The flagging economy, its causes and remedies

Keynesian policy lever pullers at the RBA and Treasury, as well as the Opposition, have been urging the government to inflate the economy. Some are calling for deficit spending, others are urging tbhe authorities to force interest rates even lower than the current barely positive levels.  Even if ignorant of the impossibility of pump priming economies, it’s almost as if they have never seen the evidence of failures of such moves that are observable from current economic outcomes in Europe and Japan.

Australia’s economy is now stagnating – in per capita terms there is no growth.  The key to this is flagging levels of private investment, the key to increased real income levels. Private investment has fallen from 18 per cent of GDP to 11 per cent over the past 7 years.  In addition, its potency has been weakened.   Policies that have directed funds into counter-productive or low return investment, notably in electricity and the NBN, and other measures that have undermined long standing productive capital in irrigated farming by redirecting water to environmental goals.

At his address last night to the Business Council (sans a couple of otherwise occupied  bankers) the Prime Minister partly moved towards the stimulators’ position by announcing a bringing forward of $4 billion of infrastructure spending. With private non-housing investment running at $220 billion a year, even in current recession-like levels such a spending increase is unlikely to be material even if it were to be a positive stimulus.

The PM also said he was taking steps to reduce the paperburden entailed in elongated approval processes created by the relentless rise of regulation.  That is a more promising refrain but one that has been sung many times without any effect over the past quarter of a century;  “economic” regulation in the competition policy reforms and privatisation in the Hawke/Keating and Howard/Costello governments having been completed, we have the far more poisonous growth of social – especially environmental – regulation that is stifling the incentive and return to  invest.  Governments seem incapable of winding this back.

I have a piece on this in Quadrant on line.

 

 

This entry was posted in Uncategorized. Bookmark the permalink.

19 Responses to The flagging economy, its causes and remedies

  1. Pyrmonter

    Subtly disagree.

    It is not the want of productive capital accumulation that is the problem (though it might be a symptom) but the systematic refusal to allow markets to work, in the fullest sense of ‘work’. That’s a charge, sadly, that can be levied at politicians of all parties: both the Left, with its obsession with ‘stimulus’ in the form of increased government enterprise and transfers (NBN, NDIS) or the Right with its refusal to allow markets to price road access, or allow agricultural markets to adjust freely.

    Deirdre McCloskey gets it:

    https://www.deirdremccloskey.com/docs/pdf/BourgeoisEquality_FFFFrontMatter.pdf

  2. Dr Fred Lenin

    Now if all the career politicians went back to their law practices above the fish and chip shops
    Or “research “ offices at Trades Hall and we purged the non productive taxpayer funded public employees and bludging academics ,then replaced them with real productive workers things would improve instantly .
    There are far too many drones and not enough worker bees .
    Abolish career politicians ,cut the salaries and perks .

  3. Fair shake of the Sauce bottle

    Slightly off thread but similar, Friend of mine runs a small business looking to export food products into China. The cost to meet their compliance requirements $4,000,000. Government big and getting bigger.

  4. areff

    There are far too many drones and not enough worker bees .

    It’s doubly unfair because it’s only the drones who get to have sex.

  5. Fair shake of the Sauce bottle

    Just partook in a community service day (Clean up Australia) in melbourne with the company I work for. We had to apply for a permit from local council for the privilege of picking up other people’s rubbish. This country is in the sh! tter

  6. deplorable

    Fair shake of the Sauce bottle
    #3242158, posted on November 22, 2019 at 4:36 pm

    Just partook in a community service day (Clean up Australia) in melbourne with the company I work for. We had to apply for a permit from local council for the privilege of picking up other people’s rubbish. This country is in the sh! tter.

    But just think of the 10 public servants now employed to hand out those permits they are so productive and produce zero. This country is stuffed.

  7. Squirrel

    “Policies that have directed funds into counter-productive or low return investment….”

    Dealing with that issue is seriously complicated by the fact that “invest”/”investment” are now regularly misused to describe any government spending, however wasteful or misguided – the detail-free promises today from Albanese to put more money into the NBN and to build a high speed rail line are prime examples.

  8. RobK

    but the systematic refusal to allow markets to work, in the fullest sense of ‘work’.
    I’ll go along with that.

  9. RobK

    I enjoyed the link thanks Pyr.

  10. Entropy

    Fair shake of the Sauce bottle
    #3242158, posted on November 22, 2019 at 4:36 pm
    Just partook in a community service day (Clean up Australia) in melbourne with the company I work for. We had to apply for a permit from local council for the privilege of picking up other people’s rubbish. This country is in the sh! tter

    Today in Brisbane I saw a group of young girls in Deloitte charity fund or similar tshirts picking up rubbish. The three of them were strolling up the street chatting away, looking thoroughly relaxed.
    At first I was thinking: Deloitte have employed a large bunch of graduates this year!
    Then on reflection I realised they were probably paying a bunch of grade 12 girls, one of them probably a daughter of a partner (who then got her mates in on the gig) to do the charity work instead of the Deloitte staff who couldn’t be arsed.

  11. Roger

    Maybe we should update the nearly complete NBN, as Albo is promising to do.

    Plus fast rail, of course.

  12. Herodotus

    The long march continues through all our industries and will culminate in the nation having no alternative but to embrace socialism by stealth as the penultimate stage before the final one: disintegration.

  13. struth

    So they make it too hard through regulation and costs to pick the rubbish up ,people give up doing it.
    A fine metaphor for the whole mess.

  14. We had to apply for a permit from local council for the privilege of picking up other people’s rubbish.

    Appropriate meme.

    https://knowyourmeme.com/photos/334344-third-world-success

  15. Cynic of Ayr

    Sometimes – OK, often – professional Economists give me the shits. They’re just observers, telling what’s already happened, and, in their opinion, what someone else should have done.
    Economists are scratching their heads wondering why the peasants aren’t spending all that loot that the tax cuts gave them.
    The simple reason is Electricity Prices.
    The cost of electricity is totally paid for by the peasants themselves, and they’re pissed about it.
    Anyone who thinks Woolworths, Coles, the local lawyer, the mechanic shop, the Government even, pay for their own electricity out of their own pockets is an idiot. Every single one of them raises their prices to compensate for the increases in their electricity bills. Not to do so, means going broke.
    So, idiots believe that it’s only a couple or a few hundred a year for the peasants own electricity bill. What’s the problem?
    The problem is it’s fucking thousands, not hundreds.
    If the Economists would get off their arse and actually look, you know, work, they’d find that everything that increased in price was because of the cost of electricity.
    I can hear the excuses from here. Let’s cut one off at the pass, as an example.
    Road Freight. “Road Freight doesn’t use electricity” What pumps the fuel into the truck? What runs the lighting at the depot and the workshop. Does the Government keep Rego unchanged, or jack it up to help pay for the air-conditioning in the Parliament Houses? What runs the compressor to pump up the tyres? What pumps the water to wash the truck windscreen? What powers the lighting and the stoves at the Truck Stop, where, by law, the driver has to stop and rest? Who do you think pays for all that power? Lindsay Fox hauling out his wallet?
    And, to add a lot of insult to a lot of injury, a bit of this cash goes into a few individuals like John Hewson and Turnbull’s arsehole son, whats-his-name. The rest, the bulk of it, goes to China.
    So, Economists, do something useful. Go out and make a strong case for the actual cost to the country and the people, of doubled and tripled electricity prices.
    And let it be known!

  16. Please don’t associate me with the halfwits who think they can forecast for 100 years but get hung up on every 0.1% change in labour market data.

    Apparently Thomas Piketty is an economist, who failed to notice non-wage entitlements in the US as a foil to declare than we’re not better off than in 1973, therefore, communism.

  17. Cynic of Ayr

    Frank Walker from National Tiles
    OK.
    But it sorta gives a strong indication that Economy, as a science, it ain’t!
    Keynes has a theory, and hundreds agree. But hundreds do not. What’s one to believe?
    My simple unlearned theory is Electricity Prices. Let’s hear some rebuttals.

  18. Keynes did one semester (two subject’s worth) of economics, a year long subject covering price analysis and political economy.

    The statistical analysis pioneered in econometrics is far above the garbage used in medical science and it was used to destroy the credibility of the climate models.

    Economics isn’t comparable to natural sciences. Good economists use the scientific method though.

  19. John A

    When the PM purported to email me personally (via the Liberal Party webmaster) about his grand plan, I responded thuswise:

    Dear Webmaster,

    Please pass on to the Prime Minister that there is a lot to be done to cut back on government expenditure.

    Federal government expenditure needs to return to 15% of GDP and GBEs need to be divested.
    1. Sell off the ABC – no government needs to run a media behemoth. It can then be subject to the various media laws just like all other private media organizations
    2. Sell off the NBN
    3. Consolidate the bureaucracy and scale back on government departments especially those duplicating State services (eg. education, health)
    4. Completely dispense with the RET and the climate change scam, remove all renewable subsidies. The Renewables Industry keeps claiming that renewables are cheaper than fossil fuels, so it logically follows that subsidies are no longer required
    5. Direct the RBA to cease and desist from quantitative easing, and the idea of negative interest rates.
    The depressed level of interest rates is inhibiting savings and investment, and hindering economic restructuring to rebuild economic capacity
    6. Reduce red tape and green tape so businesses can get on with employing people
    Best regards,

    I wonder if the Webmaster is listening?

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.