Don't believe what lightweights tell you about debit and deficit

If you’ve gained the impression that in their pre-election budget Scott Morrison and Josh Frydenberg have gone on a wild, vote-buying cash splash spending spree, leaving us – not to mention our grandchildren – with a string of bigger budget deficits and much increased government debt, you’ve been misled.

Some of it’s simply not true, much of it’s exaggerated and the rest has been misunderstood by people who didn’t do economics at high school. They’re people who are led by their emotions and, when they hear frightening words like “deficit” and “debt”, don’t need to be told we’re all in deep doodoo. They don’t stop to read the details.

Let me give you some of those details, with help from the independent economist Saul Eslake and his first-rate budget analysis.

What would you think if you asked me my salary and I gave you a figure I’d first multiplied by four? You’d think I was big-noting. The politicians do this every budget time to make them sound more generous than they are.

They can do it because the budget shows the cost for the coming financial year, plus “forward estimates” for the following three years. The media go along with it because it quadruples their story’s impressiveness.

They told us the budget involved new spending and tax breaks costing $93 billion “over four years”, when it would have been less misleading to say the new measures will cost the budget about $23 billion a year.

Some have implied the new measures are profligate and motivated by vote-buying. Some measures are, no doubt. But the $3.8 billion a year to fix up our scandal-ridden aged care system? The $2.2 billion a year in increased support for the unemployed? The extra $2 billion a year in infrastructure? The $1.3 billion a year to subsidise apprenticeships? Another $1.3 billion in total to help hard-hit aviation and tourism? An extra $450 million a year on women’s economic security?

The extended tax relief for small business will cost a total of $21 billion in a few years’ time, but then will be clawed back. The “new” tax cut for middle-income earners costing $7.8 billion a year Frydenberg told us about is just a one-year extension of last year’s tax cut.

Doesn’t sound much of a splash to me. The increased subsidy of childcare costs doesn’t start for a year and is about a quarter of what Labor’s promised.

Next, if you’ve gained the impression all this spending will increase the budget deficit and add to the government’s debt, you’ve been misled.

At the time of last year’s delayed budget in October, Eslake points out, the net debt was expected to reach $966 billion by June 2024. In this budget the debt’s now expected to be $46 billion less by then.

How is this possible? It’s possible because the economy has recovered much more strongly than was expected even in October. So tax collections are a lot higher than expected, and dole payments a lot lower.

By design, the government’s new spending takes up most, but not all, of this improvement. The econocrats wouldn’t have thought it smart to withdraw too much of the public sector’s support for the private sector – households and businesses – before the recovery was well established and when unemployment was still so high.

The joke is, the people up in arms about the huge growth in debt are a year late. It was last April when all the damage was done. The pandemic was raging and governments decided to put our heath first and the economy second. They locked down the economy, causing the biggest collapse in the nation’s income since World War II.

But to hold the economy together so it could rebound after the lockdown was lifted, the government spent unprecedented sums on the JobKeeper scheme (that’s $90 billion right there), the JobSeeker supplement and a dozen other temporary programs.

It’s all worked far better than expected, but there’s no denying it’s come at a great cost. Should we have let all those people die of the virus? Should we have let the economy stay flat on its back? The debt panickers weren’t saying that a year ago.

The finances of national governments don’t work the way a family’s do. Eventually, parents die. They know they must have their debts paid off before then.

But though the faces change, governments and the populations they serve never die, they just keep growing. Meaning they – like big businesses – never pay off their debt. It goes down sometimes and up others, but still goes on forever.

What governments do is out-grow their debts, so it shrinks relative to the size of the economy and all the income it generates. That’s how the developed countries got on top of the massive debt they were left with after WWII.

They didn’t pay it back, they outgrew it. And the good news is, interest rates on the public debt are now lower than ever – and won’t be going back up in a hurry.

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This budget couldabeen a lot better than it is

This is the lick-and-a-promise budget. The budget that proves it is possible to be half pregnant. Which makes it the couldabeen budget. Scott Morrison and Josh Frydenberg had the makings of a champion of budgets, but their courage failed them.

It’s not a bad budget. Most of the things it does are good things to do. Its goal of driving unemployment much lower is exactly right. Its approach of increasing rather than cutting government spending is correct, as is its strategy of fixing the economy to fix the budget.

But having fixed on the right strategy Morrison, reluctant to be seen as Labor lite, has failed in its execution. Economists call this “product differentiation”; others just call it marketing.

Some are calling this a big-spending budget. It isn’t. Frydenberg has kept his promise that it would be no “spendathon”. As a pre-election vote-buying budget it hardly rates. Its “new and additional tax cut” for middle-income earners of up to $1080 a year turns out to be not a tax cut but the absence of a tax increase.

Politically, this budget had to offer a convincing response to the report of the royal commission on aged care. Reports have suggested fixing the broken system would take extra spending of about $10 billion a year.

Had he accepted that challenge, Morrison would have put himself head and shoulders above his Liberal and Labor predecessors. He settled for spending an extra $3.5 billion a year. Major patch-up at best. The scandals will continue.

Politically, Morrison had to make this a women-friendly budget, to prove he valued women’s contribution to the economy and remove impediments to their economic security. Making childcare free – as it was, briefly, during the lockdown – would have been a big help to young families, as well as greatly increasing employment. It would have backed his fine words with deeds.

That would have cost about $2 billion a year. Morrison settled for $600 million a year, limiting the new assistance to about one childcare-using family in four by excluding the great majority, who have only one child in care.

Frydenberg has said that significant investments in energy, infrastructure, skills, the digital economy and lower taxes are all aimed at driving unemployment down.

But this talk of “investments” in mainly male-dominated industries is just what led female economists to be so critical of last year’s macho budget. In any case, energy and infrastructure yield few new jobs for each billion spent.

That’s why women-friendly and job-creating both pointed to a budget that focused on growing the “care economy” – aged care, childcare, disability care.

It’s labour-intensive, employs mainly women and provides services that women care about more than men. And it’s largely funded and regulated by … the federal government. Opportunity fumbled.

If you can’t get too excited by the expectation that the economy will grow by a positively roaring 4.25 per cent in the coming financial year, and a much more sedate 2.5 per cent the following year, I don’t blame you.

For one thing, budget forecasts don’t always come to pass. For another, Frydenberg’s claim that more budgetary stimulus is needed because of continuing uncertainty over the pandemic is disingenuous.

The truth is, at this stage the economy is still running on the stored heat of last year’s massive budgetary stimulus, much of which has still to be spent. The purpose of public-sector stimulus is to get the private sector – households and businesses – up to ignition point, so it keeps going under its own steam.

That hasn’t happened yet. So the purpose of the further stimulus in this year’s budget is to keep the kick-starting going until the private sector’s engine gets going.

Much of this depends on a return to decent pay rises – which is, as yet, beyond the budget’s “forecast horizon”. We haven’t had a decent pay rise since before the election of the Coalition government.

We had been used to our standard of living getting a bit better each year. That hasn’t happened for years. A Liberal Prime Minister who can’t lift our standard of living should be peddling a lot harder than he is in this budget.

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Years of neglect won't make it easy to get wages up

In Tuesday night’s budget, it will be important to note its assumptions about when our international borders will be back to functioning normally. Not because they’re sure to be right, but because our borders will have a big impact on Scott Morrison’s new strategy of getting unemployment down to get wages – and thus living standards – up.

As the Commonwealth Bank’s Gareth Aird has reminded us, fancy calculations about how low unemployment has to fall before labour shortages force employers to bid up wages, rest on the (usually reasonable) assumption that our borders will be working the way they always have.

If our borders are temporarily closed to immigration and overseas students, however, the point where skill shortages emerge may arrive a lot earlier than the fancy calculations suggest. What’s more, it’s become clearer that the day where our border conditions return to normal may be a lot further into the future than we’d first hoped.

It will be interesting to search the budget papers for signs that these complications don’t come as news to the economic managers, but have been built into the new strategy’s design.

The point is that over the decades of what we used optimistically to call “micro-economic reform”, our employers have become used to the idea that finding enough skilled labour – or even unskilled people willing to do the crappy, badly paid jobs that most Australians aren’t, fruit-picking for instance – isn’t something you have to worry much about.

Whenever you look like running out of the workers you need, you just bring someone in on a temporary visa. If they turn out okay, you help them move to a permanent visa. Our immigration program used to be about recruiting factory fodder for the manufacturers, now it’s about people on many classes of temporary visas allowing employers instant access to skilled workers trained by someone else at some other country’s taxpayers’ expense.

The trouble with this is that it’s come at the expense of our technical education system and our young people. Our business people no longer need to worry about whether they’ll have enough skilled workers a few years down the track, so no longer put enough money and effort into training apprentices, trainees and other technical workers.

I see it as further evidence for my theory that part of the reason both productivity improvement and wages have been weak for some years is our businesses’ preference for improving their profits by cutting costs – particularly wage costs – rather than improving their efficiency.

One implication of this emphasis on employers buying skilled (or cheap) labour off the shelf, so to speak, is that the longer the economy recovers behind closed borders, and the more the government tries to use labour shortages to get some decent wage growth, the more pressure employers and their lobby groups will put on the government to open the temporary-visa floodgates.

The more the government gives in to its business mates – who are used to getting their way – the more it will sabotage its strategy for getting wages, consumer spending and the voters’ standard of living going up not sideways.

But Dr Mike Keating, a former top econocrat, argues there’s a different weakness in the new strategy: it continues the economic managers’ earlier error of analysing the wages problem in purely cyclical terms.

For seven years they told us not to worry about weak wage growth because the recovery from the global financial crisis was just taking longer than usual. Wrong. Now they’re saying the problem is too much slack in the labour market, so we must stimulate harder to reduce the rate of labour underutilisation (unemployment plus under-employment) and, once we have, healthy wage growth will return as sure as demand and supply go together.

This thinking fails to acknowledge the likelihood that the problem is more structural than cyclical. It’s not just weak demand that’s the problem, it’s a change in the structure of the labour force, particularly as skill-biased technological change has increased employers’ demand for high-skilled labour and dramatically reduced demand for semi-skilled labour, while not having as much effect on demand for services-performing less-skilled labour.

Even so, the notion that much unemployment is the result of “structural mismatch” rather than weak demand is hardly new. That is, many of the unemployed lack the particular skills employers are looking for. So it’s wrong to assume that unemployment falls in lock-step with rising demand.

We’ve been marvelling at the recent rapid increase in job vacancies, which has reduced the number of unemployed per vacancy to 2.75, well below its decade average of 3.9. Many have taken this as indicating the strength of the recovery and a sign that unemployment will continue its rapid fall.

But Keating, a labour economist, says it indicates “a substantial and increasing degree of structural mismatch in the labour market”. (It could also be a sign that our employers’ dependence on importing the skilled labour they need is already making itself felt.)

“If this mismatch continues through the economic recovery, the wage increase in some jobs will most likely exceed the increase in other jobs. Consequently, pursuit of the target rate of unemployment may well result in an increase in wage inequality, which in turn may not produce the increase in demand that economic recovery requires,” Keating says.

I think the econocrats need to remember that, in the old days, the tendency for wage rises caused by skill shortages in some occupations – or some parts of the country – to spread to all other workers was caused by the operation of the old centralised wage-fixing system. The move to enterprise bargaining was intended to stop that happening. And it has.

These days, the labour market’s only equalising tendency comes from the existence of the more amorphous “wage norms” (“other bosses are giving pay rises of X per cent, so I’ll do the same”).

Keating says the best way to remove structural impediments in the labour market is to ensure the necessary development of education and training so that people have the particular skills needed to meet the requirements for the jobs that are available.

But that, of course, is just what we haven’t been doing.

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Our closed borders have turbo-charged the economy's recovery

The economy’s rebound from the lockdowns of last year has been truly remarkable – far better than anyone dared to hope. Even so, it’s not quite as miraculous as it looks.

As Tuesday’s budget leads us to focus on the outlook for the economy in the coming financial year, it’s important to remember that the coronacession hasn’t been like a normal recession. And the recovery from it won’t be like a normal recovery either.

The coronacession is unique for several reasons. The first is that the blow to economic activity – real gross domestic product - was much greater than we’ve experienced in any recession since World War II and almost wholly contained within a single quarter.

The reason for that is simple: it happened because our federal and state governments decided that the best way to stop the spread of the virus was to lock down the economy for a few weeks. But because this was a government-ordered recession, the governments were in no doubt about their obligation to counter the cost to workers and businesses with monetary assistance.

So the second respect in which this recession was different was the speed with which governments provided their “fiscal stimulus” and the unprecedented amount of it: for the feds alone, $250 billion, equivalent to more than 12 per cent of GDP.

But there’s a less-recognised third factor adding to the coronacession’s uniqueness: this time the government ordered the closing of our international borders. Virtually no one entering Australia and no one going out.

The independent economist Saul Eslake points out that “an important but under-appreciated reason for the so-far surprisingly rapid decline in unemployment, from its lower-than-expected peak of 7.5 per cent last July, is the absence of any immigration: which means that the civilian working-age population is now growing at (on average over the past two quarters) only 8,300 per month, compared with an average of 27,700 per month over the three years to March 2020,” he says.

This means that, with an unchanged rate of people choosing to participate in the labour force by either holding a job or seeking one, a rate that’s already at a record high, employment needs only to grow at about a third of its pre-pandemic rate in order to hold the rate of unemployment steady.

So any growth in employment in excess of that brings unemployment tumbling down.

Get it? It’s not just that the bounce back in jobs growth has been much quicker and stronger than we expected. It’s also that, thanks to the absence of immigration, this has reduced the unemployment rate much more than it usually does.

To put it another way, Eslake says, if the population of working age continues growing over the remainder of this year at the much-slower rate at which it’s been growing over the past six months, employment has to grow by an average of just 17,000 a month to push the unemployment rate down to just below 5 per cent by the end of this year (assuming the rate of labour-force participation stays the same).

By contrast, if the working-age population was continuing to grow at its pre-pandemic rate, employment growth would need to average 29,000 a month to get us down to 5 per cent unemployment by the end of this year.

Now, it’s true that as well as adding to the supply of labour, immigration also adds to the demand for labour. So its absence is also working to slow the growth in employment. But this has been more than countered by two factors.

The obvious one is the governments’ massive fiscal stimulus. But Eslake reminds us of the less-obvious factor: our closed borders have prevented Australians from doing what they usually do a lot of: going on (often expensive) overseas trips.

He estimates that this spending usually amounts to roughly $55 billion a year. But we’re spending a fair bit of this “saving” on domestic tourism – or on our homes.

Of course, we need to remember that, as well as stopping us from touring abroad, the closed borders are also stopping foreigners from touring here. But, in normal times, we spend more on overseas tourism than foreigners spend here. (In the strange language of econospeak, we are “net importers of tourism services”.)

Eslake estimates that our ban on foreign tourists (and international students) is costing us more than $22 billion – about 1.25 per cent of GDP – a year in export income. Clearly, however, our economy is well ahead on this (temporary) deal.

Another economist who’s been thinking harder than the rest of us about the consequences of our closed borders is Gareth Aird, of the Commonwealth Bank.

The decision by Scott Morrison and Josh Frydenberg to “continuing to prioritise job creation” and so drive the unemployment rate down much further, has led to much discussion of the NAIRU – the “non-accelerating-inflation rate of unemployment” – the lowest level unemployment can fall to before wages and prices take off.

The econocrats believe that little-understood changes in the structure of the advanced economies may have lowered our NAIRU to 4.5 per cent or even less. But Aird reminds us that, for as long as our international borders remain closed, the NAIRU is likely to be higher than that.

“If firms are not able to recruit from abroad then, as the labour market tightens, skill shortages will manifest themselves faster than otherwise and this will allow some workers to push for higher pay,” he says.

“There is a lot of uncertainty around when the international borders will reopen, what that means for net overseas migration and how that will impact on wage outcomes.”

But “in industries with skill shortages, bargaining power between the employee and employer should move more favourably in the direction of the employee and higher wages should be forthcoming,” he concludes.

Higher wages is what the government’s hoping for, of course. Interesting times lie ahead.

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Now we're trying Plan C to end wage stagnation

Be clear on this: Scott Morrison and Josh Frydenberg are dead right to make getting the rate of unemployment down to 4.5 per cent or lower their chief objective, with the further goal of inducing some decent growth in wages. But this approach to economic recovery is very different to our econocrats’ former and more conventional advice.

That the econocrats have changed their tune so markedly is an admission that the way the economy works has changed – in ways they don’t understand, for reasons they don’t understand.

What’s changed most is the behaviour of wages. As Treasury puts it in a new research paper, “structural factors may have altered the wage and price-setting dynamics in advanced economies. These include increased competition in goods markets, increases in services being provided internationally, advances in technology and changes in the supply of labour and labour market regulation”.

That’s an econocrat’s way of saying: who knows what’s going on.

Giving priority to getting unemployment down is always a worthy objective, not only because it greatly improves the lives of those who need to support themselves, but also because households now have more money to spend, making the economy grow faster.

A side-benefit is that it improves the budget balance (more people paying tax, fewer needing to be paid the dole). And promising jobs, jobs, jobs always goes down well with voters.

This time, however, the economic managers have an ulterior motive. They’ve concluded that the only way to get wages growing again is to get unemployment down so far that employers are having trouble finding the workers they need and are forced to compete with other employers by bidding up the wages they’re prepared to pay.

This conclusion may be right – it’s certainly worth trying – but it’s a quite depressing one to come to. And one quite foreign to what the econocrats have been telling us about wages for as long as I’ve been in journalism. It’s a sign of how desperate they’ve become to escape the bog that wages have fallen into.

It’s a tacit acceptance of an obvious point many economists (and I) have been making for ages, but the government and its advisers haven’t been prepared to acknowledge: since consumer spending accounts for well over half of gross domestic product, and growth in wages is the chief source of growth in household incomes, without real growth in wages economic recovery simply isn’t sustainable.

What the econocrats are now saying is that there’s little hope of getting wages growing a percent-or-more faster than annual inflation until you put employers on the rack and generate widespread shortages of labour. To mangle a few metaphors, you’ve got to be right on the tightrope edge of re-igniting a wage-price spiral.

Let your attention wander for a moment and you tip over into a “wage explosion” of the sort we experienced under the Whitlam government and the Fraser government, whose efforts to stop the explosion ended up causing the recessions of the mid-1970s and the early 1980s.

Now, if you find it hard to believe such a disaster is very likely, I do too. As, I’m sure, do the econocrats. But that just means we’re unlikely to get much bidding up of wages, and so are unlikely to get much of an improvement in wage growth if that’s the only way an improvement can come.

Another way of putting this is that the NAIRU (the “non-accelerating-inflation rate of unemployment”) – the lowest unemployment can fall before we get accelerating wages and prices – is unlikely to be nearly as high as Treasury’s latest estimate of 4.5 to 5 per cent.

You need a PhD to know enough maths and stats to be able to run these models, but that doesn’t stop them being cartoon caricatures of the real world. The more so when, by Treasury’s own admission, the world has stopped working the way all the historical figures the model relies on say it does.

The truth is it’s never possible to know where the NAIRU lies until you’ve gone through it and wage growth becomes excessive. That’s a risk the economic managers haven’t been willing to take for decades – which explains why the idea of making restoring full employment the top objective of policy is unfamiliar to anyone who can’t remember as far back as the McMahon government.

But, as Professor Ross Garnaut has reminded us, before the pandemic the Yanks got unemployment down to 3.5 per cent without any sign of labour shortages. If they can, why couldn’t we?

There is, however, an important qualification to the belief that our NAIRU is well south of 4.5 per cent. Shortages of labour are a lot more likely for as long as our borders remain closed.

To see how much what we’re now being told is the path to healthy wage growth differs from what we’ve been told in the past, remember this. Over the 15 years to the end of 2012, wages – as measured by the wage price index – rose by 70 per cent, well ahead of the 53 per cent rise in consumer prices.

Over the eight years to last December, however, wages rose by 19 per cent, not much more than the 15 per cent rise in consumer prices. That’s what the fuss is about: since 2012, wages have barely risen faster than prices.

But in each of the six budgets up to the one in 2019, the econocrats told us the same story: don’t worry. The problem was cyclical. Wage growth may be weak again this year, but the economy was just a bit slow to recover from the global financial crisis and, in a year or two’s time, annual growth would be back to the 3 per cent or so we were used to.

“Just wait a little longer” was Plan A for getting wage growth back to a healthy rate. It didn’t work. As this solution started to wear thin, the rhetoric shifted to Plan B: well, of course, any real growth in wages must come from improvement in the productivity of labour, and it’s been pretty slow of late. So, if you want higher wages, think of something to get productivity up.

Plan B didn’t prove much. It’s not clear that what little productivity improvement we have been getting has flowed through to wages. And, in any case, you can make a good argument that the relationship also flows the other way: that the weak growth in wages is actually helping keep productivity improvement low by holding back consumer spending and thus any motivation for businesses to invest in bigger and better equipment and structures.

So now we’re onto Plan C: let’s engineer labour shortages and see if that works.

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Morrison's budget task: stop the economy's roar turning to a meow

Scott Morrison and Josh Frydenberg look like they’re sitting pretty as they finalise what may be their last budget before the federal election due by the first half of next year. Look deeper, however, and you see they face a serious risk of the economy’s recovery losing momentum over the coming financial year. But, equally, they have a chance to show themselves as the best economic managers since John Howard’s days.

So far, the strength of the economy’s rebound from the “coronacession” has exceeded all expectations. Judged by the quantity of the nation’s production of goods and services, the economy contracted hugely during the three months to June last year. As our borders were closed, many industries were ordered to stop trading and you and I were told to leave home as little as possible.

But with the lifting of the lockdown in the second half of the year, the economy took off. It rebounded so strongly in the next two quarters that, by the end of December, our production – real gross domestic product – was just 1 per cent below what it had been a year earlier, before the arrival of the coronavirus.

The rebound in jobs is even more remarkable. The number of people in jobs fell by almost 650,000 in April and May, and that’s not counting the many hundreds of thousands of workers who kept their jobs thanks only to the JobKeeper scheme.

But as soon as the lockdown was eased, employment took off. By last month, it was actually a fraction higher than it had been in March 2020. We’d been warned the rate of unemployment would reach 10 per cent, but in fact it peaked at 7.5 per cent in July and is now down to 5.6 per cent. Before this year’s out, it’s likely to have fallen to the 5.1 per cent it was before the pandemic.

The confidence of both businesses and consumers is now higher than it has been for ages. Same for the number of job vacancies. Share prices are riding high (not that I set much store by that).

Little wonder the financial press has proclaimed the economy to be “roaring”. Hardly a bad place to be when preparing another budget. What could possibly go wrong?

Just this. The main reason the economy has rebounded so strongly is the unprecedented sums the government spent on JobKeeper, the JobSeeker supplement, HomeBuilder and countless other programs with gimmicky names. Spending totalling a quarter of a trillion dollars.

What it proves is that “fiscal stimulus” works a treat. Trouble is, all those programs were designed to be temporary and the biggest of them have already been wound up. So, though not all the stimulus has yet been spent, it’s clear the stimulus is waning.

And this at a time when there’s no other major force likely to drive the economy onwards and upwards. Business investment spending is way below normal. Growth in the wage income of consumers has been weak for six years or more and, for many workers at present, frozen.

Because all the stimulus programs are stopping, the government’s update last December estimated that the budget deficit for the next financial year will be $90 billion less than the deficit for the year soon ending.

This may sound good, but it means that, whereas last year the government put far more money into the economy than it took out in taxes and charges, in the coming year it expects the budget’s contribution to growth to fall by $90 billion – the equivalent of about 4 per cent of GDP.

So that’s the big risk we face: that before long the economy’s roar will turn to no more than a loud meow.

Now to Morrison and Frydenberg’s chance of greatness. Their temptation is to get unemployment back to the pre-pandemic rate of 5 per cent and call it quits. That’s certainly what previous governments would have done.

But let me ask you a question: do you regard an unemployment rate of 5 per cent as equal to full employment? Is that where everyone who wants a job has got one?

Hardly. And, as Professor Ross Garnaut has argued in his latest book, Reset, there’s evidence that we can get unemployment much lower – say, 3.5 per cent or less – before we’d have any problem with soaring wage and price inflation.

The good news is that the answers to the Morrison government’s risk of economic failure and its chance of economic greatness are the same: keep the budgetary stimulus coming for as long as it takes the private sector to revive and take up the slack.

That means finding new spending programs to take the place of JobKeeper and the rest. And here Morrison’s political and economic needs are a good fit. Making an adequate response to the report of the aged care royal commission will take big bucks.

And he needs to make this a hugely women-centred budget in marked contrast to last year’s. Obvious answer: do what the women’s movement has long been demanding and make childcare free.

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We must stop making excuses and push now for full employment

In his new book, Reset, outlining a plan to get the economy back to top performance, Professor Ross Garnaut makes the radical proposal to keep stimulating the economy until we reach full employment within four years. Excellent idea. But what is full employment? Short answer: economists don’t know.

In principle, every economist believes achieving full employment is the supreme goal of economic policy, because it would mean using every opportunity to get everyone working who wants to work and so achieve the maximum possible rate of improvement in our material living standards.

In practice, however, we haven’t achieved full employment consistently since the early 1970s – a failure that few economists seem to lose sleep over. It’s like St Augustine’s prayer: Lord make me pure – but not yet.

The economists’ ambivalence starts with the truth that, contrary to what you’d expect, full employment can’t mean an unemployment rate of zero. That’s because, at any point in time, there’ll always be some people moving between jobs.

In the days when we did achieve full employment, from the end of World War II until the early ’70s, its practical definition was an unemployment rate of less than 2 per cent.

But then economists realised that the full employment we wanted had to be lasting – “sustainable”. And if you had the economy running red hot with everyone in jobs and using the shortage of labour to demand big pay rises, this would push up the prices businesses had to charge and inflation would take off. The managers of the economy would then have to jam on the brakes, and before long we’d be back to having lots of unemployed workers.

This was when economists decided that sustainable full employment meant achieving the NAIRU – the “non-accelerating-inflation” rate of unemployment. This was the lowest point to which the unemployment rate could fall before wages and inflation began accelerating.

This makes sense as a concept. So the economic managers decided they could use fiscal policy (increases in government spending or cuts in taxes) and monetary policy (cuts in interest rates) to push the economy towards full employment, but they should stop pushing as soon as the actual unemployment rate fell down close to the NAIRU.

Trouble is, the NAIRU is “unobservable” – you can’t see it and measure it. So economists are always doing calculations to estimate its level. But every economist’s estimate is different, and their estimates keep rising and falling over time for unexplained reasons.

In the 1980s, people thought the NAIRU was about 7 per cent. In the late ’90s, when someone suggested we could get unemployment down to 5 per cent, many economists laughed. But it happened.

For a long time, our econocrats had it stuck at “about 5 per cent”. But the rich economies have been stuck in a low-growth trap, with surprisingly weak growth in wages and prices, even as unemployment edged down. This suggests the NAIRU may now be lower than our calculations suggest.

Garnaut recounts in his book US Federal Reserve chairman Jerome Powell saying that, in 2012, the Fed thought America’s NAIRU was 5.5 per cent. In 2020, they thought it had fallen to 4.1 per cent. But this seems still too high because, before the virus struck, the actual unemployment rate had fallen to 3.5 per cent without much inflation.

In Australia, in 2019 the Reserve lowered its estimate to a number that “begins with 4 not 5”, or “about 4.5 per cent”. With wage growth “subdued” for the past seven years, and consumer prices growing by less than 2 per cent a year for six years, this downward correction is hardly surprising. Indeed, Garnaut thinks the true figure could be 3.5 per cent or less.

But Treasury secretary Dr Steven Kennedy said last October he thought the coronacession, like all recessions, had probably increased the NAIRU - to about 5 per cent.

Now get this. Treasurer Josh Frydenberg has said he won’t start trying to reduce the budget deficit – apply the fiscal brakes – until unemployment is “comfortably below 6 per cent”.

Really? That would be well above any realistic estimate of the NAIRU. So the Morrison government is saying it will stop using the budget to reach full employment well before it’s in sight, making reducing government debt its top priority. We’d love to get everyone possible back to work but, unfortunately, we can’t afford it.

So we’re prepared to let continuing unemployment erode the skills of those who go for months or even years without a job because the cost of helping them is just too high. Those likely to be most “scarred” by this will be young people leaving education in search of their first proper job.

But we’ll blight their early working lives in ways that will harm them – and the economy they’ll be making a diminished contribution to - for years to come. That’s okay, however, because we’ll be doing it – so we tell ourselves – to ensure we don’t leave the next generation with a lot of government debt.

Yeah sure. In truth, we’ll be doing it because, so long as I and my kids have jobs, we’ve learnt to live with a lot of other people not having them. We believe in full employment, but we’re happy to continue living without it.

This complacency is what Garnaut says must change. He’s right. He’s right too in saying that with the rise in wages and prices so weak for so long, we should stop trying to guess where the NAIRU is. “We can find out what it is by increasing the demand for labour until wages in the labour market are rising at a rate that threatens to take inflation above the Reserve Bank [2 to 3 per cent] range for an extended period,” he says.

And here’s something else to remember: the Reserve has begun warning that we won’t get back to meaningful real wage growth until we get back to full employment.

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Ross Garnaut's new plan to lift us out of mediocrity

If your greatest wish is for the virus to go away as we all get vaccinated, and then for everything to get back to normal, I have bad news. You’ve been beaten into submission – forced to lower your expectations of what life should be bringing us, and our nation’s leaders should be leading us to.

Without us noticing, we’ve learnt to live in a world where both sides of politics can field only their B teams. Where our politicians are good at dividing us and making us fearful of change, but no good at uniting us, inspiring us and taking us somewhere better for ourselves and our kids.

Scott Morrison hopes that if he can get us vaccinated without major mishap and get the economy almost back to where it was at the end of 2019, that should be enough to get him re-elected. He’s probably right. Even his Labor opponents fear he is.

Fortunately, whenever our elected leaders’ ambition extends little further than to their own survival for another three years, there’s often someone volunteering to fill the vision vacuum, to supply the aspiration the pollies so conspicuously lack. Among the nation’s economists, that person is Professor Ross Garnaut, of the University of Melbourne.

In a book published on Monday, Reset: Restoring Australia after the pandemic recession, Garnaut argues we need to aim much higher than getting back to the “normal” that existed in the seven years between the end of the China resource boom in 2012 and the arrival of the virus early last year.

For a start, that period wasn’t nearly good enough to be accepted as normal. Unemployment and underemployment remained stubbornly high – in the latter years, well above the rates in developed countries that suffered greater damage from the global financial crisis in 2008-09 than us, he says.

“Wages stagnated. Productivity and output per person grew more slowly than in the United States, or Japan, or the developed world as a whole,” he says. (If that weakness comes as a surprise to you, it’s because our population grew much faster than in other rich countries, making it look like we were growing faster than them. We got bigger without living standards getting better.)

So that wasn’t too wonderful, but Garnaut argues if that’s what we go back to, it will be worse this time. Living standards would remain lower, and unemployment and underemployment would linger above the too-high levels of 2019.

We’d have a lot more public debt, business investment would be lower and we’d gain less from our international trade, partly because of slower world growth, partly because of problems in our relations with China.

Continuing high unemployment would devalue the skills of many workers, particularly the young. Many of our most important economic institutions – starting with the universities – have been diminished.

The new normal would be more disrupted than the old one by the accumulating effects of climate change and continuing disputes about how to respond to this.

So Garnaut proposes radical changes to existing economic policies to make the economy stronger, fairer, and to treat climate change as an opportunity to gain rather than a cause of loss.

At the centre of his plan is returning the economy to full employment by 2025. That is, get the rate of unemployment down from 6.5 per cent to 3.5 per cent or lower – the lowest it’s been since the early 1970s.

This would make the economy both richer and fairer, since it’s the jobless who’d benefit most. Returning to full employment would take us back to the old days when wages rose much faster than prices and living standards kept improving.

Returning to full employment, he says, would require a radical change to the way businesses pay company tax and the introduction of a guaranteed minimum income, paid to almost all adults at the present rate of the dole, tax-free and indexed to inflation.

It would involve rolling the present income tax and social security benefits into one system. This would benefit people working in the gig economy and other low-paid and insecure jobs, and greatly reduce the effective tax rates that discourage women and some men from moving from part-time to full-time work.

Changing the basis of company tax would cost the budget a lot in the early years but then raise a lot more in the later years. The guaranteed minimum income would cost a lot but would become more affordable as more people were in jobs and paying tax.

Much of the economic growth Garnaut seeks would come from greater exports. Australia’s natural strengths in renewable energy and our role as the world’s main source of minerals requiring large amounts of energy for processing into metals creates the opportunity for large-scale investment in new export industries. We could produce large exports of zero-emissions chemical manufactures based on biomass, and also sell carbon credits to foreigners.

Of recent years, Australia has fallen into the hands of mediocrities telling us how well they – and we – are doing. Surely we can do better.

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One problem at a time: jobs first, inflation much later

It had to happen: at a time when inflation is the least of our problems, some have had to start worrying that prices could take off. Funny thing is, it’s not the usual suspects who are concerned.

As so often happens, the new concern is starting in America. But since so many people imagine globalisation means our economy is a carbon copy of America’s, don’t be surprised if some people here take up those concerns.

The new Biden administration is about to put to Congress a recovery support package of budget measures – a key election promise – worth a mind-boggling $US1.9 trillion ($2.5 trillion).

Particularly when you remember that, after the US election but before President Biden’s inauguration, Congress stopped stalling and put through another, smaller but still huge, package of spending measures, it’s not surprising that some people are saying it’s all too much and will lead to problems with inflation.

What’s surprising is that the worries have come not from Republican-supporting and other conservative economists, but from an academic economist who’s been prominent on the Democrat side, Professor Larry Summers, of Harvard.

Summers, a former secretary of the Treasury in the Clinton administration, has been supported – on Twitter, naturally – by Professor Olivier Blanchard, of the Massachusetts Institute of Technology, a former chief economist at the International Monetary Fund.

The Biden package has been vigorously defended by the new Treasury secretary and former US Federal Reserve chair Professor Janet Yellen, supported by Professor Paul Krugman, a Nobel prize-winning economist and columnist for the New York Times.

All four of these luminaries have long been advocates of vigorous use of fiscal policy (budget spending and tax cuts) whenever the economy is recessed.

As well, Summers is the leading exponent of the view that America and the other rich economies (including ours) have, at least since the global financial crisis in 2008, been caught in a low-growth trap he calls “secular stagnation”, because investment spending (on new housing, business equipment and structures, and public infrastructure) has fallen well short of the money being saved by households, businesses and governments.

This imbalance, Summers argues, explains why interest rates have fallen so close to zero. He’s long advocated that governments spend on big programs of infrastructure renewal and expansion (including on the cost of fighting climate change by moving from fossil fuels to renewables) to “absorb” much of the excess savings and, at the same time, lift the economy’s productivity.

All four of these economists would fear (as I do) that the structural problems that kept the economy stuck in a low-growth trap for years before the pandemic came along will reassert themselves once the world gets on top of the virus and we recover from the coronacession.

So why would Summers, of all people, fear that Joe Biden’s massive support package could lead to the return of something that hasn’t been a problem for several decades, rapidly rising prices of goods and services?

Because he fears the package’s spending is three times or more the size of the hole in demand that needs to be filled to get the US economy back to “full employment” – low unemployment and underemployment, and factories and offices operating at close to full capacity.

When the demand for goods and services exceeds the economy’s capacity to produce goods and services, what you get - apart from a surge in imports – is rising prices.

Economists believe that an economy’s “potential” rate of growth is set by the rate at which its population, workforce and physical capital investment are growing, plus its rate of improvement in productivity – the efficiency with which those “factors of production” are being combined.

For as long as an economy has idle production capacity – unemployed and underemployed workers, and offices, factories, farms and mines that aren’t flat-chat – its demand can safely grow at a rate that exceeds its potential annual rate of growth.

But once that idle production capacity – known as the “output gap” – has been eliminated and demand’s still growing faster than supply, the excess demand shows up as higher inflation.

Summers’ concern comes because the Congressional Budget Office’s estimate of the US economy’s output gap is several times less than $US1.9 trillion.

Roughly half of the package’s cost is accounted for by spending on virus testing, the vaccine and other health costs, spending to get schools open again, and income-support for victims of the coronacession, including a temporary increase in unemployment benefits.

Summers has no objection to any of that. But much of the rest of the proposed spending is the cost of cash payments of $US1400 ($1800) a pop to most adults, regardless of their income. This is pure “stimulus” spending, and Summers worries that it may crowd out Biden’s plans for subsequent spending on infrastructure, to be spread over several years.

But calculations of the size of an economy’s output gap are rough and ready. Who’s to say the assumptions on which the budget office’s estimates are based are unaffected by the causes of secular stagnation, or by the unique nature of the coronacession?

And even if the spending of those cheques (much of which is more likely to be saved) did lead to price rises, this doesn’t mean we’d be straight back to the bad old days of spiralling wages and prices. (If we were, it would be a sign the era of secular stagnation had mysteriously disappeared.)

Remember, the Americans’ inflation rate (like ours) has long been below their target. Getting up to, or even a bit above, the target would be a good thing, not a bad one.

And, in any case, a good reason we shouldn’t worry about inflation at a time like this is that, should it become a problem, we know exactly how to fix it: put interest rates up. Australia’s households are so heavily indebted that, in our case, just a tiny increase would do the trick.

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RBA governor abounds in optimism about the economy’s prospects

If you think the coronacession made last year a stinker for the economy, Reserve Bank governor Dr Philip Lowe has good news: this year pretty much everything will be on the up except unemployment.

All Reserve governors see it as their duty to err on the optimistic side, and Lowe is no slouch in that department. In his speech this week foreshadowing Friday’s release of the Reserve’s revised economic forecasts for the next two years, Lowe was surprisingly upbeat on what we can expect in “the year ahead”.

His first reason for optimism is that, though last year saw the economy plunge into severe recession for the first time in almost 30 years, it didn’t go as badly as initially feared.

For one thing, he says, Australians did what they usually do: respond well in a crisis. As a community, we have pulled together in the common good and been prepared to do what’s been necessary to contain the virus.

“Because of these collective efforts, Australia is in a much better place than most other countries. This is true for both the economy and the health situation,” he says.

The downturn in the economy was not as deep as the authorities had feared and the recovery has started earlier and has been stronger than expected. “Employment growth has been strong, as have retail sales and new house building. Across many indicators, including gross domestic product, the outcomes have been better than our central forecasts and often better than our upside scenarios as well,” he says.

As recently as August, the Reserve forecast that the rate of unemployment would be close to 10 per cent by the end of last year, and still be above 7 per cent by the end of next year. Its latest forecast is that unemployment peaked at 7.5 per cent in July and – having fallen to 6.6 per cent in December - will be down to 6 per cent by the end of this year.

Why hasn’t the recession been as bad as expected? Lowe offers three reasons. First, our greater success in containing the virus.

“That success has meant that the restrictions on activity have been less disruptive than we feared. It has allowed more of us to get back to work sooner and it has reduced some [note that word] of the economic scarring from the pandemic.”

The second reason the recession hasn’t been as bad as expected is that governments’ fiscal policy (budgetary) “support” has been bigger than expected, even in August. Most of this support has come from the federal government, but the states have also played a role.

Measuring this “support” the simple way the Reserve always does, by the size of the change in the overall budget balance (this time combining federal and state budgets), he puts it at almost 15 per cent of GDP.

Note that this way of doing it adds together two elements economists often separate: the deterioration in budget balances caused by budgets’ “automatic stabilisers” – that is, the move into deficit that would have happened even had governments not lifted a finger, coming from the fall in tax collections and the rise in dole payments – and, on the other hand, the cost of governments’ explicit decisions to stimulate the economy with extra government spending (the JobKeeper wage subsidy and the temporary supplement to JobSeeker dole payments, for instance) or tax cuts.

This greater-than-expected support has made a real difference, Lowe says. “It has provided a welcome boost to incomes and jobs and helped front-load the recovery by creating incentives for people to bring forward spending.

“There has also been a positive interaction with the better health outcomes, which have allowed the policy support to gain more traction than would otherwise have been the case.”

The third reason the bounce-back has been stronger than expected is that Australians have adapted and innovated. “Many firms changed their business models, moved online, used new technologies and reconfigured their supply lines,” Lowe says.

“Households adjusted too, with spending patterns changing very significantly. Some of the spending that would normally have been done on travel and entertainment has been redirected to other areas, including electrical goods, homewares and home renovations. Online spending also surged, increasing by 70 per cent over the past year” to about 11 per cent of total retail sales.

All this suggests a stronger economy in the coming calendar year. With the key assumption that the rollout of the coronavirus vaccines in Australia goes according to Scott Morrison’s plan, but that international travel remains highly restricted for the rest of this year, real GDP is now forecast to grow at the above-trend rate of 3.5 per cent over this year, and at the same rate again over next year.

In consequence, the level of real GDP will be back to where it was at the end of 2019, before the Black Summer bushfires and the arrival of the virus. Over that 18 months we’ll have had net economic growth of zero.

As we’ve seen, the forecast rate of GDP growth is expected to get the rate of unemployment down to 6 per cent by the end of this year. But then it will take a further 18 months to fall to 5.25 per cent.

As measured by the wage price index, wages grew by just 1.4 per cent over the past year, their lowest in decades. The underlying rate of inflation also grew by 1.4 per cent over the year, way below the Reserve’s target rate of 2 to 3 per cent.

“Given the spare capacity that currently exists [seen in the high unemployment and underemployment of labour, and in unused production capacity in factories and offices], these low rates of inflation and wage increases are likely to be with us for some time,” Lowe concludes.

If so, I’m not sure I’m as upbeat about the future as the Reserve Bank governor is.

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Whatever our other problems, there’s much less crime to fear

When I went to Sunday school we used to sing “count your many blessings, name them one by one”. It’s good advice, enthusiastically endorsed in recent times by the practitioners of “positive psychology”. But it’s not something the media do much to help us with. So you may not have noticed that we see far fewer stories about the rising crime rate and shocking descriptions of particular crimes.

That’s because, after rising for about three decades, Australia’s crime rate has fallen sharply since 2001. When the dog doesn’t bark, the media rarely notice. But this is a blessing we should be more aware of. Not everything about the world is going to the dogs.

In a book published this week, The Vanishing Criminal, Dr Don Weatherburn and Sara Rahman seek to answer the obvious question: why something that just kept getting worse has now been getting better for a decade or two. Weatherburn, formerly director of the NSW Bureau of Crime Statistics and Research, is now an adjunct professor at the University of NSW. Rahman is a researcher working in the NSW government.

First, the back story. The figures show that during the 1970s, ’80s and ’90s, Australia faced rapidly rising rates of break-and-enter, motor vehicle theft, robbery, stealing, assault and fraud.

The international crime survey of 2000, covering 25 countries, showed us having the second-highest rate of car theft, the highest rate of burglary, the highest rate of contact crime – covering robbery, sexual assault and assault with force – and the highest overall level of crime victimisation, the authors say.

At that stage, one in 20 Australian households was falling victim to burglary every year, one in 60 was losing a car to theft, and one in 20 people over the age of 15 was being assaulted, according to the Australian Bureau of Statistics.

Although the rates of particular crimes varied widely between suburbs and towns, no state or territory escaped the rise. “The spread of lawbreaking into the suburbs led to rapidly rising public concern, fuelled by an insatiable media and political appetite for stories about rising crime,” the authors say.

At the time, the country was in the grip of a heroin epidemic, which many believed to be responsible for the rise in theft and robbery.

But then, for no obvious reason, crime rates turned from going up to going down. This, too, occurred across all states and territories.

The authors say national recorded rates of property crimes fell precipitously after 2001. By 2017, break-and-enter had fallen by 68 per cent, car theft by 70 per cent, robbery by 71 per cent and other theft by 43 per cent.

The rates for murder fell by 50 per cent, attempted murder by 70 per cent and the overall rate of homicide (including manslaughter) by 59 per cent.

Rates of assault and sexual assault continued to increase, but since 2008, the annual prevalence of actual assault fell by a third, and threatened assault by almost a quarter.

The big exception is recorded rates of (adult) sexual assault, which were higher in 2017 than in 2001, which were higher than in 1993. This is probably due to increased willingness to report offences to police.

Internet fraud has increased, of course. So has use of methamphetamine – “ice”. But unlike heroin, the authors say, ice has so far not made any measurable impression on rates of theft and robbery. It’s probably affecting violent behaviour, of course.

So why the marked decline in so many forms of crime?

The authors note that crime rates have fallen in the United States, Canada, Britain, New Zealand and many European countries. But the decline has differed in its timing and degree in those countries, suggesting there is no single cause.

Rather, in explaining Australia’s decline, they see a coincidence of various factors. With homicide, they find that all the decline has been in gun deaths, rather than the more common knife attacks. So John Howard’s gun buy-back scheme may get some credit, but they think the best explanation is the steady improvement in emergency medical treatment.

Their best explanation for the fall in assaults is the decline in alcohol abuse among young people, in response to rising alcohol prices. Changes in some factors – such as the fall in heroin dependence – have had knock-on effects.

A reduction in the number of offenders relative to the number of police, and a decline in the size of the market for stolen goods, have allowed other factors – such as the risk of getting caught – to exert a greater influence.

Fortuitously, public pressure for the police to get better results reached its peak just as knowledge about what works in policing began to affect police strategy and deployment.

And all this occurred against a backdrop of low inflation, rising real wages and falling unemployment. Crime rates and unemployment do tend to rise together – something for Scott Morrison to remember as he contemplates putting out his Mission Accomplished banner.

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Deeper causes of America's troubles are economic and social

The older I get the more I prefer movies where nothing much happens. I’m increasingly impatient with car chases, gunfights and sword fights. I like movies that look at people’s lives and the way their relationships develop. Truth be told, I prefer escapist movies, but make an exception for those that help me better understand the difficulties encountered by people living in circumstances very different to mine. They may not be much fun, but they are character-building.

I put Frances McDormand’s memorable Nomadland in that category. If you want to understand how the richest, smartest, most “advanced” civilisation in the world could be tearing itself apart before our very eyes, Nomadland is an easy place to start.

McDormand plays an older woman who, having recently lost her husband, finds the global financial crisis and its Great Recession have caused her to lose her job, her home and even the small company town she’s lived in for years.

She fits out a second-hand campervan and takes off on the roads of middle America in search of somewhere to earn a bit of money and somewhere to camp for a few weeks that doesn’t cost too much.

It’s a solitary life, but slowly she makes casual friendships with a whole tribe of other older nomads moving around in search of unskilled casual work. The climax comes when her van breaks down and she must return to suburbia to beg her sister for a loan so she can keep on the move.

It’s a fictionalised version of a non-fiction book, Nomadland: Surviving America in the Twenty-First Century. In the hands of the film’s director, it becomes a story of human resilience, how McDormand’s character and the other nomads learn to adapt and survive. According to the reviews, the movie glosses over the book’s criticism of the poor treatment and payment of people working at a huge Amazon warehouse.

For a harder-nosed expose of life on the margins of America’s mighty economy, I recommend the recent work of the Nobel prize-winning Scottish American economist, Sir Angus Deaton. With his wife Anne Case, another distinguished economics professor from Princeton University, Deaton has obliged Americans to acknowledge an epidemic that’s been blighting their society for two decades, the ever-rising “deaths of despair” among working-class white men.

These are deaths by suicide, alcohol-related liver disease and accidental drug overdose. Much of the problem is the opioid crisis, in which increased prescription of opioid medications – which the pharmaceutical companies had assured doctors were not addictive – led to widespread misuse of both prescription and non-prescription opioids and many fatal overdoses.

Deaton and Case found that these deaths of despair had risen from about 65,000 a year in 1995 to 158,000 in 2018 and 164,000 in 2019. This increase is almost entirely confined to Americans – particularly white males – without a university degree.

While overall death rates have fallen for those with full degrees, they’ve risen for less-educated Americans. Amazingly, life expectancy at birth for all Americans fell between 2014 and 2017 – the first three-year drop since the Spanish flu pandemic. It rose a fraction in 2018, as the authorities finally responded to the opioid crisis.

Deaton and Case have found that, after allowing for inflation, the wages of US men without college degrees have fallen for 50 years, while college graduates’ earnings premium over those without a degree has risen by an “astonishing” 80 per cent.

With the decline in employment in manufacturing caused by globalisation and, more particularly, automation, less-educated Americans have become increasingly less likely to have jobs. The share of prime-age men in the labour force has trended downwards for decades.

Despite losing the popular vote to Hillary Clinton in 2016, Donald Trump won more votes in the Electoral College partly because most Republicans held their nose and voted for him, but mainly because three or four smaller midwest “rust bucket” states – still suffering from the loss of less-skilled jobs in the Great Recession – switched from the Democrats to the man who promised to give the establishment a big kick up the bum. (Instead, he gave it big tax cuts and more deregulation.)

So Trump is more a symptom than a cause of America’s long-running economic and social decay. Which doesn’t change the likelihood that his woeful mismanagement of the coronavirus pandemic will add to the economic and social causes of deaths of despair.

Deaton and Case say the pandemic has exposed and accelerated the long-term trends that will render the US economy even more unequal and dysfunctional than it already was, further undermining the lives and livelihoods of less-educated people in the years ahead.

In the pandemic, many educated professionals have been able to work from home – protecting themselves and their salaries – while many of those who work in services and retail have lost their jobs or face a higher risk of infection doing them.

“When the final tallies are in, there is little doubt that the overall losses in life and money will divide along the same educational fault line,” they conclude.

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Evil Lord Keynes flies to rescue of disbelieving Liberals

When we entered lockdown in March this year, many people (including me) pooh-poohed Scott Morrison’s assurance that the economy would “snap back” once the lockdown was lifted. Turned out he was more right than wrong. Question is, why?

Two reasons. But first let’s recap the facts. About 85 per cent of the jobs lost in April and May had been recovered by November, with more likely this month. It’s a similar story when you look at the rebound in total hours worked per month (thereby taking account of underemployment).

In consequence, the rate of unemployment is expected to peak at 7.5 per cent – way lower than the plateaus of 10 per cent after the recession of the early 1980s and 11 per cent after the recession of the early 1990s. And the new peak is expected in the next three months.

At this stage, the unemployment rate is expected to be back down to where it was before the recession in four years. If you think that’s a terribly long time, it is. But it’s a lot better than the six years it took in the ’80s, and the 10 years in the ’90s.

We’ve spent most of this year telling ourselves we’re in the worst recession since World War II. Turns out that’s true only in the recession’s depth. Never before has real gross domestic product contracted by anything like as much as 7 per cent – and in just one quarter, to boot.

But one lesson we’ve learnt this year is that, with recessions, what matters most is not depth, but duration. Normally, of course, the greater depth would add to the duration. But this is anything but a normal recession. And, in this case, it’s the other way round: the greater depth has been associated with shorter duration.

Of course, the expectation that this recession will take just four years to get unemployment back to where it was is just a forecast. It may well be wrong. But what we do have in the can is that, just six months after 870,000 people lost their jobs, 85 per cent of them were back in work. Amazing.

So why has the economy snapped back in a way few thought possible? First, because this debt-and-deficit obsessed government, which would never even utter the swearword “Keynes” - whom the Brits raised to the peerage for his troubles - swallowed its misconceptions and responded to the lockdown with massive fiscal (budgetary) stimulus.

The multi-year direct fiscal stimulus of $257 billion (plus more in the budget update) is equivalent to 13 per cent of GDP in 2019-20. This compares with $72 billion fiscal stimulus (6 per cent of GDP) applied in response to the global financial crisis – most of which the Liberals bitterly opposed.

Some see Morrison’s about-face on the question of fiscal stimulus as a sign of his barefaced pragmatism and lack of commitment to principle. Not quite. A better “learning” from this development is that conservative parties can afford the luxury of smaller-government-motivated opposition to using budgets (rather than interest rates) to revive economies only while in opposition, never when in government.

At the heart of Morrison’s massive stimulus were two new, hugely influential, hugely expensive and hugely Keynesian temporary “automatic budgetary stabilisers” - the JobKeeper wage subsidy and the supplement to JobSeeker unemployment benefits.

But the second reason the rebound is stronger than expected is that, while acknowledging the coronacession’s uniqueness, economists (and I) have been too prone to using past, more conventional recessions as the “anchor” for their predictions about how the coronacession will proceed.

We’ve forgotten that, whereas our past recessions were caused by the overuse of high interest rates to slowly kill off a boom in demand over a year or more, the coronacession is a supply shock – where the government suddenly orders businesses (from overseas airlines to the local caff) to cease trading immediately and until further notice, and orders all households to leave their homes as little as possible.

It’s this unprecedented supply-side element that means economists should never have used past ordinary demand-side recessions as their anchor for predicting the coronacession’s length and severity.

Whereas normal recessions are economies doing what comes naturally after the authorities hit the brakes too hard, the coronacession is an unnatural act, something that happened instantly after the flick of a government switch.

Morrison believed that, as soon as the government decided to flick the switch back to on, the economy would snap back to where it was. Thanks to his massive fiscal stimulus and other measures – which were specifically designed to stop the economy from unwinding while it was in limbo – his expectation was 85 per cent right.

But there’s a further “learning” to be had from all this. In a normal recession, a recovery is just a recovery. Once it’s started, we can expect it to continue until the job’s done, unless the government does something silly.

But this coronacession is one of a kind. What we’ve had so far is not the start of a normal recovery, but a rebound following the flick of the lockdown switch back to “on”. It has a bit further to run, with the leap in the household saving rate showing that a fair bit of the lockdown’s stimulus is yet to be spent.

Sometime next year, however, the stimulus will stop stimulating demand. Only then will we know whether the rebound has turned into a normal recovery. With wage growth still so weak, I’m not confident it will.

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Year of wonders: Coronacession not as bad as feared

This year has been one steep learning curve for the nation’s medicos, economists and politicians. And you can bet there’ll be more “learnings” to learn in 2021.

Just as the epidemiologists learnt that the virus they assumed in their initial worst-case modelling of the effects of the pandemic wasn’t the virus we got, economists have learnt as they continually revised down their dire forecasts of the economic damage the pandemic and its lockdown would cause.

It reminds me of the “anchor and adjust” heuristic – mental shortcut – that behavioural economists have borrowed from the psychologists. Not only do humans not know what the future holds, they’re surprisingly bad at estimating the size of things.

They frequently estimate the absolute size of something by thinking of something else of known size – the anchor – and then asking themselves by how much the unknown thing is likely to be bigger or smaller than that known thing.

(Trick is, we often fail to ensure the anchor we use for comparison is relevant to the unknown thing. Experiments have shown that psychologists can influence the answers subjects give to a question such as “how many African countries are members of the United Nations?” by first putting some completely unrelated number into the subjects’ minds.)

The econocrats have been furiously anchoring-and-adjusting the likely depth and length of the coronacession all year.

Their initial forecasts of the size of the contraction in gross domestic product and rise in unemployment – which were anchored on the epidemiologists’ original modelling results – soon proved way too high. (Treasury’s first estimate of the cost of the JobKeeper wage subsidy scheme was way too high for the same reason.)

When Prime Minister Scott Morrison started assuring us the economy would “snap back” once the lockdown was over, many people (including me) expressed scepticism.

An economy couldn’t simply “hibernate” the way bears can. Businesses would collapse, some jobs would be lost permanently, and business and consumer confidence would take a lasting hit. There’d be some kind of bounce-back, but it would be way smaller and slower than Morrison was implying.

Wrong. The first reason we overestimated the hit from the pandemic was our much-greater-than-expected success in suppressing the virus. Early expectations were for total hours worked to fall by 20 per cent and the rate of unemployment to rise to 10 per cent.

Morrison’s impressive handling of the pandemic – being so quick to close Australia’s borders, acting on the medicos’ advice, setting up the national cabinet, conjuring up personal protective equipment, and encouraging the states to build up their testing and tracing capability – gets much of the credit for this part of our overestimation.

But the main reason things haven’t turned out as badly as feared is that the economy has rebounded much more in line with Morrison’s assurance than with the doubters’ fears. Victoria’s second wave made this harder for some to see, but last week’s labour force figures for November make it very clear.

Total employment fell by 870,000 between March and May, but by November it had increased by 730,000, an 84 per cent recovery. Victoria accounted for most of the jobs growth in November and now has pretty much caught up with the other states – the more remarkable because its lockdown was so much longer and painful.

Admittedly, more than all the missing 140,000 jobs are full-time, suggesting that some formerly full-time jobs may have become part-time.

By the time of the delayed budget 10 weeks ago, the forecast peak in the unemployment rate had been cut to 8 per cent, but in last week’s budget update it was cut to 7.5 per cent by the first quarter of next year.

If this is achieved it will show that the coronacession isn’t nearly as severe as the recession of the early 1990s – in which unemployment reached a plateau rather than a peak of 11 per cent – or the recession of the early 1980s, with its plateau of 10 per cent.

Similarly, Treasurer Josh Frydenberg now expects the unemployment rate to return to its pre-pandemic level (of 5 per cent or so) in about four years, in contrast to the six years it took following the 1980s recession and the 10 years it took following the ‘90s recession.

Question is, why has the rebound been so much stronger than even the government’s forecasts predicted? Two reasons – but I’ll save them for next Monday.

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The secret sauce is missing from our recovery recipe

According to Reserve Bank deputy governor Dr Guy Debelle, a big lesson from the global financial crisis was “be careful of removing the stimulus too early”. Good point, and one that could yet bring Scott Morrison and his nascent economic recovery unstuck. But there’s something that’s even more likely to be his – and our – undoing.

Debelle was referring to the way the British and other Europeans, having borrowed heavily to bail out their banks and stimulate a recovery in the real economy, took fright at their mountain of debt and, before the recovery had got established, undercut it by slashing government spending. The consequences – contributing to more than a decade of weak growth - are hardly to be recommended.

The Yanks have been doing something similar this time round, with the Republican-controlled Senate agreeing to a huge initial stimulus package but, with the nation caught in a ferocious second round of the pandemic, having so far steadfastly refused a second package.

It almost seems a design flaw of conservative governments always to be tempted to pull the plug too early.

So premature withdrawal of stimulus is certainly a significant risk to the strength of our recovery. But I doubt it’s the biggest one. We should be giving much more thought than we have been to the sources of growth that will keep the economy heading onward and upward once the stimulus peters out.

The basic idea of managing the macro economy is that, when it’s flat, you use budgetary and interest-rate stimulus to give it a kick start, but then all the usual, natural drivers of growth take over.

Such as? We can talk about population growth, but it could well take more than a year or two to return to its accustomed annual rate of 1.5 per cent. And, in any case, it does far less to increase gross domestic product per person than it suits its promoters to admit.

We can talk about business investment spending but, though it does add to demand for goods and services, it’s essentially derived demand. That is, it doesn’t spring up spontaneously so much as grow in response to the growth in consumers’ demand for the goods and services businesses produce.

This being so, the government’s various tax incentives intended to get businesses investing in advance of the surge in consumer demand are unlikely to get far.

Up to 60 per cent of aggregate demand comes from household consumption. But the strong growth in consumer spending in the September quarter – with more to come this quarter – isn’t a sign that healthy growth in consumption has resumed. It’s just the semi-automatic rebound in spending following the lifting of the lockdown.

The leap in the household saving rate to a remarkable 18.9 per cent of disposable income is some combination of greater “precautionary” saving – “Who knows whether I’ll yet lose my job?” – and pent-up demand caused by the lockdown.

As things return to something reminiscent of normal, we can expect people to run down this excess saving to keep their spending returning to normal despite higher unemployment and widespread wage freezes.

But this is a once-only catch-up, spread over several quarters, not a return to on-going healthy real growth in consumer spending. For this, the occasional tax cut can help – though not by much if its prime beneficiaries are the top 20 per cent of income-earners, as scheduled for July 2024 – but there’s simply no substitute for healthy real growth in the dominant source household income: wages.

Real wage growth is the secret sauce missing from the hoped-for recovery. The Reserve Bank’s latest forecasts are for real wage growth of a mere 0.25 percentage points in each of calendar 2020, 2021 and 2022.

The econocrats don’t want to dampen spirits by admitting what they surely know: that without decent growth in real wages there’s little hope of a sustained recovery. Reserve governor Dr Philip Lowe’s recent remarks say we’re unlikely to see much growth in real wages until a rate of unemployment down to 4.5 per cent means employers must bid up wages in their competition to attract all the skilled labour they need.

This implies that, even if we were to achieve healthy rates of improvement in the productivity of labour – a big if – it’s no longer certain that organised labour retains the bargaining power to ensure ordinary households get their fair share of the spoils; that real wages still grow in line with productivity.

The government and its advisers ought to be grappling with the question of how we can get real wages up – but I doubt that’s what we’ll see this week when it reveals its plans for yet more “reform” of industrial relations.

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Economy's rebound goes well, but now for the hard part

Does the economy’s strong growth last quarter mean the recession is over? Only to those silly enough to believe in "technical" recessions. Since few economists are that silly, it’s probably more accurate to call it a "journalists’ recession". Makes for great headlines; doesn’t make sense.

It’s probably true – though not guaranteed - we’ll suffer no more quarters where the economy gets smaller rather than bigger. But people fear recessions not because they deliver growth rates with a minus sign in front of them, but because they destroy businesses and jobs.

You’ll know from walking down the main street that some businesses have closed and not been replaced. You’ll probably also know of family or friends who’ve lost their jobs or now aren’t getting as much casual work as they need and were used to.

By any sensible measure, this recession won’t be over until the rates of unemployment and underemployment are at least back down to where they were at the end of last year, before the virus struck. And Reserve Bank governor Dr Philip Lowe said this week that wasn’t likely for more than two years.

On a brighter note, the increase of 3.3 per cent in real gross domestic product during the September quarter, revealed by the Australian Bureau of Statistics in this week’s "national accounts", does mean the recovery from recession is off to a good start.

So far, however, what we’ve had is not so much a recovery as a rebound. Remember, this unique recession was caused not by an economic threat, as normal, but by a health threat.

The contraction in GDP of a record 7 per cent in the June quarter was caused primarily by a sudden collapse in consumer spending of 12.5 per cent. Why? Because, to halt the spread of the virus, governments ordered many retail businesses and venues to close, employees to work from home if possible, and everyone to stay in their homes and leave them as little as possible.

As a result, people who’d kept their jobs had plenty of money to spend, but greatly reduced opportunity to spend it. Even people who’d lost their jobs had their income protected by the JobKeeper wage subsidy scheme and the temporary supplement to the JobSeeker unemployment benefit.

Turns out that, despite the loss of jobs, those two big support measures actually caused a jump in the disposable incomes of the nation’s households in the June quarter. But, since it was impossible to keep spending, the proportion of households’ income that was saved rather than spent leapt from 7.6 per cent to 22.1 per cent.

The worst-hit parts of the economy were hotels, cafes and restaurants, recreation and culture, and transport (public transport, motoring, domestic and overseas air travel).

But this initial lockdown lasted only about six weeks before it was gradually lifted in all states bar Victoria. In consequence, consumer spending jumped by 7.9 per cent in the September quarter, more than enough to account for the 3.3 per cent jump in overall GDP.

Guess what? The strongest categories of increased spending were hotels, cafes and restaurants, recreation and culture, and transport services. Spending on healthcare rebounded as deferred elective surgery and visits to GPs resumed.

The quarter saw the rate of household saving fall only to 18.9 per cent – meaning people still have plenty of money to spend in coming quarters, even if pay rises will be very thin on the ground. And, since Victoria makes up a quarter of the national economy, its delayed removal of the lockdown ensures the rebound will continue in the present, December quarter.

See the point I’m making? When the greatest part of the collapse in economic activity was caused by a government-ordered lockdown, it’s not surprising most of that activity quickly returns as the lockdown is unwound.

But this is just a rebound to something not quite normal, not a conventional recovery as the usual drivers of economic growth recover and resume their upward impetus.

Thanks to the massive support from JobKeeper and JobSeeker, the rebound is the easy, almost automatic bit. But even the rebound is far from complete. The lockdown will leave plenty of lasting damage to businesses and careers – and the psychological and physical recovery is much harder matter to get moving.

Treasurer Josh Frydenberg boasts that, of the 1.3 million Australians who either lost their jobs or saw their working hours reduced to zero at the start of the pandemic, 80 per cent are now back at work.

Which is great news. But 80 per cent is still a long way short of 100 per cent. And even when 100 per cent is finally attained, that only gets us back to square one. It doesn’t provide additional jobs for those young people who’ll be needing employment in coming years.

Note, too, that most of the rebound in employment has been in part-time jobs. So far, less than 40 per cent of the 360,000 full-time jobs lost between March and June this year have returned.

In March, the rate of unemployment was 5.2 per cent; now it’s 7 per cent. The rate of underemployment was 8.8 per cent; now it’s 10.4 per cent.

And, returning to this week’s figures for GDP in the September quarter, once you look past the rebound in consumer spending, you don’t see much strength in the rest of the economy. Output in mining fell by 1.7 per cent, while production in agriculture was down 0.6 per cent.

One bright spot was home building, which ended a run of eight quarters of decline to grow by 0.6 per cent. Many new building approvals say this growth will continue.

But non-mining business investment in new equipment, buildings and structures incurred its sixth consecutive quarterly fall, with subdued investment intentions suggesting the government’s investment incentives will have limited success.

Little wonder the Reserve’s Lowe has warned the recovery will be "uneven, bumpy and drawn out". Don’t pop the champagne just yet.

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Reserve Bank suffering relevance deprivation syndrome

I’m sorry to say it, and it’s certainly not the done thing to say, but the Reserve Bank looks to me like that emperor with a serious wardrobe deficiency.

Apart from the nation’s allegedly “self-funded” retirees – whose angry letters to Reserve governor Dr Philip Lowe must by now be absolutely blistering – no one wants to question last week’s decision to make what must surely be the smallest-ever cut in the official interest rate, and engage in a bit more of what central bankers prefer to call “quantitative easing” or “balance-sheet expansion” rather than use those verboten words Printing Money.

I guess there’s no reason any borrower would object to paying lower interest rates, no matter how microscopic the reduction. Nor are the nation’s treasuries and governments likely to object to having their own interest bills cut a fraction.

As for the experts in the financial markets, their vested interest lies in having the central bank stay as busy as possible, organising events where they can lay bets. An inactive Reserve is a central bank that’s not helping them justify their lucrative but unproductive existence. “Negative interest rates? Might be a fun day out. Bring it on.”

But I’ve heard from a lot of retired central bankers who disapprove of the Reserve’s scraping of the barrel. And last week Dr Mike Keating, a former top econocrat, also questioned the wisdom of keeping on keeping on.

Some other people have seen the Reserve’s decision to, in Lowe’s words, “do what we reasonably can, with the tools that we have, to support the recovery” as a sign it judged last month’s budget not to have done enough.

Maybe, but I doubt its motives are so noble. Alternatively, Lowe’s reference to “doing what we can” with “the tools we have” could be taken as a tacit admission that his tools can’t do much.

As Treasury Secretary Dr Steven Kennedy made clear last week, monetary policy’s “scope . . . to provide sufficient stimulus is limited and has necessitated the large levels of fiscal support”. His speech was devoted to making sure his financial-markets audience – and the rest of us – understood that the headquarters of short-term management of the macro economy has now shifted from Martin Place, Sydney to Parkes Place, Canberra.

No, I think what we’re seeing is our most well-resourced economic regulator (well-resourced because it prints its own banknotes) desperately trying to look busy and relevant because it’s lost its main reason for existence, but can’t be shut down or even sent on “furlough” – the latest euphemism for being put on unpaid leave, in the hope the need for your services will return.

No country could leave itself bereft of a central bank. The Reserve can’t be shut down because one of its infrequent but vital roles is to flood the financial markets with liquidity whenever they become dysfunctional (as happened in the global financial crisis and, in a smaller way, in the early days of the pandemic).

But the fact remains that the Reserve’s primary function – the short-term stabilisation of demand - has gone away and isn’t likely to come back in my lifetime (another 20 years, max). That is, its problem is structural (long-lasting) not cyclical (temporary).

Your modern, independent central bank was designed to respond to the problem of high and rising inflation. And during the 1980s (and, in Australia, 1990s) its ability to do so was clearly demonstrated.

But, as former Reserve governor Ian Macfarlane has reminded us, inflation rates in the advanced economies have been falling for the past 30 years, and now seem entrenched below the central banks’ targets. And, as Treasury’s Kennedy reminded us last week, the global (real) neutral interest rate has been falling for 40 years.

Central banks need independence of the politicians so they can raise interest rates to fight inflation. They don’t need it to lower rates. But with inflation having gone away as a problem, it’s now 10 years since the Reserve last raised rates (and even that proved unnecessary and had to be unwound).

When nominal interest rates were high, cutting rates in big licks did seem effective in helping revive growth and employment. But with interest rates now so low and getting lower in the 12 years of weak Australian and advanced-country growth since the financial crisis, there’s little reason to believe cutting rates is effective in reducing unemployment and underemployment.

Last week Lowe insisted that an official interest rate down at 0.1 per cent does not mean the Reserve has “run out of firepower” – by which he meant that there’s still plenty of money he can print.

True. But, as Reserve assistant governor Dr Chris Kent has explained, the dominant purpose of the money-printing is to lower “risk-free” (government bond) interest rates further out along the maturity curve beyond the official overnight cash rate.

And this doesn’t provide a reason to believe slightly lower interest rates will induce households and firms to borrow and spend in a way that fractionally higher rates didn’t. Whatever people’s reasons for not spending, the high cost of borrowing isn’t one of them.

The old jibe that cutting interest rates to induce growth is like “pushing on a string” for once seems apposite.

Remembering the retired Reserve bankers’ point that it chose to limit its intervention in financial markets to short-term and variable interest rates for good reason – to limit monetary policy’s distortion of private sector choices - one thing we can be more confident of is that printing money and cutting rates when few people want to borrow for consumption or real investment will be effective in inflating bubbles in the prices of assets such as houses and shares.

How this would leave the unemployed better off is hard to see. Risking our heavily indebted household sector becoming more so doesn’t seem a great idea.

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People on the dole don't want a job? Don't believe it

When Scott Morrison introduced the "coronavirus supplement" that temporarily added $275 a week to the dole’s $40 a day, he explained this was to help those who’d be losing their jobs "through no fault of their own". But it wasn’t long before he was finding fault.

"We are getting a lot of anecdotal feedback from small businesses, even large businesses, where some of them are finding it hard to get people to come and take the shifts because they’re on these higher levels of payment," Morrison told 2GB radio.

"What we have to be worried about now is that we can’t allow the JobSeeker payment to become an impediment to people going out and doing work."

These views would explain his decision to slash the supplement to $125 a week after September, and continue it only to December. What happens after that is still to be decided. But recipients will be required to prove they’ve looked for at least one job a week and will have their dole suspended if they refuse to take a job offer considered suitable.

Of course, it wouldn’t have escaped Morrison’s notice that this "treat ’em mean to keep 'em keen" approach would also help with his worries about the ballooning budget deficit.

I can’t say I’m surprised to hear small business people saying that, despite all the talk of high unemployment, they can’t get people to take the jobs they need to fill. I've heard that in all the previous recessions I’ve worked through.

And, indeed, the practice of denigrating the jobless goes back at least as far as the Great Depression of the 1930s. Then, there were newspaper reports of huge dole frauds that threatened to cripple the system and of a lazy, chicken-eating family living in luxury on the dole.

There’s just one problem with all this. There’s no hard evidence to support these anecdotes, and growing evidence that paying decent rates of unemployment benefit doesn’t discourage people from taking jobs.

These anecdotes don’t fit with a survey of employers conducted by the federal Department of Employment in June, which found just 6 per cent of employers said they were having difficulty recruiting due to a lack of applicants.

The trouble with anecdotes is that they’re anecdotal. The people telling you the stories never give particulars of why they had no takers. Were the vacancies well advertised? Were they paying below the legal award wage or wanting to pay in cash under the table? Were they wanting people to work overtime or at weekends without getting penalty rates? Was the job dangerous or especially unattractive – split shifts, for example.

In recent years, many casual jobs paying less than the law requires have been accepted by overseas students and others on temporary visas. Since the coronavirus hit, many of these people, being denied unemployment benefits or the JobKeeper wage subsidy, have been told to go back home, and have done so. Is that the problem?

In my experience, small business people can see their own perspective very clearly, but other people’s not so much. Many people who seek part-time work do so because they have other commitments that the work must be fitted around – full-time studies, for example, or young children. Maybe that extra shift Morrison refers to would have required people to pay more for childcare.

Then there’s the special circumstances of the virus. It’s likely many single parents have given up casual or part-time work to stay home with their kids when schools are closed. Some older people would have stopped working for fear of catching the disease.

I’ve met many business people (big and small, so to speak) who fall for the economists’ occupational hazard of assuming that, because money is a powerful motivator when it comes to work, money is the only motivation.

They can’t imagine that anyone would want to work rather than sit around at home because they like working, because they like being busy, like seeing their workmates, feel that healthy people should work, or even just to avoid the stigma many unkind people attach to being unemployed.

Many people have the attitude that anyone who really wants a job can find one. But while ever the number of unemployed exceeds the number of vacant jobs, this is a “fallacy of composition” – what may be true for the individual isn’t true for everyone.

Between February and May, the number of people on the JobSeeker payment (formerly Newstart) and the youth allowance rose by more than 90 per cent to 1.8 million whereas, according to the Australian Bureau of Statistics’ quarterly survey, the number of vacant jobs fell by 43 per cent to 129,000.

So there are about 14 jobseekers for every vacancy. Which means that, no matter how punishingly low you set the unemployment benefit – say, $40 a day – you can’t incentivise people to take jobs that don’t exist.

Even when the coronavirus supplement had almost doubled the dole to $550 a week, that’s just 73 per cent of the national minimum full-time wage of $754 a week. This percentage is one measure of what economists call the “wage replacement ratio”.

It’s also the most “conservative” measure - that is, likely to overstate the problem – since most full-timers would earn more than the minimum wage. In any case, the planned $150 cut in the supplement to just $125 a week will reduce the replacement ratio to just 53 per cent.

Not much of a disincentive to take a job there, I’d have thought. But this great fear of temporarily increased unemployment benefits being a great disincentive to work is a big issue in the United States and an argument Republicans have used to refuse to renew the supplement.

But as Catherine Rampell has written in the Washington Post, no fewer than five different academic studies have concluded the same thing: the Americans’ supplement does not appear to have adversely affected jobs growth.

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