Analysis
At almost the same time last Thursday evening, a similar sense of unease was building among a distinctly different milieu as twitchy bond traders peering into their screens from Wall Street to London and across Europe hit the sell buttons, sending interest rates spiking.
While seemingly unrelated, both events bookend an economic phenomenon that appears to be close to breaking point or, at the very least, running its course.
At one end is the huge build-up of debt that initially drove global economic growth for three decades until 2008 before accelerating to warp speed in a desperate bid to save capitalism from itself.
And at the other, a growing animosity at the way wealth has been diverted away from lower and middle-class workers; a phenomenon fuelling the rise of extreme left and right-wing ideologies that has manifest itself in a series of political shocks across the developed world
Think Brexit, Donald Trump's ascendancy to the White House and the stunning events in French politics.
Just to reinforce that point, on Friday night, as the G20 leaders made their awkward introductions, US jobs growth data came in better than expected, even though the unemployment rate ticking up a notch to 4.4 per cent.
Those rosy headline numbers, however, hid two disturbing trends. Just as in Australia and across the developed world, wage growth is abysmal. And the proportion of employable Americans who have given up looking for work is at its worst in decades.
It's not just that wage growth here is the lowest on record. Wages, as a share of nominal economic output, has fallen to its lowest level since the Australian Bureau of Statistics began collecting the figures back in 1959. It's now dropped to just 46.2 per cent of GDP.
If you superimposed a graph of corporate profits as a share of GDP over the top, it represents a mirror image, in reverse. Profits, as a share of GDP, are on track to break a new record following a sharp upward trend in the past few years. It's a similar story in the US and Europe.
Given wages are the biggest cost for most businesses, that inverse relationship is not surprising. But it helps explain the disillusionment and the angst driving the political unrest across the US, Europe and here.
The flow-on effect has been a concentration of wealth, to the highest levels since the 1920s. The uber-rich are becoming obscenely wealthy while everyone else is struggling.
It's a trend no longer confined to the developed world or western societies. China, the world's fastest growing major economy and the global economic powerhouse since the great financial crisis, has created a class of billionaires to rival anything in the west as its debt levels have soared into the stratosphere.
Rather than accepting less income — both corporates and wage earners — the response during the 1980s was to deregulate, to get government out of the way. And it was the financial sector deregulation in the 1980s that unleashed the great tide of debt that now threatens to drown the global economy.
"The purpose was to give people the freedom to try to make money through greater flexibility, asset prices, and leveraging rather than through conventional wages and earnings," he said in a recent interview.
The problem with debt is that all it does is bring future consumption forward. At some stage, the debt must be repaid. As Shvets notes, it pushes asset prices such as real estate higher.
For the generation that rode that boom, it's been an era of wealth creation like no other. But for the following generation, it's a situation that bodes ill and breeds discontent. They will pick up the tab, in the form of higher prices. Many believe their future has been stolen.
But technology has a corresponding negative social impact. Workers are displaced, and rising unemployment results in lower wages.
When that technology crosses borders and breaks down barriers, as the internet has done, the economic impact is accentuated. It allows corporations to exploit cheaper labour in other countries, laying waste to industries and communities in other areas.
That results in lower wages and a greater proportion of workers who give up looking for work because it simply isn't there. That, in turn, makes the workforce less productive.
In the past few months, almost every economist in the country, including Reserve Bank governor Philip Lowe, has come to realise that our low wages growth has begun to stifle our growth prospects.
With Australian household debt at Olympic gold standards, the prospect of a sharp rise in defaults — either in housing or other areas such as power bills — has become a real threat.
What irony then that a fortnight ago, after a vigorous campaign by vested interests, the country's lowest paid workers were delivered a pay cut via a reduction in penalty rates.
At some stage, Australian business leaders may come to realise that their workers are also their customers. Lower wages will hit consumption. And that will hit profits.
The gleeful support for the Fair Work Australia decision to slash penalties from those within the Federal Government may be short lived. Budget repair depends on bracket creep from wage and salary earners. You don't get that by cutting wages.
As the ABC's The Business highlighted in last week's three part series The Rise of The Machines, automation and artificial intelligence soon will sweep through the white collar world.
That raises questions about how we will support an economy, if even larger numbers of worker are displaced. Taxing the wealthy to support the unemployed has never been a vote winner.
And while the new industrial revolution will create a whole series of new jobs competition and pressure on wages except for those at the peak will only intensify.
For years, the Occupy movement was dismissed as nothing more than a piece of theatre from idle youth and an odd assortment of professional protestors.
Globalisation, deregulation and technology have combined to alienate vast numbers of workers and otherwise model citizens. They're now demanding answers and action from the state. They want their governments to act.
But is anyone really listening?
Posted
The rumblings grew louder even before they'd gathered for the meetings.
On the streets of Hamburg, mass protests erupted into violence as the world's top 20 leaders faced off against each other in what has become a familiar scene, as heavily armed riot police confronted masked protestors.At almost the same time last Thursday evening, a similar sense of unease was building among a distinctly different milieu as twitchy bond traders peering into their screens from Wall Street to London and across Europe hit the sell buttons, sending interest rates spiking.
While seemingly unrelated, both events bookend an economic phenomenon that appears to be close to breaking point or, at the very least, running its course.
At one end is the huge build-up of debt that initially drove global economic growth for three decades until 2008 before accelerating to warp speed in a desperate bid to save capitalism from itself.
And at the other, a growing animosity at the way wealth has been diverted away from lower and middle-class workers; a phenomenon fuelling the rise of extreme left and right-wing ideologies that has manifest itself in a series of political shocks across the developed world
Think Brexit, Donald Trump's ascendancy to the White House and the stunning events in French politics.
Just to reinforce that point, on Friday night, as the G20 leaders made their awkward introductions, US jobs growth data came in better than expected, even though the unemployment rate ticking up a notch to 4.4 per cent.
Those rosy headline numbers, however, hid two disturbing trends. Just as in Australia and across the developed world, wage growth is abysmal. And the proportion of employable Americans who have given up looking for work is at its worst in decades.
What's driving this?
If you want to understand why the developed world is in such upheaval, and why politics has become so volatile, this graph of Australian wages explains it all.It's not just that wage growth here is the lowest on record. Wages, as a share of nominal economic output, has fallen to its lowest level since the Australian Bureau of Statistics began collecting the figures back in 1959. It's now dropped to just 46.2 per cent of GDP.
If you superimposed a graph of corporate profits as a share of GDP over the top, it represents a mirror image, in reverse. Profits, as a share of GDP, are on track to break a new record following a sharp upward trend in the past few years. It's a similar story in the US and Europe.
Given wages are the biggest cost for most businesses, that inverse relationship is not surprising. But it helps explain the disillusionment and the angst driving the political unrest across the US, Europe and here.
The flow-on effect has been a concentration of wealth, to the highest levels since the 1920s. The uber-rich are becoming obscenely wealthy while everyone else is struggling.
It's a trend no longer confined to the developed world or western societies. China, the world's fastest growing major economy and the global economic powerhouse since the great financial crisis, has created a class of billionaires to rival anything in the west as its debt levels have soared into the stratosphere.
Productivity, debt and theft
Macquarie analyst Viktor Shvets, whose analytical powers have upset many in the corporate world during the past three decades, reckons that low productivity throughout developed economies ultimately is to blame for where we are now.
Rather than accepting less income — both corporates and wage earners — the response during the 1980s was to deregulate, to get government out of the way. And it was the financial sector deregulation in the 1980s that unleashed the great tide of debt that now threatens to drown the global economy.
"The purpose was to give people the freedom to try to make money through greater flexibility, asset prices, and leveraging rather than through conventional wages and earnings," he said in a recent interview.
The problem with debt is that all it does is bring future consumption forward. At some stage, the debt must be repaid. As Shvets notes, it pushes asset prices such as real estate higher.
For the generation that rode that boom, it's been an era of wealth creation like no other. But for the following generation, it's a situation that bodes ill and breeds discontent. They will pick up the tab, in the form of higher prices. Many believe their future has been stolen.
The role of technology
The conventional wisdom is that productivity is driven by technological innovation. Better tools make for smarter work practices. You can dig a lot more ground with one of Kerry Stokes' Caterpillars than a shovel.But technology has a corresponding negative social impact. Workers are displaced, and rising unemployment results in lower wages.
When that technology crosses borders and breaks down barriers, as the internet has done, the economic impact is accentuated. It allows corporations to exploit cheaper labour in other countries, laying waste to industries and communities in other areas.
That results in lower wages and a greater proportion of workers who give up looking for work because it simply isn't there. That, in turn, makes the workforce less productive.
In the past few months, almost every economist in the country, including Reserve Bank governor Philip Lowe, has come to realise that our low wages growth has begun to stifle our growth prospects.
With Australian household debt at Olympic gold standards, the prospect of a sharp rise in defaults — either in housing or other areas such as power bills — has become a real threat.
What irony then that a fortnight ago, after a vigorous campaign by vested interests, the country's lowest paid workers were delivered a pay cut via a reduction in penalty rates.
At some stage, Australian business leaders may come to realise that their workers are also their customers. Lower wages will hit consumption. And that will hit profits.
The gleeful support for the Fair Work Australia decision to slash penalties from those within the Federal Government may be short lived. Budget repair depends on bracket creep from wage and salary earners. You don't get that by cutting wages.
The fourth industrial revolution
There's no turning back the tide of technology. The internet won't be unwound. In fact, the pace of innovation is likely to accelerate.As the ABC's The Business highlighted in last week's three part series The Rise of The Machines, automation and artificial intelligence soon will sweep through the white collar world.
That raises questions about how we will support an economy, if even larger numbers of worker are displaced. Taxing the wealthy to support the unemployed has never been a vote winner.
And while the new industrial revolution will create a whole series of new jobs competition and pressure on wages except for those at the peak will only intensify.
For years, the Occupy movement was dismissed as nothing more than a piece of theatre from idle youth and an odd assortment of professional protestors.
Globalisation, deregulation and technology have combined to alienate vast numbers of workers and otherwise model citizens. They're now demanding answers and action from the state. They want their governments to act.
But is anyone really listening?
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