The economy is in bad shape. It’s everyone else’s fault.

Graham Young I 8 September 2024 I Spectator Australia

Jim Chalmers has reacted to news that Australia’s growth has been an anaemic 1 per cent (which with population growth around 2.5 per cent means individually we’ve all gone backwards 1.5 per cent) by blaming ‘global economic uncertainty’.

If ‘Gentleman Jim’ and his mates, hadn’t been holding the economy to ransom for their union Siamese twins, things could have been quite different.

In fact, if we rolled back the economy to 2007 before he and his predecessors started fiddling – and we’re not just talking Swan, the grand old man of the current gang, but Bowen, Morrison, and Frydenberg (incompetence is bipartisan at times) – things could be quite different now.

The major factors limiting our growth aren’t ‘global economic uncertainty’ but self-induced policy harms. We need to increase national productivity, but almost everything this government has done, and a lot of what previous governments have done, has been to reduce productivity.

The Treasurer points to a growth in government expenditure as being the only growth in the economy, but this is in fact part of the problem. Programs like the NDIS and health are out of control. These do not create growth, they redistribute it. So a growth in government is actually just cutting the pie differently so that business gets less and certain types of consumers get more.

For the most part it is business that provides us growth by investing to increase profits and in so doing employing a better paid workforce as well as providing a tax base that can support more redistribution.

Then there is the huge migration intake – the equivalent of a city the size of Canberra every year – that diverts resources to housing, away from more productive pursuits.

The government has been financing its expenditure by borrowing, and this has led to inflation, another drag on investment.

Then we have the industrial relations laws which are forcing businesses to deal with unions rather than employees. This is raising costs and lowering productivity for large businesses, and may even drive some small businesses out of business because they don’t have the resources to deal with the bureaucracy.

The botched energy transition is also raising energy costs and diverting resources from producing wealth to building renewable energy projects and the networks and storage to try to support them. Instead of giving us more power more cheaply they are actually giving us less power at a significantly higher cost.

Recent government decisions on mining projects, like the Blayney gold mine, also discourage investment in industries with high productivity, but long lead times and heavy capital requirements, like mining. (The Queensland government has also played its part with its super profits tax mining royalty, and other states have similar issues.)

All of this has led to the Reserve Bank deciding to leave rates higher for longer (although one shouldn’t assume rates are going back where they were two years ago).

The worst reaction to the situation would be for the government to decide it needs to get consumer spending going again. Figures show that the personal savings we were spending during the last few years are almost exhausted. We need a pause while the economy realigns. Trying to ramp up spending at the moment will just make things worse and run national savings down even further. If interest rates come down there will be some relief, but there is not a lot of room for them to come down as they are at historically fairly normal levels at the moment.

The sort of spending the country needs is investment. Economists tend to think that investment and spending are two different categories, but this is absurd. Investment isn’t an abstract dollar hanging around somewhere, it is dollars spent on productive assets which have to be built or bought and, in the process, involves quite a lot of spending.

Government spending would only help if it were directed into increasing investment in assets that have a positive return. Unfortunately, the current government’s record says that even when it spends money on assets it is most likely to direct increased expenditure into activities that destroy wealth rather than creating it, like the Capacity Investment Scheme where the government undertakes to subsidise renewable generation because it is unprofitable without a subsidy.

If they want to spend government money on infrastructure, one of their best options at the moment would be the second Bruce Highway which they are apparently refusing to fund.

Gentleman Jim won’t fix any of these things. The Greens see themselves as Robin Hoods, but the ALP has always been (with some honourable exceptions) a bushranging operation.

Having spent the last three or so years, and the eight between 2007 and 2015, redesigning the economy to more efficiently deliver other people’s money to unions and the social welfare rentier class, the only job left to Labor is deflecting blame to some straw man (or perhaps in the era of DEI, straw woman).

That can be ‘global economic uncertainty’, or Peter Dutton, ‘the most divisive leader of a major political party in Australia’s modern history’.

A bit of advice to Jim. Unless you want to be a bushranger all your life, owning your own mistakes would be a good habit to develop.

Author:Graham Young