In the best article of the weekend,
“The resources boom opens the great divide” by David Uren in the Weekend Oz,
Professor Ross Garnaut is quoted saying that “the economy has its head in the
oven and its feet in the freezer.”
This is a matter of great economic,
investment and political import, to add words to the classic song by the late
Janis Joplin.

The economic issue is this: will the
sloth in Sydney and Melbourne hold down the economy from performing at its
potential? If the answer is yes, then the macroeconomic policymakers could do
something about it, by easing the stance of policy. In that case, roll on tax
and interest rate cuts. If the answer is no (as I expect it is), tough cheddar
for the urbanites: they will have to go get jobs in the mines, after they have
malingered for long enough on the city streets and beaches. Parsimonious tax
cuts and no chance of a rate cut – instead expect the RBA to eventually have to
act to rein in wage growth, compounding the cities’
misery.

Read the full article at Henry
Thornton
.

Peter Fray

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