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.