Productivity is dead

Just got to the AFR at the end of the day, and what do we find: Falling productivity numbers cloud economic recovery. The headline front-page story too.

The weakest productivity numbers in at least 25 years have unsettled the outlook for an economic recovery, a pick-up in wage growth and a string of budget surpluses predicted by the Morrison government and the Reserve Bank of Australia.

Former Productivity Commission chairman Gary Banks said that while he was cautious about the poor productivity reading, it “caps off what has been consistently weak productivity performance” in Australia and the serious need for structural reform to lift economic output.

“Trying to stimulate demand through monetary and fiscal measures won’t cut it, I’m afraid, and these pose risks of their own,” Mr Banks said. “The causes of [economic weakness] require regulatory and other reforms to enhance the supply side of the economy.”

Public sector spending is notoriously non-value-adding. You can have all the fake GDP growth you like, building train lines in Melbourne and streetcars in Sydney, and who know what everywhere else, but if they do not repay their production costs in higher levels of output, they are taking your economy backwards. And like with the trains and the trams, since neither is even carrying a single passenger as yet, there is absolutely nothing on the ground taking place that creates any value whatsoever. All for very classical reasons, but you’d have to read Mill and not Mankiw to see the point.

Liked this bit too, also for very classical reasons:

While the figures are likely to reflect strong jobs growth at a time of weakened economic activity, including a drop in farm production because of the drought, many economists blame structural problems, such as a distinct lack of business investment, especially outside the resources sector.

My favourite line from Mill, the most radicalising phrase I ever read, was “demand for commodities is not demand for labour”. To translate: there is no connection between the level of demand and employment. With real wages there is a major connection, but with employment none at all.

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30 Responses to Productivity is dead

  1. John Bayley

    …such as a distinct lack of business investment…

    Funny that. Over the past 10 years, our costs of doing business have gone through the roof and the regulatory imposts have meanwhile multiplied like cockroaches.
    Of course, according to all the economics PhDs, it’s nothing the RBA could not fix with some money printing, quoting fake statistics and robbing savers blind.
    Central planners of the world, unite!

  2. JC

    “demand for commodities is not demand for labour”.

    That’s true in of itself, however there most certainly is a relationship.

  3. Ƶĩppʯ (ȊꞪꞨV)

    While the figures are likely to reflect strong jobs growth at a time of weakened economic activity,

    “weakened economic activity”

    Currently 3m americans are retiring from the workforce per year, this rises to 4m by 2023-2026, what is the numbers here?

  4. Tom

    Blind Freddy could tell you the real non-government economy is in recession. The cost of doing business in Australia is going through the roof, as a result of the soaring cost of electricity, the strangulation of red and green tape and the hostility of our institutions — from ASIC down — to business.

    The government could remove the hostility that business finds itself facing in Australia, but that would require courage and a belief in business that the LNP does not have. Morrison is still congratulating himself for winning the May election. He has no economic strategy because, like the rest of the Lieborals, he believes in nothing.

    Morrison also has never had a real job in the private economy.

  5. Pyrmonter

    In respect of the Sydney trams, they were reported to have the highest cost/benefit ratio of providing public transport to the inner south-eastern suburbs: the alternative of providing more buses was likely to be even more costly. That suggests they’re not strictly unproductive.

  6. Dr Fred Lenin

    I knew it would have nothing to do with the Uniparty government ,no way , its not our fault ,we are the partu[y of business ,even though none of us career politicans have never had a real job, but we have read the academics reports on it . We really don’t know what’s going wrong .

  7. Peter Greagg

    And don’t forget the taxation of wages and salaries is close to record highs as a proportion of GDP, with all the losses of economic efficiency that entails.

    Ie, lower hours worked, and lower savings and investment than otherwise.

  8. Bruce of Newcastle

    Productivity isn’t dead.
    It’s just moved.
    To China.

  9. Cynic of Ayr

    A great start would be the “productivity” of the Public Service. How productive is some jackass sitting on his arse collecting 300,000 a year, to provide a miserable few beds for Indigenous people when they come to Canberra for whatever.
    Recall that list of FatCat Salaries here in Cats recently. Half of them achieve nothing.

  10. gary

    I work in the water industry and the productivity index for the Electricity, Gas, Water and Waste Services is the lowest since records started in 1989-90. Productivity in 2018-19 is 5% below what it was in 1989-90 and 40% less than the highest productivity recorded in 2000-01. The left’s infiltration of the water industry started to be felt about 2001 (remember the millennium drought – it was just caused by the dumb lefties who couldn’t manage the water supplies competently – e.g. make sure dams are built to meet increasing demand, make sure the system is managed to maximise water availability).
    If they want to improve productivity in the water industry they need to eject the lefties. I expect what happens next is that the politicians will make things much worse.

  11. John Bayley

    I expect what happens next is that the politicians will make things much worse.

    Politicians usually just mirror the electorate.
    In other words, stupid is as stupid does.
    As even Forrest Gump knew many years ago.

  12. Squirrel

    We’re running the economic equivalent of Morgan Spurlock’s Super Size Me – bloat is NOT growth and it certainly doesn’t improve productivity.

  13. Roger

    If only we had a Liberal government.

  14. Old Lefty

    Immigration comes into the picture here, disguising low productivity by inflating GDP figures.

  15. Fisky

    Only a massive reduction in immigration gives us a hope of turning this around.

  16. Immigration comes into the picture here, disguising low productivity by inflating GDP figures.

    That might actually make productivity lower. “It depends”.

    What we need more of is capital investment. The wage share of GDP is essentially the K/L ratio.

    Good luck with 47% income tax rates, a corporate tax rate of 30% and taxes on new dwelling construction summing to 46% of the new home price, or a whopping tax RATE of 85%.

  17. JC

    Fisky

    Immigration is a different argument altogether. Productivity is about how many widgets can be made in a space of time. Only capital investment will raise productivity. That and a more flexible labor market.

    Listen, businesses are being pinged and accused of “wage theft” because no one has any fucking idea about the numerous job classifications and what they mean in terms of pay. Labor market flexibility is totally fucked, thanks to the lying slapper. Energy prices are close to the highest in the world. Red tape is out of this world and regulators are running rampant against credit providers thereby drying up credit availability. Australia is not a place to start any new business unless it’s a cafe or a nail salon.

    Hey, but there’s plenty of jobs growth in the booming public sector. 🙂

  18. JC

    Good luck with 47% income tax rates, a corporate tax rate of 30% and taxes on new dwelling construction summing to 46% of the new home price, or a whopping tax RATE of 85%.

    ‘sactly along with what I said.

    The rampaging public sector, particualrly the regulatory brigade is destroying to place.

  19. I can’t think of any investment which is taxed as highly as new housing construction.

    EIGHTY-FIVE PER CENT!

    Imagine if we had a GST of 85% for the entire economy.

    Society could literally collapse.

  20. Fisky

    Immigration is a different argument altogether.

    But Australia’s productivity decline started precisely when we doubled immigration in the early 2000’s. That was certainly not predicted by supporters of mass immigration at the time, but here we are.

  21. JC

    But Australia’s productivity decline started precisely when we doubled immigration in the early 2000’s. That was certainly not predicted by supporters of mass immigration at the time, but here we are.

    Couple of things happens in the 10s that you need to consider. Howard introduced a very flexible labor market. In that instance you would expect labor productivity to fall back a little as marginal workers were taken up… and they were actually. Then the Lying Slapper fucked things by greatly restricting flexibility through the abortion of Fairwork. For the past 20 years or so, with only one every slight, temporary hiccup (Abbott) we’ve experienced a choke hold on energy prices. Add in all the threats to business and countless regulations imposed.

    NSW and Victoria have banned fracking.

    Seriously, we fucking lucky we haven’t “Venezuelaed” off the planet too.

    Just yesterday, APRA was threatening the insurance sector over capitalization issues which means more expensive premiums.

    Capital investment is in the funk because this country hates business and success.

  22. Davey Boy

    From what I have seen there may possibly also be a component (of lower productivity) which is related to a big FU being given to some employers, who force celebrations of sodomy etc on their workforce. Why strive to work smarter or more productively, when you are that part of the workforce which is usually more experienced and productive, but is explicitly considered as a racist, bigotty, sexist, misogynistic, homophobic, etc, etc cohort, because “old and irrelevant”, with “inclusiveness” only for the chosen few.

  23. Nob

    Just been back in Melbourne for a month for first time in two years. Was overseas and only visited Perth in between.

    What’s striking is 1. How few people I meet work in any kind of productive job 2. How many businesses reliant on disposable income are shrinking or folding.

  24. Rohan

    Well Nob, Dickhead Dan is doing his utmost to install Communism for his Chinese overlords.

  25. Fencesitter

    There is no such thing as a “level of demand”.

    Demand for any good is, by definition, a relative concept and can only be measured in terms of some other good. It can be one good vs lots of other goods, but it cannot be measured against any other variable (price level or whatever).

    Once you understand this then it is easy to reject the entire field of macroeconomics because the “aggregate demand” is no longer a curve but actually a shaded area from zero to infinity. Completely meaningless in other words.

  26. nfw

    Hang on, hang on. We know productivity lives in the public service as that is always the excuse, er justification, for their pay increases. Thank your preferred man-in-the-sky for hard working shiny backsides in the great sheep station bubble keeping Australia afloat.

  27. Nob

    workforce which is usually more experienced and productive, but is explicitly considered as a racist, bigotty, sexist, misogynistic, homophobic

    People outside that cohort at least used to encounter experienced productive workers often enough to realise that their social attitudes were at worst irrelevant as at best probably more relevant for society than the trivia their “betters” are obsessed with.

    But as productive enterprise shrinks in Australia, they don’t even encounter them any more so the demonisation is even wilder.

    I’m some sort of curiosity tolerated because I’m family or at least familiar.

    Even expressing mild exasperation with demonstrators blocking the city is met with shock wave rapid attempts to change the subject.

  28. Ƶĩppʯ (ȊꞪꞨV)

    the conversion of the workforce to a wokeforce is just a little behind schedule, that is all

  29. Nob

    So loss of productivity gets in a sort of downward spiral fueled by ignorant social attitudes and need to control, tax and regulate any productive enterprise until it either gets big or gets out then … QED. “They deserved to go broke …”

    How many times I’ve heard that!

  30. Old Lefty

    Yarragrad is the way of the future, folks. According to the greenleft bald-headed flog Richard Dennis, sacked miners have a wonderful future serving coffee to bald-headed greenleft flogs like him. And no doubt Ms Patten will give Andrews a blueprint for conscripting them into kinky knocking shops – along with Deviant pervert scum who espouse Christian chastity.

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