Burnout Economy

In 2023 independent economist Tarric Brooker coined the term ‘Burnout Economy’.  It tries to define an economy like Australia, New Zealand, or Canada – where the government spends money, has high immigration and other stimuli that don’t grow the productive part of the economy, whilst working against the Reserve Banks of these economies that increase interest rates to slow the economy. This has resulted in declining productivity and growing GDP, which reverses when immigration growth slows, but GDP per capita continues to decline during periods of high immigration. The economy has been spinning its wheels, all the while immigration growth drives down GDP per Capita. It has led to a lost decade in Canada – whereby the GDP per capita in September 2024 is the same as in 2014. In Australia, the burnout economy has seen the brunt of hurt hitting young people the most, with declining consumption right when they should be doing their best and having families. Yet what we’re actually seeing is declining fertility rates, whilst boomers spend their way to the grave.

Australia and The Burnout Economy

In Australia, our declining birth rate can be blamed on the burnout economy, with higher interest rates hitting people when they are most likely to start a family.  This is summed up in 1 table – with the most likely age group to have children 25-29 and 30-34 declining consumer spending 12.8% and 7.3% in 2 years since 2022.  What this means is since COVID-19 the people who can and should be having children have 10% less to spend due to higher interest rates and higher house prices destroying their ability to spend and therefore, their ability to afford a family.

Source:

Burnout Economics And Aussie Household Consumption By Age Demo

Source: Australia Fertility Rate 1950-2024 | MacroTrends

Whilst this generation bears the brunt of the burnout economy, the boomers who own their own houses and have access to their super are stimulating the economy and making it even harder for the reserve bank to drop interest rates. Since COVID-19 this cohort has seen consumer spending lift in all age brackets above 55, topping out at an 8.8% increase in the over 75s. 

Today Australia released its dismal GDP of 0.3% well down on the estimate of 0.5%. This is on a backdrop of quarterly immigration averaging around 125,000 people (from March 24 year-on-year numbers) or 0.5% per quarter.  A 0.2% GDP per capita decline in a month.

Canada, The Lost Decade, and Becoming The 51st State

To put this into perspective, during Japan's 'lost decade' of the 1990s, cumulative GDP per capita growth was over 6%. In comparison, Canada's GDP per capita growth from 2013 to 2023 was less than 4%, indicating an even worse economic performance.

Canada, much like Australia, has seen increased government spending and high migration hiding the real GDP per capita decline, whilst simultaneously creating red tape, obstacles and business tax disincentives seeing business investment decline. With high immigration comes property price spikes, meaning entrepreneurs are more likely to choose property investment rather than business investment to drive their wealth, this takes investment away from the productive economy eventually seeing businesses disappear.

Trump yesterday was dragged over the coals for suggesting Canada become the 51st State of America – but with America going from strength to strength and Canada going backwards maybe it's time that Canadians throw up the white flag and volunteer for U.S. conquering.

What stops a Burnout Economy and how is America different?

America despite all its problems has avoided being a ‘burnout economy’ despite enormous government spending and unprecedented immigration, they still see productivity gains as well as GDP per capita growth. This is probably best explained with the onshoring of manufacturing, the expansion of oil, and investment in productive industries including AI. 

THEY INVEST IN INDUSTRY NOT JUST HOUSING

RBA’s Lowe illustrated the difference between the U.S. economy and these Burnout Economies in June 2023 during his testimony at the Senate Estimate saying;

“We do need to increase the capital stock in line with the number of people in the country and that requires high levels of investment. And if we don’t do that, then we’re going to struggle”.

“If we’re going to have 2% more people in the country [this year], we need 2% more capital, and that requires investment by business and investment by government”.

If an economy has more people, it needs more ‘capital invested’ or else it goes backwards and burns out.

Watch the Ainslie Insights video discussion of this article here: https://www.youtube.com/watch?v=molnCFD0eHo