From Fairfax journalist Ross Gittins today
"What gets me is how blatantly self-seeking our lobby groups have become. It is as if the era of economic rationalism -- with its belief that the economy is driven by self-interest -- has sanctified selfishness and refusal to co-operate for the common good."
This is one of those occasional pieces by Gittins that rescues him from regular lightweight ruminations about confidence and the triumph of the services economy. I very much agree with Gittins about the problem he describes. Trouble is, I see him as one of the worst rent-seekers of all.
Fundamentally it is this: if rent-seeking prevents the most efficient flow of capital for productive purposes, and thus the rise of national wealth and with it the common good, then why does Gittins spend so much of his time defending an economic model in which services and mining are seen as the natural evolution of the economy? Above all else, it is the embrace of this model of growth that is killing the productivity that Gittins purports to champion.
There are three legs to the argument that Gittins is as bad a rent-seeker (perhaps worse) than those he criticises. The first leg is that the services economy is largely non-tradable. As such, it doesn’t tend to generate capital in and of itself. It relies instead upon debt to grow, and in Australia that debt is largely expressed through mortgages. Such a system can run successfully for a long time, especially if it is underpinned by another export sector that is producing traded capital -- like mining.
But at a certain point, Minskian dynamics start to overwhelm the system as more and more capital is sucked into the unproductive venture of mortgages and productivity starts to fall. That, I submit to you, is where the Australian economy is today, with our banks pouring far larger proportions of the nation’s capital into mortgages than at time since records were kept:
My fellow blogger Cameron Murray has estimated
that a considerable slice of Australia’s declining multi-factor productivity has resulted directly from escalating land prices:
"The ABS explains that they take the balance sheet value of land from the national accounts to include as the land component of capital stock. We can observe in the chart below the rise in the value of the land balance sheet value against the estimate of MFP, and indeed against an estimate of the land balance if land values simply tracked inflation. Quite clearly, from about 2002 onwards the abnormal increase in the value of land lead to a flattening and falling estimate of MFP. More telling is that fall in all land asset values in 2009 lead immediately to an increase in the MFP measure, only for the next wave of land price escalation, especially FHOB stimulated residential land, to cause a deterioration in MFP during 2011.