The two news headlines that most governments fear most are a rise in the unemployment figures and a rise in interest rates. Both reflect a government’s economic management capability and no matter what the story is out in the real world, it is the story that is on the front page of the daily newspapers that really counts.
While the government this week can congratulate itself on the reported improvement in unemployment figures, it now has to brace itself for a probable interest rate rise by the Reserve Bank.
It is certainly ideal to have low unemployment figures and low interest rates. The real question is: Can we have both?
From what most finance journalists and economists are saying this week, you would have to conclude that having both low unemployment and low interest rates is just about impossible. I have never really understood this, particularly as no-one is really sure if the worst is behind us yet, so people do really need to keep spending.
From what most finance journalists and economists are saying this week though, one seems to have to balance the other. The improved jobless figures they predict will ensure an automatic rise in interest rates. What a dampener that must be for our government, particularly if their predictions become a reality.
Aside from the fact that jobless figures, just like any statistics, can be very flawed, it doesn’t take into account that many jobs that may have been created are very lowly paid.
What confuses me even more is that we have had times when unemployment has been much higher according to figures but at the same time top executives were taking home pay and bonuses that would make Maria Sharapova’s recently announced $75 million sponsorship deal with Nike look almost ordinary.
So why don’t interest rates go up when the top end of the corporate hierarchy are doing so well, even if the bottom layer are doing it tough?
If we’ve listened to what the economists have all been saying this week, it is hard not to conclude that most of them are not so happy about the improvement in unemployment. In fact, the ones who are seemingly being held responsible for the predictable rise in interest rates are the people who have managed to find some work. Shame on them.
I had very similar thoughts last year when the government was coming under a lot of criticism for generously giving out the first home loan grants. These first home buyers were squarely being blamed for the rise in property prices.
Further up the scale, investment properties were being vastly accumulated by those who did not need a grant to purchase a property. These purchases didn’t seem to be even partly to blame for the escalation in property prices.
Where am I going with this you might ask? Well, it seems to me - and I will admit I am completely uneducated in the area of economics - that in a market-driven economy, a good economy depends on having a poor or at least a fair amount of people who are either below the poverty line or not too much above it.
That way we can keep housing prices low, interest rates down and, thanks to our previous government’s tweaking of the definition of an “unemployed person”, we can keep many off the official unemployment figures when they really should be included on them.
Economics – it never makes any real sense to me.
