How Statistics ‘Discovered’ Wealth in Australia

For the mainstream, wealth is what government statisticians say it is…

From Reuters,

Australians are suddenly a whole lot better off after the government statistician "found" A$325 billion ($338 billion) in share assets previously unrecognized.

The Australian Bureau of Statistics on Thursday released its latest report on household assets which included massive upward revisions to estimates for equity holdings. Total financial assets were now put at A$3.1 trillion at the end of March, compared to the originally reported A$2.77 trillion.

The revision is worth roughly A$14,380 for every one of the country's 22.6 million people.

"This issue incorporates new estimates for households holding of unlisted shares and other equity in other private non financial corporations," the statistician drily noted.

The value of such equity is now put at A$383 billion at the end of March, compared to the original A$91 billion.

"The Bureau of Statistics has effectively 'found' A$325 billion in household wealth," said Craig James, chief economist at CommSec.

Total financial assets also rose further in the second quarter to stand at A$3.11 trillion by the end of June, up A$76 billion on the same period last year.

Of course since there are hardly any basis for the “new estimates” of “unlisted shares and other equity ownership other private non financial corporations”, this means that such "newfound wealth" have merely been arbitrarily determined by government magicians. 

Of course, forget that domestic credit provided by Australia’s banking sector has exploded since 2008

chart from tradingeconomics.com

chart from tradingeconomics.com

And also forget that money supply M2 as % of GDP has reflected on these bank driven credit boom.

A credit driven boom that is being reflected mainly on the capital intensive property markets.

This commentary from Australian Financial Review has a terse but accurate narrative of Australia’s business (bubble) cycle in progress (charts their too)

When the RBA cut the cash rate to 3 per cent in 2009, Australian house prices responded with disconcertingly robust capital gains of 13.7 per cent. Melbourne houses prices exploded in 2009, recording growth of 21 per cent.

The RBA is wary about stoking too much asset price inflation.

Although Australia’s equity benchmark (S&P/ASX 200) has not been a major recipient of the recent RBA driven credit boom.(chart from tradingeconomics.com)

Ah but the government statistics above doesn’t seem to have an inkling about this.

Well, the above instance is a neat example of of what the illustrious classical liberal French economist Jean Baptiste Say pejoratively described about government's obsession about statistics.  Quoted by the great Dean of the Austrian School of economics Murray N. Rothbard, here is JB Say…

Hence, there is not an absurd theory, or an extravagant opinion that has not been supported by an appeal to facts; and it is by facts also that public authorities have been so often misled. But a knowledge of facts, without a knowledge of their mutual relations, without being able to show why the one is a cause and the other a consequence, is really no better than the crude information of an office-clerk