Do we live in Bizarro World now?

Some of you may have seen an episode of the TV series Seinfeld inspired by the Bizarro World comics of the 1960s. Watching a re-run recently, I realized that the fantasy world it depicts is disturbingly analogous to the public policy world on display in our own country.

In the comic book Bizarro World, all the traditional virtues and verities are turned on their head: good is bad, lies are truth, and villains are heroes. Moreover, this inverted reality is accepted as the norm.

Parallels in the contemporary policy world are everywhere. For example:

• Most policy initiatives are labelled 'reforms', regardless of whether they would benefit society. Some of those said to promote productivity do the opposite.
• 'Regulating better, not more' is the slogan. But regulations proliferate further, compliance costs mount and a new federal environmental regulator is on the way.
• Governments are committed to transparency, but policy initiatives in need of it may receive little scrutiny by the public or even by the parliament.
• And independent economic institutions remain so, while being 'modernized' to align them with Government thinking.

More specifically:

• Renewables are the lowest cost energy source, notwithstanding massive government subsidies and sharply rising bills.
• A 'new competition policy', like the old protection policy, is all about intervening to help local firms compete.
• Public infrastructure projects are 'nation building', although most would fail a proper cost-benefit test and few come in even close to budget.
• Welfare programs are increasingly about universal benefits unrelated to need.
• 'Modern' workplace regulation resembles the prescriptive, pro-union regime that preceded the '80s reforms.
• A skill-based immigration policy produces a surge of lower-skilled migrants, destined for low-productivity jobs.

This might seem quite a list. But, as the TV ads say, 'wait, there's more!' I haven't mentioned areas like education, environmental or heritage regulation, taxation or housing, all of which have features that up-end common understandings about good public policy.

Like the other areas, they invariably also exhibit features detrimental to productivity growth - by distorting production, stifling innovation, raising risks or increasing input costs.

In the new policy world, however, criticism is barely tolerated. To question climate policies is to be 'anti clean energy'; proposals by the Productivity Commission to lessen anti-productivity features of workplace regulation are in Chalmers' words 'scorched earth'; and pointing out the costs and risks of the 'future made in Australia' subsidy program makes one a 'flat earther' according to the PM.

None of this is conducive to the constructive policy 'conversation' we were promised. It has stultified public debate on important policy matters, including during the last election.

That our economy is not growing strongly is more than evident in the data. While headline GDP growth may look healthy enough in nominal terms, when allowance is made for (rising) inflation it's as low as it gets. As a former Treasurer recently remarked, a 2 per cent real growth rate limit for GDP used to be unheard of and certainly would have been no cause for self-congratulation. We need to be growing at twice that rate, particularly given our high population/immigration rate. As it is, on a per capita basis, Australia has effectively been in recession for much of the past four years.

What growth we do have is indeed mainly attributable to our rapidly growing population, over two-thirds being from immigration. Labour force participation has plateaued, while productivity growth has been sub-par for a decade, whichever way it is measured.

Lower productivity growth not only pulls down aggregate GDP growth and limits the scope for non-inflationary expansion - a particular concern of the Reserve Bank - it means lower growth in real incomes and thus lower living standards.

One apparent bright spot is the still low rate of unemployment. However, this too has a darker side. For one thing, most of the employment growth recorded since the Pandemic has been government funded, including for 'public purpose' activities performed in the private or NFP sectors. Secondly, the 'care economy' component of this is highly labour-intensive with inherently low and stable productivity.

By contrast, on current projections, the next decade will see living standards barely rise, if not decline. Without a change of course, we are set to become a relatively high cost, low productivity economy; one where distributive policies dominate those that enhance growth, and national debt – now reaching $20,000 per person - weighs even more heavily.