Red Line Strategy vs Blueprint & Balance: Are We Trying To Crash Through
If you want your vehicle to go faster, you can red line it. You take the number of revs your motor does closer to or over the red line in the tachometer. Apologies to those with EVs who may not get this analogy to an economy, but I will persist in using it.
As you get the revolutions to occur at a faster and faster rate per minute, the speed of the car picks up. You get this by stepping on the gas. Putting more fuel into the motor to ‘accelerate’ the combustion process.
When you are at the optimum rev count of the motor driving the car, and you decide to turn on the air conditioner. It will slow down. The compressor in the air conditioner requires energy to do its thing that leaves less for the speed of the car.
The solution is you step on the gas and get closer to the red line.
While turning on the air conditioning will have a subtle impact on the car, towing a caravan will make a noticeable difference to its performance. More fuel is required.
Then you go up a hill. More fuel again.
Most cars can handle these additional loads with the help of more fuel.
Sometimes, the revolutions per minute do not get to the rate you need to meet your speed goals, so you bolt add-ons to the motor.
In my youth, the people who wanted to do this would talk about four-barrel carburetors and extractors. I’m sure they spoke about other things they could do, but I am not really a petrol head, so I’m just reciting the few things I remember here.
I would have been happy with a white stripe on a red car, but I don’t think that has anything to do with the performance.
There were some heavy-duty things that people did to their cars in their aspiration to increase the performance. They could add a turbo-charger. The sophisticated petrol heads did that.
The ultimate was to add a supercharger.
These additions could get your average car to deliver more power, create more revs per minute and go much faster.
Bang
They also commonly led to the motor blowing up as it exceeded the ability of parts of the motor to revolve around a crankshaft without shaking itself apart.
The reason for this is that family cars purchased off the showroom floor were built to certain tolerances, so they could deliver what the manufacturer promised in terms of power.
As soon as more power was required of the motor and the tolerances were exceeded, the moving parts of the motor were asked to revolve at a level beyond the optimum they were manufactured for.
Balance
The important step required to make a family car perform at race car specifications is to tear the engine down and to blueprint and balance it.
To blueprint a motor means rebuilding it so that components perfectly fit together with very specific clearances. The motor must match the specifications of the design in detail so that ‘tolerance’ is eliminated as much as possible and is replaced by exact fit.
Balancing applies to the moving parts, particularly the pistons, con-rods, and crankshaft. As they rotate at increasing speed there should be no disequilibrium that causes vibrations.
When this is done to the motor of a car, it can accept the additional bolt-on mentioned above like a supercharger and produce more power and speed.
The Australian economy is currently at its red line with respect to the speed it can travel. We have very low levels of unemployment and an unacceptably high inflation rate.
The Economy Is Smoking
Even at this speed, the per capita income of its residents is stagnant. Yet more fuel is poured into the motor to help maintain its performance.
This fuel is in the form of net overseas migration and government expenditure. These are the raw ingredients that have stopped us slipping into a technical recession. Increasing productivity has not played a role.
We are bolting on a four-barrel carburetor and extractors like the extra aggregate demand generated by the demand for NDIS services as well as state-driven infrastructure spending.
We aspire to supercharge all this with our commitment to critically needed defence expenditure that will be generated by AUKUS.
In addition, we appear to be doubling down on a failed targeted approach to the energy transition that involves gigantic subsidies from government to cajole industry into undertaking the investment to drive the transition.
Our motor is starting to come apart. Imbalances are clear in the housing sector, where the basic need of accommodation is now consuming an unsustainable share of the disposable income of a generation of Australians and a cohort of our population.
There is a serious misallocation of resources driven by interference with the price mechanism and crowding out by the government that sees labour shortages in many industries.
We aspire to create a skilled workforce but indicators show that our schools have been not been delivering literate and numerate students into work and further education as they once were.
I believe the cause of these ills and many more are that we are punching above our weight trying to keep up with the powerhouse economies of the world in their standards and aspirations and it is built on a narrow base. All out of neglect.
How Do We Get Back In Front
There is no reason we should not aspire to be at the forefront of first world standards, but we must do the work. We are still resting on lucky country underpinnings with coal, iron and agricultural products replacing the sheep’s back that we used to ride on.
We should be able to build nuclear submarines, but it would instil great confidence if we could at least build a toaster.
The reform that is required to get back to the formidable country in economic terms that we need to be is broad and deep. But it is not being pursued.
I have always treated with suspicion the old timers who keep forecasting savage recessions and corrections because things aren’t like they used to be. I still do.
However, while we are a country that is very capable of adapting and thriving, we also have the tendency to only act when confronted with an emergency.
This is not peculiar to Australia. It appears to be a common trait of many liberal democracies. It is a messy approach, but it gets the job done.
For an example of how this process unfolds, take a look at the battle taking place between parliament and the Reserve Bank. Ultimately, the Reserve Bank will win because the tenure of the governor is not dependent on her level of popularity.
Higher interest rates are likely to draw a line under the level of excessive aggregate demand we can keep injecting into the economy.
It is going to be a bloody battle, but it is also the essence of creative destruction. We must brace ourselves for the shock in case the motor comes apart.
If it does, it is likely to be those with high levels of debt that will face the longest period of austerity.
