Richonomics

A former colleague of Spartacus used to have a saying – one big project.

He was referencing that everything, at least in the business we were working at at the time, was interconnected. The same can be said about an economy. Everything is interconnected.  What happens in one area of the economy invariably ripples and impacts others. It is the same for government policy fiddling. Every single decision or policy tweak made by government will have a consequence beyond the design; and in as much as there will be a benefit, there will always also be a cost.

The challenge for government is thus to ensure that the total benefit exceeds the totals costs of the policy. Or another way, that the positive impacts of the policy exceed the adverse impacts. There are no cost less policies, no free decisions and certainly, no free lunches. As Thomas Sowell beautifully expressed:

there are no solutions, there are only trade-offs.

But politicians being politicians don’t like to talk about trade-offs, let alone costs or adverse impacts. Every thing they propose is cost less, with no losers.  It is always sugar and spice and everything nice. When spinning an announcement, there is never any space for costs, risks or adverse impacts.

It is in this context that Spartacus read with grand amusement, former ALP doyen Graham Richardson writing in the Australian about how economics works.

It is always amusing to read about what students are taught in economics 101 by someone who never studied economics 101, but let’s put this aside for the moment.  According to Richardson:

In economics 101, students are taught by their learned lecturers and professors that when unemployment is relatively low, there will be more competition for jobs and that will push up wages. Now wages stubbornly refuse to increase and they refuse to obey this golden rule of academic economists.

You know what economics 101 students are also taught? The converse of this scenario that when unemployment is relatively high, there will be less competition for jobs and that will push down wages. But some how, when that happens, wages stubbornly refuse to decrease and also refuse to obey this golden rule of academic economists.

Why is it so?  Because Mr Richardson, the labour market in Australia is not permitted to work properly.  It is hyper regulated, with significant barriers to entry and exit and other nefarious agents.  Sure there are winners from this regulation, but rest assured the are plenty of losers.

Overlay also the impact of increased energy prices and decreased energy reliability on business profitability.  Overlay again the threats of increased business regulation by your party of preference (Labor) and then consider the productivity impacts of this and why wages aren’t increasing.

Consider also the definition of employment.  According to the ABS, the keeper of Australia’s employment statistics, for the purpose of unemployment/employment statistics, the definition of “employed” is basically:

all persons 15 years of age and over who, during the reference week worked for one hour or more for pay, profit, commission or payment in kind, in a job or business or on a farm (comprising employees, employers and own account workers); or worked for one hour or more without pay in a family business or on a farm (i.e. contributing family workers).

1 hour or more.  That does not seem like a particularly high threshold.  For example.  Take 1 full time job over 36 hours.  Break it up into 36 x 1 hour parts and replace your 1 worker with 36.  Yes.  Technical employment will have increased, but has output changed?  Will the 36 workers doing 1 hour prefer to be working more than the 1 hour?

Perhaps Mr Richardson was asleep during that part of the economics 101 lecture.  But perhaps also, the next time there is high unemployment, should we expect Mr Richardson’s treatise on downward wage adjustments?

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13 Responses to Richonomics

  1. Rafe

    Rogernomics is better. Find the paper in CIS Policy where Roger Douglas described how to fast track reform as he did in NZ years once upon a time.

  2. Driftforge

    Because Mr Richardson, the labour market in Australia is not permitted to work properly.

    Alternatively – or possibly additionally – because the theory is simplistic. Got to love how when theory doesn’t fit reality, reality is wrong.

  3. Bruce of Newcastle

    Now wages stubbornly refuse to increase

    There’s more than a bit of irony from Richo in this statement.

    The ALP in the Hawke-Keating era had a very firm reputation as the party who looked out for the interests of ordinary working people.

    That has changed, and people are increasingly aware that the ALP has been captured by the wet green inner-city progressives. So we have Shorten scuttling leftward in horror of a big coal mine in Queensland, which would have been embraced enthusiastically by Hawke.

    Wages aren’t going up because the ALP has presided over the closing of Toyota, Holden, aluminium smelters, manufacturers, mines and power stations. They employed ordinary working guys who voted for the ALP. Now those that are left are scared of losing their jobs in the next closure so they dare not chase higher wages through industrial action. The Hazlewood wukkas being a pointed recent example.

    In the US a step change occurred in the last election as the blue collar workers moved their votes en mass from the Democrats to Trump.

    All we need here is a down to earth Lib with his sleeves rolled up and our local blue collar guys will do the same thing. The Labor Party aren’t interested in the deplorables anymore.

    Unfortunately the Libs are also run by wet progressive toffs, so the deplorables are snookered.
    For now.

  4. The BigBlueCat

    I have my doubts as to what Richo really knows what he means when he says “Economics 101”.

  5. Wait until they start including ‘looking for work’ as counting towards employment.

  6. Stimpson J. Cat

    The only thing I would trust Richo to do is start a fire.

  7. I was up late last night and have only just woken. First coffee to hand but not consumed.

    In economics 101, students are taught by their learned lecturers and professors that when unemployment is relatively low, there will be more competition for jobs and that will push up wages. Now wages stubbornly refuse to increase and they refuse to obey this golden rule of academic economists.

    Isn’t this arse about?

    when unemployment is relatively low, there will be more competition for jobs

    Shouldn’t it be less competition for jobs – more competition for wukkas?
    Surely when the pool of wukkas is reduced the demand for wukkas is increased, and therefore wages will rise to get more in employment?
    Or is it just that I’m still asleep.

  8. sisypus

    For somebody who has never worked an hour in his life,(honestly) he seems to be an authority on it.

  9. Habib

    Richardson is a vile creature, I have no idea why the Paywallian gives him print-space to lie, obfuscate and paint over his myriad failures, betrayals, criminality and opportunism. Sums up everything wrong with the ALP, and he’s a far better man than virtually all of the current representatives, including that Wong chap. Says a lot about them. And include the Liberals and Nationals as well, and the greens and xenomorphs.

  10. Rohan

    Or is it just that I’m still asleep.

    You’re right; He was clumsy with his language, but I think that’s what he was trying to say. But remember Ex Labor hacks always look at it from the wurkas perspective, never the bosses. And that’s where he came unglued. It should have read:

    when unemployment is relatively low, there will be more competition for jobs wurkas filling a large number of available job positions, thus forcing up wages and salaries

    Who said supply and demand doesn’t work?

  11. Habib

    Who said supply and demand doesn’t work? Every marxist imbecile that ever drew breath and public money.

  12. sabena

    “Perhaps Mr Richardson was asleep during that part of the economics 101 lecture.”
    No he wasn’t.In true ALP fashion he wasn’t there at all-he was devoting his time to become general secretary of the ALP and having the power of patronage.Thats all that matters in the ALP-nothing else.

  13. Exit Stage Right

    Habib at 12.50pm + 100
    I have commented here previously about what an empty space is Graeme Richardson. The Oz and Fox News seem to think he is some sort of political guru. He is nothing of the sort, his relevance to the Liars Party and any influence he may have had is long gone. I would concede that he does seem to have mellowed somewhat since all his innards were removed, but he is still a snake in the grass needing the journo dollar but providing nothing of relevance or insightful. He has conned the Murdoch press into believing he is still the Man iro the Liars Party. Anybody that thinks Sam Dastyari was hard done by really ought to reassess their position. His columns and TV shows are avoided in this household.

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