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The Recessions We Had To Have Ö But Didnít

This weekend's Daily Reckoning is about politics, rather than just economics. The fact that this makes it no different to any other Weekend DR is precisely our point. Politics and economics have fused. All around the world. And in a really bad way.

We have politically manipulated markets for goods and services. We have politically manipulated money. And politically manipulated information. But who do we blame for our troubles, like poverty, debt repayments and unemployment? The free market! Too much capitalism, too much freedom on the internet and, worst of all, too much profit.

Have Australians lost their common sense? Do they really see freedom as the ill and government as the remedy?

We're not sure. But here are some examples of what government is getting away with right here in Australia:

In January 2012 according to research firm Roy Morgan:

  • Unemployment was 10.3% (up 1.7% since December 2011) - an estimated 1,278,000 Australians were unemployed and looking for work. This is Australia's highest ever number of unemployed as reported by Roy Morgan and is also Australia's highest unemployment rate for a decade - since January 2002 (10.9% - 1,075,000).
  • A further 7.5% of the workforce were working part-time looking for more work (underemployed) - 934,000 Australians.
  • In total a record 17.8% of the workforce, or 2.21 million Australians, were unemployed or underemployed.
  • The latest Roy Morgan unemployment estimate of 10.3% is now almost double the 5.2% currently quoted by the ABS for December 2011.

How can a research firm find double the level of unemployment to our government statisticians? Are our government figures really that manipulated?

On Tuesday, Money Morning editor Kris Sayce commented on how the government prevents us from buying and selling what we choose to: 

Keeping Cheese In, And Rubbers Out

You only have to read the list of import and export restrictions to see the hoops Aussie firms have to jump through to stay on the right side of government red tape.

Want to export "cameras or imaging systems for use underwater"? Forget about it. Unless you've got a permit from Defence Department and the Department for Foreign Affairs & Trade.

What about butter, cheese or yoghurt? Make sure you've got a permit from the Department of Agriculture, Fisheries & Food (DAFF). Think of the turmoil if people started exporting butter without government say-so!

And if you've ever wondered why Australia doesn't have a bigger presence in the "sausage casings" industry, maybe it's because you need a meat permit from DAFF before you even think about flying the flag for Aussie sausage casings.

But it's not just export regulations pinning down Aussie businesses. Be careful what you import too. You'll be pleased to know the Aussie government restricts the import of "Erasers resembling food in scent or appearance".

Australia is the last bastion in the fight against novelty erasers. (If you think we're kidding, check out this link.)

Your editor's favourite cheese isn't available in Australia because of pasteurisation laws. We'll never forgive the Federal Government for that.

And consider the RBA's backdoor bailouts of Australian banks in 2008. $55 billion and we don't know who got what when or how. That's more than Kevin Rudd's $42 billion stimulus package handed out secretly to companies now at the ire of public opinion. Speaking of stimulus, there was that insulation episode. It stimulated the funeral and building market without much backlash against government.

Ever since PM Paul Keating told voters about 'the recession we had to have', recessions became political footballs too. Political decisions even. Whether or not to attempt Keynesian stimulus is a political question, not an economic one. There is plenty of evidence that Keynesian stimulus does and doesn't work. The same goes for austerity. But the do nothing approach is the ultimate no-no for politicians. God forbid GDP goes negative for two quarters - the technical definition of a recession.

Then there are of course some more recent examples. Like the Mineral Resources Rent Tax. And the Carbon Tax. At least we don't have an emissions trading scheme like the Europeans yet. According to Alexander Jung at Der Spiegel, that scheme isn't working. 'The price for emissions certificates has plunged, a development that is actually making coal more attractive than renewable energy.'

It's always good fun when misguided government policies fail miserably. Unless people die in the process.

Manipulation Leads to Misallocation

Because politicians care more about the impression their policies create, rather than their true effect, they tend to cause problems rather than solve them. That of course creates more problems for them to solve, which suits politicians just fine.

But all this builds up over time. And, after more than 20 years without a recession, the imbalances have had a lot of time to build up here in Australia.

Where might they be hiding?

Imbalance 1 - Superannuation

A demographic bulge of people inve

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