Chalmers and Lowe: good cop, bad cop on the inflation beat

Have you noticed? There’s a contradiction at the heart of Treasurer Jim Chalmers’ budget. Is it helping or harming inflation?

Both Chalmers and Reserve Bank governor Dr Philip Lowe are agreed that our top priority must be to get the rate of inflation down. That’s fine. Everybody hates the way prices have been shooting up. The cost of living has become impossible. Do something!

But while Lowe seems to be just making it all worse, jacking up mortgage interest rates higher and higher, nice Mr Chalmers is using his budget to take a bit of the pressure off, helping with electricity bills, cutting prescription costs and so on.

It’s as though Lowe is the arsonist, sneaking round the bush to start more fires, while Chalmers is the Salvos, turning up at the scene to give the tired firefighters a kind word, a pie and a cup of tea.

Is that how you see it? That’s the way Chalmers wants you to see it, and Lowe knows full well it’s his job to be Mr Nasty at times like this.

But what on earth’s going on? Has the world gone crazy? No, it’s just the usual dance between brutal economics on one hand, and always-here-to-help politics on the other.

Let’s start from scratch. Why do we have an inflation problem? Because, for the past 18 months or so, the prices of the things we buy have been shooting up, rising much faster than our wages, causing the cost of living to become tough for many people.

Why have prices been rising so rapidly? Partly because the COVID-19 pandemic and Russia’s attack on Ukraine caused international shortages of building materials, cars, computer chips and fossil fuels. But also because the massive increase in our governments’ payments during the pandemic left us cashed up and spending big on locally made goods and services.

When the suppliers of the stuff we buy can’t keep up with our demand for it, they raise their prices. The media may call this “price gouging”, but economists believe it’s what happens naturally in a market economy – and should happen because the higher price gives the suppliers an incentive to produce more. When they do, the price will come down.

When inflation takes off like this, what can the managers of the economy do to stop prices rising so fast? They can do nothing to magically increase supply; that takes time. But what they can do is reduce demand – discourage us from spending so much.

How? This is where it gets nasty. By squeezing households’ finances so hard they have to cut their spending. Once demand for the stuff they’re selling falls back, businesses are much less keen to raise their prices.

At present, households are being squeezed from all directions. The main way is that wages aren’t keeping up with the rise in prices. As well, more of the wage rises people are getting is being eaten up by income tax, thanks to “bracket creep”.

And the fall in house prices means home-owning households aren’t feeling as wealthy as they were.

All that’s before you get to Mr Nasty, raising the interest rates paid by people with mortgages, which is particularly tough on young home owners, with more recent, much bigger mortgages.

(You may wonder if this extra pressure on, say, only about 20 per cent of all households is either fair or the most effective way to get total household spending to slow. And you may be right, but you’d be way ahead of the world’s economists, who think the way they’ve always done it is the only way they could do it.)

But what part is the budget – “fiscal policy” – supposed to play in all this? It should be helping put the squeeze on, not reducing it. Now do you see why some are questioning whether Chalmers’ $14.6 billion “cost-of-living relief package” will help or hinder the cause of lower inflation?

The budget balance shows whether government spending is putting more money into the economy, and its households, than it’s taking out in taxes. If so, the budget’s running a deficit. If it’s taking more money out than it’s put back in, the budget’s running a surplus.

The way the Reserve Bank judges whether the budget is increasing the squeeze on households, or easing it, is to look at the size and direction of the expected change in budget balance from one year to the next.

The budget papers show the budget balance is planned to change from an actual deficit of $32 billion last financial year, 2021-22, to an expected surplus of $4 billion in this financial year, ending next month.

That’s an expected tightening of $36 billion, equivalent to 1.6 per cent of the size of the whole economy, gross domestic product.

No doubt such a change is adding a big squeeze to household incomes. But then the budget balance is expected to worsen in the coming financial year, 2023-24, to a deficit of $14 billion. That’s an easing of pressure on households’ finances equivalent to 0.7 per cent of GDP.

Put the two years together, however, and its clear the budget will still be putting a lot of squeeze on households – on top of all the other squeeze coming from elsewhere.

Somewhere in there is most of Chalmers’ $14.6 billion relief package. As a matter of arithmetic, it’s undeniably true that, had the package – which, by the way, is expected to reduce the consumer price index by 0.75 percentage points – not happened, the squeeze would be, say, $10 billion tighter than it’s now expected to be.

But there’s no way, looking at that – and all the other sources of squeeze – the Reserve will be saying, gosh, Chalmers is adding to inflation pressure, so we’d better raise rates further.

Chalmers has said the “stance” of fiscal policy adopted in the budget is “broadly neutral”. Not quite. So, I’ll say the nasty word Mr Nice Guy doesn’t want to: the stance is “mildly contractionary”.

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Avoiding a tax-cut backlash will be harder than Albanese thinks

Anthony Albanese, who never impressed me when a warrior of the NSW Labor Left, has impressed me greatly by the way he’s conducted himself since becoming prime minister. He wants to raise the standard of political behaviour. Everyone gets listened to with respect, and every election promise he made not to do this, and not to do that, is honoured, no matter how inconvenient.

Having lumbered himself with those promises, Albo is taking the long view. His first term will be used to win voters’ respect and trust, creating a foundation for him to be more comfortably re-elected, with a program of more controversial reform.

Which brings us to the much-debated stage three tax cuts, designed by his political opponents to favour high-income earners at the expense of low and middle earners, something anathema to a Labor government but already put into law.

Many have been urging Albanese and his Treasurer Jim Chalmers to rescind the tax cuts or at least cut them back. But it now seems clear Albanese has made up his mind that the cut, no matter how deleterious, must go ahead. A clear promise was given, and must be kept. Can you imagine the outcry if it wasn’t? Peter Dutton would never let it rest.

Well, I can imagine it. But if Albanese thinks that keeping the promise will mean no outcry, he’s sadly deluded. Once the punters see how little they’re getting compared with how much the fat cats (including a particularly fat economics journo) are getting – once everyone sees the official “what-you-save tax table” published by every masthead – there’ll be a lot of anger.

And guess who’ll be leading the cry. Do you really think Dutton won’t have the front to turn on his own government’s tax cuts? He was trying it out in his budget reply speech last week: “Labor’s working poor”. How about “the struggling middle class”?

Albanese needs to do two things: get Treasury to give him an advance look at that what-you-save table, and get some pollie with a better memory to remind him how “bracket creep” works and how resentful middle income-earners get when they see more and more of every pay rise disappearing in tax.

Because the income tax scale isn’t indexed for inflation, every pay rise you get increases the average rate of tax you pay on the whole of your income – whether or not it literally lifts you into a higher tax bracket. And because the brackets are closer together at the bottom of the scale, bracket creep hits lower incomes harder than middle incomes. But middle incomes are hit harder than high incomes because those people already in the top tax bracket can’t be pushed any higher.

Bracket creep gets greater as inflation increases. The inflation rate’s been unusually high, which has led to higher pay rises, even if they haven’t been big enough to match the rise in prices. Even so, your latest pay rise is having slightly more tax taken out of it than the previous one. So bracket creep is another, hidden reason you’re having trouble keeping up with the cost of living.

If we never got a tax cut, the average rate of tax we pay on all our income would just keep going up and up forever – unless, of course, we never got another pay rise.

This is why every government knows it must have a tax cut every few years if it wants to stop the natives getting restless. But the stage three tax cut we’re due to get from July next year hasn’t been designed to compensate people at the bottom, the middle and the top proportionately to the degree of bracket creep they’ve suffered since 2017-18, when the staged, three-step tax cuts were announced.

Quite the reverse. According to estimates by Paul Tilley, a former Treasury officer, people earning up to roughly $70,000 a year will get tax cuts too small to fully reverse the rise in their average tax rate over the period.

Those earning between $70,000 and $120,000 a year will have their average tax rate cut back to what it was in 2018, whereas those earning more than that – that is, more than 1.5 times the median full-time wage – will get their average tax rate cut to well below what it was in 2018.

Now let’s look at what you save in dollars per week. Albanese says the tax cuts begin at $45,000 a year. The national minimum full-time wage is $42,250. So, people on very low wages, and many with part-time jobs, will get nothing.

On $55,000, you’ll get a saving of $2.40 a week. On the median full-time wage of about $80,000 you’ll get $16.80 a week – that is, no “real” saving. On $120,000, it’s $36 a week.

Meanwhile, me and my mates (and members of parliament), struggling to get by on $200,000 and above, will get a saving of $175 a week, or $25 a day.

Good luck selling that lot, Albo.

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Debt and deficit fixed in just Labor's second budget. Really?

Small things amuse small minds. Too many people have allowed their excitement over an expected budget surplus of a tiny $4 billion this financial year to distract them from noticing a much bigger deal.

Remember that mountain of government debt we ticked up fighting the pandemic? Now Treasurer Jim Chalmers tells us it’s more like a big hill. Remember the frightening spectre of the “structural” budget deficit? Not to worry, it’ll have disappeared in a decade – if you can believe it.

Assuming it happens, achieving an infinitesimally small, and one-off, surplus of $4 billion may be significant politically, but from an economic perspective, it’s not worth popping the champagne cork. In a budget worth $630 billion a year, in an economy worth $2600 billion a year, it’s no more than a rounding error.

No, what’s genuinely significant is not that magic word “surplus”; it’s that this time last year we were expecting a deficit of $78 billion. It’s the absence of another big deficit that’s the big deal. It represents the passage of a year in which we didn’t add to the existing public debt. And, as a consequence, didn’t add to the size of our annual interest bill every year until we’re all dead.

What’s more, the absence of a deficit this year suggests the expected deficits for the next few years will also be smaller than we thought. So next year will see not just a smaller than expected annual interest bill, but a smaller than expected addition to the debt, and thus an even smaller than expected addition to the following year’s interest bill, and so on and on forever.

Well, in principle, anyway. What this news also shows is how hopeless Treasury (and all economists) are at predicting the future.

Next, note that this year’s expected deficit disappeared not thanks to Chalmer’s superior management, but thanks to Treasury’s failure to realise how strong the economy would be. More people are in jobs and paying tax (and not needing to be paid the dole).

Company profits are up, as is the tax they pay. Export commodity prices have stayed higher than Treasury was expecting, so mining companies’ taxes are well up. And remember this: inflation causes taxes to rise faster than government spending does.

But though nothing Chalmers did caused the big improvement, he’d like a round of applause for not spending much of the extra dosh.

And he’s got some very impressive news he’d love me to tell you about. Treasury hasn’t just produced revised forecasts for the financial year just ending and for the budget year 2023-34, it’s done “projections” for a further three years. It’s also made “medium-term” projections right out to 2033-34.

What they show is truly amazing. Unbelievable, even. The budget papers say the absence of the formerly expected $78 billion deficit this financial year, and consequent improvement in forecasts for the following few years, “will avoid $83 billion in interest payments over the 12 years to 2033-34. It also means [the government’s] gross [public] debt, as a share of gross domestic product, will be 7.1 percentage points lower in 2033-34.”

That bit you can believe. It’s just compound interest – which, of course, works in reverse for a borrower rather than a saver.

Now it gets hairy. The Albanese government’s various decisions to limit the growth in government spending mean real spending growth is now “expected to average 0.6 per cent a year over the five years [to] 2026-27”.

This compares with average real (inflation-adjusted) spending growth of about 4 per cent in the eight years before the global financial crisis of 2008, and 2.2 per cent a year over the eight years to 2018-19, before the pandemic.

Really? That’s a truly Herculean achievement. And with so little blood on the floor.

What used to be a mountain of debt is now just a big hill. Phew. And we thought it was only Scott Morrison who could call forth miracles.

Except, of course, that it hasn’t been achieved. It’s just “projected” to happen. All those other averages are “actuals” whereas, the unbelievable 0.6 per cent is simply a projection.

Projections are based on assumptions, which are then mechanically multiplied out, year after year. One assumption is that the economy, and the budget, will just move in a straight line over the next five years, with nothing unexpected – say, a pandemic or a recession – blowing us off course.

The five-year projection says the gross public debt is now expected to peak at 36.5 per cent of GDP in June 2026. Now, get this: this would be 10.4 percentage points lower, and five years earlier, than projected just seven months ago in Labor’s first budget.

And if you keep cranking the projection handle, the public debt “will” (their word) be down to 32.3 per cent of GDP by June 2034.

Next, remember all the economists wringing their hands over the “structural” budget deficit? This is the part of the budget balance that’s left when you take out the part that’s just the product of where the economy happens to be in the business cycle at the time.

The balance will look good when you’re at the top of the boom (as we are now) and bad when you’re at the bottom of a recession (as we may be in a year or two). The structural deficit or surplus is a calculation of what the balance would be if we were in the dead middle of the cycle, neither up nor down.

In Chalmers’ first budget, last October, Treasury took its projection of the budget balance out 10 years, and estimated the structural component to be steady at a deficit of about 2 per cent of GDP.

That’s $50 billion a year in today’s dollars. A medium-size economy with a big debt can’t live with that. We have to get it down, so we’re well placed to borrow heavily in the next recession or pandemic.

Well, has Chalmers got good news for those economist worrywarts. Seven months later, the projection (budget paper No. 1, page 131) shows the structural deficit steadily withering away until it reaches almost nothing in 2033-34.

So, how did Chalmers magic it away? Assumptions, dear boy, assumptions. For years, the biggest single program driving the growth in government spending has been the explosive growth in the National Disability Insurance Scheme.

But the government has decided to take steps to limit its growth to a mere 8 per cent a year. The projections are based on mechanically projecting “existing policy”, so the 8 per cent target – which may or may not be achieved – is baked in.

Take that monumentally optimistic assumption, add further optimism about restraint in other spending areas, allow them to magnify the believable bit (that a disappeared deficit right at the beginning of the projection significantly reduces our formerly expected interest payments over a decade) and you’ve eliminated the problem.

If only reality was as easy.

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How budget spin doctors manipulate our first impressions

These days, federal budgets are just as much marketing and media management exercises as they are financial and economic documents. That’s because the spin doctors’ role has become central to the way Canberra works. This is just as true under Labor as the Coalition. Media management is a characteristic of government by the two-party duopoly.

Budgets are actually the management plan for controling the government’s spending and tax-raising over the coming financial year. Because you can’t do a budget without first making guesses about what will be happening in the economy at the time, the budget documents contain detailed economic forecasts and commentary about what it has supposed will happen.

These forecasts are taken very seriously on budget night, but rarely referred to again. That’s because this era of dominant “monetary policy” (manipulation of interest rates), conducted by an independent central bank, means it’s the Reserve Bank’s forecasts that matter.

We’ve had those already, on Friday. The financial markets care more about the Reserve’s opinions than the government’s because they’re always trying to guess what the central bank will do to interest rates. What’s more, the RBA revises its forecasts quarterly, so the budget forecasts soon become outdated.

All this means the government’s forecasts can’t be very different from the Reserve’s. Differ by more than half a percentage point, and you get headlines about a split between Treasury and the central bank. Nothing the econocrats hate more (even though there’s unceasing rivalry between the two outfits).

A separate question is what effect the budget, and particularly the new measures it contains, will have on the economy: on gross domestic product, inflation and unemployment. Now that the macroeconomic fashion (aka “best practice”) dictates that the management of demand be left to the central bank – except in emergencies, such as the pandemic – the budget papers will contain little discussion of this.

But the inescapable fact remains that, the federal budget being so big relative to the economy, everything it does affects economic growth. That’s true whether the economic effects were intended or are the unintended consequence of politically driven decisions. All budget measures are political but, equally, all have economic consequences.

At this time of year, many people say they don’t know why the government is bothering to hold a budget when it has already announced the changes it’s making. Well, not quite.

What’s true is that, these days, budgets – and the days leading up to them – are highly stage-managed by the spin doctors. These people are based in the PMO – prime minister’s office – with extension into every minister’s office, via the minister’s press secretary. All paid for by the taxpayer, naturally.

The spin doctors’ job is to use the “mainstream media” to convey to voters an unduly favourable view of the government and the things it’s doing. They do this by exploiting the foibles of journalists and their editors.

Hence, the common trick of releasing potentially embarrassing information late on a Friday, when it’s less likely to make the bulletin. The hope is that, by Monday, the under-reported story is passed over as “old”.

The spinners have the great advantage of a near monopoly over news about what the government is doing. Much of this news is put into press releases, but much is held for selective release to journalists and outlets that are in favour with the government. Write a piece like this one and don’t expect to be popular.

In the olden days, many budget “leaks” really were leaks, the product of journalists talking to bureaucrats and putting two and one together to make four. These days, bureaucrats are forbidden to speak to journos, so most budget leaks have come from the spin doctors, intended to soften us up for what’s to come.

Sometimes, something – say, that the government has decided to increase the JobKeeper payment only for the over-55s – is leaked to just one or two news outlets to “run it up the flagpole and see who salutes”. If it goes over well enough, it will happen. If there’s a big adverse reaction it may never be heard of again.

Any bad news is usually officially announced ahead of the budget, so it won’t spoil the budget’s reception on the night. Lots of small but nice decisions will be announced early, so they don’t get overlooked on the night.

But, particularly if there has been a big pre-announced unpopular measure, the spinners will save some nice, un-foreshadowed hip-pocket measure for unveiling on the night. This, being the only major budget measure that’s “new”, will dominate the media’s reporting. I call it the cherry on top.

As a former treasurer, John Kerin, demonstrated in 1991 – much to the disapproval of Paul Keating - there is no genuine need for reporters to be locked up and allowed to see the budget papers well before the treasurer delivers his speech at 7.30pm, immediately after the ABC evening news.

But the budget “lockup” persists to this day because of its great media-management advantages. It’s of much benefit to have the treasurer’s made-for-telly (that is, full of spin) budget speech broadcast in prime time, rather than after lunch. (The smaller disadvantage is that the ABC gives the leader of the opposition – not the shadow treasurer – right of reply, at the same time on Thursday night.)

The other advantage of a lockup is that letting journalists out so late in the day gives them little time to ask independent experts what they thought of the budget. Rather, they’ve spent six hours locked up with Treasury heavies. (I remember one saying to me, long ago: “Not much there to criticise, eh?” )

This media manipulation usually ensures the media’s first impressions are more favourable to the government than they should be, getting the budget off to a good start with the voters. Only on day two do the interest groups finish combing through the fine print and finding the carefully hidden nasties.

All pretty grubby, but true.

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RBA review attacks the groupthink of others, but not its own

With more time to think about it, it’s clear the review of the Reserve Bank is not the sweeping blockbuster shake-up overhaul we were told it was. Even if all its recommendations are accepted, ordinary borrowers and savers won’t discern any difference in the way interest rates go up and down. But to those who work at the Reserve, and the small army of people who make a lucrative living second-guessing its decisions, the proposed “modest improvements” are a big deal.

Ostensibly, they’re aimed at getting the Reserve up to “world best practice”. But that’s just a spin doctor’s term for doing things the same way everyone else does them. Where’s the evidence that the conventional wisdom is sure to be “best practice”?

It’s also a way of concealing the colonial cringe. Because the rich world’s financial markets are now so highly integrated, with the biggest rich country’s Wall Street setting the lead, most people in our financial market think that if we’re not doing it the way the US Federal Reserve does it, we’re obviously doing it wrong.

This inferiority complex is reinforced because, for the past 30 years, most other central banks have conformed to the US Fed’s ways – even the world’s best colony-conscious country, Britain, has switched to the Fed’s way.

So, what is the Fed’s way? To have interest rates set by a special committee of outside experts, meeting eight times a year not monthly, with each member employed part-time and getting lots of research assistance.

The monetary policy committee should hold a press conference after every meeting and each member should give at least one speech a year on the topic.

To be fair, the Reserve’s Americanisation was pre-ordained by Treasurer Jim Chalmers’ terms of reference and his decision to have the inquiry led by Carolyn Wilkins, a former Bank of Canada heavy and now Bank of England heavy.

Of course, just because we do things differently to the others doesn’t guarantee we’re doing it better, any more than it means we’ve been doing it worse. I’d say our performance over the past 30 years – since the introduction of inflation targeting – has seen a few missteps, but been at least as good as any of the others.

And if the American way is “best practice”, how come the Fed’s been so heavily criticised for being slow to respond to the inflation surge?

But let’s be frank. The review’s big criticism of the Reserve is that it’s too insular, too inward looking and inbred. Except when one Treasury man got the job, governors are always promoted internally. The present governor joined the bank from high school. External appointments to senior economic jobs are rare.

As the review’s critique implies, the Reserve is a one-man band. The governor’s word is law, with limited tolerance for debate. He runs as much of the show as he chooses to, leaving the boring bits to his deputy.

It suits the governor to have a board stacked with business people because, not being economists, their doubts are easily dismissed. Employees would never disagree with the boss in front of the board, and any reservations the Treasury secretary may have would be raised in private.

There always used to be a union leader on the board, but he was let go as part of John Howard’s efforts to delegitimise the union movement which, in his eyes, was in league with his Labor opponents.

This does much to explain the present governor’s ignorance of labour-market realities. Dr Philip Lowe bangs on unceasingly about wages, but excludes unions from the Reserve’s extensive consultations with business and even welfare groups. I don’t remember hearing that swearword “union” ever pass his lips.

There’s always been an academic economist on the board, but they’re in no position seriously to take on the establishment. The board rarely if ever votes on anything. Rather, the chairman-governor “sums up the feeling of the meeting”.

Note, the Reserve has worked this way for the four decades I’ve been watching it. But it does seem to have become more insular and, as the review charges, more subject to “groupthink”, under Lowe.

The inquiry heard from young ex-Reserve economists saying they’d been warned that expressing doubt about the house line would harm their promotion prospects. I’ve been hearing that lately, too.

It’s madness for the Reserve to recruit the cream of each year’s graduating economists, then tell ’em not to speak unless spoken to. And what a way to train the next governor but three.

So, bring an end to groupthink inside the Reserve? Of course. Get a more vigorous debate around the board table before deciding on rates? Sure.

But here’s the joke. While rightly criticising the Reserve for encouraging groupthink, the report is itself a giant case of groupthink. It accepts unquestioningly the conventional wisdom of recent decades that there’s really only one way you could possibly manage the economy through the ups and downs of the business cycle, and that’s by manipulating interest rates.

Any role for “fiscal policy” – changing taxes and government spending? Didn’t think of that but, no, not really. Just make sure it doesn’t get in the way of the central bank.

We’ve fiddled with interest rates so much we’ve got them down to zero. Should we stop? Gosh no. Just think of some way to keep going. The review accepts that the central banks’ misadventure into “unconventional monetary policy” – UMP – which it sanctifies as “additional monetary policy tools”, is now part of “best practice”.

Really? Competitive currency devaluations are the way to fix the global economy’s ills? Can you hear yourselves?

Apparently, slowing the growth in spending by directly punishing the small proportion of households young and foolish enough to load themselves up with mortgage debt is “best practice”.

No, it’s not. It’s just a sign that the review committee is so caught up by global groupthink that it has never thought there might be a better way.

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Starving the unemployed shames us all

I wouldn’t want to be Treasurer Jim Chalmers, as he puts the finishing touches to next week’s budget. Everywhere he looks he sees problems – problems that need solving by spending more taxpayers’ money. But the budget deficit must be kept low if we’re to get inflation down without even more rises in interest rates. Which raises what is, for any politician, a horrifying thought: perhaps we should be paying more tax, not less.

However, to any person with a shred of conscience, any belief in decent treatment of the less-fortunate, any care about maintaining Australia’s pride in being the land of the fair go, one issue towers above all others: our shameful treatment of the unemployed.

For years, we’ve gone on allowing the unemployment benefit – these days called the JobSeeker payment – to fall further and further below what the rest of us get, and further below the poverty line.

Get that? Since the mid-1990s, we’ve had – not as an unfortunate oversight, but as a conscious choice – a policy of starving the unemployed. Keeping them on a payment so low that, by the time they’ve paid rent and other inescapable costs, they often have to skip meals.

Late last year, the independent senator for the ACT, David Pocock, forced the Albanese government to introduce the biggest budget reform in ages. It had to set up a committee of experts to review the adequacy of welfare benefits, which would report its findings to the government every year, no less than two weeks before the annual budget.

The government released the Economic Inclusion Advisory Committee’s first report about two weeks ago. It made 37 recommendations, but stressed that one recommendation trumped all the others: that the government commit to a “substantial increase” in the base rate of the JobSeeker payment.

Specifically, it wanted the JobSeeker payment raised from 70 per cent of the age pension rate to 90 per cent.

Some unemployed people told their stories to the committee. “You can buy a tray of sausages and bag them up in the freezer for the fortnight,” one person said. “But yeah, you rarely get to have any meat. Fruit and vegetables are absolutely shocking. You can’t afford to eat healthily, that’s for sure. So, they’re killing us, basically.”

Another said, “I needed to manage my budget strictly. This included going for cheaper items in the supermarket, having smaller meals (i.e. an orange for lunch, soup at dinner time), only filling up petrol when I really needed to, using public transport or walking where I could to save on the cost of fuel, managing health appointments around how much money I had left in the bank that week.”

Think of it. Every year, just before the budget, this committee will pop up to remind us what a mean-spirited people we are, and how much worse it’s become since last year – until we do something to get it off our conscience.

But here’s what sticks in my gullet: when the government released the committee’s report, its spin doctors did all they could to play down the report and stress the absurd notion that the government could possibly afford to do anything about it when times were so tough.

They made 37 recommendations, which would cost $34 billion. Are you kidding? Where could we find that kind of money? And what about the report of the Women’s Economic Equality Taskforce (which the government just happened to release at the same time) and all its expensive recommendations?

Get real. We can’t do everything. So, what’s it to be – the unemployed or the women? (Never mind that half the people on JobSeeker are female, including the sole parents who got pushed off the parenting payment onto the dole.) And, some helpful journos have relayed, just between you and me, there’s no votes in increasing unemployment benefits.

I fear that’s true. It may even cost a few votes. There’s a lot of “downward envy” among Labor’s working-class voters. And both sides of politics are well aware of the electoral benefits of pandering to the worst side of the Australian character – resentment of boat people and supposed dole bludgers.

It’s easy to exaggerate the cost of raising the dole. As former Treasury secretary Dr Ken Henry points out, the annual cost of the committee’s proposal is $6 billion, less than 1 per cent of total government spending. “No more than an adjustment at the margin,” he says.

Among rich countries, we have the third-lowest unemployment benefits. If, as usual, you set the poverty line at half the median disposable income, the single JobSeeker payment has fallen from 14 per cent below the poverty line in 2000 to 68 per cent below in 2022.

Is that a record we’re happy to live with? Is Anthony Albanese, who’s always telling us how hard he and his pensioner mother did it, willing to let the jobless continue to suffer because there are no votes in doing the right thing? Is that all modern Labor stands for?

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How party politicking let mining companies wreck our economy

A speech by former Treasury secretary Dr Ken Henry last month was reported as a great call for comprehensive tax reform. But it was also something much more disturbing: an entirely different perspective on why our economy has been weak for most of this century and – once the present pandemic-related surge has passed – is likely to stay weak.

The nation’s economists have been arguing for years about why the economy has grown so slowly, why real wages have been stagnant for at least a decade, why the rate of productivity improvement is so low and why business investment spending has been so little for so long.

Most economists think we’ve just been caught up in the “secular stagnation” – or slow-growth trap – that all the advanced economies are enduring.

But Henry has a very different answer, one that’s peculiar to Australia. Unlike everyone else, he’s viewing our economy from a different perspective, the viewpoint of our “external sector” – our economic dealings with the rest of the world.

What conclusion does he come to? We’ve allowed ourselves to catch a bad case of what economists call “Dutch disease” – but Henry thinks should be renamed Old and New Holland disease.

When a country discovers huge reserves of oil or gas off its coast – or, in our case, the industrialisation of China causes the prices of coal and iron ore to skyrocket – all the locals think they’ve won the lottery and all the other countries are envious. Now we’ll be on easy street.

But when the Dutch had such an experience in the 1960s, they eventually discovered that, while it was great for their mining industry, it was hell for all their other trade-exposed industries.

Why? Because the inflow of foreign financial capital to build the new industry and the outflow of hugely valuable commodity exports send the exchange rate sky-high, which wrecks the international price competitiveness of all your other export and import-competing industries: manufacturing, farming and services.

Not only that. The rapidly expanding mining industry attracts labour and capital away from the other industries, bidding up their costs. Their sales are down, but their costs are up. You’re left with a “two-speed economy”. Remember that phrase? It’s what we’ve had for a decade or two.

Well, interesting theory, but where’s Henry’s evidence that Dutch disease is at the heart of our problems over recent decades?

He’s got heaps. Start with the way the composition of our exports has changed. Between 2005 and today, and in round figures, mining’s share of our total exports has doubled from 30 per cent to 60 per cent. Manufacturing’s share has fallen from 40 per cent to 20 per cent. Everything else – mainly agriculture and services – has fallen from 30 per cent to 20 per cent.

Over the same period, exports grew from 20 per cent of gross domestic product to 27 per cent. This means mining exports’ share of GDP has gone from about 6 per cent to more than 16 per cent. Manufacturing exports’ share has fallen from about 8 per cent to 5.5 per cent.

Next, who buys our exports? China’s share has gone from about 10 per cent to more than 45 per cent. Actually, that was the peak it reached before China’s imposition of restrictions after some smart pollie decided it would be a great idea for Australia to lead the charge of countries blaming China for COVID. Since then, China’s share has fallen to 30 per cent.

Since 2005, mining’s share of total company profits has gone from about 20 per cent to 50 per cent. Manufacturing’s share has fallen from about 20 per cent to less than 10 per cent. Financial services – banking and insurance – have seen their share fall from 20 per cent to less than 5 per cent.

Now, what’s happened to those industries’ share of total employment? Manufacturing’s share has fallen from more than 9 per cent to about 6 per cent. Financial services’ share has been steady at a bit over 3 per cent. Mining’s share has risen from less than 1 per cent to 1.5 per cent. You beauty.

“In summary,” Henry says, “mining employs a very small proportion of the Australian workforce – except in the boom times, when it induces a worker to leave other jobs for mine-site construction work – generates about 60 per cent of Australia’s exports, about half of pre-tax profits (mostly repatriated overseas to foreign shareholders) and exposes the Australian economy to highly volatile global commodity prices and a heavy strategic dependence upon a single buyer, China.”

Not to mention the way mining leaves us heavily exposed to “the risk of global decarbonisation”.

How have we profited from being a mining-dominated economy? Real GDP per person – a rough measure of our material standard of living – has been in trend decline for two decades. In the decade pre-pandemic, “we recorded the sort of growth rates only previously recorded in recessions,” Henry says.

This weakness is largely explained by our poor productivity performance. Though no one else seems to have noticed, our productivity growth is negatively correlated with our “terms of trade” – the prices we get for our exports, relative to the prices we pay for our imports.

That is, when our terms of trade improve, our rate of productivity improvement worsens. And our terms of trade are largely driven by world commodity prices, especially for coal, gas and iron ore.

Now the tricky bit. Why would a mining boom depress productivity improvement? Because of the way it raises our real exchange rate – our nominal exchange rate, adjusted for the change in our rate of production-cost inflation relative to those of our trading partners.

The resources boom increased our nominal exchange rate by about 25 per cent. Then, by 2011, high wages growth and weak productivity growth relative to our trading partners had added a further 35 per cent to the rise in the real exchange rate, Henry calculates.

This caused our non-mining producers to suffer a “profound loss of international competitiveness”. Is it any wonder that, between the turn of the century and 2019, the annual rate of investment by non-mining businesses fell from 7 per cent of GDP to 5 per cent?

The result is that two centuries of “capital-deepening” – increased equipment per worker – have stalled. This move to “capital-shallowing” explains our poor productivity.

And also, our move from current account deficit to current account surplus. “We are exporting [financial] capital because Australia has become an increasingly unattractive destination for doing business in the eyes of foreign investors and Australian [superannuation] savers alike,” Henry says.

“The mining boom has left us with a very big competitiveness overhang that will probably take decades to work off,” he says, including by decades of weak growth in real wages.

What should we have done differently? Had we applied a rational tax to the windfall profits of the mining companies, we would not only have retained for ourselves more of the proceeds from the export of our own natural resources, but also caused the rise in our real exchange rate to be lower.

Remember Kevin Rudd’s proposed “resource super profits tax”? The mining lobby set out to stop it happening, telling a pack of lies about how it would wreck the economy. The Abbott-led opposition threw its weight behind the mainly foreign miners.

Julia Gillard consulted the industry and cut the tax back to nothing much. The incoming Abbott government abolished it.

Petty, short-sighted politicking caused us to sabotage our economy for decades to come.

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Yes, the government does believe what companies do you to online

How often have you had trouble cancelling a subscription to a streaming video site or some other service? When you’re trying to do something online, how often have you ticked a box to say you’d read the terms and conditions, when you hadn’t?

I do it all the time. And my guess is that almost everyone else does too. Why? Because the site won’t let you get on with making a restaurant booking or buying something until you do.

You don’t have the time to read the terms and conditions, which probably run to several pages of fine print. And how would you benefit if you did? It will be written in legalese – by lawyers, for lawyers.

What little you could understand would give you a clear impression: you have few rights, but the company has loads. Ah, it was written by the company’s lawyers to cover its backside, but not yours.

Say you were mad enough to wade through all that guff. Can you imagine the reception you’d get if you rang the company’s call centre and told someone in Manila that you’d like them to explain what term 3(b) means, and could they strike out clause 9(f) because it’s unacceptable?

No, it’s a take-it-or-leave-it deal. The company knows you won’t have read or understood the terms and conditions, and it doesn’t care. All it wants is to be able to tell the judge you said you had, so you’ve got no grounds for complaint.

But can companies really get away with those kinds of stunts? Are the unfair conditions they write into their contracts legally enforceable? In most rich economies – even the US – no they’re not.

And in Australia? In a speech last week, Dr Andrew Leigh, Assistant Minister for Competition, gave the answer: maybe, maybe not.

He told a small business conference that those leasing printers from Fuji Xerox may have received notification that certain terms in their contracts were void.

That’s because, on application by the Australian Competition and Consumer Commission, last August the Federal Court found that 38 contract terms in 11 of Fuji Xerox’s small business contracts were void and unenforceable. These included ones providing for automatic renewal, excessive exit fees and unilateral price increases.

You may not know that the commission protects small businesses as well as consumers. Leigh reminded us that one of the government’s first acts last year was to prohibit the use of unfair terms in standard-form contracts.

From November this year, the commission and the Australian Securities and Investments Commission can ask the court to fine big businesses that try to push small businesses around in this way.

But unfair contract terms are one thing; unfair trading practices are another. Although the Australian Consumer Law bans several specific unfair practices, there’s no general ban on them. The government is working on this.

One form of unfair trading practice is the “dark patterns” used by companies on their websites. Leigh says these are subtle tweaks in the way sites are designed, intended to trick users into doing things they didn’t intend to do. They discourage consumers from doing things that would reduce the company’s sales.

Efforts to make it hard for you to unsubscribe from digital streaming services are so notorious the Norwegian Consumer Council wrote a whole paper about them, Leigh said.

It compared how hard it was to sign up for Amazon Prime with how hard it was to cancel a subscription. “Consumers who want to leave the service are faced with a large number of hurdles, including complicated navigation menus, skewed wording, confusing choices, and repeated nudging,” it found.

(What I found, before I switched to the ordinary taxis’ app, was how hard it was to cancel a ride with Uber, even though drivers were playing pass-the-parcel with your order. And how hard it was to query a surprisingly high fare, only to have my complaint considered and dismissed in a nanosecond.)

The commission lists other examples of dark patterns: false reminders such as low-stock warnings and false countdown timers, preselected add-ons to what you purchased, and illogical colours, such as a red button for yes and a green button for no.

Then there’s the manipulation of search engines, such as when food delivery companies impair the ability of restaurants to attract customers by ensuring the delivery company’s site appears above the restaurant’s in internet searches.

There’s nothing new about unfair trading practices. But, with the law as it stands, the commission has had mixed results getting firms prosecuted. It alleged Medibank had engaged in misleading conduct in what it told members about its benefits. The Federal Court said Medibank had acted “harshly” and “unfairly”, but still ruled against the commission.

In another case, the commission was unsuccessful in bringing an action against a vocational education and training provider that used door-to-door selling in disadvantaged communities, promising students a free laptop, and promising the courses were free if the students’ earnings stayed low. Such behaviour was found not to breach the act.

The US, European Union, Britain and Singapore simply prohibit unfair trading practices. The US, of all places, has been doing it since 1938.

The Albanese government is working on plans to do something. Leigh says the government knows that effective competition depends on strong safeguards for households and small businesses.

“When laws allow a firm to get away with ripping off consumers, it can create the wrong competition incentives. Other firms in the market see bad behaviour go unpunished and protect their own patch by employing the same dodgy tactics. Soon enough there’s a race to the bottom in dodginess,” he said.

Consumer protections are intended to improve the wellbeing of consumers – and small businesses. But consumer protections also foster effective competition.

They help drive a race to the top in service quality. “But that race to the top can only occur if there’s enough competition,” Leigh said.

True. So, what we also need is stronger merger laws.

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The taxman's sneaky trick that will quietly pick our pocket

I’ve seen some sneaky tax tricks in my time, but nothing that compares with this. It could go down in history as the perfect fiscal crime – except that many people won’t notice that some politician has taken money out of their pocket. Which, of course, is what makes it the perfect crime.

All most people may notice is that the cost of living’s got even worse, but they won’t quite realise why. That’s partly because most of the media won’t be making a song and dance about it.

Why not? Because nothing’s been announced. Because you have to know a fair bit about the tax system to understand what’s happening. Because neither side of politics wants to talk about it. There’s no controversy. And neither side’s spin doctors are keen to confirm to inquiring journalists that the strange story they read in this august organ is right.

Since the trick first became apparent to the experienced eye, in Scott Morrison and Josh Frydenberg’s budget in March last year, just before the election, my colleague Shane Wright and I have been determined to make sure our readers were told.

Wright was at it again on Saturday, and now I’m making sure you got the message. Don’t say we didn’t tell you, even if others have been far less vocal about it.

It’s a complicated story, hard to get your head around and, particularly because it’s about something that isn’t happening now but will happen later, one that’s easily forgotten.

As you see, the move was initiated by the Coalition, but will have its effect under Labor. The opposition may try to blame it on the government, but it’s probably too complicated.

This is a story about the misleadingly named Low and Middle Income Tax Offset, known to tax aficionados as “the LAMIngTOn”. It began life as stage one of the three-stage income tax cuts announced in the budget of May 2018, to take effect over seven years.

The previous government kept changing the amount of the offset – a kind of tax refund – over the years. It started out as “up to” $530 a year, but was increased to $1080 a year just before the 2019 election.

It was to have been absorbed into the second stage of the tax cuts, but it was decided to keep it going. Then, in last year’s pre-election budget, it was decided to increase it by $420 to “up to” $1500 a year. Yippee, we said. Good old Liberals!

By then, people earning up to $37,000 a year got a refund of $675 a year. It then slowly increased to be the full $1500 for those earning between $48,000 and $90,000 a year. Then it started cutting out, reaching zero when income reached $126,000.

This meant more than 10 million taxpayers – almost 70 per cent of the total – got a rebate on top of any other refund they were entitled to.

But here’s the trick. Unlike a normal tax cut, which goes on forever, the lamington was a temporary measure. If it were to be continued for another financial year, a decision had to be made. Morrison and Frydenberg’s last budget contained no such decision.

Why not? Because, in the days leading up to the budget, cabinet decided to increase it, but not to continue it beyond June 2022. Decisions not to do things don’t have to be announced, and this one wasn’t. For obvious reasons.

You really had to be in the know to realise that this constituted a decision to increase the tax 10 million people would pay in 2022-23, by up to $1500 a throw.

Wright and I were at pains to point this out in our coverage of the budget. We thought that, especially with an election imminent, people might find it pretty interesting. But, with neither side of politics wanting to talk about it, few people took much notice. Perhaps they didn’t believe us.

The other strange thing about the lamington is that, whereas a normal tax cut flows through immediately to increase your fortnightly take-home pay, you don’t get a tax cut delivered in the form of a tax offset until after the relevant financial year has ended and you’ve submitted your tax return. The taxman just adds it to any other refund you’re entitled to.

This means the last-ever lamington, for 2021-22, was served up between July and October last year.

It also means that the only way many lamington eaters will get a hint that they paid a lot more tax in the year to June 2023 is when, some time after July, they notice that their refund cheque is a lot smaller than last year’s and wonder why.

Note, I don’t disagree with the two-party cartel’s decision to be rid of the lamington. It was a stupid way to cut tax, born of creative accounting. But when they tacitly collude to conceal what they’ve done, it’s supposed to be the media’s job to point it out. We’ve done our bit.

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In politics and the economy, Christianity is increasingly suspect

A question for Easter Monday: would Australia be better governed if our political leaders were practising Christians? Would the economy work any better?

One thing that’s changed since last Easter is that we’re no longer led by a prime minister happy to let his Christian faith be known. By contrast, I wouldn’t know what Anthony Albanese’s religious views are, if any.

Another thing that’s changing is the decline of adherence to Christianity in its many denominations. This is partly the immigration of many people of other religions, but mainly the growing indifference of many from formerly churchgoing families. And, perhaps, the growing number of university graduates.

According to the 2021 census, the proportion of people identifying as Christian has fallen from 61 per cent to 44 per cent in a decade, with those reporting “no religion” rising from 22 per cent to 39 per cent.

So, it’s no exaggeration to say we now live in a post-Christian society. Nor that a growing number of people have a low opinion of those who profess to be Christians. They’ve said or done something bad – well, what would you expect?

Actually, that’s a good question: what do we expect of Christians? How differently would a professing prime minister behave to one who kept their religious opinions to themselves?

I think the main expectation of most people – certainly, most young people – would be for Christians to be always on about their opposition to abortion, same-sex marriage and gender-changing.

Plus, their God-given right to discriminate against those in their churches, schools or hospitals who don’t conform to these views.

Is this the view of themselves and their mission – and their God - that Christians and their leaders are happy to convey to the rest of the nation? That Christ died on the cross to preserve a narrow view of sexual morality?

To be fair, it’s only when clergy speak on such controversial matters that the media take much notice of what they say. An archbishop preaching a sermon on Love One Another gets a headline only on Good Friday.

But I suspect it’s only on matters of (their view of) sexual morality that the churches go out of their way to attract media publicity. By default, this is the churches’ burning message to the nation.

If that’s all Christianity has left – if it now sees itself as an oppressed minority fighting to protect its right to discriminate on religious grounds – then whether our prime minister is an out-of-the-closet Christian is of little consequence for the governance of the nation and the health of the economy.

As we saw with Scott Morrison, such a prime minister won’t prevail against the weight of the nation’s support for sexual freedom and opposition to discrimination on sexual or religious grounds.

The worst we could expect is feet-dragging on the goal of increasing women’s role in politics and the paid workforce.

But this is not the Christianity I grew up with, nor does it fit with the values and behaviour of the many Christians I still mix with. Everything I know about the church and its Saviour tells me sex is just a small part of its definition of what it means to live a “moral” life.

The imitation of Christ is about loving your neighbour as yourself – and defining “neighbour” very broadly. It’s about honesty and meticulous truth-telling, about justice tempered by mercy, about forgiveness and fairness.

And, from what I read in the New Testament, it’s about Jesus’ preoccupation with the poor and strictures on the rich: “Sell everything you have and give it to the poor.”

When I heard a secret recording of Morrison speaking at a prayer meeting, the sentiments and phrases reminded me of my parents and all the prayer meetings I had attended.

But in watching Morrison’s words and actions as prime minister, my recurring feeling over the four years was that nothing about them reminded me of Jesus.

He was not the only prime minister to pander to, and play on, the worst features of the Australian character. Punishing boat people who arrive without an invitation. Telling the underprivileged that “those who have a go, get a go”.

Ignoring the law to use robo-debt to falsely accuse people the mean-spirited regard as dole bludgers. And insisting on keeping unemployment benefits well below the poverty line.

If we could get a prime minister who acted in a less un-Christian way, it wouldn’t matter much who or what he believed in. The economy would be fairer, and we could all enjoy our prosperity with a clearer conscience.

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Don't let an economist run your business, or bosses run the economy

A lot of people think the chief executives of big companies – say, one of the four big banks - would be highly qualified to tell them how high interest rates should go and what higher rates will do to the economy over the next year or two.

Don’t believe it. What a big boss could tell you with authority is how to run a big company – their own, in particular. Except they wouldn’t be sharing their trade secrets.

No, in my experience, when bosses step away from their day job to give Treasurer Jim Chalmers free advice, their primary objective is to tell him how to run the economy in ways that better suit the interests of their business (and so help increase their annual bonus).

But when it comes to keeping our banks highly profitable, our treasurers and central bankers are doing an excellent job already.

Of course, it’s just as true the other way around: don’t ask an economist to tell you how to run a business. It’s not something they know much about.

Running big businesses and running economies may seem closely related, but it’s not. They’re very different skills.

One of the ways the rich economies have got rich over the past 200 years is by what the father of economics, Adam Smith, called “the division of labour” – dividing all the work into ever-more specialised occupations. By now, managing businesses and managing economies are a world apart.

But as Free Exchange, the economics column in my favourite magazine, The Economist, explains in its latest issue, there’s more to it than that.

Conventional economic theory sees the economy as composed of a large collection of markets. Producers use resources – labour, physical capital, and land and raw materials – to produce goods and services, which they sell to consumers in markets.

Producers supply goods and services; consumers demand goods and services. How do producers know what to supply and consumers what to demand? They’re guided by the ever-changing prices being demanded and paid in the market.

So economists see economics as being all about markets using the “price mechanism” to ensure the available resources are “allocated” to the particular combination of goods and services that yields consumers the most satisfaction of their needs and wants.

It wasn’t until 1937 that a British-American economist, Ronald Coase, pointed to the glaring omission in this happy description of how economies work: much of the allocation of resources happens not in markets but inside firms, many of them huge firms, with multiple divisions and thousands of employees.

Inside these firms, the decisions are made by employees, and what they do is determined not by price signals, but by what the hierarchy of bosses tells them to do. A key decision when something new is wanted is whether to buy it in from the market, or make it yourself.

The Economist says another gap between economic theory and the world of business is the economists’ assumption that firms are profit-maximising. Well, they would be if they could be.

Trouble is, contrary to standard theory, they simply don’t have the information to know how much they could get away with. Gathering a lot more information would be expensive and, even then, they couldn’t get all they need.

As the American Herbert Simon – not really an economist, which didn’t stop him winning a Nobel Prize – realised, businesses live in a world of “bounded rationality” – they make the best decision they can with the information available, seeking profits that are satisfactory rather than ideal. They are “satisficers” rather than maximisers.

It took decades before other economists took up Coase’s challenge to think more about how companies actually go about turning economic resources into goods and services.

The Economist says a key idea is that the firm is “a co-ordinator of team production, where each team member’s contribution cannot be separated from the others.

“Team output requires a hierarchy to delegate tasks, monitor effort and to reward people accordingly.”

But this requires a different arrangement. In market transactions, you buy what you need and that’s pretty much the end of it. But, because a business can’t think of all the things that could possibly go wrong, a firm’s contracts with its employees are unavoidably “incomplete”.

Without these legal protections, what keeps the business going is trust between employer and employee, and the risk to both sides if things fall apart.

Another problem that arises within companies is ensuring employees act in the best interests of the firm, and are team players, rather than acting in their own interests. Economists call this the principal-agent problem.

In law, and in economic theory, businesses are owned by their shareholders, with everyone employed in the business - from the chief executive down – acting merely as agents for the owners. Who, of course, aren’t present to ensure everyone acts in the owners’ interests, not their own.

Economists came up with the idea of ensuring the executives’ interests aligned with the owners’ interests by paying them with bonuses and share options.

Trouble is, these crude monetary incentives too often encouraged executives to find ways to game the system. Ramp the company’s shares just before you sell your options and let the future look after itself.

Elsewhere, linking teachers pay to exam results encourages too many of them to “teach to the test”.

More recently, economists have decided it’s better to pay a fixed salary and avoid tying rewards to any particular task – which could be achieved by neglecting other tasks.

But whatever economists learn about how to manage businesses, it’s hard to see them supplanting management experts any time soon.

As The Economist observes, when a business hires a chief economist, it’s usually for their understanding of the macroeconomy or the ways of the central bank, not for advice on corporate strategy.

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Why I'm happy to bang the drum for higher wages

I’ve long believed that no government – state or federal, Liberal or Labor – should be in office for more than a decade before being put out to pasture. But I can’t say the demise of the 12-year-old Perrottet government in NSW filled me with joy.

Liberal-led governments have been falling like ninepins. But this one happened to be the only one genuinely committed to limiting climate change, improving early childhood education and care, and getting more women into politics (even if its party members weren’t playing ball).

The best thing about Dom Perrottet’s departure is the end of his cap on the size of public sector pay rises. Its removal will add to pressure for higher public sector wages in the other states – particularly Victoria – and at federal level.

It will even put a bit of upward pressure on wage rates in the private sector.

If you wonder why pay rises have been so small over the past decade, government wage caps – in Labor states as well as Liberal – are part of the reason. They’ve reduced the price competition for workers throughout the economy.

But don’t take my word for it. When he was desperate to get inflation up to his 2 to 3 per cent target range, Reserve Bank governor Dr Philip Lowe said the same.

In NSW, public sector wage rises were capped at 2.5 per cent in 2011. Only when the inflation rate started heading to 8 per cent was it lifted to 3 per cent.

There’s never a shortage of people predicting that higher wage rates will lead to death and destruction. Many Canberra lobbyists make a good living crying poor on behalf of the nation’s employers.

I’m sure there must be some businesses somewhere doing it tough, but you don’t see much evidence of it in the business pages of this august organ. The reverse, in fact.

But won’t higher wages just lead to higher prices? Yes, but not to the extent it suits business groups to claim. Wages and other labour costs don’t account for anything like the majority of the costs most businesses face.

If all firms do is pass on their higher labour costs, all it will do is slow our return to low inflation. It’s when firms use the cover of the highly publicised rises in their costs to add a bit extra to their price rises that inflation takes off.

But that’s less likely now the Reserve Bank is jacking up interest rates to slow the economy down. It won’t say so, but it’s hitting the brakes precisely because businesses were getting a bit too willing with their price rises.

Certainly, it’s not because wage rises have been too high. Few if any workers have been getting – or are likely to get – wage rises anything like as high as the rise in prices.

That’s likely to be true even for the “frontline” nurses and teachers in NSW, whose unions will be celebrating the end of the wage cap by hitting Premier Chris Minns for big increases.

It will be least true for the bottom quarter of workers dependent on the national minimum wage and the range of minimum wage rates set out in awards, who are likely to be awarded decent pay rises by the Fair Work Commission, as they were last year.

We can’t possibly afford that? Really? Nah. “If you made a list of all the things that are giving us this inflation challenge in our economy, low-paid workers getting paid too much wouldn’t be on that list,” Treasurer Jim Chalmers has said.

Why am I happy to bang the drum for higher wages? Because, as any year 11 economics student could tell you, the economy is circular.

Business people may begrudge every cent they pay their workers, but they’re pretty pleased to have all those dollars back when the nation’s households front up at their counters.

A big part of managing a capitalist economy involves saving short-sighted business people from their folly.

As for minuscule public sector pay caps, ask yourself why it’s fair enough to expect people who work for the government to accept lower rates of pay. Because they’re second-class citizens? Because they stand around leaning on shovels?

Because they’re not as smart as the rest of us? Well, if you go on doing that for long enough, you probably do end up with the cream of the crop going to higher-paying jobs in the private sector.

Which means it’s not just a matter of fairness. Underpay your nurses and teachers and then wonder why you can’t get enough recruits.

Yes, but how will Minns possibly pay for those higher wages? He could cut the number of nurses and teachers he can afford to employ, but I doubt he will.

No, he’ll do what a business would do: raise his prices. Except that, in government, prices are called taxes. You want the workers? You pay the going rate. It’s the capitalist way.

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Climate choice: cling to past glories or strive for prosperous future

The big question facing our political leaders is: are we content to allow climate change to turn us from winners into losers, or do we have the courage and foresight to transform our mining, energy and manufacturing industries into clean energy winners?

For most rich countries, playing their part in limiting global climate change is simply about switching from fossil fuels to renewable energy. For us, however, there’s a double challenge: as one of the world’s biggest exporters of fossil fuels, what do we do for an encore?

When it comes to deciding how we can earn a decent living, economists are always telling politicians to pursue our “comparative advantage” – concentrate on doing what we’re better at than other people, and they want to buy from us; then use the proceeds to buy from them what they’re better at than we are.

Turns out our “natural endowment” makes us better at farming and mining. Climate change will be bad for farming (not that the world will stop wanting to eat), and the only future for fossil fuel exports is down and out. It may take a decade or two to reach zero, but there’ll be no growth from now on.

Most economists have little to say about what you do when your natural endowment becomes a stranded asset and our comparative advantage evaporates. Except for Professor Ross Garnaut, who was the first to realise that nature has also endowed us with a bigger share of sun and wind.

If we tried hard enough and were quick enough, we could not only produce all the renewable energy we need for our own use, but find ways to export it to less well-endowed countries, probably embodied in green steel and aluminium.

This, of course, involves innovation and risks. We’re talking about technological advances that haven’t yet been shown to work, let alone commercialised. Doing things that have never been done before.

When it comes to technology, Australia is used to following the leader, not being the leader. Until now, this has been sensible for a smaller economy like ours. But we’re facing the impending loss of our biggest export earner. If we can’t find something just as big to sell, we’ll see our standard of living rapidly declining.

The threat we face isn’t quite existential. We’ll still be alive, just a lot poorer – and kicking ourselves for not seeing it coming and doing something about it.

The solution’s in two parts. First, the federal government must make clear to the coal and gas industries, the premiers, the mining unions and the affected regions that there’ll be no further support or encouragement for anyone pretending they haven’t seen the writing on the wall. Anyone trying to stop the clock and keep living in the past.

There’ll be plenty of support and encouragement, but only for those industries, workers and regions needing help to move from the old world to the new. As part of this, the government must do what now even the UN secretary-general says every country must do: end subsidies of fossil fuels and use the money to assist the move to renewables and green production.

Help coal miners relocate or retrain – whatever. Promise that, wherever it made sense, the new renewable and green industries would be set up near the old mines.

Ideally, the policy of ending the old and moving to the new should be bipartisan. No opposition should take the low road of courting the votes of those preferring to keep their head in the sand.

But if that’s too much to ask of a two-party duopoly, Anthony Albanese and the Labor premiers should take their lives in their hands and overcome their life-long fear of what the other side will say when you put the national interest first.

Second, pick winners. Econocrats spend their lives telling governments not to do that – not to subsidise new industries you hope will become profitable.

Trouble is, politicians being politicians, you can be sure they’ll be putting taxpayers’ money on some horse in the race. And if they’re not trying to pick winners, they’ll be doing what they’re doing now: backing losers. Which would you prefer?

More importantly, it’s a neoliberal delusion that new industries just spring up as profit-seeking entrepreneurs seek new ways to make their fortunes. Doing something never done before is high risk. The chance of failure is high. Banks won’t lend to you.

We don’t stand a chance of becoming a green superpower without a lot of government underwriting with, inevitably, some big losses. But I can think of many worse ways of wasting taxpayers’ money.

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Our days of productivity improvement may be gone for good

The Productivity Commission’s five-yearly report on our productivity performance seems to have sunk like a stone but, before it disappears without trace, it has one important thing to tell us: the obvious reason productivity improvement has slowed, and why, ceteris paribus, it will probably stay slow.

Economists like trying to impress people with Latin phrases. Many conclusions in economics depend on the assumption of ceteris paribus – all other things remaining unchanged. Economists are always holding all other variables constant while they see what effect a change in variable A has on variable B.

Trouble is, in the real world, all else almost never stays unchanged. In which case, the relationship between A and B that you thought you could rely on has been stuffed up by some other variable or variables between C and Z.

Back to the point. Everyone thinks they know what productivity means, but they often don’t. The commission’s report says productivity improvement is “the process by which people get more from less: more and better products to meet human needs, produced with fewer hours of work and fewer resources”.

“In many cases this growth occurs with lighter environmental impact” – a truth many scientists just can’t seem to get their heads around.

The report says that over the past 20 years, the rate of improvement in productivity has slowed in all the rich countries, but with Australia slowing more than most.

Why? Many reasons, no doubt, but one big one that ought to have been obvious, since the American economist William Baumol noticed it in the 1960s.

The fact is that most improvements in the productivity of labour come from advances in technology. You give workers better, “labour-saving” machines to work with, which allow them to produce more in a typical hour of work.

(The other big one is giving workers more education and training, which allows them to work more complicated machines – including computers and software – design more complicated machines and programs, and service complex machines.)

Trouble is, it’s easier to improve productivity in some industries than others. In particular, industries that produce goods – on farms, in mines and in factories – can, and have, hugely increase their productivity by mechanising and computerising. Same in utilities, transport and communications.

In the production of services, however, it’s much harder. Although some services can be delivered digitally – streaming video, say – with little involvement by workers, most services are delivered by people, from less-skilled services delivered by waiters, cleaners, bedmakers and shop assistants, to highly skilled teachers, nurses, doctors, lawyers and prime ministers.

You can give these workers a car or a mobile or a screen, or give a hairdresser a better pair of clippers, but there’s not a lot you can do to speed them up. As Baumol famously remarked, it takes an orchestra just as long to play a symphony today as it did in 1960 – or 1860.

After two centuries of playing this game, we’ve ended up with goods industries that are highly “capital-intensive” – lots of expensive equipment; not many workers – and service industries that are highly “labour-intensive”: many workers; not much equipment.

Which means the productivity of labour is sky-high in the goods sector, but not great in the services sector.

But here’s the trick. You might expect that wages will be much higher in the high-productivity goods sector and much lower in the low-productivity services sector. But no. Wage rates do vary according to the degree of skill a worker possesses, and on the demand for that particular skill.

But a cleaner in a factory gets paid pretty much the same as a cleaner in a lawyers’ office. And a doctor gets much the same working in a big factory’s clinic as in a hospital.

Why’s that? Because, if an economy is working properly (which ours isn’t at present), it’s the economy-wide improvement in productivity that tends to increase all real wages by about the same percentage.

This is brought about by market forces. Despite their low productivity, employers in the services sector have to pay higher wages to stop their workers moving to higher-paying jobs in the goods sector.

Remember too, that over time, mass production lowers the prices of manufactured goods. That’s particularly true if you judge it by how many hours of labour it costs to buy, say, a car or a restaurant meal.

What we’re saying is that, in rich, high-productivity economies such as ours, labour is the more expensive resource, and capital the less expensive resource.

It’s also true that there’s a limit to how much you can eat, how many cars you can drive and how many TV sets you can watch, but no yet-discovered limit to how many services you can pay other people to perform for you.

Put all that together and the goods sector’s share of the economy keeps getting smaller, while the services sector’s grows – to 80 per cent of the economy (gross domestic product) and 90 per cent of total employment.

But it also means that the sector which has little ability to improve the productivity of its labour also has to keep paying more for its labour as the goods sector increases the productivity of its labour.

Gosh, that’s not nice. No, which is why Baumol said that the services sector suffers from “cost disease”. And the services sector’s huge and growing share of the economy explains why productivity in the economy overall is improving more slowly than it used to.

But it could become even worse. If, as it seems, the goods sector has finally exploited almost all its potential to become more productive, and there’s not a lot of obvious scope to improve the services sector’s productiveness, it’s hard to see how we’ll get much more productivity-driven growth in the economy.

What a dismal prospect. Talk about the problems of affluence. You know, I don’t think the world’s poor have any idea how hard life will become for us.

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Voters turn from the big parties, increasing political competition

John Howard is right to describe the NSW election result as a “conventional change of government”. An old and disfigured government was tossed out and the other side given a go. It’s common when a government’s been in power for a decade or more. But don’t let this convince you nothing’s changed about the way we vote.

What’s happening is that the longstanding two-party system of government is breaking down before our eyes. Years of bad behaviour by the Coalition and Labor are leading more people to vote for minor parties and independents.

This means it’s become rare for any government, state or federal, to be elected with a big majority. Majorities now tend to be narrow, and minority governments are common, particularly at state level.

The big two are always telling us a “hung parliament” would be a terrible thing, causing “chaos and confusion”. Not true. They say this because it would be a terrible thing for them, requiring them to do deals with people they hate, to get the numbers to govern.

The “crossbenchers” usually drive a hard bargain. NSW’s four-year, fixed-date elections were forced on Liberal premier Nick Greiner in 1991 by three independents. Julia Gillard’s short-lived carbon tax was forced on her by the Greens, when she fell short of a majority in 2010.

So weaker governments are bad for the major parties, but good for democracy and voters, who get more to choose from.

Why is any of this the business of an economics writer? Because the nature of competition between a few big players in a market – “oligopoly” – is a subject economists study. And two-party government has a lot in common with markets dominated by two huge companies – duopoly.

But first, a closer look at the latest election. The “landslide” to Labor is looking a fair bit less than it looked on Saturday night. Chris Minns hasn’t yet secured a majority, and if he does, it will be narrow. Why? Because so many people are voting for minor parties and independents. At this stage in the counting, 28 per cent of voters spurned the big two. This compares with almost 32 per cent at the federal election last May, where the big swing away from the Liberals gave Labor just a narrow majority.

In NSW, the Greens look to have retained their three seats in the lower house, with independents looking sure of eight seats, and probably more. One of the new independents was backed by teal money.

An American economist named Harold Hotelling is famous for talking about a beach with two ice-cream sellers. From the swimmers’ perspective, the best place for them would be one at the quarter-mark and the other at the three-quarter mark. This would minimise the distance anyone had to walk to get a cone.

But Hotelling figured that the two would end up back-to-back at the centre of the beach. Why? Because that was the way each could ensure the other got no more than half the “market share”.

The social psychologist Hugh Mackay says that the key to competition is to focus on the customer, not your competitor. That’s just what oligopolists and our political duopolists don’t do.

If there’s one thing most people don’t understand about politics it’s the way each big party obsesses about what the other side’s doing, and how it will react to what they do.

It was this that caused Anthony Albanese to go to last year’s election promising to do nothing that could offend anyone much. Promise to make needed but controversial changes and the other side launches a scare campaign. It’s only when politicians tell us how bad the other side’s policies would be that we’re tempted to believe them.

The two sides are always trying to “wedge” each other by announcing a bad but popular policy and hoping the other side will be silly enough to oppose it.

Trouble is, they rarely fall for it. They sidestep the wedge by supporting the policy. Which means both sides end up agreeing to do bad things. This is why Albanese agreed to the AUKUS pact sight unseen and, earlier, to stick with the stage three tax cut that’s biased against Labor voters.

This is where the minor parties come in, particularly those sharing the balance of power in the Senate. They can use their power to stop, or at least tone down, the bad policies the government of the day foolishly locked itself into.

Consider this. Last week Climate Change Minister Chris Bowen loudly vowed not to negotiate with the Greens over his “safeguard mechanism”. But by Monday, wiser heads had prevailed, and a deal was done, making the mechanism much more effective.

The big two each offer voters a policy package-deal not very different to the other one’s. Whichever package you pick will include policies you don’t like. But the minor party and independent “new entrants” to the political market give consumers a wider choice by forcing the big guys to “unbundle” their packages.

Sounds more like democracy’s supposed to be.

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Labor is just pretending to be tough on climate change

Labor talks the talk, but doesn’t walk the walk. Last week’s “final warning” from the Intergovernmental Panel on Climate Change – and the Albanese government’s refusal to be moved by it – should be a game-changer in our assessment of Labor’s willingness to do what must be done.

The IPCC’s message – driven home by UN Secretary-General Antonio Guterres – was that we’re almost out of time to avoid much of the worst climate change. Whatever plans we had to reduce greenhouse gas emissions, we must step them up, and speed them up.

Regarding last year’s federal election, the message is that Labor’s plan is complacent and compromised, and the Greens and teals were right to demand much tougher, faster action.

But not only did Climate Change Minister Chris Bowen show no sign of getting the UN’s message, he announced his refusal to negotiate with the Greens to make improvements to his “safeguard mechanism” legislation.

You need to know that Albanese Labor hates the Greens more than it hates the Liberals. Bowen could have decided to use the need to win the Greens’ support for his bill in the Senate as cover for making the bill stronger than Labor promised in the election campaign.

Instead, he decided to put the interests of our grandchildren second to this fabulous chance to “wedge” the Greens. They could either vote for Labor’s bill as is, or they could join the Coalition in voting it down – just as they did when they voted down Kevin Rudd’s carbon pollution reduction scheme in 2009.

This would leave the government with no means of achieving its target of reducing emissions by 43 per cent by 2030. And, Bowen bellowed in the House, that would be all the Greens’ fault. (It doesn’t seem to have occurred to Bowen and his boss that if they go to the 2025 election having done nothing to fight climate change, blaming it all on the Greens won’t be a good enough excuse.)

But last week showed that the problem with Labor isn’t just its political cynicism and game-playing. Until last week, it was possible to see the Greens’ demand that no new coal and gas projects be approved as the kind of over the top zealotry you’d expect from those crazies. And, as it happens, the teals.

This is what Guterres said last week in welcoming the IPCC’s final warning. “The climate time-bomb is ticking.” We do have time to defuse it, “but it will take a quantum leap in climate action”.

We must “massively fast-track climate efforts by every country and every sector and on every timeframe”.

He was proposing an “acceleration agenda” with, specifically, “no new coal and the phasing out of [existing] coal by 2030 in [the rich] countries and 2040 in all other countries. Ending all international public and private funding of coal” and “ceasing all licensing or funding of new oil and gas”, as already proposed by the International Energy Agency and “stopping any expansion of existing oil and gas reserves. Shifting subsidies from fossil fuels to a just energy transition”.

That’s not some crazy greenie, that’s the UN secretary-general.

Yet, the very same week, Bowen had the temerity to claim that stopping new projects would be “irresponsible”. That’s now the opposite of the truth.

It’s not by chance that Bowen is the Minister for Climate Change and Energy. It’s not just the Coalition that’s in bed with the fossil fuel industry; Labor is too. Labor just does a better job of covering it up.

Federal Labor will not commit to stopping the proposed 116 new coal and gas projects. When Albanese went to India recently, he took fossil fuel people with him, so they could sell more coal.

The many state Labor governments are committed to approving new projects. That’s another thing that happened last week: on election night in NSW, the new state Labor minister made it clear the Minns government would not be stopping new projects.

Labor wants to be in bed both with those who want real action on climate change and the fossil fuel industries. Someone famous once said, “No one can serve two masters”. One of his saintly followers once prayed, “Lord, make me pure – but not yet”. That’s Labor.

Which brings us to the safeguard mechanism Labor is refusing to improve. Bowen has conned some conservation groups into supporting his plan because, though it’s not perfect, “something is better than nothing” and “it’s a start: get it passed, and seek to improve it later”.

Come in, sucker. What last week shows is that there isn’t time to improve it later. Labor has tried to wedge the Coalition by building its reduction scheme on the base of Tony Abbott’s safeguard mechanism, which was largely for show and did nothing to reduce emissions.

But if Labor is taking over an ineffective scheme from the secret climate change deniers, now’s the time to make it effective, not later. The fact is, the safeguard mechanism is riddled with loopholes.

The first loophole is our fossil fuel exports. Under the UN’s rules, a country is responsible for the emissions that occur on its own territory. Bowen’s renovations would, in theory, reduce the local emissions of our biggest polluting industries. It would also reduce the local emissions from any big new coal and gas export projects.

But it would permit other countries to maintain or increase their emissions from fossil fuels they bought from us. The UN will blame them for those emissions, not us. Great loophole, eh?

Trouble is, greenhouse gas is a global problem, not a local one. And we’re one of the biggest exporters of fossil fuels in the world. We export far more future emissions than we emit ourselves. So, what we do at home doesn’t add to climate change nearly as much as what others do with the coal and gas we sell them.

Bowen’s version of Abbott’s safeguard mechanism has a second major loophole. The big polluters must either progressively reduce their emissions according to the government’s phase-down, or buy the equivalent carbon credit offsets from someone else – often a farmer who’s planted more trees.

First problem is that there’ll be no limit to the extent that a polluter can resort to carbon credits. So it’s possible they’ll continue pumping out greenhouse gases, and mainly just buy credits from elsewhere.

This could lead to far more reliance on credits than the UN agreements envisaged. Credits were supposed to be used mainly by industries, such as cement and steelmaking, that find reducing emissions exceptionally difficult.

The other problem is that a lot of the carbon credit offsets are dodgy – they’re not like for like as a substitute for genuine emission reductions.

These were the main loopholes in Bowen’s rejigged safeguards mechanism that the Greens, the teals and Senator David Pocock were hoping to see improved by negotiations with Labor.

They make it debatable whether, in this case, something is better than nothing. One advantage of voting down Bowen’s bill would be to stop Labor pretending it had done something meaningful about climate change while actually prolonging the future of our fossil fuel industries.

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Much prosperity comes from government and the taxes it imposes

The Productivity Commission’s job is to make us care about the main driver of economic growth: productivity improvement. Its latest advertising campaign certainly makes it sound terrific. But ads can be misleading. And productivity isn’t improving as quickly as it used to. We’re told this is a very bad thing, but I’m not so sure.

The commission’s latest report on our productivity performance, “Advancing Prosperity”, offers a neat explanation of what productivity is: the rise in real gross domestic product per hour worked. So it’s a measure of the efficiency with which our businesses and government agencies transform labour, physical capital and raw materials into the goods and services we consume.

The economy – GDP – can grow because the population grows, with all the extra people increasing the consumption of goods and services, and most of them working to increase the production of goods and services.

It also grows when we invest in more housing, business machinery and construction, and public infrastructure. But, over time, most growth comes from productivity improvement: the increased efficiency with which we deploy our workers – increasing their education and training, giving them better machines to work with, and organising factories and offices more efficiently.

Here’s the ad for productivity improvement. “There has been a vast improvement in average human wellbeing over the last 200 years: measured in longer lives, diseases cured, improved mobility [transport and travel], safer jobs, instant communication and countless improvements to comfort, leisure and convenience.”

That’s all true. And it’s been a wonderful thing, leaving us hugely better off. But here’s another thing: neither GDP nor GDP per hour worked directly measures any of those wonderful outcomes. What GDP measures is how much we spent on – and how much income people earned from – doctors, hospitals and medicines, good water and sewerage, cars, trucks and planes, occupational health and safety, telecommunications, computers, the internet, and all the rest.

The ad man’s 200 years is a reference to all the growth in economic activity we’ve had since the Industrial Revolution. We’re asked to believe that all the economic growth and improved productivity over that time caused all those benefits to happen.

Well, yes, I suppose so. But right now, the commission’s asking us to accept that our present and future rate of growth in GDP and GDP per hour worked will pretty directly affect how much more of those desirable outcomes we get.

That’s quite a logical leap. Maybe it will, maybe it won’t. Maybe the growth and greater efficiency will lead to more medical breakthroughs, longer lives, cheaper travel etc, or maybe it will lead to more addiction to drugs and gambling, more fast food and obesity, more kids playing computer games instead of reading books, more time wasted in commuting on overcrowded highways, more stress and anxiety, and more money spent on armaments and fighting wars.

Or, here’s a thought: maybe further economic growth will lead to more destruction of the natural environment, more species extinction and more global warming.

Get it? It doesn’t follow automatically that more growth and efficiency lead to more good things rather than more bad things. It’s not so much growth and efficiency that make our lives better, it’s how we get the growth, the costs that come with the growth, and what we use the growth to buy.

Trouble is, apart from extolling growth and efficiency, the Productivity Commission has little to say about how we ensure that growth leaves us better off, not worse off.

Economics is about means, not ends. How to be more efficient in getting what we want. The neoclassical ideology – where ideology means your beliefs about how the world works and how it should work – says that what we want is no business of economists, or of governments. What we want should be left to the personal preferences of consumers.

The Productivity Commission has long championed neoclassical ideology. It wants to minimise the role of government and maximise the role of the private sector.

It would like to reduce the extent to which governments intervene in markets and regulate what businesses can and can’t do. It has led the way in urging governments to outsource the provision of “human services” such as childcare, aged care and disability care to private, for-profit providers.

It wants to keep government small and taxes low to maximise the amount of their income that households are free to spend as they see fit, not as the government sees fit.

Fine. But get this: in that list of all the wonderful things that economic growth has brought us, governments played a huge part in either bringing them about or encouraging private firms to.

We live longer, healthier lives because governments spent a fortune on ensuring cities were adequately sewered and had clean water, then paid for hospitals, subsidised doctors and medicines, paid for university medical research and encouraged private development of pharmaceuticals by granting patents and other intellectual property rights to drug companies.

Governments regulated to reduce road deaths. They improved our mobility by building roads, public transport, ports and airports. Very little of that would have been done if just left to private businesses.

Jobs are safer because governments imposed occupational health and safety standards on protesting businesses. The internet, with all its benefits, was first developed by the US military for its own needs.

The commission says that when we improve our productivity, we can choose whether to take the proceeds as higher income or shorter working hours.

In theory, yes. In practice, all the reductions in the working week we’ve seen over the past century have happened because governments imposed them on highly reluctant employers. Ditto annual leave and long-service leave.

I don’t share the commission’s worry that productivity improvement may stay slow. It won’t matter if we do more to produce good things and fewer bad things. But that, of course, would require more government intervention in the economy, not less.

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Most of us don't really want to be rich, for better or worse

When it comes to economics, the central question to ask yourself is this: do you sincerely want to be rich? Those with long memories – or Google – know this was the come-on used by the notorious American promoter of pyramid schemes, Bernie Cornfeld. But that doesn’t stop it being the right question.

It’s actually a trick question. Most of us would like to be rich if the riches were delivered to us on a plate. If we won the lottery, or were left a fortune by a rich ancestor we didn’t know we had.

But that’s not the question. It’s do you sincerely want to be rich. It ain’t easy to become rich by your own efforts, so are you prepared to pay the price it would take? Work night and day, ignore your family and friends, spend very little of what you earn, so it can be re-invested? Come unstuck a few times until you make it big? Put it that way and most of us don’t sincerely want to be rich. We’re not that self-disciplined and/or greedy.

The question arises because the Productivity Commission’s five-yearly report on our productivity performance has found that, as a nation, we haven’t got much richer over the past decade – where rich means our production and consumption of goods and services.

When business people, politicians and economists bang on about increasing the economy’s growth, they’re mainly talking about improving the productivity – productiveness – of our paid labour.

The economy – alias gross domestic product – grows because we’ve produced more goods and services than last year. Scientists think this happens because we’ve ripped more resources out of the ground and damaged the environment in the process.

There is some of that (and it has to stop), but what scientists can never get is that the main reason our production grows over the years is that we find ways to get more production from the average hour of work.

We do this by increasing the education and training of our workers, giving them better machines to work with, and improving the way our businesses organise their work.

But the commission finds that our rate of productivity improvement over the past decade has been the slowest in 60 years. It projects that, if it stays this far below our 60-year average, our future incomes will be 40 per cent below what they could have been, and the working week will be 5 per cent longer.

It provides 1000 pages of suggestions on how state and federal governments can make often-controversial changes that would lift our game and make our incomes grow more strongly.

So, this is the nation’s do-you-sincerely-want-to-be-rich moment. And my guess is our collective answer will be yeah, nah. Why? For good reasons and bad. Let’s start with the negative.

If you think of the nation’s income as a pie, there are two ways for an individual to get more to eat. One is to battle everyone else for a bigger slice. The other is to co-operate with everyone to effect changes that would make the pie – and each slice - bigger.

For the past 40 years of “neoliberalism”, which has focused on the individual and sanctified selfishness, we’ve preferred to battle rather than co-operate.

Our top executives have increased their own remuneration by keeping the lid on their fellow employees’ wages. Governments have set a bad example by imposing unreasonably low wage caps.

Then they wonder why their union won’t co-operate with their efforts to improve how the outfit’s run. Workers fear there’ll be nothing in it for them.

It’s the same with politics. Governments won’t make controversial changes because they know the opposition will take advantage and run a scare campaign.

But there are also good reasons why we’re unlikely to jump to action in response to the commission’s warning. The first is that economists focus on the material dimension of our lives: our ability to consume ever more goods and services.

We’re already rich – why do we need to be even richer? There’s more to life than money, and if we gave getting richer top priority, there’s a big risk those other dimensions would suffer.

Would a faster growing economy tempt us to spend less time enjoying our personal relationships? How would that leave us better off overall (to coin a phrase)?

How much do we know about whether the pace of economic life is adding to stress, anxiety and even worse mental troubles?

If we did go along with the changes the commission proposes, what guarantee is there that most of the increased income wouldn’t go to the bosses (and those terrible people with more than $3 million in superannuation)?

What we do know is that we should be giving top priority to reducing the damage economic activity is doing to the natural environment, including changing the climate. If that costs us a bit in income or productivity, it’s a price worth paying.

And there are various ways we could improve our lives even if our income stopped growing. Inquire into them.

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