van Onselen bellows

In an age where the default approach is for people to yell at each other, Leith van Onselen prefers to bellow, as he did last week on the Macrobusiness blog with me as the target ( I don’t know van Onselen, but he describes himself as ‘unconventional.’ Never was a truer word said.

After all, a conventional economist, looking at this graph of the wages share:

would not think it was a continuous linear trend. Rather, there are clearly three phases, or if you want to use a more technical term, regimes: one that sees the share rise sharply beginning the late 1960s and then accelerating in the 1970s, propelled by Whitlam wages explosion and its after-signature; one, in which the wages share declines steeply, that begins as the wages explosion unwinds in the 1980s and continues up to the ‘recession we had to have’; and finally a relatively stable wages share since then, albeit one affected (as economists would expect) by the mining boom and by swings in terms of trade. That is why in my column I compared the current wages share to that which prevailed since the real wage overhang had been more or less corrected.

But that would be boring and conventional; instead van Onselen projects a straight linear trend through the entire period, from the earliest signs of the acceleration of wages growth to the present, and concludes there is a secular decline. Ignored is the fact that even the most rudimentary econometrics would reject the hypothesis of a stable trend; and it would also reject the hypothesis that the current share represented a change in regime from that which has prevailed since the late 1980s.

As if that were not enough, van Onselen also takes a decidedly unconventional approach to measuring profits. As I noted in the column, profit rates are not at highs, as the ACTU claims. van Onselen claims to rebut my statement but as best I can tell, he looks at gross profits—somewhat strangely deflated—without taking account of the fact that the capital stock doubled in the mining boom. Call me boring and conventional, but I prefer to use the national accounts data to derive a measure of the gross rate of return—see below; enough said.

With all that, it is certainly true that the wages share was substantially higher, and the profits share lower, in the 1970s. But few economists would regard that as a good thing. On the contrary, as I explained in my column, the wages explosion of that period priced many workers out of jobs—a point even Gough Whitlam and Clyde Cameron recognized (albeit too late). I would have thought that rather than lamenting the fall in the wages share from those levels, van Onselen would do better to caution against repeating the errors of the Whitlam government. But maybe that is too conventional.

A final, more technical point. There seems to be a tendency in this debate to rely on the quarterly national accounts. However, as the ABS notes in the latest annual accounts, the quarterly figures on income shares are subject to large revisions, especially when the terms of trade are changing. It is therefore far wiser to wait for the annual data before rushing into print.


About Henry Ergas

Henry Ergas AO is a columnist for The Australian. From 2009 to 2015 he was Senior Economic Adviser to Deloitte Australia and from 2009 to 2017 was Professor of Infrastructure Economics at the University of Wollongong’s SMART Infrastructure Facility. He joined SMART and Deloitte after working as a consultant economist at NECG, CRA International and Concept Economics. Prior to that, he was an economist at the OECD in Paris from the late 1970s until the early 1990s. At the OECD, he headed the Secretary-General’s Task Force on Structural Adjustment (1984-1987), which concentrated on improving the efficiency of government policies in a wide range of areas, and was subsequently Counsellor for Structural Policy in the Economics Department. He has taught at a range of universities, undertaken a number of government inquiries and served as a Lay Member of the New Zealand High Court. In 2016, he was made an Officer in the Order of Australia.
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5 Responses to van Onselen bellows

  1. Bruce of Newcastle

    Ah, so return on capital is now lower than at any time since the J Curve Recession We Had To Have, which was so generously given to us by the ALP.

    Yet the ALP keeps on adding taxes like the bank tax, and keeps on destroying private investment like Adani and coal fired power stations.

    Did I notice that the minimum wage in Venezuela is now about $5 per month? I’m sure the ALP can likewise achieve equality of outcomes as their fellow travellers in Caracas have done (except for the elite Party insiders of course).

  2. Tim Neilson

    Is van Onselen Dutch for “ubiquitously wrong”?

  3. Peter of Freo

    “van Onselen”, surely it’s Dutch for “fuckwit”.

  4. Paul Farmer

    Henry……….as a long time fan of your work, great to see you blogging here again. I think van Onselen on macrobusiness is distantly related to the other Van Onselen who writes for the Oz ? They have the odd good article there but after a while ones tires of the conspiratorial distrust of capitalism you find on that site diligently jammed down your throat on most days and the inevitable solutions that always require bigger government. If you’re Keynesian with socialist tendencies you hang around at Macro business, if your an Austrian or Chicago School type, who believes free markets are far better even with their imperfections than govt meddling, you hang around here at the Cat ! 🙂 .

    Maybe we should have a Cat vs Macro business debate each year on an economics topic (or maybe the budget each year) to be decided by an impartial panel of judges, make for a good night out ! Bit like fantasy football…….Davidson/Kates/Sloan/Ergas vs Macrobusiness……….I know who my money is on 🙂

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