BEN HARVEY: Your cheapskate ways might plunge us into a recession, and the flow on effects can be ruinous

The economic phenomena that dares not speak its name is on the horizon and closing in on Australia fast.

Recession.

Nine letters. Three syllables. Untold political panic.

Reserve Bank boss Michele Bullock is socialising the idea that we may endure the ignominy of two consecutive quarters of negative economic growth, which is the technical definition of recession.

Think about that expression, negative economic growth. If something is negative it is clearly not growing but very little about the psychology and politics of a recession makes sense.

Why is two quarters of “negative growth” so bad, anyway?

It’s a totally arbitrary measure of an economy’s health.

Consider these two scenarios.

The economy shrinks by 0.1 per cent in one quarter and again by 0.1 per cent the next.

The economy grows by 0.1 per cent in one quarter and then shrinks by 5 per cent the next.

What would you prefer?

Option one, of course. But because that option means we’re in recession we freak out disproportionately.

Why are we so scared of this event? Politically it’s poisonous because it is interpreted as evidence of economic mismanagement, so I understand why Jim Chalmers is worried, but why the fretting by you and me, dear reader?

That GDP number being negative by a fraction of a per cent twice in six months has no real impact on most of us. It’s an imperceptible change in all ways except one — psychologically.

The idea that the country is in recession means we think twice about how we spend our money, even though we have the same amount of money.

How often have you gone to Bunnings needing just one thing and walked out having bought just that one thing?

If you know Australia is in recession, you might start doing that.

The flow on effect can be ruinous, as you will discover should you read on.

If that one thing you buy at Bunnings is, say, a hammer drill, you might decide against buying the good quality Bosch that will last a lifetime in favour of the $39 Ozito.

There was no real reason to get thrifty. You’ve still got a job and are still earning the same money. But you’ve got a bit of a bad feeling.

You don’t like the vibe of the thing, to quote that great legal mind, Dennis Denuto.

Soon you’re hearing that the share market isn’t doing so well.

That’s in part because Bunnings is owned by Wesfarmers, which just issued fresh earnings guidance to the Australian Securities Exchange. Your cheap-arse drill purchase has resulted in a material drop in revenue.

A lot of people with self-managed super funds have been watching the Wesfarmers result with unease. They’re also watching the Big Four banks, which aren’t lending as much because people are putting off buying or renovating.

Those home owners and would-be home owners are still earning the same amount of money as before they heard we were in recession but, you know, it’s the vibe.

When the banks issue a gentle profit warning, every retiree who relies on dividends to pay for their annual APT river cruise down the Danube starts getting nervous.

They’ve been here before. The oil shock of the late 1970s, the 1987 crash, the 1991 recession, the GFC, the COVID recession.

They all know that when the shit hits the fan, cash is king. So, they start selling. Sellers outnumber buyers by this stage, so stock prices start moving south.

Then the herd mentality starts kicking in. It’s not just retirees selling; it’s everyone.

The market drops 400 points in a day. Another 300 the next.

Then you hear Alan Kohler say something about the ASX officially being in something called “technical correction”.

You have no idea what the hell that is, but the vibe certainly isn’t positive.

Even those with little day-to-day interest in finance are now sitting up and taking notice. They have a look at their superannuation balance and see it’s down by 10 per cent.

They ignore the fact they were up 12 per cent the previous year. They ignore the fact that they’re 25 years from retirement, during which time there will be another four or five booms and busts.

And they blindly follow the herd by switching from the high-growth option to conservative. By doing that they’ve crystallised their losses and forced their fund to put a lot of shares on the market.

Sellers are now really outnumbering buyers, and the share price drop quickens.

A few nights later, Kohler says we’re no longer in a technical correction (which you had Googled and found out meant the ASX was more than 10 per cent off its high). We are in a “bear market”, Kohler warned.

You quickly Google “bear market” and discover that means the market is down by more than 20 per cent.

Here’s where things get really spikey.

The company you work for is listed on the ASX. Its stock is tanking and it’s about to be in breach of its banking covenants so, in a desperate attempt to please investors, the chief executive announces an aggressive cost-out program.

A week later you discover that cost out means you’re out — at a time when you’re mortgaged to the hilt and there aren’t many jobs out there.

Let’s stop there, because it’s just too depressing to go on.

Chalmers knows the psychological impact of him uttering the R-word is damaging so don’t expect the Treasurer to tell you the truth about the direction of the economy.

You actually don’t want him to, lest it become a self-fulfilling prophecy.