No, Alan, population is not an economic boom

ScreenHunter_07 Mar. 19 12.02

 

By Leith van Onselen

Alan Kohler has today uncovered the key ingredient behind Australia’s recent economic growth: the population ponzi:

It’s perfectly clear what is now taking over as the main driver of Australia’s economic growth: population.

In the 1990s, it was the productivity growth that resulted from the microeconomic reforms of the Hawke Government. In the 2000s, it was the increase in commodity prices resulting from Chinese demand.

Productivity growth finished long ago, and the investment boom is coming to an end now. Although mining and energy exports will continue to support GDP, the burning question is: what will replace resources investment as the new driver of growth?

The answer is people, or more specifically, the infrastructure required to house, feed and transport them.

Last year Australia’s population grew 1.8 per cent — the most in the Western world…

Without that, the new boom in city infrastructure needed to cope with the increase in population will simply lead to higher costs. Its impact would be negated by making Australia less competitive, leading to higher interest rates to deal with inflation.

The key issue in all this is whether expanding Australia’s population by more than 1 million people every three years is beneficial to the existing population. Sure, while it might be great for Australia’s business elites –  who enjoy the fruits of an expanded market – it imposes real costs on the rest of us, who must endure increased costs of congestion, higher infrastructure costs, lower environmental amenity, and minimal uplift in material economic well-being.

From a narrow economic perspective, population growth (immigration) is good only if it raises the real incomes of the pre-existing population (e.g. real GDP per capita). While it is true that Australia’s high population growth over the second half of the 2000s boosted Australia’s real GDP (more labour inputs, other things equal, means more outputs), evidence is sketchy as to whether real GDP per capita increased due to population growth. In fact, as the below chart shows, real GDP per capita has remained lacklustre since 2007, suggesting that while the overall economic pie has increased in size because of high population growth, everyone’s share of that pie has barely grown.

ScreenHunter_1890 Apr. 02 10.15

The question around living standards becomes more important when infrastructure constraints and the environment are taken into account.

Indeed, a big negative of Australia’s high rate of population growth is that it is placing increasing pressure on the pre-existing (already strained) stock of infrastructure and housing, which reduces productivity and living standards unless costly new investments are made. Further, controversial investments like desalination plants would arguably not have been required absent such population growth.

Further, when infrastructure and housing investment fails to keep up, it places upward pressure on inflation, requiring higher interest rates, which can then damage productive sectors of the economy. As explained in a 2011 speech by the Reserve Bank of Australia’s Phil Lowe (summarised here), these factors were certainly in play in the late-2000s, when rapid population growth placed upward pressure on rents, as well as caused a big surge in utilities prices as the capacity of the system struggled to keep pace with the growing demand, requiring costly new investments.

Ongoing high population growth also places additional strain on the natural environment, causing greater environmental degradation, increasing water scarcity and pollution, and making it more difficult for Australia to reduce its carbon footprint and meet international pollution reduction targets.

A related concern is that Australia earns its way in the world mainly by selling its fixed mineral resources (e.g. iron ore, coal, natural gas, and gold). More people means less resources per capita. A growing population also means that we must deplete our mineral resources faster, just to maintain a constant standard of living.

But don’t just take my word for it. Modelling by the Productivity Commission has also found that immigration is neither beneficial for the economy or living standards, nor can it alleviate the impacts of an ageing population.

All of which raises the question: what is the end-game of Australia’s current population-based economic model? If all we are doing is growing for growth’s sake, pushing against infrastructure bottlenecks, diluting our fixed endowment of minerals resources, and failing to raise the living standards of the existing population, where does it lead?

High immigration and population growth is fine if it is part of a grand plan. Otherwise, it is not an economic boom so much as it is back-filling previous booms when we over-fattened ourselves, of sliding backwards without anyone really noticing.
Leith van Onselen
Latest posts by Leith van Onselen (see all)

Comments

    • Strange Economics

      As the article says – good for Plutocrats, who enjoy the higher salaries from the expanded company, and the higher property prices in the inner areas of the city. The income / lifestyle of middle and lower income earners is decreased. Ie more GDP, but less per head.

      • Except that the chart shows that there has been a continuous increase in GDP/head? Not less? Even with the high population growth of recent times.

        I don’t think we can expect GDP/capita to increase in line with GDP itself, if we have a growing population.

  1. The Patrician

    Ahhh finally the hidden plan uncovered. Great!

    Let’s have a vote on it.

    Who thinks (given our overloaded infrastructure and inadequate housing supply) it’s a good idea to continue increasing Australia’s resident population by over 1000 every single day?

      • The fools are the people whining about it but not wanting to actually do anything about it.

      • RapperWithABaby

        Just quietly, it’s now the Sustainable Population Party, although getting fackebook to update this has proven to be an exercise in cranial fornication.

      • RapperWithABaby

        Just quietly, it’s now the Sustainable Population Party, although getting facebook to update this has proven to be an exercise in cranial fornication.

  2. Just as the baby boom, 1946 to 1964, meant high fertility, the end game for that is a death boom coming over the next few decades as the boomers leave the home planet. Our actual deaths double and our natural growth may drop to zero or perhaps even negative.

    Using the current method, since 2006, of counting temp visa holders (here longer than 12 mths), is as dumb as batpoo and has inflated our ‘official’ population growth numbers.

  3. I admit I am quite fortunate in that I live barely 5mins away from my office, although early this morning I was returning from an airport drop-off and happened to get stuck in snail pace traffic.

    Are our overlords inviting revolution or what…? Its a wonder that anything productive ever gets done what with all the time lost just commuting to and from work.

    I count myself lucky that I don’t have to deal with that on a daily basis…

    Stop the boats?…Pffft! Stop the planes, stop everything, lock the gates and put up the we’re full sign now for god sake!

    • ” Are our overlords inviting revolution or what…? Its a wonder that anything productive ever gets done what with all the time lost just commuting to and from work. ”

      Our overlord elite know that there is long long long way to go before the Sheeple of Australia even begin to wake up and think about any sort of revolution.

      Also, consider this.

      The cashed up bogan class that typically live more than 25-30 klms from the Melbourne CBD are doing rather well as a result of the population boom.
      As long as houses, housing estates and apartments are being built the tadies will continue to do rather well.

      It is only when they on mass are also affected by economic conditions that things just might start getting ugly.

      I still highly doubt that anything of consequence will happen. Worst case scenario; interest rates, taxes and unemployment to go up.

    • Agreed. Bob Carr remarked that Sydney was full some years ago now. Somehow we have defied logic by becoming fuller than full.Maybe the advocates for a big Australia don’t have to drive to work every day or maybe they are just plain stupid ( selfish?.

    • I know the feeling – west to east Melbourne on Monday morning (late start as well mind you) was 2 hours, including using our lovely tunnels.

      I was sitting there btw 9 and 10am wondering where everyone was going – surely they were supposed to be at work? – If not, why would you be sitting in this?

      The (packed) train ride the following morning suddenly didn’t seem so bad!

  4. The world population growth rate is only sixty percent of Australia’s growth rate, and falling. Australia is completely dependent on immigration to maintain population growth*, as it is more than thirty years since we had an above replacement fertility rate, yet Australia tries to be choosy about migrants. At the same time, we are competing against other countries such as the US, who have run long term population ponzis, and other nations with declining populations are beginning to do the same. That is, the demand for immigrants able to be employed in advanced economies is rising at the same time that the supply is plateauing.
    Granted we can keep going in this direction for a couple of decades more, but at some point we are going to struggle to get people here, and then the real fun will begin.

    *By which I mean that at zero immigration population growth would decline and within a generation or two become negative. That is, the fact that the natural growth is positive doesn’t change the argument.

    • Strawman alert. No-one sensible is talking about zero immigration.

      Please explain why it would not be prudent (given our already overloaded infrastructure and inadequate housing supply) to return to an internationally comprable 1% annual growth or 230,000 extra residents per yr?

      • My reading of Kohler’s article was that he believes that the current rate of growth is good for our economy; my argument is that regardless of whether that growth rate is good, bad or indifferent it cannot be maintained indefinitely, and hence we should be thinking of other paths to growth.

        Also, I am in no way talking about having a goal of reducing immigration, I am saying that sooner or later it will become more difficult to maintain the same level of immigrants as a proportion population, at a time when due to our demographics (baby boomers checking out) immigration will be more vital than ever to maintaining status quo population growth.

        The phrase ‘zero immigration’ was only used in a possibly misguided attempt to distinguish between natural growth and total fertility.

    • This is correct. In the coming decades, developed economies will compete for immigrants because their own population growth will have dropped well below replacement.

      It will be quite interesting to see this change from todays generally anti-immigrant stance.

      • I too have an issue of how statistics re. ‘population growth’ and ‘immigration’ are presented to attract negativity, as the make up of the estimated resident population is not explained.

        By introduction of new definition in 2006 using net overseas migration component which means anyone in Oz 12+, conflates temporary residents, with new permanent immigrants, existing permanent residents and citizens.

        Most of the growth is directly attributable to international education, 2nd year working holiday backpackers, 457 workers etc., i.e. ‘churnover’, who may become permanent under the migration program cap, but most won’t. Further, as pointed out here, look outside the immediate time frame and the medium term trends are shrinking permanent population (ex temps).

        Without qualitative explanation, rich ground for dog whistling….. even a Green (wannabe politican) friend, Oz citizen from UK (has only spent 10 seconds living in Oz, vs Europe) started lecturing in an East St.Kilda pub (frequented by many Asian and other types of Ozzies) on the change in ‘make up’ or ‘culture’ of Melbourne eastern suburbs….. simple solution if you don’t like it, go back to the UK….

    • @StatSailor

      “Granted we can keep going in this direction for a couple of decades more, but at some point we are going to struggle to get people here, and then the real fun will begin.”

      have you counted recently how many people live in China and India?

      • Sure.

        It’s roughly a third of all people on the planet – something like 2.8 billiion.

        And China’s workforce has been shrinking by 3 million people/ year for three or four years already, leading the CCP to consider how to expand immigration.

        India, meanwhile, has a target of neutral fertility by 2017, and looks likely to achieve it. Soon after, they will fall below replacement fertility. Granted, longevity improvements will push their population for some years to come. but they’re both moving towards being net importers of people rather than net exporters.

  5. Forgive me if I’m wrong here, but Alan seems to be arguing that high immigration is it’s own benefit??

    I mean we wouldn’t need so much extra infrastructure he says will be driving growth, if the population wasn’t growing. Not to mention additional infrastructure might end up a net benefit, and improve – there’s an idea – our standard of living.

  6. I’m pro a big Australia and it seems inevitable to me given our economic framework is unlikely to significantly change and our geographic location certainly will not.

    To ensure successful transition to a larger population we must adapt and we will. If we ensure infrastructure capacity keeps up with (and ahead of) population growth we limit societal kickback so it is a must. NIMBYs move along please.

    • If we ensure infrastructure capacity keeps up with (and ahead of) population growth

      Thus far an epic fail, then.

      NIMBYs are only a minor problem – far bigger is the lack of desire to achieve anything in this area. As long as the threat of boat people (which JWH has said was the reason he started talking about them) and gold medal tallies keep the electorate occupied, not likely to see much action here either.

    • Agreed, we should be bringing all the skilled, educated people as possible into the country, but not into Sydney or Melbourne. They are not suited to be a NYC or Hong Kong.

      Australia needs a real plan to create a new big city. The way to do that is to incentivise companies to move jobs there and make immigrants go there. Build infrastructure and connect it to major cities. Make tax free zones. Plenty of nice space on the east coast to do this. But alas Australia is a short term thinking country and always will be.

    • I reckon we’ve failed to adapt to a point where the cost of infrastructure upgrades are cost prohibitive. Was in Sydney last week and the cabbie was saying many recently completed roads are clogged as soon as they’re finished as they were planned and designed 10 years ago but not for current growth rates. Looking around Melbourne at the towering apartment blocks, wonder if the Government have provided HV upgrades or the council sewerage and water capacity expansions. Growing a population in tandem with infrastructure and services has not occurred in Australia.

    • sydboy007MEMBER

      Just like your hero John Howard? Loved the way he said “Australia needs a high level of immigration. I’m a high immigration man. I practiced that in Government. And one of the ways that you maintain public support for that is to communicate to the Australian people a capacity to control our borders and decide who and what people and when they come to this country”

      When Pauline I Don’t like IT was stealing voters from the Coalition I don’t seem to remember Howard ever mentioning being pro high immigration.

      Considering the high levels of underemployment in the country, why are we still importing an extra 160-180K of people every year? I’m not sure why this hasn’t become a bigger issue. Someone starts to show that a large part of the 10s of Billions in infrastructure spending each year are primarily due to high immigration and we could avoid a lot of those costs by reducing immigration to say population replacement levels I think you might win some votes.

    • migtronixMEMBER

      Communicate unique perspectives, win the debate and
      manage the issues that matter.

      Agenda is a national strategic communications and public affairs firm specializing in an integrated approach to helping our clients navigate through some of the toughest business, market and policy challenges.

      http://agenda-global.com/

      Gotcha! 😀

  7. Capital cannot grow without population growth, all other things equal. If the innovation is slowing, if the productivity is slowing, the only way of profits growing for corporations is population growth. They don’t care about your life standard as long as you have to consume their products.

    More population=more product consumed=more profit growth with less labor cost (more population=higher labor market competition=lower wages=lower labor cost).

    The only innovation they need is already in place: they offer you less quality and quantity for the same price = deflation = no wage growth, lower interest rates=inflated assets prices = wealth effect=happy idiots etc…

  8. Sorry Australia our day is coming. The vast amount of population coming to Australia will only come and stay for well paying jobs.

    I think slowly we will see skilled workers heading back to their homelands. As jobs dry up so too will immigration and our great desire to rent shoe boxes for infinite wealth.

    Western Australia will lead the way in the decline in the same way it lead Australia’s recent boom.

    Already anecdotally there is a flood of used cars hitting the market in wa. As families pack up and head interstate and overseas. Rental vacancies are skyrocketing and many tenants are signalling they don’t want to renew.

    There are roughly 8 thousand houses up for rent with in 100km of perth and many more being built for their negative gearing bounty due in the next few years. ( correlates with timing of boom and subsequently ability of people to enter IP market ) This is all anecdotal.

    • “I think slowly we will see skilled workers heading back to their homelands. As jobs dry up so too will immigration and our great desire to rent shoe boxes for infinite wealth.”

      This. See Ireland’s immigration level pre- and post-financial crisis.

    • “Already anecdotally there is a flood of used cars hitting the market in wa.”

      When you hear a wholesaler say he’s flipped 2x used Ferrari 360’s for $50k ea just to move them quick, you know the blue collar mining-salary-plus-RE-rise-wealth-effect-driven-equity-financed-borrowing binge must be getting a little wobbly in the legs.

  9. kylejustknows

    I’m nearly 30yo came to Australia 6 years ago. Now my parents (55yo) are coming since I’m here. As soon as their permanent visa is done my grandfather(85) is coming as the “last family member”, for the better medical care in Australia.

    This is my small family. And i know many are doing the same especially from Asian countries that 1 young person will bring 2~5 older ppl to Australia. Because we can not simply grab the youngs and kick out olds. That’s just too evil.

    • Kicking out olds that were never here? How does that work?

      Your choice to go to a new country by yourself to set up a new life leaving your parents behind. Not convinced your adopted country should facilitate permanent reconciliation with olds you left behind. If they can join you on their own merit, good for them (except, of course, by buying their way in)
      Enjoy it while it lasts!

    • “As soon as their permanent visa is done my grandfather(85) is coming as the “last family member”, for the better medical care in Australia”.

      Yep.

  10. ECONOMISANDBEYOND

    If only Australian house prices could be largely explained by one income/ouput variable over the long run!!!

    I can excuse Kohler – he’s a journo raising advertising, subscription income but

    For the record,

    over the long run – it should be h/hold income after personal income tax – yes a household can have at least two people paying off a mortgage albeit banks have only allowed dual income for serviceability calculations for the past couple of decades

    after tax – since tax rates have gone down (and up at various times)

    wealth too – since sometimes people substitute other forms of financial assets for housing

    and ageing too – but a small effect in australia

    while real interest rates will also have long run effects

    in the short run, other factors (e.g. availability of credit, etc) will be at play and prices may diverge from these fundamentals

  11. Leith – the biggest cycle of them all, consumer spending.

    Isn’t it about time you overlaid the age demographics against the average spending cycle to come up with the best GDP approximation you can get?

    Then work out the lag to peak spending/GDP? (PS: we are there in the western world – look out below).

    Then perhaps look at the spending segments (I have 246 of them – unfortunately USA data). Either way, understanding spending patterns and the breakdown, then by age, is invaluable in understanding where one’s business is in its lifecycle against the industry/segment cycle (by age/spending). PS many industries are stuffed for 5 to 10 years ahead.

    eg: The average age of a Harley purchaser is 42 years, which means we are about 2/3rd’s of the way through X Gen (2014 -42 = 1972) so still in a downturn for HOG sales. But will pick up in about 3 to 5 years as Y Gen kicks in.

  12. I should have written this earlier when more folk were reading this article

    I can’t help but feel we are the past, and I’m not referring to our age

    Why do I think we are the past? Over the past three years I’ve come to know many recently arrived mainlanders, I’ve been shocked by some of the things they have said, and the amount of money they have brought with them

    I moved from their most cherished suburb in melbourne in 2008, a suburb that in 1998 was Anglo Saxon dominated, now you would struggle to see one on kings way

    They have since moved closer in and are currently accumulating all they came where I live now, I’ve seen it happen before so I know how it works

    I think we are the past, our thoughts and words mean little in reality, for us there will always be berwick, maybe dandenong north, anything closer in is gone or going

    Welcome to the new reality

    • flyingfoxMEMBER

      You vote. They don’t. Your reality is what you make it. I was a new immigrant to this country not too long ago. I really liked the equality here and many other facets of life. However I am disgusted by what is happening (and I ahem more in common with you mainlander friends with rich parents than the ozzies you are referring too).

      I come to MB to discuss these issues, I will go to protests. Heck I might consider going into politics. But foremost of all, I will be voting with my feet. No way I am spending my productive life paying for bullshit policies that make no sense.

      If other foreigners want to pay a ridiculous amount of money for a small piece of Oz, go for it.

      • I’m saddened by the changes, my parents came in the 70s, worked hard and became part of the furniture here

        The new ones I’ve met have nothing but disdain for the locals, they might smile at you but until you know them well you won’t hear them referring to the locals at stupid and poor

        Anyways, whatever, vote with my feet, what’s your actual suggestion here?

        In the end the choice one must make their own decisions, I just can’t recall ever feeling so uncertain about what this place will look like in ten years time, many of you will be shocked

      • flyingfoxMEMBER

        but until you know them well you won’t hear them referring to the locals at stupid and poor

        I know what you mean but do you really blame them? Apart from house prices are going up and some idea of certain tax dodges, the general populace by and large has no clue what is going on. And while their house prices are going up, they don’t care…

        what’s your actual suggestion here? My suggestion is that we can just let things be or actually do something about it. Hold your politicians accountable, both sides. Get involved (which you are doing by being here). But in the end, if we as a nation are too stupid to understand, then I for one don’t want to be a part of it.

        I just can’t recall ever feeling so uncertain about what this place will look like in ten years time, many of you will be shocked I know exactly what you mean….