The debate over the future of the economy and the Liberal Party in government has got a lot of air-time with Tony Abbott continuing to make Headland speeches. Abbott is claiming the mantle of Menzies, and points out that our arrival at a situation where 50 per cent of households pay no net tax resonates strongly with Menzies warnings about the risks of democracy forming coalitions of “leaners” to pillage the earnings of “lifters”. As Menzies put it in far less serious “leaner” incursions than those of today, “the votes of the thriftless have been used to defeat the thrifty”.
And Maurice Newman was perhaps giving voice to Abbott’s real thoughts about the destruction of his Party’s Menzies legacy, when he said in his own op ed this morning “Watching the Prime Minister and his parliamentary colleagues give a standing ovation to Scott Morrison as he concluded his budget speech was like watching the band on the Titanic playing as the ship slipped beneath the waves.”
Of course, recognising all this is easier said than doing anything about it. Even so, it is a sad indictment of the economic scene that so few understand the nexus between expanded and more efficient production and higher income levels. Such incomprehension among politicians is understandable, conditioned as they are to bridging the gap between the infinite needs of the electorate and the finite capacities of the economy to provide these. The electoral process gives little incentive to attending to the undermining of those capacities as a result of government’s seeking plunder.
But lack of awareness of the productive process goes even deeper. As Grace Collier opined, a recent RBA paper nonchalantly pointed out how wages growth had persistently undershot forecasts over the past seven years without the RBA economists inquiring why this was so.
Real wages have actually stagnated over the past six years. This is unsurprising since the drivers of real wage growth have been going backwards. Here is the growth of private investment.
Treasury follows the same auto-pilot forecasting methods as the RBA. While the effects of political assaults on wealth creation are not without their lags, it is as if the government’s economists simply assume the economy is time series controlled and damage to its underlying mechanisms are irrelevant.
In fact, as should be obvious from examining economies as diverse as India, China and Venezuela, policy measures are the real drivers of economic expansion and contraction.
At least since 2008 Commonwealth government spending has been ramped-up, plateauing to the 25-26 per cent of GDP as legislators pay obeisance to discovered inequalities and needs, the latest being education and the disabled.
Marry these with the latest faddish boondoggles and the wet blanket on productivity becomes ever more sodden. The ALP has its own favourites but the Liberals have delivered adventures into health R&D, submarines with an obsolete power source and now the $8 billion White Elephant Melbourne to Brisbane train line as well as the negative value-added Snowy hydro storage program.
Such government spending excesses have added to other measures – especially in energy. Among these is the government contrived destruction of the electricity supply system whereby the renewables policy has driven a threefold increase in the domestic price and a deterioration in the system’s reliability. That will be aggravated by the Finkel report which will doubtless press for more actions to destroy low cost electricity provision. And State government embargoes on gas production have aggravated all this.
It is difficult to see a path forward. The knives are now out for Turnbull as the 30 consecutive months of unfavourable opinion polls roll in. Peter van Onselen, predictably wants the baton handed to Julie Bishop, a proven poor performer in the all-important task of economic management and a replacement of one soft leftist by another.
Abbott clearly conceptualises a way forward and while it is easy to say that he had his chance and blew it, the alternatives are hard to see. The Australian policy swamp is deep but all potential drainers have contributed to its murk.