As we draw close to the year's end, I have been pondering Australia's economic future. Last month I mentioned two works by American economists, Robert Gordon and Tyler Cowen, who each questioned the USA's economic future in the light of their claim that the productivity growth essential to ever increasing living standards had indeed peaked, with all of the "low hanging fruit" already picked. I also mentioned Matt Ridley, the "rational optimist", who I had the pleasure of seeing in action in Melbourne two weeks ago. Ridley didn't specifically address the issue of productivity, but rather maintained his focus on countering the arguments of those who believe that human activity is ruining the planet, and should be scaled back. Ridley remains upbeat, believing that future innovation and creativity will see us through whatever future challenges we face.
What does this mean for Australia? Well, in the meantime the Productivity Commission, a body highly respected by all sides of most debates, has released a report on the ageing future population. Yes, we already know that we are ageing. This has been highlighted in various Intergenerational Reports. While our fertility is declining (we are having fewer babies), more importantly massive improvements in health delivered by new medicines and by technology mean that babies born in 2012 can expect to live to about 90. Amazing.
And there is not much we can do about it. For example, while the overseas migration program can help a little by bringing in lots of young migrants who will themselves have children, this will not tilt the overall pattern of ageing by much at all. What we can do is to start considering what the ageing issue means NOW. This is really difficult because our politics are skewed so heavily to the here and now, to today's issues, and not towards future policy planning.
The problem is mainly that many fewer people will be working, as more and more will be retired for a long time. Yes will well be retiring later in 2060, but not that much later – maybe 70 to 75. Fewer workers means less taxpaying, less government money to spend on infrastructure and on all our favourite social programs, lower productivity, slower economic growth, and lower living standards. Ouch. Yes, the golden age (which peaked from the 1990s to the GFC) appears to be over. The Productivity Commission report does seem to confirm the pessimism of Cowen and Gordon referred to above.
At the very least, I think this all means much lower government spending (which I favour anyway), and a fundamental re-jigging of spending priorities - the end of costly, frivolous schemes like the climate change nonsense, a greater focus on spending on infrastructure that delivers productivity gains and economic development (Cowen's argument that the internet delivers little productivity gain compared to previous innovations suggests that the NBN is largely a mere lifestyle gain), a bigger immigration program, saner planning and regulatory regimes and a return to basics in education (actually educating children rather than stroking their egos). It also means making our cities more efficient as they are the drivers of so much innovation, productivity and wealth creation. This means building things like Badgery's Creek Airport, which would have national and, yes, massive regional economic benefits. Just think of all the time wasted by regional business people sitting in planes that circle around and around Sydney before landing. It means giving up on $100B fantasies like the fast rail proposal. It means remembering that not everybody can or should go to university at massive public expense and little gain in either education (in the real sense) or in vocational training outcomes. (A quarter of our university students do not complete their very expensive courses, and another quarter do not end up working in the profession they were trained for). It means reforming root and branch our wasteful and over-regulated national research system which stifles innovation and wastes the time of researchers in form filling and grant chasing.
So much productivity is wasted through hyper-regulation, public sector navel gazing, self-serving, time consuming government agency priorities like risk assessment and occupational health and safety compliance, and wrong-headed government spending priorities.
The world has been forced to take a massive haircut with the GFC. I don't think many folks realise just what has really happened to us. We need lots of adults running the place. The EU is a basket case. The US, while still having massive potential with new energy sources, is being strangled by government (at least by the current one). Endless, useless UN conferences contemplate fifth order problems like "climate change". The world nearly shook itself to death and implemented wasteful stimulus packages and printing money (think quantitative easing) in order simply to avoid a recession. Think about it. A recession is the absence of economic growth. Yet all the anti-growth policies that governments are currently implementing are setting out to do just that – to shrink economic growth. They will impoverish us unless they are stopped.
Timely reminders of our (real) future problems, whether from our own Productivity Commission or from smart economists like Cowen and Gordon, should give us pause to consider the importance of productivity in sustaining living standards, and to pressure our leaders to focus on doing all that is possible to support productivity growth. It matters that much.
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