The perfect statement of classical economic theory, from David Uren in The Australian today: Get used to the new normal – booming rates of growth are gone.
Over the year to December, growth was only 2.3 per cent and, short of massive revisions by the Australian Bureau of Statistics, Treasury’s forecast of 2.7 per cent growth this financial year looks unattainable
It is time Treasury let go of its vision of an extended burst of rapid growth around the corner.
After a decade in the slow lane, this may be as good as it gets.
It is not such a bad place to be — employment growth has been strong.
It was a staple within classical economic theory that economic growth is unrelated to employment. And there we see it before our eyes, low rates of economic growth and high levels of employment growth. All that is discussed in my Quadrant article this month: The Dangerous Persistence of Keynesian Economics. There at the very end of the article we find the then-Treasurer of the UK, Winston Churchill no less, discussing the futility of public spending to add to employment in the wake of their attempt in the 1920s to stimulate employment through high levels of public works:
“For the purposes of curing unemployment the results have certainly been disappointing. They are, in fact, so meagre as to lend considerable colour to the orthodox Treasury doctrine which has been steadfastly held that, whatever might be the political or social advantages, very little additional employment and no permanent additional employment can in fact and as a general rule be created by State borrowing and State expenditure.”
Ninety years later we demonstrate once again what once upon a time every economist knew which now no one knows. Read the Quadrant article if for no other reason than to get another perspective.