“Sympathy to my creditors” – The human experience behind economic downturns
Macks Advisory believes Governments need to be properly equipped to deal with the realities their constituents are facing, and while a 4.5 per cent unemployment rate might make for a nice headline, it is misleading.
It will not be enough for governments to take a back seat and simply facilitate the private sector to lead Australia’s recovery.
Reflections on the past
In December of 1929, a Wisconsin newspaper, The Journal Times, published an article about the death of George Wellington Lytle. Born on 4 November 1903, Lytle took his own life in a Milwaukee hotel room on the 7th of December 1929. Down to his last four cents, Lytle left a note that read ‘My body should go to science, my soul to [Secretary of Treasury] Andrew W. Mellon and sympathy to my creditors’. The inscription on his tombstone in Oakwood Cemetery in Kenosha Country simply reads “Father”. George Wellington Lytle was 26 years old.
Economic, historical and political scholars and interested parties alike often anecdotally speak of the human misery that accompanied the great depression. Stories of stock brokers throwing themselves out of windows on Black Monday and Tuesday. Stories of the family bread winner leaving home dressed in their fine work clothes with lunch packed into a briefcase, only to make their way to the local park to wallow the day away reading the paper, too consumed with guilt and shame to tell their family that they had been let go.
The fact is, that in times of crisis people tend to take comfort in the certainty, simplicity and finality of statistics and numbers. These graphs and charts are able to convert complicated, individual experiences into a simplistic set of uniformed numbers, it takes lived experiences and puts it into a neat spreadsheet. This has the effect of reframing the discussion that we have about macroeconomic issues, it desensitizes us from the reality that a change in CPI, GDP, real wages, unemployment etc. has an effect on the everyday lives of individuals.
Despite this, in our modern, highly politicized climate, facts and figures can at times be confusing, contradicting and sometimes downright misleading.
The reality of unemployment figures
The Federal government is very fond of reminding Australians that in the last quarter, unemployment dropped to 4.5 per cent. In the midst of a global pandemic, this would give many people cause for celebration, however on closer inspection the reality behind these numbers is discomforting.
It is true, that according to the Australian Bureau of Statistics (ABS), unemployment for the August 2021 quarter fell 0.1 per cent, but how is that possible with Australia’s two largest states in lockdown, and much of the rest of the country still continuing to live with restrictions? The answer to that question is in the definition of ‘employed’. The ABS defines people as ‘employed’ if they work one hour or more a week.
When you consider that according to the ABS the Median hourly earnings in Australia is $36 per hour (ABS release date 11/12/2020), it is hard to understand how someone potentially earning that little (or less) a week could be considered ‘employed’.
It is also important to consider that only those that are considered to be part of the labour force are counted in the unemployment rate. As at June 2018, 29 per cent of men and 40 per cent of women over the age of 15 were not counted in the labour force.
Unemployment’s vicious big brother
A seldom spoken of data set, especially by those in positions of power, is underemployment. The ABS’ definition of underemployment is consistent with that of the International Labour Organistion (ILO), which states time-related underemployment exists when the hours of work of an employed person are below a threshold, and are insufficient in relation to an alternative employment situation in which the person is willing and available to engage.
As of August, Australia’s underemployment rate sits at 9.3 per cent, with the economy losing 66 million worked hours.
For many people, unemployment and underemployment are completely new experiences and the reality of their situation should be reflected in the statistics that governments promote.
Governments need to be properly equipped to deal with the realities their constituents are facing, and while a 4.5 per cent unemployment rate might make for a nice headline, it is misleading. As it is currently defined and calculated, the unemployment rate serves as little more than a marketing tool for the government of the day.
The faces behind the numbers
The effects unemployment has on people are broad and varying. For many people the effects are spread out and escalate over time, as personal savings are used to maintain an established lifestyle. However for many Australians, the effects are immediate.
New data from financial comparison site Finder.com.au has revealed that 31 per cent of Australians would not survive four weeks at their current standard of living on the savings in their bank account. Even more distressing, the data found one in five Australians would run out of savings within a week.
The data presented around unemployment does not convey the immediate, personal mental and physical stress that unemployment can have. A study conducted by Australia’s Mental Health Think Tank found mental health was dramatically poorer in Australian’s who lost their jobs as a result of the pandemic. The personal accounts that they collected give some insight into the stresses that are felt behind the numbers.
A NSW women in her late-30s stated "The government does not see that mental impact of being unemployed and getting the distinct feeling you are seen as scum." While a Victorian Women in her 50s stated "Bills keep coming in, real estate agent asks for deferred rent to be repaid in full… daughter needs glasses, other daughter has anxiety and becomes depressed."
For many this stress and anxiety was alleviated by government led relief programs like JobSeeker, with one respondent stating "For the first time in years I was able to pay for essential medical treatment." However the premature termination of this program would once again abandon unemployed people, with a female, Tasmanian respondent describing it as “crushing to your mental health.”
The role of government in this situation is to prioritize the quick cessation of suffering caused by unemployment through the introduction of policy, programs and expenditure that will stimulate the economy and create gainful employment.
Where to from here?
The Crash of 1929 would trigger some of the worst economic conditions and effects that the world had ever seen. It would also be a time of radical policy reform, all across the world. Most notably in the United States, where Franklin D. Roosevelt’s (FDR’s) New Deal attempted to stimulated the economy through inflationary measures drawing on Keynesian economic principles. Other reforms included the introduction of welfare state measures introduced in New Zealand by Prime Minister Michael Savage to reduce hardship, as well as the mass rearmament that took place in the United Kingdom.
Australia however would not follow the Keynesian revolution, and instead left the recovery effort to the private sector. The Lyons, Menzies government of 1931-1941 took a Laissez-faire approach to recovery efforts, and as a result, recovery was slow and tedious with unemployment reaching as high as 32 per cent in 1932.
The election of John Curtin in 1941 would see a radical shift in the recovery actions of the federal government. Emergency wartime powers were used to introduce a command economy based on Keynesian Principles, and as a result, the unemployment rate in 1942 fell to 1.1 per cent.
The post-pandemic world will be one fraught with complicated consequences, both intended and unintended. It is the role of governments therefore to not navigate these and prepare to rebuild not just to pre-pandemic levels but to exceed them.
It will not be enough for governments to take a back seat and simply facilitate the private sector to lead Australia’s recovery. Those familiar with FDR’s New Deal will recognize the concept of the 3R’s. Relief, recovery, reform. Perhaps this is a potential starting point for the Federal Government to consider, to prevent a repeat of the unnecessarily long recovery Australian’s endured after the Great Depression.
Lessons to the individual
Personal and corporate finances require critical and ongoing review and take a high degree of personal responsibility to maintain. In times of crisis, many people who are ordinarily in control of their finances find themselves in an uncertain and unfamiliar situation, thus the nature of a crisis. It is therefore imperative that governments provide the tools and opportunities for individuals and businesses to recover, and see the fruits of their ongoing labour at the end of turbulent times.
Seeking professional help for your business’/individual finances in the interim is a reasonable and proactive way to ensure that you are meeting your statutory obligations, as well as positioning yourself to weather the storm and move prosperously into the future.
If you or anyone you know needs help:
- Lifeline on 13 11 14
- MensLine Australia on 1300 789 978
- Beyond Blue on 1300 224 636
