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If it’s not value adding it does not add to growth

March 19, 2017

Let me go back to something I have managed to avoid for a while, the absence of penetration in modern economic theory. Governments waste spectacular amounts of our productive resources on projects that will never turn a dime and are then surprised when the economy goes nowhere. This is from yesterday’s Oz: After the boom, pay packets are on a flatline for all. And this is what it said:

Our wage growth, the third weakest in the developed world, is fuelling simmering political discon­tent about everything from house prices to inequality and energy prices. This will have profound political consequences.

The living conditions of Australians are rising at the slowest pace in more than a generation. Wage growth fell off a cliff in 2012 as the resources boom petered out, and it hasn’t recovered. The torrent of foreign cash washing over the economy has receded, leaving a high-wage, heavily regulated economy struggling to compete. . . .

Australian private sector wages rose only 1.8 per cent last year, not much above consumer prices, which edged up 1.5 per cent. That’s the slowest pace since the Australian Bureau of Statistics started tracking hourly wages in 1997. Average weekly earnings, which don’t factor in changes in the number of hours worked, rose 2.2 per cent for full-time workers to $1533, the slowest pace since World War II.

According to the OECD, a Paris-based club of rich countries, Australians’ average real wages, which adjust for inflation, shrank by 1.1 per cent in 2015, more than any of the other 33 countries bar Portugal and Mexico.

Real wages can only rise if we are producing the goods and services wage earners wish to buy, or can trade what we do produce with others for these kinds of things instead. The NBN is merely an example of the kinds of government unproductivity that leads to what you see.

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