This would be amusing if it wasn’t so scary:
Productivity’s influence on wages growth and the supply side capacity of the economy makes it a crucial consideration for the Reserve Bank, RBA chief economist Sarah Hunter says.
“We do care very much about what’s happening with productivity because it’s fundamental to understanding the economy, the economic position in the cycle, and what it looks like going forward,” she tells the Business Summit.
“For example, if we’re thinking about what sustainable wages growth looks like in the medium term, that’s fundamentally contingent on productivity.”
She says RBA economists consider productivity ahead of providing the board with advice related to interest rate decisions.
As we know, Sarah, this orthodox thinking has trashed RBA decision-making for a decade. It behoves you to understand why.
Productivity as it relates to wage growth is entirely irrelevant in the contemporary Australian economy.
The productivity/wages relationship exists in a traditional economy that grows via business investment driven by reform, competitiveness and innovation.
None of these three apply Downunder.
Australian economic growth is driven by labour market expansion from mass immigration. It is labour force expansion-led growth.
This delivers two outcomes above all else:
- structurally weak wages growth amid a permanent labour supply shock and
- structurally weak productivity gains amid ceaseless capital shallowing.
That’s right. It is the opposite of RBA retro modelling. It delivers an economy that is downwardly mobile for workers who must constantly work more just to stand still:
These are falling, not rising, living standards. It is intensely deflationary.
If the central bank adds an overly tight monetary policy to this economy out of fear of a wage breakout owing to weak productivity, it will rerun precisely the same forecasting error it made in the last cycle, guaranteeing lousy domestic demand as well:
Sadly, it has already begun, with the last round of labour market forecasts too bullish within weeks of publication:
Australian workers do not deserve another lost decade of blundering RBA persecution.
