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:
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 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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