Friday, January 23, 2009

Belshaw’s World: City Spending, Country Saving

This business of writing a weekly column is proving harder than expected.

In blogging, length depends upon purpose. In a column, the length is fixed.

In blogging, if you make a mistake you can correct it. In a column, the mistake is there in cold print for all time, or at least until all copies of the paper decay!

I mention this because in my last column I referred to Kate Henry from Kentucky when I meant Kate Hedges. I emailed Kate as soon as I realized my error. She was, I am relieved to report, very forgiving.

I think that part of my problem was that I was thinking of one Ken Henry at the time, the head of the Commonwealth Treasury. Why? Well, that brings me to the subject of this post.

As you all know, we have just come to the end of a long boom. One feature of that boom was a sharp decline in the savings rate in western countries including Australia. We stopped saving and started spending.

To manage this we borrowed. We could do this because asset prices – real estate and shares in particular – kept rising. This allowed us to increase personal debt.

Our increasing spend meant that we were spending more on goods and services from other countries than we were selling to them. As a consequence, the balance of trade in goods and services in most western countries went into deficit.

This deficit had to be funded by international borrowings. The global trade surplus countries, China in particular, lent us the money we needed to buy their goods!

This had to end and explains why this global economic downturn is so severe. We are paying for our own excesses.

But who in Australia spent and who saved? The following table shows Australian states and territories ranked by their net contribution to the balance on goods and services in 2007-2008. All figures are in $Am.

South Australia10,3387,3422,996
Northern Territory4,5442,5811,936

Interesting, isn’t it? All of Australia’s growing private overseas borrowings went to support Victoria and especially NSW. And that means Melbourne and Sydney.

Every Australian economic crash since at least the 1890s has been associated with metropolitan over-spend.

That spend brings more people to the metro cities because that is where the money is.

As the boom ends, some people leave. Emigration from Sydney always increases during the city’s downturns. Yet the sheer concentration of economic activity in Sydney provides a base for the next leveraged upturn as things improve. It seems that we cannot help ourselves.

During the week I had an email from Jack Arnold. Both of us believe that a New England new state is still part of the solution, although we disagree on boundaries. I want the Hunter and Newcastle in, Jack disagrees.

In replying to Jack, I made the point that one of our problems was that since the referendum loss in 1967 we had lost the very intellectual framework required to discuss issues such as new states. Everything has become localized, fragmented, expressed in terms of narrow outputs.

I will deal with this in more detail in later columns. Immediately, I want to answer the question on six New England films.

At random, they include Sons of Mathew (1949), Captain Thunderbolt (1953), Smiley (1953), The Shiralee (1957), Smiley Gets a Gun (1958), Koya No Toseinin (The Drifting Avenger) (1968) and Bootmen (2000). And that’s only a start.

How many did you recognize?

Note to readers

This column appeared in the Armidale Express on Wednesday 7 January 2009

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