An economic downturn across the world, including Australia, is inevitable. It’s simply a part of the natural business cycle. I remember my mum talking about this when I was a kid. Dad had a small earth moving business in Geraldton in country WA. WA is probably more accustomed to the boom-and-bust nature of the business cycle than most economies given the mining industry. In Geraldton, you’ve also got farmers and crayfishermen. So, the ups and downs of a good or bad season are very much part of the fabric of the local economy.
In the early days, Dad was a sole operator and business came in by word-of-mouth. No phones back then so you’d get calls on the house landline and take messages. Most people would call in the evening when dad was home to book in jobs in the days and weeks ahead. A plumber needs to hire dad and the backhoe to dig a leach drain for a new house, or a farmer needed him to dig the footings for a new shed. I was always proud that Dad had the reputation as the best operator in Geraldton.
Usually, dad was really busy and worked 12 or 14-hour days, 6 days a week. He’d have Sunday off for family time. He charged an hourly hire rate so there were no wages, there was no safety net. So, you work when the work was there knowing that at some point it might not be. In the 70’s and 80’s various economic challenges arose. There were certainly times when work was quiet. If the phone didn’t ring there was no work, there was no money.
When work was quiet one particular time, I was old enough to wonder if things would be ok. Mum’s answer was simple. Yes, it comes goes in cycles, quiet times don’t last, and it will get busy again, don’t know when, but it will. Booms and busts have been happening for years, it’s just how it works. And she was right. Many people understand the cyclical nature of the industries the economies of regional towns are built on. Farmers have good and bad seasons, and they know neither lasts forever. But these days we’ve become conditioned to only good times. Even when Covid hit, governments across the world made life easier for people to the point that many still have surplus savings from that period.
But these extended good times haven’t made us more prosperous and helped us collectively put away more for a rainy day. It’s had the opposite effect because people have not had to worry about when things go bad for so long. So, they just stopped worrying and lived it up. That’s where we are at today, after 15 years or more of good times, complacency has set in and suddenly everyone is surprised at the prospect of a downturn and looking for someone to blame.
No doubt there are various organisations, including the RBA and the federal government that have made the situation worse. What these organisations do really does impact the economy. They do significant damage to the economy and business when they get it wrong. Just ask anyone who paid interest rates as high as 18% back in 1990. To this day they have not forgotten the pain and difficulties of that time. Conversely though, today we’ve experienced too much of a good thing and now it is coming home to roost.
While Paul Keating was much derided for his “Recession we had to have” comment in 1990, he wasn’t wrong conceptually. The Government and RBA nearly broke a generation of mortgage holders by forcing rates up too high. But the idea of a recession being needed once again rings true to me. In some respects, I think it's inevitable and just part of the natural business cycle. Something is lost when people don’t experience the full cycle of the good and the bad. The problem this time around is that people are woefully unprepared to deal with a downturn not just financially, but mentally in my view.
What’s created this is 3 things. A super cycle boom on the back of a once-in-a-generation urbanisation of China, low-interest rates by the government for the past 15 years in response to the aftermath of the GFC and a boom mentality that has been normalised. The third change is the biggest problem now, as this has conditioned people to expect good economic conditions or a safety net. This is understandable if that’s all you’ve ever known. But it will make the adjustment more difficult as conditions return to normal and the eventual bust is much bigger than it would otherwise have been. Ask anyone in small business in a country town, that's just how it works, but it's up to each of us to prepare for the tough times ahead.
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