Our Future – Some Sane Words On Election Day

The Age’s Ross Gittins made some election day observations on broad economic management that resonated with this voter:

Dodging Climate Change

Climate change is roughly equivalent to the GST in unpleasantness for the public. In dodging it our leaders are likely to:

“destroy or significantly damage much of our stock of private and public physical capital. To avoid the small cost of growth forgone as we tackle the problem, we’re willing to risk incurring much greater losses.

Both sides (are)… willing to waste taxpayers’ money on ineffective schemes while also causing the cost of eventual action to be higher than it need be.”

Productivity Deficit Leads To Cyclical And Structural Problems

Our improved annual rate of productivity in the 90s – measured as output per hour of labour – has slumped in the noughties. This, and its adverse effect on our rate of economic growth and our continually rising living standard, have been clouded by the resources boom.

Ross notes that with easy prosperity come two challenges:

1. THE CYCLICAL CHALLENGE

“The mildness of the recession means we’re already close to full employment, so it may not be long before the Reserve Bank is struggling to control a booming economy with interest rate rises. Neither public nor politicians has any real understanding of the way being at full employment constrains our ability to press ahead with every job-creating project we dream up.”

2. THE STRUCTURAL CHALLENGE

“The structural problem has two elements: worrying about the perceived Dutch disease problem (the temporarily high exchange rate wipes out other export industries, so we’re left with a vacuum when the resources boom ends) and deciding how to ensure we gain some lasting benefit from all the extra revenue flowing into government coffers.”

LET’S BE CAREFUL

“If we’re not careful, we could end up with the same disastrous solution to both problems: pumping a lot of taxpayers’ money into propping up declining manufacturing industries in the name of ‘value-adding’.”

Our NON-Mining Future

As our future lies in high-value services, not manufacturing, Ross Gittins believes the right answer is to increase our public (and private) investment in education, training and research, all of which should raise our productivity in due course.

The Infrastructure Problem

We acknowledge the failings in our present social and economic infrastructure but with the narrow campaign focus on the budget it would appear we will not be spending (and therefore borrowing) as much as we need to.

“Infrastructure investment adds to demand in the short term but also adds to supply (production capacity) in the medium term and productivity improvement (output per unit of input) in the longer term.

So, remembering our full-employment constraint, a great challenge facing the economic managers will be to (temporarily) constrain consumer spending to make room for more business investment and public infrastructure spending.”

Housing: Supply-Side Reform Needed

Housing construction has fallen behind demand forcing up prices and rent.

“We need to remove state and local governments’ obstructions to medium-density housing and the release of serviced land.”

High Immigration – Dumb?

Ross says

“The unthinking advocates of high immigration need to understand it makes a negative contribution to productivity improvement, and demands increased investment in business equipment, housing and public infrastructure.

Unless the goal is growth for its own sake, it’s a dumb way to go about raising living standards. It also greatly increases our difficulty in achieving targets for the reduction of our emissions of greenhouse gases. It’s all very well for the advocates of high immigration to say the underlying problem is one of adequate infrastructure not immigration as such. What do they propose to do about it – abolish the states? Who will pay for the extra infrastructure and how will it be financed?

We do need a careful, evidence-based examination of what is a ‘sustainable’ population, in which the economists, technological optimists and natural scientists box it out. All sides need to confront the elements of truth in the other side’s positions.”

Concluding..

The above is what Julia and Tony should have been debating, but didn’t. Whoever wins, the economy will lose, concludes Ross Gittins.

It’s the economy, stupid…