To Ludwig, yes, regulations can be imposed for good reasons - environmental protection, the prevention of discrimination and of the promotion of competition come to mind - and in those cases the 'cost' of regulation (the costs of the regulatory agencies themselves and the detraction, if any, from the 'value' generated by the regulated) are worth paying. That's why most economists accept (far more readily than critics give them credit for) that GDP (and measures based on GDP, such as GDP per hour worked which is labour productivity) is an incomplete measure of well-being, and why maximization of GDP is not an end in itself.

But I would argue that, whereas environmental regulation generally results in an improved environment, and anti-discrimination generally results in less discrimination, etc., I'm unconvinced that the security regulation which has been mandated since September 11 2001, or the corporate governance regulation which has been mandated since the collapse of Enron et al, has resulted in a materially lower chance of Australians being killed in terrorist attacks or losing their savings as a result of corporate malfeasance.

And, yes, the salaries of the thousands of additional security personnel and report-writers employed since then do count towards the measured GDP. But if they produce nothing of value over and above their own employment costs, and actually reduce the productivity of other people who are creating something of value over and above their employment costs - as I would argue in each case that they are - then they are detracting from overall productivity growth, to (as per my previous paragraph) no good or useful end, other than the one suggested by Senator Vanstone in Adelaide recently.

To 'Alchemist', the sign on a country's current account balance (surplus or deficit) is not necessarily an indiactor of its economic health. The slowest-growing economies in the OECD over the past decade - Switzerland, Germany and Japan - all have large current account surpluses.

Whether a country has a current account surplus or not has little if anything to do with its rate of productivity growth. Rather, it depends on the saving and investment decisions and preferences of its households, businesses and government(s). In Australia's case, we choose to invest a lot - including (partly as a result of distortions in our tax system) on housing - and (again partly as a result of distortions in our tax system) not to save very much, which is why we have a deficit.

You can be 'productive' and financially indigent at the same time (ask most artists!).

Likewise, to 'Jellyback', productivity growth has at most a tenuous connection with changes in the price of housing. The rapid increase in Australian housing prices between (say) 1996 and 2003 (when the boom stopped) was largely the result of the halving of mortgage interest rates between 1990 and 2001, which allowed people to borrow more than twice as much as during the 1980s on a given income, combined with an increase in real income growth (which was partly the result of Australia's stronger productivity performance), overlain by the halving in the capital gains tax rate in 2000 (a very bad decision in my view, even though it was supported by both major political parties) which encouraged a speculative boom in investment properties.

It's interesting that Dean Parham looks for and finds a number of "one-off factors" to explain the apparent dip in productivity after 98-99 but he can't be bothered looking for one-off factors (or at the least seems to ignore any one-off factors) to explain the apparent rise in productivity over the 93-94 to 98-99 "productivity cycle". Is it because the existence of "one-off factors" (such as recovery from 91 recession, recovery from 91-95 drought etc) to explain the upsurge in productivity would undermine the "mainstream" and Productivity Commission's argument that productivity growth (now seen to be much more moderate than previously believed)is, in the main, micro-reform driven. If one-off factors explain a dip in one time period surely its at least as likley that one-off factors explain an upsurge in another time period. Sloppy work!

Thankyou Saul. I agree with all you have written except perhaps that the tightening of security at our airports has not had a positive aspect to it as per other regulatory activities. Ok, the efficiency may well be less than with regulation for environmental reasons or discrimination reasons, etc, but it still serves a purpose. It may not have resulted in a “materially lower chance of Australians being killed in terrorist attacks (although it probably has to some extent), but it has no doubt soothed a nervous populace, maintaining high air-travel rates and indeed keeping life and economy pretty much on track. So to that end, it has aided productivity.

I am very pleased to see you write; “The slowest-growing economies in the OECD over the past decade - Switzerland, Germany and Japan - all have large current account surpluses.” These countries also have healthy economies and high living standards. But in Australia we are still being constantly told that economic growth is essential for our standard of living and our way of life in general, and that we MUST maintain a high rate of growth because if it slows, let alone reaches a stable level, we’ll all be ‘rooned’. It is continuous economic growth (or continuously increasing productivity) that is leading us to ruin.

Pushing for rapid continuous growth on a finite continent which is showing major signs of primary resource stress has got to be one of the craziest things in this universe!

There is only one thing crazier, and that is promoting rapid population growth in order to procure greater economic growth on this finite continent with major primary resource stress. The economy is for the people, not the other way around for goodness sake. And it is per-capita economic growth that counts much more than the total. When we have economic growth that is largely driven by population growth, such that there is no or little, or negative average per-capita growth, then what are we really achieving? I’d be interested to know what you (Saul) think of this… and anyone else for that matter.

Ludwig, to the extent that GDP is a measure of well-being (and I think we both agree that it is somewhat flawed as such), then GDP growth which merely matches the rate of population growth does not constitute an improvement in well-being. Indeed this is one of the reasons for declining living standards over the past 30-40 years in many African and Middle-Eastern countries, the solution to which is some combination of policies to lower the rate of population growth (education and emancipation of women being the most effective based on the experience of other countries) and policies to improve labour force participation and productivity growth.

We probably both also agree that it would be an improvement to our understanding of the costs and benefits of economic growth if measures such as GDP were to be augmented by measures of the depletion of natural resources and environmental degredation (in the same way that the depletion of man-made assets in production processes is currently measured). In public policy, as in corporate life (as I know from my own experience), what gets measured gets valued.

On security regulation, I accept that the explosive growth (no pun intended) in the number of people employed in airports and other places to search us, make us take out our laptops from their cases and have them separately x-rayed (for reasons which have never been explained) and in countless other ways waste our time may have soothed 'a nervous population' - Amanda Vanstone was absolutely correct on that score.

But I remain unconvinced that this has made any practical difference to the likelihood of any of us being harmed by terrorists, and a little concerned that other actions by governments (not just our own) may have increased, even if only marginally, the likelihood of some of us being harmed by over-zealous security officials. And so I am likewise utterly unconvinced that the price being paid for 'soothing our fears' is worth it.

Saul, Did you have a comment on Managerial Standards in the workplace, re my first post?