women in in top level positions is even scarcer at 13% in 2013 (1).
There are a number of reasons this may occur, but the most startlingly obvious reason is that these professions are not easy for women to stay and to excel. There are a number of factors in these professions that affect women’s participation rates. Much the way business is done in these professions means that the odds are stacked against women right from the start and opposing factors only increase against women as they age and try to progress in their careers.
This should not be seen as the fault of women but as a fault in the system. By loosing such large numbers of women from STEM or keeping women subjugated to lower positions due to the ingrained workings of a poor system, the system in place is in effect causing a “brain-drain”, a loss of potential, and a loss of economic benefit that would have been gained if those women were able to stay in STEM related work or to advance their careers.
So what are the major obstacles in the system that women have to overcome? There are much documented and studied obstacles such as unconscious bias and the gender pay gap, but there are also more physical boundaries such as the availability of maternity leave and flexibility for employees in the workforce. Business holds a lot of the cards when it comes to negotiating workers hours, and the fields of science and engineering have very low unionisation rates. Low unionisation means women will often be left to negotiate their contracts one on one with an employer, and they will be expected to offer similar hours of labour as male employees if they want to receive coveted roles or permanent positions. Because of a desire by many women for flexibility, they are often forced by lack of choice and lack cooperation by employers into precarious part time contract and casual work.
The professions of scientist and engineer were male dominated occupations for centuries. The fields have consequently developed into occupations where it is standard for employers to expect very long hours of work and high output. Hours of work far past your standard 40 hour week. Many scientists and engineers work weekends as well as week days, and might work away from home for months on end. As a consequence of this high benchmark for permanent positions, people who want flexibility have much lower bargaining power and much less chance of finding secure work.
There are a number of problems for women trying to work inside this construct. For starters, flexibility is very important for many women, and not just women who have or want to have children. Many women require adequate recreation time to perform well, and don’t want to work more than 40 hours a week. Women who are planning a family or have children want to be able to balance their family and work life without risking their career. It is well known that many women feel they are forced out of STEM professions after having children. In general, only women with a lot of additional support from their partners, family or already in well paid positions find it possible to stay in STEM after having children, and even then they often talk of it being a struggle. When you talk to mothers who have been successful in science and technology, they have usually had very supportive husbands, partners or parents who were able to help a lot with children or have been able to afford nannies. Women who don’t have support, which far out number those with sufficient support are the ones who drop out, and they are dropping out in huge numbers.
If the structure of work could be changed it would benefit not only women, but men who also suffer from being away from home and family for long periods. For example, the field of academic science is highly competitive. Scientific teams work long hours and are in metaphorical vicious and eternal competition with their scientific rivals to produce quality novel research and to produce it first. Academic scientists compete with each other for accolades, for grants, for jobs and for recognition by their peers. This has built an environment of extreme individual competitiveness where scientists often feel they cannot risk taking time off for fear of falling behind. God knows, some team in the US or China might make the discovery first! God forbid they might publish first! Young academic scientists want to be the lead author, to gain the recognition they feel they deserve, to be Joe Blogs, et al. and not be one of the seemingly unrecognised and forgotten “et al.”, just a footnote at the end of a paper, a name no-one will ever remember.
Other reasons for leaving work in STEM are also commonly sighted, such as nepotism and “jobs for the boys” at higher management levels. These problems could be addressed by stricter hiring criteria based on merit rather than favouritism, friendship networks or poor interview based character assessments.
I suggest that if the field of academic science could be completely restructured and more value put on people as a whole rather than on an individuals output, not only would women be able to stay in STEM, but the increased workforce and increased diversity would surely improve science. This would mean a greater emphasis on a teams output rather than on individuals trying to outshine each other. Increased availability of job share and flexibility so that two or three scientists could perform the work that one scientist working a 60 or 70 hour week currently performs. A greater emphasis on sharing knowledge and working together as a group rather than on gaining individual recognition.
To achieve this a number of elements in science need to change, from the way scientists are hired to the flexibility afforded to scientists in the workforce, and the way that academic journals publish scientific papers and grants are distributed. There needs to be is a greater focus on quality teams rather than bright stars. If everyone is chasing their Nobel Prize or equivalent, a situation of survival of the fittest arises and many bodies will be pushed aside.
How fitting that academic science has become a prime example of Darwinism. But it doesn’t have to be this way. We can change. I read a sign recently that said in my loose translation from Dutch “Expecting change, without doing anything yourself is like waiting for a boat at a train station”. We can make STEM work more accessible to women (and men) but change needs to occur and people and organisations have to be willing to make change.
We can’t expect women to stay in work in a deeply flawed system. And we can’t expect the system to change on it’s own. We have to see the problems and be willing step up and fix the system so that it better serves us and helps us to build the kind of society that we want live in. A society where women can be successful scientists and engineers and don’t have to overcome massive hurdles. A society where the decision whether or not to have children will not massively impact or end your future career. Having children or simply being male has never stopped men from being scientists or engineers and parental status or gender shouldn’t stop women either — and if it does, we have to change that.
Why are houses today too expensive to buy for the average person and especially young people in our major cities? Are elements such as negative gearing and overseas investors that are often blamed for the rising prices in the media and by politicians the cause of the inflated prices? Or is there something else that has caused the inflation? The short answer is yes. Yes there is. And quite simply it’s supply.
Demand and supply are two elements of the market that are directly linked. If demand is high and supply is low, prices will be higher. If supply is high and demand is low, prices will be lower. The problem in cities like Sydney is that there is a short supply of housing in areas where people actually want to live. Homes that are of a good size (2-3 bedrooms a good size if you are planning a family), in nice neighborhoods, close to schools, medical centres and hospitals, close to public amenities like parks and swimming pools, close to public transport and within a short commute from places of work, which for a city like Sydney is the CBD.
Over past decades new homes have been predominantly built on the outer fringes of the city, which has stretched our cities of Sydney and Melbourne to massive sprawling suburbia. As you head out into this sprawling suburbia land sizes of individual blocks of land get larger, houses get on average larger and are more spread out. The suburbs get larger, amenities are more spread out, hospitals are further away, work is much much further away, everyone requires a car just to do things like go to the shops or take the kids to school, because everything needed for life is so spread out.
This in turn means that the next set of new houses built is pushed even further again from the city centre. The toll of this on people buying their first home, is that they are forced to have a much lower standard of living than those closer to the CBD because they have to spend a lot more time commuting to the city to work in the morning and home again each evening.
People living on the city outskirts will spend several hours a day either in their car or on the train or bus in long commutes. People living on the fringes often rely on cars to drive everywhere and therefore spend a lot more on petrol for their cars, as well as the other costs involved in car ownership, compared with people in the inner city who often don’t need a car and thus save money on not running a car. Former Liberal Party Australian Treasurer Joe Hockey infamously said in a radio interview in 2014 “The poorest people either don’t have cars or actually don’t drive very far in many cases” (1). In fact it’s the opposite, most “poor people” do drive cars and the costs of running a car helps to keep them poor. “Poor people” who live on the city outskirts tend to drive much further than those who live in the centre, who tend to be wealthier (2).
Houses are generally larger and temperatures in the west of the city are hotter than by the coast because they don’t receive the cool sea breezes, so electricity costs are higher as homes require air conditioning to remain pleasant to live in.
Long commutes are a waste of peoples time, and seriously cuts into peoples recreation time. Time that could be spent with family or friends. High electricity bills and costs of running a car that is used everyday cuts into peoples ability to save money or spend on items to make their life more pleasant.
The short supply of housing in the inner city has pushed house prices up so high they have become unobtainable for people that did not already own a home in Sydney. In the suburb I live in, Marrickville in Sydney’s Inner West about 6 km from the CBD, the median price for a 2 bedroom house is now $1.23 Million (3). The median price means the price in the middle, it’s a bit like the average but a better indication of the middle price people are paying for homes.
In comparison the median price for a 2 bedroom house in Campbelltown, a suburb on the outskirts of Sydney’s western suburbs, is $476 thousand (4). People who live in Campbelltown and work in the city centre will commute for at least 2 hours a day.
So why is a 2 bedroom house where I live so much higher than that of a 2 bedroom house in Campbelltown? The simple answer is demand. There is high demand for houses in suburbs like Marrickville because they are convenient place to live, we have schools, public transport (trains, buses and close connection to light rail), medical care (like GPs, specialists rooms, dentists, radiography services), grocery shops and a shopping centre all within walking distance from homes. There are top hospitals and universities like RPA and The University of Sydney and University of Technology Sydney only 4-5 km away. For people with disabilities there is more access and choice when it comes to disability services. Suburbs closer to the city tend to have more people around and so there is often a greater sense of being in a community than out in the outer suburbs where you can often feel isolated in your street or home. There are cultural and community events in the inner city like weekend markets and theatre, all of which make life more enjoyable in the inner city. Another reason for higher demand in the inner compared to the outer suburbs is that crime rates tend to be lower in the suburbs closer to the city, obviously with a few exceptions.
In my opinion, more focus needs to be on increasing the supply of homes in the CBD and inner suburbs of cities (within 10 km of the CBD), because this is where people want to live based on price data. Yes, people who are already lucky enough to live in the inner suburbs will argue “But there aren’t enough schools! There aren’t enough hospitals! Over-development! I don’t want high rise apartments over looking my house!” . Government has tried to to increase supply and there has been massive backlash in these communities about any new development. This viewpoint to me seems very selfish and short sighted.
My question to those people resisting development and resenting newcomers is, why do you think that you deserve to live in a convenient area, but other people do not? Is it fair that just because you were there first, future generations are forced to live at a poorer standard of living and have to live in an area which is not good for a productive economy because of the high costs on it’s residents, because you were here first? I don’t think that is either fair or good for the economy or society. It ultimately increases inequality in society.
Census data helps governments to determine the number of hospitals and schools built in an area. If more people move to an area, government will see in the Census that the area requires more infrastructure. If zoning laws are changed to allow more housing to be built in the inner suburbs, government can also plan to deliver more hospitals, schools and public transport, for example the new Sydney Metro line going up along the Bankstown line (one of the two main train lines through the Inner West of Sydney) coincides with the opening up of zoning for high rise residential apartments along the Bankstown line corridor.
In the past, and even in the present the most creative and productive areas of cities are not the outer fringes but the more highly developed inner city. If we want to make productive cities we need to make them more livable, which includes increasing the sustainability of our cities by reducing the number of petrol cars on the road, and increasing the happiness of residents by decreasing commuting times and the cost of living.