Now that it’s all too late, The SMH
is continuing its campaign against Macquarie banker Bob Carr, blaming NSW’s status as the employment sick man of
Australia on the former premier.

Schadenfreude tendencies in other states
should be curtailed, though, as NSW’s 5.7%-and-rising unemployment rate
could be an indication of problems to come for the nation as a whole.

In an interview for this afternoon’s Eureka
, Contango Asset Management economist Carol Austin warns that when the
present boom in resources, infrastructure and transport spending matures, we’re
in for a much less labour-intensive phase of simply extracting and shipping the
stuff from expanded operations. That’s when Australia
will urgently look to its tertiary sector only to find we are paying the price of not
investing enough in education. Austin believes the strength of the China
story remains underestimated and that our resources stocks have a good run
ahead of them yet, but there are problems on the horizon.

The unemployment figures illustrate the
contention of Macquarie Bank economist Rory Robertson, that the
economy has its head in the oven and its feet in the freezer, so that
“just right” on average. NSW’s 5.7% unemployment compares with just 4%
in WA – but that “average” looks like moving closer to the feet than
the head. He believes the RBA is likely to soften its “tightening bias”
the next interest rate move as likely to be down as up.

The SMH‘s John Garnaut turns to a Melbourne-based
economist to bag the NSW government:

ANZ’s chief economist, Saul Eslake, said the Premier,
Morris Iemma, had a huge job ahead of him to clean up after Mr Carr, whose lack
of interest in economic policy was “rather redolent of Whitlam”.

Mr Eslake said the state economy would take five years to
recover from Mr Carr’s legacy, which included the ill-timed vendor tax, a
misconceived desalination plant, infrastructure neglect and discouragement of
population and economic growth.

The big danger for the nation, though, is
that the Sydney and Melbourne housing bubbles are rather like unexploded
bombs. The careful disarming of the bubble without causing massive damage
depends on two things – interest rates not rising and employment being strong.

The RBA knows that only too well and thus
rates certainly aren’t going up. An employment-related consumer confidence
wobble could, however, set off the sort of sharp housing price fall that even a
cut in rates might not catch.

After the inevitably temporary housing and consumption
booms, we need employment prospects with a sounder base. Two decades of sharply
falling government expenditure on education as a percentage of GDP has undermined that