Australia’s low productivity economy
Where the economy is heading – sort of, maybe
Reserve Bank – we don’t want to say too much about interest rates
For a piece of official discourse the Reserve Bank Governor’s Opening Statement to the House of Representatives Standing Committee on Economics is a classic example.
Provided Covid-19 doesn’t break out again with a new variant, provided China doesn’t stop buying iron ore, and in light of fiscal and monetary stimulus and high household savings, the Australian economy should bounce back quickly. That will all result in strong demand for labour and low unemployment.
That looks like a reasonable summary of the situation, but from there on it gets hard to believe. In spite of this high demand for labour, supply bottlenecks, and overseas inflation, the bank’s forecast is that underlying inflation in Australia will increase only to 3.25 percent in the coming quarters, before falling back to 2.75 percent, which is within the Bank’s Goldilocks range. That means interest rate rises, when they occur, will be modest, and that it may be possible for banks to continue to keep real interest rates (i.e. official nominal interest rates minus inflation) in negative territory. On interest rates the Governor concludes:
It is entirely possible, though, that countries with higher inflation rates will need a bigger adjustment in interest rates than currently anticipated. If so, this could result in an abrupt adjustment in financial conditions.
Is Australia one of those countries? He doesn’t really say. And, as usual, there is no mention of house prices in his presentation.
Treasury – over 8 years Coalition governments have neglected economic reform
In his opening statement to the Senate Economics Legislation Committee Treasury Secretary Steven Kennedy made much the same economic prognosis as the Reserve Bank has made – again with no mention of the risk of an interest-rate induced housing bust.
As a public servant he has tiptoed around the truth. He is really saying that, because of poor productivity performance (a result of economic mismanagement by Coalition governments), even before the pandemic arrived monetary policy had gone almost as far as it could go. Therefore in response to the pandemic the government has had to rely almost entirely on fiscal policy to stimulate the economy, which isn’t the preferred path for conservative governments. As the economy recovers productivity remains low (because there has been hardly any economic reform). Therefore, while nominal wages will rise, real wages will still be restrained.
It’s a pity that public servants cannot come out and state, in simple language, that the Coalition, having made the fiscal cash balance the sole plank of its political claim to economic competence, has neglected the harder task of structural reform.
Peter Martin – when you’re on to a good thing stick to it
Writing in The Conversation – Australia cut unemployment faster than anyone predicted – why stop now? – Peter Martin comments on the Reserve Bank’s views, pointing out that just a year ago none of 22 leading economists believed unemployment in Australia could fall below 5.0 percent. Labor force data, released by the ABS on Thursday, confirmed that the unemployment rate in December and January was 4.2 percent.
Martin essentially endorses the RBA view that inflation is not an immediate concern. He believes that in its coming budget the government should therefore not be too hasty in withdrawing fiscal support for the economy.
John Quiggin – let’s work less
John Quiggin, who also writes in The Conversation, suggests that we all work a bit less – There’s never been a better time for Australia to embrace the 4-day week – starting with the nine-day fortnight. The pandemic has reminded us that workplace flexibility can work two ways – not just for employers (the Coalition’s understanding of “flexibility”) but also for employees.
Our own historical examples of reducing working hours – instituting the 40-hour week in 1948, and four weeks’ leave in 1972 – confirm that the immediate effect of reducing working hours is probably some drop in output, but that drop is far less than the fall in hours worked, because there is an offsetting rise in hourly productivity.
Senators give Frydenberg a basic lesson in capitalism
It is strange that the media often refers to the “business community” and “business interests”, as if there is some group of people whose interests are defined in terms of 19th century class divisions.
In fact a feature of contemporary capitalism is that the owners of corporations – Marx’s capitalists – are essentially the whole population of workers, particularly in Australia where compulsory private superannuation has spread corporate ownership among the masses. Also, in comparison with some other countries, we have a high level of private ownership of shares.
That has led to reasonably high level of shareholder activism, and superannuation funds, particularly industry funds, have been insisting that boards act in the long-term interests of their members, rather than chasing short-term returns to finance outrageous salaries, stock bonuses and fees to executives and directors.
This outbreak of capitalist activism has been too much for Frydenberg, who has been issuing regulations designed to stop shareholders from acting as if they own the joint, and to stop disturbing the worthy men and women who sit in big offices and on corporate boards.
The ABC’s Ian Verrender describes how the Senate, under the leadership of Senator Rex Patrick, has hit back at Frydenberg, by disallowing his most recent regulation designed to eliminate the power and influence of proxy advisers. These are research houses that advise superannuation funds and other big investors on how to vote at corporate meetings on executive remuneration, board membership and governance: Why the Senate vetoed Josh Frydenberg's super sting during a federal election countdown.
Readers of Verrender’s article will be surprised to learn how, under the cover of Covid-19, Frydenberg has loosened regulations on corporate disclosure. Verrender’s article reminds us just what the Coalition means when it accuses Labor, unions, or community organizations of being “anti-business”. To the Coalition “business interests” are not the millions of Australians who are direct and indirect owners of corporations, but the executives and board members helping themselves from the corporate trough.
Education
The Centre for Social Impact at the University of New South Wales has produced a report Amplify insights: education inequity, identifying causes of inequities in school education and recommending reforms suggested by evidence-based research. It notes, in particular, the inappropriateness of our education systems for many indigenous Australians.
Its authors, Meera Varadharajan and Jack Noone, summarize its findings in a Conversation article: Australia’s education system is one of the most unequal in the OECD. But we know how to help fix it. Their solutions centre on allowing more flexibility at the local level, being more responsive to children’s needs which differ from location to location, and building on children’s existing knowledge and talents which may go unrecognized in some disadvantaged communities.
The disunited colours of hydrogen
Most of us, when we went to school, learned that hydrogen, the lightest and most plentiful element in the universe, was fairly simple. The thought that it may have “colours” never entered our young heads.
Relax: hydrogen is still colourless and invisible, but last weekend, on Saturday Extra, Geraldine Doogue spoke to Scott Dwyer of the Institute for Sustainable Futures at Sydney’s University of Technology about the question How clean is Australia's emerging hydrogen industry?. Dwyer describes the meaning of the colour-based adjectives – brown, grey, blue, green – that refer to hydrogen-generating technologies. Green hydrogen, produced by electrolysis from electricity generated by wind or solar, is the only hydrogen that is truly zero-carbon in its production. (13 minutes)
That discussion may be a little difficult for some people to follow. On Late Night Live Phillip Adams talked with Tim Buckley from Climate Energy Finance about the “colours” of hydrogen and the basic physical chemistry of hydrogen: Can hydrogen be green and blue?. Buckley also refers to “pink” hydrogen, another zero-carbon hydrogen, and to the way hydrogen fuel cells, once seen as a means of vehicle propulsion, have given way to battery-powered vehicles. We probably won’t be exporting much hydrogen – a difficult gas to transport – but we will be producing ammonia (NH3) as a zero-carbon way to store and transport hydrogen. The most exciting prospect for Australia is green steel, where hydrogen will be used in place of coking coal as the means to reduce iron ore. (16 minutes)