The new intergenerational report is one of the most significant documents in modern Australia. Not because any of the figures in it have the slightest credibility. You’d get a more reliable guide to the future consulting an astrologer. They get it right sometimes.
No, the IGR is important because it unveils the new idol of Australia’s cargo cult economics, artificial intelligence. Anthony Albanese and Jim Chalmers talk about AI the way Paul Keating used to talk about APEC – the magical solver of all problems, the special miracle that redeems all government failure and leads to economic paradise.
For the past 20 years, Australia has been particularly prone to cargo cult economics. But this has accelerated under the Albanese government. One thing after another is going to be the saviour of the economy and make everything wrong come untrue (as one of the hobbits remarked).
Remember green hydrogen? Barely five minutes ago Australia was going to be a green hydrogen superpower and earn billions of dollars of export income from it. It never made the smallest bit of sense. The projects fell away. Here is Australia’s special genius: nobody who had spruiked green hydrogen lost any credibility over its evanescence.
That is the wonder of our fantasy economics. At one level, we all know it’s not true, but we happily engage in the willing suspension of disbelief because while we possess the fantasy talisman of economic transformation, we avoid the hard, awkward, messy trade-offs and difficult choices that constitute real life.
It’s as though the Australian policy establishment conceives of itself as the giant Gulliver, bound inconveniently and unnaturally to the ground by the tiny countless cords and straps of the Lilliputians.
Remember when we were going to be a renewable energy superpower and that would magically make us rich? You don’t hear that so much now. As for net zero, the government sensibly never mentions it any more. Even that tiny minority of countries that pretends to still believe in net zero is mostly running away from the policies associated with it, as for example Canada.
With all high-falutin’ government-sourced economic modelling, the beginning of wisdom is to look for any broad empirical judgment you can make. The folks making these predictions – what has their record been?
I can remember doing an episode of the Channel 10 program Meet the Press with Julia Gillard when she was prime minister. Her government was making a big fuss of its commitment to Asia in all things. I asked her about the extreme lack of teachers, and students, for Indonesian language in schools. We had fewer students studying Indonesian than in the last days of the White Australia policy. To remedy that, a government would have had to make hard decisions about resources, bureaucratic effort, recruitment and training of teachers and all the rest.
Gillard’s response was to say that NBN and broadband would fix this because with the magic of broadband you wouldn’t need a separate, scarce Indonesian language teacher for each classroom. One teacher could beam to many classrooms. This was public policy as magic realism, or perhaps romantasy.
Of course, NBN did absolutely nothing for that problem.
Let’s zoom the empirical lens out a bit. Broadband and its wonders have fully taken hold over the past 20 years. Remember what a transformative technology this was going to be for productivity? Yet in the past 10 years we’ve had no productivity increase at all. According to Business Council of Australia chief executive Bran Black, productivity growth is now going backwards, running at minus 0.2 per cent. Through the six years of this decade, he says, productivity growth has been consistently negative.
So we’ve had this massive, transformative technology, the digital economy, broadband, all the rest, dispersed throughout the whole of society, yet productivity has gone backwards.
Yet the IGR, in an analysis wonderfully helpful for the government, claims the magic of AI will draw us out of that trough of failure and send us soaring to the, for us, dizzy heights of 1.2 per cent productivity growth for 40 years.
The Albanese government has done a lot to mess up the Australian economy and almost everything it has done has hurt productivity. Federal spending as a percentage of GDP is more than 2 per cent greater than it was when Labor came to power. Much of this has been to fund new entitlement programs. That drags resources away from productive sectors of the economy. Energy costs have skyrocketed as we pursue system-wide the most expensive and unreliable versions of intermittent renewable energy. All the nations that have gone down this path have seen their energy costs rise massively. Industrial relations once more has become a dense, impenetrable thicket of regulation that has empowered unions, hurt enterprise flexibility and in some cases facilitated the invasion of organised crime and corruption into big projects. Environmental regulation, government-funded litigation, and byzantine approvals processes have made us slow in all our natural strengths.
All of these policy mistakes could be reversed by a government determined to promote economic growth, which means promoting productivity, and that could carry the people with it. It would be tough, grinding, politically difficult work. The fantasy cure of AI means a government can just magically avoid all that.
Yet so far, and admittedly it’s early days, AI has not yet led to measurable economic productivity gains (all this assumes of course that the security dangers arising from AI, which I wrote about at the weekend, can be contained). We will be competing against all other global economies, many of them in much better shape than we are, though of course few have our mineral resources.
But the Albanese government at a time of full employment and record commodity prices has prodigiously increased spending and seen no productivity gain at all, so we start off way behind.
In the 1890s Australia suffered a severe depression after a speculative property boom brought about by decades of economic good fortune arising originally out of sheep and gold. We had a terrible bust followed by the Federation drought, then World War I. Economic complacency killed us in the 1890s. Security complacency in the lead-up to World War II nearly killed us literally.
It’s sometimes said no country handles misfortune better, nor good fortune worse, than Australia. After the reforms of the Hawke and Howard governments, and the China commodities boom, we’ve had 20 years of good fortune. This has bred deadly complacency. Here’s a prediction worth as much as any you’ll get in the IGR: AI won’t save us.
The new intergenerational report is one of the most significant documents in modern Australia. Not because any of the figures in it have the slightest credibility. You’d get a more reliable guide to the future consulting an astrologer. They get it right sometimes.
No, the IGR is important because it unveils the new idol of Australia’s cargo cult economics, artificial intelligence. Anthony Albanese and Jim Chalmers talk about AI the way Paul Keating used to talk about APEC – the magical solver of all problems, the special miracle that redeems all government failure and leads to economic paradise.
For the past 20 years, Australia has been particularly prone to cargo cult economics. But this has accelerated under the Albanese government. One thing after another is going to be the saviour of the economy and make everything wrong come untrue (as one of the hobbits remarked).
Remember green hydrogen? Barely five minutes ago Australia was going to be a green hydrogen superpower and earn billions of dollars of export income from it. It never made the smallest bit of sense. The projects fell away. Here is Australia’s special genius: nobody who had spruiked green hydrogen lost any credibility over its evanescence.
That is the wonder of our fantasy economics. At one level, we all know it’s not true, but we happily engage in the willing suspension of disbelief because while we possess the fantasy talisman of economic transformation, we avoid the hard, awkward, messy trade-offs and difficult choices that constitute real life.
It’s as though the Australian policy establishment conceives of itself as the giant Gulliver, bound inconveniently and unnaturally to the ground by the tiny countless cords and straps of the Lilliputians.
Remember when we were going to be a renewable energy superpower and that would magically make us rich? You don’t hear that so much now. As for net zero, the government sensibly never mentions it any more. Even that tiny minority of countries that pretends to still believe in net zero is mostly running away from the policies associated with it, as for example Canada.
With all high-falutin’ government-sourced economic modelling, the beginning of wisdom is to look for any broad empirical judgment you can make. The folks making these predictions – what has their record been?
I can remember doing an episode of the Channel 10 program Meet the Press with Julia Gillard when she was prime minister. Her government was making a big fuss of its commitment to Asia in all things. I asked her about the extreme lack of teachers, and students, for Indonesian language in schools. We had fewer students studying Indonesian than in the last days of the White Australia policy. To remedy that, a government would have had to make hard decisions about resources, bureaucratic effort, recruitment and training of teachers and all the rest.
Gillard’s response was to say that NBN and broadband would fix this because with the magic of broadband you wouldn’t need a separate, scarce Indonesian language teacher for each classroom. One teacher could beam to many classrooms. This was public policy as magic realism, or perhaps romantasy.
Of course, NBN did absolutely nothing for that problem.
Let’s zoom the empirical lens out a bit. Broadband and its wonders have fully taken hold over the past 20 years. Remember what a transformative technology this was going to be for productivity? Yet in the past 10 years we’ve had no productivity increase at all. According to Business Council of Australia chief executive Bran Black, productivity growth is now going backwards, running at minus 0.2 per cent. Through the six years of this decade, he says, productivity growth has been consistently negative.
So we’ve had this massive, transformative technology, the digital economy, broadband, all the rest, dispersed throughout the whole of society, yet productivity has gone backwards.
Yet the IGR, in an analysis wonderfully helpful for the government, claims the magic of AI will draw us out of that trough of failure and send us soaring to the, for us, dizzy heights of 1.2 per cent productivity growth for 40 years.
The Albanese government has done a lot to mess up the Australian economy and almost everything it has done has hurt productivity. Federal spending as a percentage of GDP is more than 2 per cent greater than it was when Labor came to power. Much of this has been to fund new entitlement programs. That drags resources away from productive sectors of the economy. Energy costs have skyrocketed as we pursue system-wide the most expensive and unreliable versions of intermittent renewable energy. All the nations that have gone down this path have seen their energy costs rise massively. Industrial relations once more has become a dense, impenetrable thicket of regulation that has empowered unions, hurt enterprise flexibility and in some cases facilitated the invasion of organised crime and corruption into big projects. Environmental regulation, government-funded litigation, and byzantine approvals processes have made us slow in all our natural strengths.
All of these policy mistakes could be reversed by a government determined to promote economic growth, which means promoting productivity, and that could carry the people with it. It would be tough, grinding, politically difficult work. The fantasy cure of AI means a government can just magically avoid all that.
Yet so far, and admittedly it’s early days, AI has not yet led to measurable economic productivity gains (all this assumes of course that the security dangers arising from AI, which I wrote about at the weekend, can be contained). We will be competing against all other global economies, many of them in much better shape than we are, though of course few have our mineral resources.
But the Albanese government at a time of full employment and record commodity prices has prodigiously increased spending and seen no productivity gain at all, so we start off way behind.
In the 1890s Australia suffered a severe depression after a speculative property boom brought about by decades of economic good fortune arising originally out of sheep and gold. We had a terrible bust followed by the Federation drought, then World War I. Economic complacency killed us in the 1890s. Security complacency in the lead-up to World War II nearly killed us literally.
It’s sometimes said no country handles misfortune better, nor good fortune worse, than Australia. After the reforms of the Hawke and Howard governments, and the China commodities boom, we’ve had 20 years of good fortune. This has bred deadly complacency. Here’s a prediction worth as much as any you’ll get in the IGR: AI won’t save us.