The more I look at commentaries like this, the more I come to the conclusion that modern economics is a complete wasteland. The subheading reads: “The global productivity slowdown will pose a huge challenge for Scott Morrison”. But what is truly bizarre is this:

The IMF has been troubled over the failure of world growth to meet its forecasts. Every time the fund has looked at world growth in the past five years, it has had to downgrade its forecasts. If the world economy had grown in line with the forecasts it made five years ago, the economies of the advanced world would be 14 per cent bigger than they are while those of the developing and emerging world would be 23 per cent bigger. But the forecasts of employment the fund makes for advanced countries have been much closer to the mark. Indeed, for a range of countries, including Germany, Japan, South Korea and Britain, employment growth has been better than the IMF predicted, although output growth has been worse. More workers are producing less output than was expected.

I don’t wish to be impertinent since, after all, the IMF is comprised of some of the most highly paid economists in the world, experts in the dark arts of econometrics and modern macroeconomic theory. Nevertheless, I feel compelled to point out that now, five years after the stimulus, when governments around the world commandeered huge swathes of their nations’s savings, the inevitable consequence has been a fall in productivity. Rather than our resources being used in truly value adding activities determined by the market, they were instead used by clunks in government and Treasury on such pieces of economic junk, like the NBN, Building the Education Revolution and Pink Batts. In the US there’s been Solyndra and everywhere you go there are the many, many green energy projects that have absorbed capital. The result today is that we have a dearth of the kinds of new investments coming on stream that would maintain productivity. Instead, we find it difficult even to maintain previous standards of living, never mind getting them to grow. Of course, the IMF, being such geniuses, has all the angels covered:

The IMF says weak business investment is partly responsible for the poor growth outcome but says that by far the most important issue is weak productivity on its broadest measure. It is not just output per worker that is disappointing. The additional output from every dollar of business investment also has been weak.

There is no settled explanation for this. The IMF says a shift in the composition of economic growth also may be contributing. Service industries are accounting for most of the increase in growth, rather than manufacturing. Output can be harder to measure in service industries, and they are often more labour-intensive. The IMF says it is also possible the revolution in information and communications technology is delivering fewer gains in productivity than was the case through the 1990s. It also speculates that the pay-off from additional investment in education may be diminishing.

Let us therefore take the NBN as the prime example of what has gone wrong. In every way most of the infrastructure construction might be listed in the national accounts as business investment. You could say the same for all of the desal plants that were built. But crony capitalism is not free enterprise, and the outcomes that are fed by public monies are duds no matter which way you look at it.

Economics remains wedded to C+I+G. It still believes SPENDING causes growth, with all those multiplier thingys hanging off the initial expenditure. It is a stunning failure of policy, although hardly anyone at all has noticed just how great a failure it has been. In the US they surveyed the nation’s economists and some massive majority have stated that the stimulus created additional jobs. With that kind of thinking so widespread, it should be no surprise just how dismal our economic prospects now are.

And for what it’s worth, the worst thing that the RBA should now do is lower rates of interest, which is probably the reason they are going to do it the next chance they get.