Before we invented Keynesian aggregates economists had a reasonable understanding of how economies work. Seriously, what can you make of this story in today’s Oz: Weak wages knock economy pick-up hopes?
Wage growth has dropped to a record low with average increases barely matching the depressed inflation rate and casting a shadow over both Reserve Bank and Treasury hopes that household spending will fire the economy over the next year.
The fall in wage growth from 2.3 per cent a year ago to 1.9 per cent in the year to September surprised economists and the Reserve Bank, which had argued wage growth had stabilised at a little above 2 per cent and that a gradual pick-up in inflation was likely. . . .
Both the Reserve Bank and Treasury are counting on household consumption to support economic growth over the year ahead, compensating for weak business investment.
The Reserve Bank’s quarterly economic review last week said that would require households to be sufficiently confident about their income growth to cut back on savings.
A couple of points. First, falling real wages are part of the adjustment process that keeps people in jobs and allows businesses to remain viable. It’s a good thing in such difficult times. You wish it were otherwise, but wages adjusting to productivity is what helps keep an economy on course.
Second, the growth in public spending as a proportion of total output means that we cannot grow as fast as we previously had. My favourite example, since it is bi-partisan and therefore shows neither political party gets it, is the NBN. We are ploughing billions into a project that soaks up resources that do not produce a net return. And then there are all the green subsidies and the thousands of other projects that governments subsidise because they cannot earn their keep on their own.
And speaking of green subsidies, since our moron class of politicians think it is wise public policy to close down carbon-based forms of energy, the fact that it is harder for industry to move forward ought to be understood as the direct consequence of such forms of vandalism. If you replace cheap energy with more expensive energy, the economy slows. If they don’t even understand that, how do they think things work?
Laughably, the pressure is now on to lower interest rates to kindle more inflation. This is right out of standard economic theory so why should anyone think it makes sense? You might have hoped that someone would have noticed that lowering rates is not working, not here nor anywhere else. Economic theory is junk science, I’m afraid. But the cutest part of the story is this:
The public sector is doing better than the private sector, with wages up 0.6 per cent in the quarter and 2.3 per cent over the year, compared with the private sector increases of 0.4 per cent in the quarter and an annual 1.9 per cent.
And here we see the diversion of massive amounts of our productivity to the most useless parts of our economic apparatus. I’ve even heard it said that Gillian Triggs takes home $400,000 a year. Public waste is chronic.
UPDATE: Satire can no longer keep up with real life. This is from the comments:
#2210724, posted on November 17, 2016 at 12:54 pm (Edit)
Zero interest rates not working only proves that cash needs to be disposed of and all money made electronic, then negative interest rates can be effectively introduced and clinging obsolete savers can be charged rates on the unspent money in their accounts.
If that doesn’t work, then they can charge rates on the unborrowed and unspent balance on your credit card.
And this is from real life just now from Zero Hedge:
Less than a week after India’s surprise move to scrap its highest denomination cash notes, another front in the War on Cash has intensified down under in Australia.
Yesterday, banking giant UBS proposed that eliminating Australia’s $100 and $50 bills would be “good for the economy and good for the banks.”
(How convenient that a bank would propose something that’s good for banks!)
This isn’t the first time that the financial establishment has pushed for a cashless society in Australia (or anywhere else).