The Reserve Bank of Australia has fixed it. The services sector will replace the mining boom as a source of employment.
Comparing the wages of mining truck drivers and waitresses will ruin the rest of this article, so let’s not go there. Not to mention RBA assistant governor Guy Debelle admitting his forecasting abilities are ‘pretty crap’ anyway. At least he’s honest.
To be fair, Guy was talking about his forecasts for the bond market specifically. That makes his comment even funnier. Interest rates determine bond prices. Who controls interest rates? Guy Debelle and his fellow price fixers at the Reserve Bank of Australia. In other words, Guy admitted he has no clue what he’s doing. He can’t even predict his own actions.
Anyway, services will boom according to the RBA. Waiters, sales assistants and tour guides are the new diggers and drillers of the Australian economy. We would like to throw some further services sector professions from around the world into the mix for the RBA to consider.
First up is the professional license plate number blocker. Sick of being snapped speeding in pedestrian zones or driving down Bourke street mall? In Tehran you can hire a middle aged man to walk behind your car, covering up the license plate from cameras.
Better still is a way of halving your commuting costs. In India, disabled people get a discount for themselves and a carer when they travel by rail. This enables them to make a living by auctioning off the coveted role of being their travel companion. They just travel back and forth on trains all day, splitting the savings with their clients.
Stuck in traffic? Call up a dynamic duo on a motorcycle. One will drive your car to wherever you want while you hop on the back of the motorcycle and are chauffeured through traffic to your destination. The price? Depends on the traffic jam.
But we doubt these are what the Reserve Bank of Australia had in mind. Not many of the above jobs would add to anyone’s Superannuation balance.
But what’s the RBA doing telling the economy which jobs to create in the first place? As JP Morgan economist Ben Jarman pointed out ‘The RBA’s not in the business of picking winners, so in that sense it’s a bit unusual… They’ve probably been pushed in the direction of identifying this by people’s anxiety over where that jobs growth is going to come from. In that respect, services makes sense as it’s an improving contributor to growth.’
We don’t know what that last bit means. Especially given the examples of services sector professions we just gave.
If we were in charge of pretending to know where jobs growth was going to come from, we would pick something a bit more interesting than waitresses, tour guides and sales assistants.
How about another mining boom? Or gas? Santos’ revenue surged last quarter. The Gladstone LNG project is 72% complete and set for export in two years’ time. Basins that nobody cared about or knew the names of a few years ago are now dinner table talk.
The real debate is what to do with all the gas that will flow. Export it at higher prices or keep it here to provide low cost energy?
You’ve got to love the free market. It solved the problem of expensive oil so quickly that it created the political problem of too much energy being produced too cheaply.
No doubt in a few years’ time some nincompoop with a two dimensional brain will say ‘we’re going to run out of gas eventually and then the economy is doomed’. As we like to say again and again, we didn’t run out of stone in the Stone Age. We didn’t run out of bronze in the Bronze Age, or iron in the Iron Age. Nor gold in the Golden Age, or ideas and Scotsmen in the Enlightenment. Industry is still going despite the end of the Industrial Revolution, and much of it still runs on coal.
Technology, driven by price signals and the profit motive, provides the next solution to old problems. And it does it just as the old solutions become less and less viable. Pretending we’re doomed because of population growth or finite resources completely misses the way the world changes over time.
Speaking of doomed, the RBA’s enthusiasm for services was matched by its concern over China.
The anecdotal evidence of problems in the Middle Kingdom is flowing fast. IBM’s revenues from the economies of the future—the BRICs—fell 11% in the first quarter of 2014. The richest person in Asia, who largely made his fortune buying up property before the boom in China’s economy, is selling out. Apparently he’s completely out of Chinese property now that a US$928 million deal to sell a shopping centre in Beijing is finalised.
Riots keep breaking out at developer’s offices as they offer discounted prices to new buyers. In the rest of the world, discounting is known as falling prices. But in China it’s evil and corrupt, leading those who paid higher prices to revolt.
As for the statistics, they’re more honest than usual. New building construction fell 25% for the first quarter of 2014. GDP growth fell to 7.4%, just below the announced target.
The slowdown is sinking in at denial central too. Citigroup and Bank of America are claiming the Chinese government will save the day by relaxing restraints on the property sector. And there’s always stimulus. Until you end up like Greece anyway.
for The Daily Reckoning Australia