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Issue #1551      13 June 2012

Editorial

A crisis of overproduction

The ruling class by no means shares the confidence of the federal government in the Australian economy. The Reserve Bank of Australia’s (RBA) decision to lower the official interest rate for the second month in a row reflects this. RBA governor Glenn Stevens in his statement announcing the cut warns: “The ongoing trend is unclear and could be dampened by slower Chinese growth”; Europe remains “a potential source of adverse shocks”; the “United States continues to grow at a moderate pace”; “commodity prices have declined lately”; “financial market sentiment has deteriorated over the past month”.

He said, “Europe’s economic and financial prospects have again been clouded by weakening growth, heightened political uncertainty and concerns about fiscal sustainability and the strength of some banks.” In Australia, “the housing market remains subdued. The exchange rate has declined over recent weeks, reflecting lower commodity prices, heightened risk aversion and expectations of lower interest rates.”

The RBA’s June decision cut the rate from 3.75 percent to 3.5 percent. In May, the reduction was larger, from 4.25 percent to 3.75 percent. The banks on both occasions failed to pass on to the public the full reduction. They are in total denial about the obscene record profits they have been raking in or the role they play in sending companies to the wall and turfing people out of their homes or off their land. They see the storm that is coming and are extremely worried that their profit levels will drop. They are only interested in making everyone else pay. They do not see themselves, with high loan rates and hefty fees, as a big part of the problem.

The retail companies are moaning that no one is spending. How can anyone on $20 an hour pay $300 a week on rent or a mortgage, buy clothes for their children, afford train fares of $50 a week, put food on the table and pay an electricity bill of $200 or $300 and spend more? They can’t. That is the problem. If their job is through a body hire company, casual or outwork at $5 per hour, how can they spend more? And if there are a few dollars left at the end of the week, they have to save it for the next week in case there is no work or only a few hours at best.

The minimum wage is not a living wage. Students, pensioners, the unemployed and other welfare recipients would spend if they had enough income. They are battling for survival below the poverty line. Charities are overwhelmed with the increase in demand for their services. Forty percent of workers are in jobs that are not ongoing or secure. Demand for goods and services will fall as thousands of jobs are being lost every week in manufacturing, hospitality, education, the public service, tourism, housing construction and retail.

The mining and finance sectors might be booming, making record profits, but the rest of Australia looks more like it is sinking into a recession. The official unemployment rate of around five percent does not reflect reality. It counts one hour of work as being employed. Unemployment and chronic underemployment are closer to 10 or 12 percent and rising.

The employer offensive on trade unions and workers and neo-liberal budget cutting have not only taken their toll on workers and welfare recipients, it is hurting the very employers who pushed that agenda. The economic equation is simple.

Karl Marx pointed it out more than 150 years ago. Reducing the amount people have to spend reduces the demand for goods and services. This creates a “crisis of overproduction”, companies go bust, workers get sacked and the crisis deepens. This is exactly what is happening now. The ruling class response is classic – reduce wages, sack workers and boost productivity (output per worker). If fewer workers produce more goods, the surplus in production over demand only gets worse.

The international developments that are of such concern to the RBA are still to take their toll. The reduction in interest rates was a small step in the right direction. Much more is needed. Banks should make substantial reductions in their loan rates. The government must abandon its budget surplus. Military spending needs to be slashed. Pensioners should be given an immediate rise of $50 per week plus unemployment and all other benefits brought up to the same rate. Job creation, secure employment, training, a living wage and stimulatory policies are required.  

Next article – Leichhardt Friends of Hebron – Building bridges not walls

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