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The Forum > Article Comments > Growth zombie feasts on Australian brains > Comments

Growth zombie feasts on Australian brains : Comments

By Leith van Onselen, published 5/12/2013

Australia's recovery from 2008 started off well, but lags earlier recoveries.

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I'm not very knowledgable in this field, so I don't usually comment on these subjects. However, it would seem that we have traded a sudden loss in wealth (real GDP per capita) for reduced growth over a longer period of time. Is this a bad thing? I don't know.

To put this in personal terms, I think my neighbour would be happy to trade his 6 months of unemployment for continuing employment but with a reduced rate of salary growth. The effects of unemployment are greater than the value of the salary lost.

Just my 2c.
Posted by Stezza, Thursday, 5 December 2013 8:21:03 AM
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Even when Kevin07 made his retirement speech Malcolm Turnbull commented that he still thought that the 2008-2010 stimulus was too massive. It wasn't, and it should have been followed by some long term beneficial infrastructure projects. Some affordable housing was an opportunity missed.

Inflation did not pose a threat and there were plenty of unemployed or underemployed people and available materials. So the infrastructure could have been built nearly for free as the consequential increase in tax collections would have significantly offset the key-strokes of the sovereign government (SG) as it paid for the labour and material used on the projects. All SG spending wends its way through the economy as expenditure on one side of a transaction becomes income on the other side, successively, with some bleeding into profits and savings at each transaction stage until all, except that small part that goes under mattresses, ends up in savings, out of which people and companies hand back SG IOUs to cancel their taxation liabilities.

The Labor Government was wedged into advocating a budget surplus while the Current Account was running a negative balance each year.
Modern Money Theory indicates that a budget surplus in that CA situation will lead to private financial dis-savings which is unsustainable in the longer term.

I have a sneaking suspicion that Abbott and Hockey concealed their understanding of MMT to get into power and are now gradually adopting the MMT policies. Evidence? The push for a massive deficit limit increase. I more than suspect that the theory has been clearly explained to at least Abbott. He may have trouble convincing some of his 'died in the wool' neo-liberals.
Posted by Foyle, Thursday, 5 December 2013 9:29:08 AM
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The analysis has merit as far as it goes, but the external circumstances of all the previous recoveries are quite different, so I'm not sure that it really tells us much.

As the author notes, one major difference is the slump in the terms of trade (basically resource prices have fallen off major peaks)- and then there is the rest of the world, where recovery has been greatly hampered by major credit crises in Europe.

Analysis is worth noting, and then moving on..
Posted by Curmudgeon, Thursday, 5 December 2013 10:01:53 AM
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Curmudgeon
I agree, the racy headline promised a much more interesting article than this turned out to be. Real per capita GNI rises when the terms of trade rise and falls when they fall, but so what? The government can do nothing about it, it is neither to their credit or their blame. International and internal conditions were quite different in each episode.

Stezza alludes to an interesting point, though the GDP per capita recovery this time has been sluggish, but the labour market has been nowhere near as bad as in the aftermath of previous global recessions. Our good fortune/management in avoiding recession ourselves is probably the main reason, but it could be that the labour market reforms of the past yielded a dividend in allowing us to cope with the blow without a major rise in structural and long-term unemployment.
Posted by Rhian, Thursday, 5 December 2013 2:38:07 PM
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Interesting but at 300 words it was short on exposition.
Posted by Malcolm 'Paddy' King, Thursday, 5 December 2013 3:02:31 PM
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Not clear due to the brevity of the article if the qualitative side of population data has been take into account?

'For the purpose of the analysis, I have chosen to use real GDP per capita as the measure, since it removes growth distortions from population growth and inflation, and better reflects economic welfare than the headline real GDP figure typically quoted by economists.'

What is the definition of 'per capita'?

If it uses headline population data it may not be accurate due to NOM component of population including temps with zero through limited to full work rights. In other words viewing everyone in the population data the same, or a merely as a number.

This is compounded by a change in the definition of population in 2006 which has inflated the headline population figure ever since.
Posted by Andras Smith, Sunday, 8 December 2013 3:48:49 AM
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