With the season of peak political bulldust already upon us, and the media holding a microphone to all the self-serving and often stupid arguments the politicians are having with each other, here’s a tip: if you want sense about our economic problems and their solutions, turn down the pollies’ blathering and turn up the considered contributions from the econocrats.
Reserve Bank governor Dr Philip Lowe, in particular, has more pertinent things to say than Malcolm Turnbull, Bill Shorten, Scott Morrison and Chris Bowen put together.
The sad truth is the pollies main concern is to say the things they hope with get them elected, rather than to outline a convincing strategy to improve our economic wellbeing.
The media’s main concern is to sell us politics as entertainment – “Oh, the pollies had a terrible set-to this week; the side that’s ahead the polls had a bad week, while the losers had a good one, it’s getting sooo exciting” – not to hold politicians to account when they make wrong or dubious claims.
Predictably, the pollies have fallen to arguing about . . . tax cuts. Think of an election, think of bribing voters with tax cuts. The budget’s still in deficit, with the debt still high and rising, but blow that, let’s have a decade of tax cuts.
Both sides believe voters are as venal as pollies are self-serving. But, as always, the pretence that vote-buying tax cuts will do wonders for Jobs and Growth. Yeah, right.
If Turnbull can con Labor into spending most of the time until the election arguing about tax, he’ll have pulled off a fabulous diversion from the most pressing source of voters’ present hip-pocket discomfort: weak wage growth.
It’s clear the parties’ focus groups are telling them the punters perceive the problem to be the “high cost of living”. With the consumer price index stuck at 2 per cent, that’s an obvious misconception.
It’s a misperception that favours the Coalition, the party that engineered the cuts in penalty rates, has a visceral class hatred of the unions and zero desire to shift the balance of industrial power back in favour of employees.
So who’s the one public figure pointing to the megafauna in the room? Lowe. He’s been talking about weak wage growth for months, seeing the problem as largely cyclical (temporary) and urging us to be patient.
Trouble is, as each quarter passes without any sign of the wage price index stirring from 2 per cent a year, that argument weakens. And in a recent speech he shifted ground, acknowledging that the “norm” for annual wage rises had shifted from 3 to 4 per cent to about 2 per cent, for reasons that are both cyclical and structural (lasting).
Cyclically, wages are weak because, at about 5.5 per cent, unemployment is still above the “conventional estimates” that full employment – the NAIRU, or “non-accelerating-inflation rate of unemployment” - is about 5 per cent.
What’s more, Lowe says, we may find that, like the US and other advanced economies, the NAIRU is now a fair bit lower than we’ve hitherto assumed.
True, Phil. But that’s a significant acknowledgement. What is it that causes the NAIRU to shift? Changes in the structure of the labour market.
In his search for structural explanations for our four-year absence of real wage growth, Lowe says part of the story is likely to be the way globalisation - greater trade between rich and poor countries - has changed the bargaining power of workers by effectively increasing the global supply labour.
But another important part of the story, he says, lies in the nature of recent technological progress. It’s no longer just a matter of firms installing the latest generation of better machines. It’s about software and information technology; intangible capital, not physical capital.
One thing this means is that some firms are much further advanced in applying and exploiting these advances than others. Lowe’s theory is that the lagging firms are trying to keep up by resorting to cost control, making them reluctant increase wages.
But though Lowe is the most thoughtful, pertinent and frankest of our public figures, even he is not yet prepared to voice the unthinkable: when globalisation and digitisation were changing the economy in ways that diminished the bargaining power of most of our workers, maybe this was just the wrong time for us to have been “reforming” wage fixing by shackling employees’ ability to bargain collectively.
Adequate real growth in wages is the key to adequate real growth in consumer spending and, by extension, business investment spending.
And, as Lowe reminds us, many households have taken on big mortgages under the implicit assumption that real wage growth will lessen the burden over time, as it always has. If that doesn’t happen, there’ll be trouble.
But not to worry. Tax cuts will fix everything.
