Dig deep and you find the two-speed worm has turned

If you learn nothing else about the economy, remember that it moves not in straight lines but in cycles of good times followed by bad times, and bad times followed by good.

Nowhere is that truer than with our famed "two-speed economy".

For most of the decade to 2012, the resources boom meant that the two main mining states – Queensland and, especially, Western Australia – were growing much faster than the rest of the economy, which was being held back by the effect of the boom-caused high dollar on other export industries.

For the past few years, however, the roles have been reversed, with Queensland and WA now growing much more slowly than Victoria and NSW.

In an article in the latest Reserve Bank Bulletin, Thomas Carr, Kate Fernandes and Tom Rosewell argue that looking at what's been happening from state to state does much to help explain what the Australian Bureau of Statistics is telling us about developments in the national economy.

It also helps explain why Colin Barnett was thrown out of office so unceremoniously in WA last Saturday. Forget the politicos' obsession with the role of One Nation, the deeper explanation is economic.

After peaking at growth of 9.1 per cent in gross state product (the state equivalent of gross domestic product) in 2011-12 at the height of the mining boom, growth slumped to just 1.9 per cent in 2015-16.

There's nothing new about governments getting tossed out when their boom turns to bust. Especially when it becomes apparent what a hash you made of the good times, spending like there was no tomorrow.

To see how the two-speed worm has turned, consider this. In 2015-16, real GDP grew by 2.8 per cent for the year as a whole.

Within this, NSW's real GSP grew 3.5 per cent and Victoria's 3.3 per cent. By contrast, Queensland's grew 2 per cent and, as we've seen, WA's 1.9 per cent. (If you must know, South Australia's was 1.9 per cent and Tasmania's 1.3 per cent.)

What's that? You think WA's annual growth of 1.9 per cent doesn't sound all that terrible? It's being held up by the increased volume of WA's exports of iron ore and liquefied natural gas.

Trouble is, that generates next to no additional jobs. In mining, most of the jobs come from building new mines. When construction ends, the building workers go back where they came from (which ain't Perth).

Our trio from the RBA say that, over the period of the resources boom's build-up and let-down, differences between the performance of the states have been explained mainly by differences in private investment spending.

Consumer spending accounts for a far bigger slice of GDP/GSP than investment spending. And consumer spending has been much less variable between the states than investment spending – although it's been weakest in WA.

Consumers keep their spending reasonably smooth from year to year. They do this by cutting back their rate of saving when their incomes aren't growing fast enough.

We know from the national accounts that, while wages and employment growth have been weak in recent times, households have been progressively lowering their rate of saving to help keep their consumption steady.

That's normal cyclical behaviour. What we now know from the RBA trio's investigations, however, is that pretty much all the decline in the national saving ratio is explained by the actions of West Australians and Queenslanders. Ah.

Another national-level story we're familiar with says the economy is making a transition from mining-led to non-mining-led growth. So, as mining projects are completed and mining investment spending falls way back, we need strong growth in non-mining business investment to take its place.

The national accounts tell us it's not been happening. You've heard all the wailing and gnashing of teeth – not to mention speculation about causes – that's accompanied this bad news.

But here again the RBA trio's data diving shows the story in a different light. While mining investment was booming in the mining states, so was non-mining investment in those states. Confidence in one part of the local economy spills over to other parts.

While this was happening in the mining states, non-mining business investment in the other states was weak.

As the trio almost admit, this was part of the RBA's dastardly plan to ensure the mining boom didn't cause runaway inflation – as every previous commodity boom had.

While the politicians were letting foreign miners make all the crazy investments we now realise they did – leaving us with a gas-bonanza-caused energy crisis – the RBA had to "make room" for the miners by holding back the rest of the economy and, in particular, non-mining business investment.

It would have been willing to achieve this restraint by holding interest rates higher than otherwise needed but, fortunately for it, most of the work was done by the abnormally high exchange rate, which crunched manufacturers, tourism and foreign student education.

Back to the now. While the national figures reveal non-mining investment failing to show signs of recovery, the trio's data diving shows it's actually falling in the mining states (as lack of confidence in mining spills over) but recovering elsewhere.

In NSW, non-mining investment has grown at an average rate of 8 per cent a year for the past three years. In Victoria, it's been 4 per cent.

The obvious explanation for this recovery is the dollar's return to earth. But much of it's been in business services, including, in NSW, construction of new office buildings. In Victoria, there's been investment in wholesale and retail, with investment by manufacturers stabilising.

But the other private investment category – new housing – is also part of the story. Home building has fallen in the West (what a surprise), but grown strongly in NSW and Victoria.

It's surprising what you discover when you dig.

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Private schools becoming less fashionable

It's drawn little comment, but the decades-long drift of students from government to non-government schools has ended.

Figures released by the Bureau of Statistics last month show that 65 per cent of our 3.8 million students went to public schools in 2016, the same proportion as in 2013. If anything, the public-school share is creeping up.

The non-government share divides between Catholic systemic schools with 20 per cent and independent schools with less than 15 per cent. I'll refer to both as private schools.

But the public schools' 65 per cent today is down from 79 per cent in 1977.

Let's start by trying to explain those many years of drift before we wonder about why it's stopped.

When Ipsos Public Affairs asked people why they thought other people sent their kids to private schools, the most commonly cited reasons included the higher standard of education (50 per cent), the better discipline (49 per cent), the better facilities (46 per cent), the size of classes (43 per cent) and because it's a status symbol (40 per cent).

Almost uniquely among other developed countries, Australian parents have a much higher proportion of private schools to choose, and have been given greater freedom to choose between government schools.

Successive federal and state governments have seen greater parental choice between public and private as a virtue, and have encouraged it by increasing their combined grants to private schools at a much faster rate than their funding of public schools.

But I have my own theory on why so many people have opted for private schooling. I think a lot of it gets down to parental guilt.

These days families have much fewer children, which means parents take a lot more active interest in their kids' schooling than they did when I was the last of four.

And these days both parents are more likely be in paid work – meaning they have more money to spend, but see less of their kids than their parents did.

So what more natural than for parents to believe that, in their decisions about how to spend their income, ensuring their kids get the best education possible should have high priority.

And what's more natural in our market economy than to assume that the more you have to pay for something, the higher quality it's likely to be.

It's the old male cop-out, spread to women: I may not see as much of my kids as I'd like to, but I'm working night and day so I can afford to give them the best of everything.

The more materialist you are, the more you're inclined to judge a school by the quality of its facilities – gyms and swimming pools, music, art and drama theatres – than by the quality of its teachers.

Of course, the former is, as economists say, much more "observable" than the latter.

But whatever people give as their reasons for preferring private schools, you'll never convince me they're not well aware of the status they gain by sending their kids to private schools, especially independent schools.

Private schools are among the things economists classify as "positional goods" – they reveal your position in the pecking order.

But what's changed? Why has the drift to private schools come to an end?

One possibility is that the slow wage growth of recent years has made it harder for parents to afford private school fees.

This may be particularly the case for independent schools, where the rate of increase in fees from year to year bears little relationship to rate at which teachers' salaries are rising.

Nor does the rate at which government grants have been growing seem to have had much effect in slowing the rate at which independent school fees have grown. (The extra government grants may have gone into improving schools' facilities.)

My guess is that, as economic textbooks predict, independent school fees rise according to what the market will bear. They judge how strongly demand for their product is growing relative to supply by the length of their waiting lists.

In any case, keeping the cost of independent schooling high is an essential element in maintaining its status as a positional good.

Another possible contributor to the end of the drift to private schools is the decision of state governments – particularly NSW governments – to increase the number of places at selective schools. Why pay fees when you can get what you want inside the government system?

As a parent who's had one of each – independent and selective – I can assure you selective schooling works well as an (intellectual) positional good.

But there's one last possible contributor to the end of the trend to private schools: maybe parents are realising that paying all those fees doesn't buy your kid superior academic results along with their old school tie.

Julia Gillard's My School website has done little to encourage greater competition between schools (a silly idea she got from economists), but it has provided a fabulous database for education researchers.

Various researchers have used it to demonstrate that the best predictor of children's academic results is the socio-economic status (including level of educational attainment) of their parents.

And when you take account of parents' socio-economic status, there's little evidence that kids of similar backgrounds do any better academically at one kind of school than another.

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