Terms of Trade

What does not seem to have been widely reported on or noticed is the serious decline in our terms of trade. Where it has been noticed it is generally reported as adding "flexibility" to the Australian economy - as in "The Australian" today.

Most of us know what big business and their friends in the Murdoch press mean by "flexibility". But for those who don’t I will summarise it in two words - "lower incomes".

According to the latest data, contract prices for coking coal are down 60%, thermal coal is down 44% and iron ore is down 37%.

As a nation, the prices that we get for our exports were down over 20% in the latest June quarter - which was the biggest fall since the numbers started to be collected in 1974 - all despite volumes being similar to the previous quarter.

So this means that our export income is in serious decline - because our primary mineral exports are priced differently from a year or so ago. Those people who extract these minerals will be under pressure to provide "flexibility" to their employers. My only comment to them is "good luck".

Because we didn’t need to be here.

Under the previous federal government we took a deliberate strategic (if I can use that term) approach to become the quarry for the world.

We thought that our competitive advantage was in digging stuff up and sending it to China - simply because we had a lot of stuff to dig and China wanted it.

And as a result we stopped educating our people, we stopped exploring important maths and science training and we focussed on developing a new tradesman class - those who can dig stuff up and can fix the machines that are used to dig stuff up. Essentially in the space of ten years we have become a nation of semi skilled labourers.

And here we are now with "the stuff we dig" being re-priced much lower than it was previously.

How is that going to play out with the semi-skilled people who have grown up to expect to own a McMansion in suburbia, regularly acquire a new ute and other toys, eat out at Hungry Jacks, shop at Big-W, go to the footy with their mates, eat meat pies and drink VB while they holiday in Bali and be able to off-load their kids at the local child care centre? My guess is that it will dent their expectations - ever so slightly.

Perhaps they should have learnt a bit of maths and science after all.