TAFE mustn't be another bad deal for the young

When they look at the economy that older generations are leaving for them, young Australians have a lot to be angry about. Some of their fears and resentments are misplaced, but most aren't.

Oldies who should know better have, for their own reasons, given them an exaggerated impression of the likely extent and timing of digital disruption in the jobs market.

There's much resentment of the higher education tuition fees the young have to repay, but I've never thought it unreasonable to ask them to contribute about half the cost of their qualifications, which will greatly increase their lifetime incomes – especially when repayments are geared to the size of that income and the loan carries a real interest rate of zero.

But I must add some qualifications. It is a bit rich for federal governments to have been tightening up on subsidies to students at the same time as they've been increasing subsidies to the retired, particularly those who believe themselves entitled to a handout because they're "self-funded" (that is, too well off to get the age pension).

You can understand why young people resent being lumbered with education debt when governments have gone for years tolerating distortions in the tax system – negative gearing and the capital gains tax discount – that favour older people buying investment properties over first-home buyers, and push the price of homes and the size of home loans even higher.

And it's understandable that graduates should be uncertain about the economic value of their degrees at a time when so many uni leavers are taking so long to find a full-time job – which is partly because the past few years of weakness in employers' demand for workers is being borne mainly at the entry level, and partly because universities have lowered the average value of their degrees by lowering entry standards and by educating far more people for particular occupations than are ever likely to be needed.

A big part of this last problem comes from the way successive "reforms" by both sides of politics at both levels of government have stuffed up the choice between going to uni and going to TAFE or a for-profit provider of VET – vocational education and training.

The plain truth is, while it's right that, in our ever-more complicated, knowledge economy, almost all students need further education after completing their schooling, it's wrong to believe everyone should go to university.

The less academically inclined – of whom there will always be many – would be better served going on to vocational education and training, as would the economy (that is, the rest of us).

Yet recent times have seen multiple pressures for every kid to go to uni. The first and most potent is that being a graduate carries more social status – an irresistible lure to many parents and students.

The long-standing policy of encouraging students to stay to the end of year 12 adds to the presumption that young people will and should go on to uni. The last years of high school are overwhelmingly academically inclined.

It was always accepted, in principle, that not all students were suited to university and that, for many, their last years of schooling should be a "pathway" to a trade or other technical qualification.

Great idea; doesn't seem to have amounted to much in practice.

And then we have the introduction in 2012 of demand-driven federal funding of undergraduate places at university, which has prompted a huge increase in student numbers as unis – some more than others – dropped their entry standards so as to maximise their federal grants.

Would it be surprising if this led some students to go to uni when they should have gone to TAFE?

I'm told that, at NSW TAFE's big campus at Ultimo in Sydney, more than 30 per cent of the students are there because, though they already have a uni degree, they can't find a job.

I'm told there's a shortage of architectural drafters because people who should have done the tech course have gone to uni to be architects. Then they're disillusioned when they're put to work doing drafting.

But would it be surprising if school leavers are steering clear of vocational education when they've read so many stories about the tribulations of TAFE and some private providers ripping off the young and trusting, so as to rort the federal government's VET version of the student loan scheme?

The truth is that the efforts of federal and state governments of both colours to make VET "contestable" by making for-profit education providers part of the system have been a disastrous failure.

Now the federal bureaucrats have belatedly sorted that mess, we're left with private providers who will only ever cherry-pick the most popular and profitable courses, usually those with low capital costs.

So we're back to relying on good old government-owned TAFE – always the education system's poor relation, towards which the feds' commitment runs alternatively hot and cold.

But the misguided reformers were right to believe TAFE needs to change from its old complacent, inflexible ways, where the convenience and income of staff were given priority over the changing needs of employers and of young people wanting to gain skills relevant to the needs of present and future employers.

TAFE will need to change a lot if it's not to be yet another respect in which the young are getting a bad deal.

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We’ve turned our unis into money-grubbing exploiters

Of the many stuff-ups during the now-finished era of economic reform, one of the worst is the unending backdoor privatisation of Australia's universities, which began under the Hawke-Keating government and continues in the Senate as we speak.

This is not so much "neoliberalism" as a folly of the smaller-government brigade, since the ultimate goal for the past 30 years has been no more profound than to push university funding off the federal budget.

The first of the budget-relieving measures was the least objectionable: introducing the Higher Education Contribution Scheme, requiring students – who gain significant private benefits from their degrees – to bear just some of the cost of those degrees, under a deferred loan-repayment scheme carefully designed to ensure it did nothing to deter students from poor families.

Likewise, allowing unis to admit suitably qualified overseas students provided they paid full freight was unobjectionable in principle.

The Howard government's scheme allowing less qualified local students to be admitted provided they paid a premium was "problematic", as the academics say, and soon abandoned.

The problem is that continuing cuts in government grants to unis have kept a protracted squeeze on uni finances, prompting vice-chancellors to become obsessed with money-raising.

They pressure teaching staff to go easy on fee-paying overseas students who don't reach accepted standards of learning, form unhealthy relationships with business interests, and accept "soft power" grants from foreign governments and their nationals without asking awkward questions.

They pressure academics not so much to do more research as to win more research funding from the government. Interesting to compare the hours spent preparing grant applications with the hours actually doing research.

To motivate the researchers, those who bring in the big bucks are rewarded by being allowed to pay casuals to do their teaching for them. (This after the vice-chancellors have argued straight-faced what a crime it would be for students to be taught by someone who wasn't at the forefront of their sub-sub research speciality.)

The unis' second greatest crime is the appalling way they treat those of their brightest students foolish enough to aspire to an academic career. Those who aren't part-timers are kept on serial short-term contracts, leaving them open to exploitation by ambitious professors.

However much the unis save by making themselves case studies in precarious employment, it's surely not worth it. If they're not driving away the most able of their future star performers it's a tribute to the "treat 'em mean to keep 'em keen" school of management.

But the greatest crime of our funding-obsessed unis is the way they've descended to short-changing their students, so as to cross-subsidise their research. At first they did this mainly by herding students into overcrowded lecture theatres and tutorials.

Lately they're exploiting new technology to achieve the introverted academic's greatest dream: minimal "face time" with those annoying pimply students who keep asking questions.

PowerPoint is just about compulsory. Lectures are recorded and put on the website – or, failing that, those barely comprehensible "presentation" slides – together with other material sufficient to discourage many students – most of whom have part-time jobs – from bothering to attend lectures. Good thinking.

To be fair, an oddball minority of academics takes a pride in lecturing well. They get a lot of love back from their students, but little respect or gratitude from their peers. Vice-chancellors make a great show of awarding them tin medals, but it counts zilch towards their next promotion.

The one great exception to the 30-year quest to drive uni funding off the budget was Julia Gillard's ill-considered introduction of "demand-driven" funding of undergraduate places, part of a crazy plan to get almost all school-leavers going on to uni, when many would be better served going to TAFE.

The uni money-grubbers slashed their entrance standards, thinking of every excuse to let older people in, admitting as many students as possible so as to exploit the feds' fiscal loophole.

The result's been a marked lowering of the quality of uni degrees, and unis being quite unconscionable in their willingness to offer occupational degrees to far more people than could conceivably be employed in those occupations.

I suspect those vice-chancellors who've suggested that winding back the demand-determined system would be preferable to the proposed across-the-board cuts (and all those to follow) are right.

The consequent saving should be used to reduce the funding pressure on the unis, but only in return for measures to force them back to doing what the nation's taxpayers rightly believe is their first and immutable responsibility: providing the brighter of the rising generation with a decent education.

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Jobs in the services sector have smartened up

So much for our ailing economy. Did you see that 264,000 additional jobs have been created in the first eight months of this year, with 88 per cent of them full-time?

That's a remarkable increase of 2.2 per cent in total employment, according to trend figures issued by the Australian Bureau of Statistics this week.

Where did all those jobs come from? We won't know for certain for a week or two, but I can tell you now: not from agriculture, the production of goods (mining, manufacturing, utilities and construction) or the distribution of goods (transport, postal and warehousing; wholesale and retail trade), but from household and business services.

How can I be sure all the net increase in jobs will have come from the services sector? Because that's been the case for about the past 40 years.

This isn't all that surprising. As the Reserve Bank's head of economic analysis, Dr Alexandra Heath, observed in a speech last week, one of the most pronounced changes in the structure of our economy [and all advanced economies] has been its move away from a goods-producing economy towards a more services-oriented economy.

This isn't because we're producing fewer goods – we aren't – but because the growth in our production of services has been much faster.

"Australians are producing more services, consuming more services and trading more services with other economies than ever before," Heath says.

One reason for the shift to a services-based economy is that Australian households have experienced remarkable growth in their real incomes, she says.

We've had uninterrupted growth for more than 25 years, and real income per household has more than doubled since the early 1960s.

"As incomes rise," she says, "households typically spend more of their income on household services – such as health, education and restaurant meals – than on goods."

But demand for business services – that is, businesses providing services to other businesses - has seen its share of gross value-added grow from less than 20 per cent in the early 1990s to more than 25 per cent today.

The category includes professional and technical services; information, media and telecoms; rental, hiring and real estate; and financial and insurance services.

Part of this growth is just the reclassification of existing activity from goods to services as businesses that produce and distribute goods have increasingly outsourced non-core activities to specialist providers in the services sector.

The trend to outsourcing has been encouraged by technological advance that's lowered the cost of communication and logistics (moving things around) and meant that the scope and complexity of what can be outsourced have increased over time.

(Though, in my humble opinion, firms that outsource their telephone answering to overseas call centres where people you can't understand repeat scripted lines regardless of the context, and have little power to fix your problem because the firm back in Oz doesn't really trust them, will one day reap the customer revenge they so richly deserve.)

It should involve cost savings to outsourcing firms because specialist providers are able to achieve greater economies of scale and pass some of the benefits on to their customers.

So outsourcing is an example of one of the key building blocks of our modern prosperity: ever-greater specialisation and exchange, leading to ever-greater productivity. (This ought to be true when profit-driven businesses do it; it's not always true when governments do it badly or with ulterior motives.)

But outsourcing doesn't explain all the growth in business services. Some of those services are totally new.

And Heath says there's evidence that the nature of the work being done in the business services sector is generally changing faster than in other sectors. "This all suggest that business services are at the centre of how technological change is transforming the Australian economy," she says.

Traditional business services, such as accounting and legal, have been joined by management consulting, internet providers and computer system design.

The growth in outsourcing of business services, and the increasing integration of business services with other sectors of the economy, fit with evidence that "supply chains" are getting longer. That is, there's an increasing number of stages through which goods and services pass.

Not surprisingly, the goods production sector is the most fragmented – has the longest supply chain – because it uses the most "intermediate" inputs to produce its final products.

Research suggests that the reorganisation of production associated with the lengthening of supply chains has led to a shift towards more high-skilled labour, Heath says.

There's growing evidence that advances in computer technology have helped drive a shift from routine to non-routine jobs, creating new jobs as well as making others obsolete.

The share of people employed in the business services sector has almost doubled over the past 50 years, to be about 20 per cent of the workforce. Most of this growth has been in "non-routine cognitive" jobs, as you'd expect when computerisation is an important driver.

(Similar forces are working in the household services sector – all those extra doctors, teachers and academics – although it has also seen a significant increase in demand for non-routine manual jobs.)

If you look more directly at the types of skills and abilities required in the business services sector you see that, since the mid-1990s, there's been a shift towards occupations requiring higher-level cognitive skills such as systems analysis, persuasion, originality, written expression, complex problem solving and critical thinking.

Heath concludes that the business services sector "has played a key role in the way the economy has responded to technological progress.

"In the process, business services have become more important, more specialised and more integrated with other sectors. There is some evidence that this has been associated with higher productivity growth."

Figures from the labour market "also support the idea that business services industries are at the heart of how technological change is transforming the structure of the economy".

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How the threat from robots was exaggerated

You'd have to have been hiding under a rock not to know that 40 per cent of jobs in Australia – about 5 million of them – are likely to be automated in the next 10 to 15 years.

Ask a young person what they know about the future of work and that's it. Which may help explain why so many of them seem angry and depressed about the economic future they're inheriting.

This information is widely known because it's the key finding of a major report, Australia's future workforce?, published in 2015 by the Committee for Economic Development of Australia, a well-regarded business think tank, derived from modelling it commissioned.

It's the sort of proposition you see many references to on social media, particularly because it chimes with a similar widely known prediction made in 2013 that 47 per cent of American jobs could be automated in the next 20 years.

Neither figure is a fact, of course, just a prediction about the distant future based on "modelling".

Why is it that if a prediction is big enough and gloomy enough, everyone keeps repeating it and no one thinks to question it? Why do we accept such frightening claims without asking for further particulars?

Why doesn't anyone ask the obvious question: how – would – they – know?

Because the prediction is based on "modelling"? That if it came out of a computer, it must be true?

Because the modelling for Australia reached similar results to the modelling for America? Sorry, it's actually the same model applied to different figures for each country.

Fortunately, not everyone is as easily convinced that the sky is falling. Two economists from Melbourne University, Professor Jeff Borland and Dr Michael Coelli, have taken a very hard look at the modelling undertaken for the committee by Professor Hugh Durrant-Whyte, of Sydney University, and other engineers at National Information and Communication Technology Australia.

Durrant-Whyte's modelling simply applies to Australia modelling of US occupations by Carl Frey, an economic historian, and Dr Michael Osborne, an engineer, of the Oxford Martin School for a sustainable future at Oxford University.

Frey and Osborne provided some colleagues with descriptions of 70 US occupations and asked them to judge whether they were "automatable" or not. This sample was then analysed and used to classify all 702 US occupations according to their likelihood of being automated.

Any occupation with a predicted probability of automation of more than 70 per cent was classed as being at "high risk" of automation.

Borland and Coelli make some obvious criticisms of this methodology. First, the colleagues found that 37 of the sample of 70 occupations were at risk of automation. Should these subjective assessments prove wrong, the whole exercise is wrong.

For instance, the colleagues judged that surveyors, accountants, tax agents and marketing specialists were automatable occupations, whereas Australian employment in these has grown strongly in the past five years.

Frey and Osborne say the need for dexterous fingers is an impediment to automation, but their method predicts there is an automation probability of 98 per cent for watch repairers.

Second, Frey and Osborne's modelling makes the extreme assumption that if an occupation is automated then all jobs in that occupation are destroyed. The advent of driverless vehicles, for instance, is assumed to eliminate all taxi drivers and chauffeurs, truck drivers, couriers and more.

Third, their modelling assumes that if it's technically feasible to automate a job it will be, without any need for employers to decide it would be profitable to do so. Similarly, it assumes there will be no shortage of the skilled workers needed to set up and use the automated technology.

More broadly, their modelling involves no attempt to take account of the jobs created, directly and indirectly, by the process of automation.

No one gets a job selling, installing or servicing all the new robots. Competition between the newly robotised firms doesn't oblige them to lower their prices, meaning their customers don't have more to spend – and hence create jobs – in other parts of the economy.

All that happens, apparently, is that employment collapses and profits soar. But if it happens like that it will be the first time in 200 years of mechanisation and 40 years of computerisation.

In 2016, the Organisation for Economic Co-operation and Development commissioned Professor Melanie Arntz and colleagues at the Centre for European Economic Research to offer a second opinion on Frey and Osborne's modelling.

Arntz and co noted that occupations categorised as at high risk of automation often still contain a substantial share of tasks that are hard to automate.

So they made one big change: rather than assuming whole occupations are automated, they assumed that particular tasks would be automated, meaning employment in particular occupations would fall, but not be eliminated.

They found that, on average across 21 OECD countries, the proportion of jobs that are automatable is not 40 per cent, but 9 per cent.

Those countries didn't include Oz, so Borland and Coelli did the figuring – "modelling" if you find that word more impressive – and found that "around 9 per cent of Australian workers are at high risk of their jobs being automated".

Why are we so prone to believing those whose claims are the most outlandish?

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Turnbull, Morrison holding their own on the economy

Whatever is holding Malcolm Turnbull and his government behind in the polls so consistently, it doesn't seem to be their handling of the economy.

Voters' responses to special questions in the September Fairfax-Ipsos poll are hardly a ringing endorsement of the Coalition's economic policies, but it is clearly ahead on points.

On which party has the best policies for managing the economy, the Coalition is preferred by 38 per cent of respondents, hardly overwhelming, but comfortably ahead of Labor's 28 per cent, with the Greens scoring a mere 3 per cent.

Decades of polling show voters almost invariably see economic management as one of the Coalition's comparative strengths. This poll shows that pre-judgment has not been shaken by the Turnbull government's struggles.

We need to remember, of course, that, since the Howard government's reforms more than 20 years ago, the day-to-day management of the economy is carried out by the Reserve Bank, not the elected government.

Since then, governments of all persuasions have benefited from the central bankers' steadying hand on the tiller.

As Treasurer, Scott Morrison has had his critics but, even so, his latest approval rating of 42 per cent exceeds his disapproval rating of 38 per cent.

And that's a vast improvement over Joe Hockey's position in April 2015, some months before he lost the job, when his disapproval exceeded his approval by 25 percentage points.

It's hardly surprising that Morrison's approval among intending Coalition voters far exceeds his approval among Labor voters.

What is surprising – and to his credit politically - is that his approval rating among Labor voters is almost double his disapproval rating among Coalition voters.

On the question of preferred treasurer, Morrison scored 38 per cent, comfortably ahead of Labor's shadow treasurer, Chris Bowen, on 29 per cent.

This, too, compares favourably with Hockey's margin of just 1 percentage point over Bowen in July 2014, just two months after Hockey's delivery of the government's hugely unpopular first budget.

This suggests Turnbull and Morrison's tactic in this year's budget of trying to bury all memory of that budget – and switch to using tax increases rather than spending cuts to repair the budget – is helping on the popularity front.

On the question of whether Turnbull or Tony Abbott has provided better economic leadership as prime minister, Turnbull's support of 56 per cent is more than double Abbott's 25 per cent.

Truly, Abbott and Hockey's popularity was unrecoverable after that disastrous first budget.

It's also noteworthy that, at 74 per cent, Labor voters' preference for Turnbull over Abbott far exceeds Coalition voters' preference of 66 per cent.

Some in Turnbull's party may see this as confirmation of his lack of conservative purity; the more savvy will see it as evidence of his potential to win votes from the other side if permitted to move closer to the "sensible centre".

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Sorry, but using migration to boost growth ain’t smart

Ask an economist where the growth in the economy will be coming from and it's surprising how often they fail to give the most obvious answer: from growth in the population.

Why don't they? Partly because it's an admission of failure: more people, bigger economy. Wow, that must have been hard to engineer.

Economists aren't supposed to believe in growth for its own sake. Their sales pitch is that economic growth is good because it raises our material standard of living.

But this is true only if the economy grows faster than the population, producing an increase in income per person (and even this ignores the extent to which some people's incomes grow a lot faster than others).

This simple truth is obscured by economists' practice of measuring growth in the economy without allowing for population growth.

Take the national accounts we got for the June quarter last week. We were told the economy grew by 0.8 per cent during the quarter and by 1.8 per cent over the year to June.

Allow for population growth, however, and that drops to 0.4 per cent and a mere 0.2 per cent. So, improvement in living standards over the past financial year was negligible.

Over the past 10 years, more than two-thirds of the growth in real gross domestic product of 28 per cent was accounted for by population growth, with real growth per person of just 9 per cent.

It's a small fact to bear in mind when we compare our economic growth rate with other developed countries'.

We usually do well in that comparison, but rarely admit to ourselves that our population growth is a lot higher than almost all the others.

Our population grew by 1.6 per cent in 2016, and by the same average rate over the five years to June 2016. This was slower than the annual rate of 1.8 per cent over the previous five years, but well up on the 20-year average rate of 1.4 per cent.

So in the past decade we've been relying more heavily on population growth – read, increased immigration – to bolster economic growth and make the improvement in our material prosperity seem greater than it is.

By now, much less than half our population growth comes from natural increase (births minus deaths) and much more than half from "net overseas migration" (immigration minus emigration).

Meaning, of course, that the even-faster rate of population growth over the past decade has been a conscious act of policy.

Almost all our business people, politicians and economists support rapid population growth through high migration. With that much conventional wisdom behind it, who needs evidence?

It's certainly rational for business people to support high migration. Their concern is to maximise their own living standards, not those of the rest of us, and what easier way to increase your sales and profits and salary package than to sell in a market that keeps expanding?

But I oppose "bizonomics" – the doctrine that the economy should be run primarily for the benefit of business, rather than the people who live and work in it – and the older I get the more sceptical I get about the easy assumption that population growth is good for all of us.

For a start, I don't trust economists enough to accept their airy dismissal of environmentalists' worries that we may have exceeded our fragile ecosystem's "carrying capacity".

But even before you get to such minor matters as stuffing up our corner of the planet, there are narrowly economic reasons for doubting the happy assumption that a more populous economy is better for everyone.

The big one is that the more we add to the population, the more we have to divert our accumulation of scarce physical capital – housing, business equipment and public infrastructure of roads, public transport, schools, hospitals and 100 other things – from "capital deepening", so as to improve our productivity, to "capital widening", so as to stop our productivity per person actually worsening.

The feds decide how much immigration we get, but it's the hard-pressed states that have to keep increasing their infrastructure spending to keep up with the needs of their ever-expanding populations.

But the states allow discredited American credit-rating agencies to limit how much they can borrow. And then there's the glaring inconsistency between believing in rapid population growth and the smaller-government brigade's eternal struggle to stop tax increases and limit government borrowing.

Is it any wonder the long-suffering denizens of our chronically under-serviced outer suburbs end up diverting so much of their dissatisfaction onto immigrants who arrive uninvited by boat? Sometimes I wonder if that's by design, too.

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Little Aussie battler battles on to future glory

Have you noticed how people are getting more upbeat about the economy? It's no bad thing. And, on the face of it, the figures we got this week confirmed their growing confidence.

The Australian Bureau of Statistics' national accounts showed that real gross domestic product grew by a very healthy 0.8 per cent in the June quarter. That's equivalent to annualised growth of 3.6 per cent.

But GDP growth is far too volatile from quarter to quarter for such calculations to make much sense (even though it's what the Americans do). And, just to ensure we don't get too confident, we have a media skilled in finding the lead lining to every silver cloud.

They lost no time in pointing out that half that growth came from increased consumer spending during the quarter of 0.7 per cent. But this return to strong growth was unlikely to be sustained because weak growth in wages meant much of the spending was covered not by an increase in household income, but by a decline households' rate of saving.

The household saving rate had fallen from 5.3 per cent of household disposable income to 4.6 per cent. Indeed, this was the fifth successive quarterly fall from a rate of 7 per cent in March 2016.

It's undeniable that we won't get back to truly healthy economic growth until we see a return to wages growing in real terms. And it's hard to know how long this will take.

Without doubt, weak wage growth is the biggest cloud on our economic horizon.

But the story on the decline in our rate of saving isn't as dire as the figures imply. Saving is calculated as a residual (household income minus consumer spending), meaning any mismeasurement of either income or spending - or both - means the estimate of saving is wrong, and likely to be revised as more accurate figures come to hand.

This time three months ago, for instance, we were told that for consumer spending to grow by 0.5 per cent in the March quarter, it was necessary for the saving rate to fall from 5.1 per cent to 4.7 per cent.

Huh? Obviously, the March-quarter saving rate has since been revised up 0.6 percentage points. How? By the bureau finding more household income. (The saving rate was revised up by lesser amounts in each of the previous six quarters.)

And it won't be surprising to see it happen again. We know that, according to the wage price index, average hourly rates of pay rose by 1.9 per cent over the year to June, whereas this week's national accounts tell us average earnings per hour fell by 0.8 per cent.

It's quite possible for the national accounts measure to show less growth than the wage index if employment is growing in low-paid jobs but declining in high-paid jobs, but it's hard to believe such a "change in composition" would be sufficient to explain so wide a disparity.

Moral: don't drop your bundle just yet.

A second line of negativity we've heard this week says much of the rest of the June quarter's growth came only from increased spending by governments, with government consumption contributing 0.2 percentage points and capital spending contributing 0.6 points.

Two points. First, increased spending on public infrastructure is no bad thing and, indeed, is exactly the budgetary support for stimulatory monetary policy (low interest rates) the Reserve Bank has long been calling for.

Second, the transfer of the new, private sector-built Royal Adelaide Hospital to the South Australian government during the quarter had the effect of overstating public investment for the quarter and understating business investment.

Looking at the adjusted figures for business investment, we find the good news that non-mining investment spending grew by (an upwardly revised) 2.1 per cent in the March quarter and 2.3 per cent in the latest quarter, to be up 6.1 per cent over the year to June.

That says the long-awaited recovery of business investment in the non-mining economy (the other 92 per cent) is well under way. It's also good to know that the long, growth-reducing decline in mining investment isn't far from ending.

Growth in home-building activity was negligible during the June quarter, although Treasurer Scott Morrison says there's a "solid pipeline of dwelling construction" remaining.

The volume of exports of goods and services rose by 2.7 per cent during the quarter, offset by a rise of 1.2 per cent in the volume of imports, implying a net contribution to growth of 0.3 percentage points in the quarter.

However, this was more than countered by a negative contribution of 0.6 percentage points from a fall in inventories, mainly a rundown of the grain stockpile. (That is, grain produced in an earlier quarter was exported in the latest quarter.)

Rural export volumes rose by 18.7 per cent over the year to June. Exports of services were also strong, having averaged annual growth of more than 7 per cent over the past three years, driven by exports of education and tourism.

So, overall, economic growth in the June quarter was a mixed picture which, following a contraction of 0.4 per cent in September quarter last year and - also weather-related - weak growth of 0.3 per cent in March quarter this year, amounted to growth of just 1.8 per cent over the year to June.

This is artificially low, but the September quarter should see us bounce up to artificially high annual growth of about 3 per cent, as last September quarter's minus 0.4 per cent drops out of the calculation.

If you want more persuasive support for our more optimistic mood, however, don't forget employment grew by a super-strong 214,000 in just the first seven months of this year – with 93 per cent of those jobs full-time – and leading indicators showing more jobs strength to come, plus surveys of business conditions showing them at their best in almost a decade.

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It's business that has the greatest sense of entitlement

How the worm – and the world – turns. When the Abbott government came to power just four years ago, it claimed its arrival signalled the "end of the age of entitlement". Don't laugh, it's happening – but in the opposite way to what treasurer Joe Hockey had in mind.

As Hockey saw it, the sense of entitlement we'd acquired, but which could no long be afforded, applied to the social needs of individuals and families.

We saw the results of this attitude in Tony Abbott and Hockey's first budget of 2014, which got an enormous thumbs-down from the public and the Senate, so that pretty much all that remains of the attack on unwarranted entitlement is the unending crusade by the government's Don Quixote, Christian Porter, and his loyal Sancho, Alan Tudge, to root out the last welfare cheat.

Not content with the grand stuff-up that was the "robodebt" use of unguided computers to collect amounts that may or may not have been overpaid, the pair are now hot on the trail of drug-taking welfare recipients.

Drug testing isn't cheap, so it's likely the exercise will cost the taxpayer more than it saves. And drug care experts – who weren't consulted - say addicts can't be successfully coerced into treatment.

Trouble is, successive governments have been cracking down on the crackdown on welfare cheats every year for decades, so there can't be all that many of 'em left.

Why do I get the feeling that cracking down on welfare cheating is, at best, what governments do when they want to be seen to be cutting their spending but aren't game to.

Or, at worst, when they want to exploit the popular delusion that we could all be paying less tax if it weren't for the massive sums being siphoned off by dole bludgers and the like.

Sorry, the people doing by far the most to keep welfare spending high and rising are known as age pensioners. And no one has a stronger sense of entitlement than an oldie fighting for the pension. "I've paid taxes all my life . . ."

But though one of Aussies' less attractive traits has been our proneness to "downwards envy" – the delusion that people worse-off than us are doing it easy – polling by the Essential organisation suggests it may be wearing off, replaced by disapproval of wealthier tax dodgers.

Essential finds only 12 per cent of respondents (including 14 per cent of Coalition voters) are "bothered a lot" by "the feeling that some poor people don't pay their fair share", whereas 53 per cent (40 per cent of Coalition voters) are bothered a lot by "the feeling that some wealthy people don't pay their fair share".

Ask whether they're bothered a lot by the feeling that "some corporations" don't pay their fair share, and disapproval shoots up to 60 per cent, including 51 per cent of Coalition voters.

It's a sign of the times. It has finally dawned on us that the people with the overweening sense of entitlement are our business people.

They used not to be so arrogant, but more than three decades of neoliberal ideology – under which governments should do as little as possible to burden the private sector or restrict its freedom – have left business people convinced they're demi-gods, the source of all goodness and justly entitled to our approbation and genuflection.

They're the source of all jobs, and thus entitled to have their every demand satisfied.

Why should chief executives earn up to 300 times what their workers earn? Isn't it obvious?

Why should the chief executive's package rise by 8 per cent while his workers' wage rise is held down to 2 per cent because times are tough? Because I've just realised that Joe Blow over at XYZ Corp is getting more than me, and I'm better than him.

Why should companies doing legal contortions to minimise the tax they pay, hesitate to demand a cut in the rate of company tax in the name of creating jobs?

The developed world is still recovering from the carnage of the global financial crisis, caused by letting American banks do hugely risky things in the pursuit of higher profits and bonuses, confident in the knowledge that, should things come unstuck, the government would bail them out.

We weren't so silly as to let our own banks behave like that, but the years since then have seen a litany of banks mistreating their customers, as their managers put bonuses ahead of service and the four big banks compete single-mindedly for the highest rate of profit.

Meanwhile, journalists are uncovering a remarkable degree of lawlessness by other businesses: young people paid less than their legal entitlement, exploitation of foreign workers on visas, employers failing to pay in their workers' super contributions.

It's as though business people see themselves as so economically virtuous as to be above the law. Just a bit of red tape those gutless pollies have yet to clear away.

What's changed with the end of the era of neoliberalism, however, is the willingness of politicians on both sides to toughen up on the banks and other businesses.

They'll be paying more rather than less tax in future, and governments are already far less hesitant to regulate them more closely.

I see a lot more coming. Why? Because voters have got jack of arrogant business people.

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Econocrats’ job to minimise damage from lurch to populism

With the collapse of the "neoliberal consensus" between both sides of politics, which is reversing politicians' attitudes to intervention in markets, we're in danger of lurching from one extreme to the other.

My Financial Review colleague Alan Mitchell likes to say that one of the econocrats' primary contributions to good government is to "keep the crazy decisions to a minimum". Never was that truer.

The challenge for Treasury, the Productivity Commission and the rest is to be less doctrinal – less true to the one true economic rationalist faith - and more practical in giving advice that satisfies the pollies' ever-present need to "do something" without the something they do causing a lot of harm, maybe even some good.

To put that into econospeak: econocrats should stop proposing first-best solutions and propose more politically palatable second- or even third-best solutions than have been properly thought through.

Why should they compromise? Because if they go on strike, get the sulks or just let themselves be dealt out of the policy decision process, we'll all be lumbered with a lot of decisions that make things worse rather than better.

That's particularly so now ministers' offices are loaded with pushy young punks at the start of their lifetime careers in politics, who think they know a lot about what's good for the minister and the government but, unfortunately, haven't had the time or inclination to learn much about policy: what works and what doesn't.

Leave a policy vacuum and these chancers will happily fill it. They'll fill it with whatever will get a cheer from the all-indignation-and-no-responsibility radio shock jocks and tabloid loudmouths.

Those reptiles will cheer for what's showy and prejudice-satisfying, not for less spectacular policies the experts know are more likely actually to improve things.

The point is that with the populist reaction against what it's now fashionable for the often-uncomprehending left to call "neoliberalism", we're moving from 30 years of presumption against intervention in markets to a new era of presumption in favour of intervention.

That presumption against intervention came from the 1980s shift to a more fundamentalist approach to neo-classical economics, with its confidence that markets are essentially self-correcting, so intervening in them is more likely to derail this process than assist it.

This involved playing down the significance of "market failure" – factors that stop real-world markets from acting in the perfect way economics textbooks predict they will – or arguing that government interventions to correct market failure usually result in "government failure" – they make the problem worse rather than better.

The rationalists were wrong to play down market failure – it's ubiquitous – and wrong to denigrate government rule-setting for markets as "intervention", as though it's some kind of unnatural act. But they were on to far more than they realised in worrying about government failure.

What ended up discrediting their program of "micro-economic reform" was the way so many privatisations and attempts to make the provision of government services "contestable" were utterly stuffed up by governments that didn't know what they were doing, or were swinging one for their business mates.

Though it's true people have traded with each other since primitive times, it's historical ignorance to imagine that markets in the modern economy are anything other than the creation of governments, regulated and policed under laws of private property, contract, bankruptcy, limited liability, accounting standards and a host of other "interventions" and "regulations".

So there isn't and never has been such an animal as a "free market". What's in question is the degree of regulation and the specifics of what's regulated and how. Presuming against regulation (further or existing) was always an arbitrary and extreme position that would end in tears.

The era of deregulation has discredited itself, with inadequately regulated American and European banks causing the pain and destruction of the global financial crisis, declining standards of business behaviour much in evidence among our own banks, and mounting evidence of business lawlessness.

But for politicians to react to all this with a massive increase in ill-considered regulation would hardly be an improvement.

The real point is regulation is neither intrinsically good nor bad. What it is is very, very tricky. Very hard to get right; easy to get wrong. Bedevilled by "unintended consequences".

Why? Because of the terrible power of "market forces" – actually, profit-seeking firms and self-interested consumers.

There are two mistakes you can make when it comes to regulation: one is to believe market forces are infallible, the other is to believe they're of little consequence and incapable of utterly frustrating the regulators' good intentions.

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Turns out productivity's been fine all along

What a joke. A scholarly article in Treasury's latest Economic Roundup has admitted that all the years of handwringing over our poor productivity performance was just jumping at shadows.

Turns out all the angst was caused by not much more than the figures being distorted by the mining industry's construction boom.

This after our top econocrats gave speech after speech urging "more micro reform" to improve productivity and keep living standards rising. (They'd have advocated more reform even if productivity was improving at record rates; its supposed weakness was just a convenient selling proposition.)

Meanwhile, the business lobby groups, led by the Business Council of Australia, claimed – without any evidence – the supposed weakness had been caused by the "reregulation" of wage fixing under Labor's evil Fair Work changes, and demanded the balance of bargaining power be shifted yet further in favour of employers. (A claim even the Productivity Commission wasn't convinced by.)

Even at the time, it seemed the contortions of the mining industry during the decade-long resources boom were a big part of the story, but that didn't stop people who should have known better going into panic mode.

"Despite concerns", the paper by Simon Campbell and Harry Withers, says with masterful understatement, "Australia's labour productivity growth over recent years is in line with its longer-term performance.

"In the five years to 2015-16, labour productivity in the whole economy has grown at an average annual rate of 1.8 per cent.

"This compares to an average annual rate of 1.4 per cent over the past 15 years, and 1.6 per cent over the past 30 years," it says.

Let's take a step back. Productivity compares the quantity of the economy's output of goods and services with the quantity of inputs of resources used to produce the output.

When output grows faster than inputs – as it does most years – we're left better off. This improvement in our productivity is the overwhelming reason for the increase in our material standard of living over the years and centuries.

Productivity can be measured different ways. The simplest (and least likely to be inaccurate) way is to measure the productivity of labour: growth in output per worker or, better, per hour worked.

Labour productivity improvement is caused by two factors. The first is by increases in the ratio of (physical) capital to labour used in the economy.

This known as "capital deepening" – translation: giving workers more tools and machines to work with, which makes them more productive.

The second driver of labour productivity is improvements in the efficiency with which labour inputs and capital inputs are used, arising from such things as improved management practices. This is known as MFP – multi-factor productivity.

In recent years the figures have shown multi-factor productivity growth to be zero or even negative, causing great concern among some economists, including the Productivity Commission.

But Campbell and Withers argue this focus on MFP is misplaced. They remind us that MFP is calculated as a residual (the product of a sum), meaning its likelihood of mismeasurement is high.

And they criticise the conventional view that physical capital should grow no faster than output – known as "balanced growth" - because capital deepening is an inferior source of productivity improvement to MFP.

People take this view because (making the unrealistic assumption that the economy is closed to transactions with foreigners) increased investment in physical capital must come at the expense spending on consumption.

The authors point out that achieving improved MFP isn't costless, while the price of capital goods (most of which are imported) has fallen persistently relative to the price of consumption goods.

"This has allowed Australia to sustain its high rate of capital deepening without forgoing ever higher levels of consumption," they say.

Actually, they say, our economy has never fitted the "balanced growth" story. Of the 30-year average of 1.6 per cent annual growth in labour productivity, MFP contributed only 0.7 percentage points, while capital deepening contributed 0.9 points.

Next the authors examine the causes of the ups and downs in labour productivity improvement overall by breaking the economy into six sectors: agriculture, mining, manufacturing, utilities, construction and services (everything else).

They find that labour productivity in agriculture is now 2 1/2 times its level in 1989, but it's too small a part of the economy – 2.5 per cent – for this to make much difference to the economy-wide story.

The utilities sector showed strong productivity growth until the turn of the century, before steadily declining through to 2011-12, mainly because of one-off developments such as the building, then mothballing of many desal plants.

The story of mining is well-known: its productivity fell because of the delay between companies hiring more workers to build new mines and gas facilities and that extra production coming on line. Since 2012-13, however, mining productivity has shot up. What a surprise.

Productivity in manufacturing and construction has grown at similar rates to the economy overall, as has productivity in the services sector (hardly a surprise since services now account for 70 per cent of gross domestic product).

Over the past five years, more than half of our total labour productivity improvement was attributable to the services sector, compared with about a quarter attributable to mining.

Apart from productivity improvement in the various sectors, overall productivity can be affected when changes in the industry structure of the economy cause workers to shift from lower-productivity sectors to higher-productivity sectors, or vice versa.

Because mining, being highly capital-intensive, has by far the highest level of labour productivity, the authors say it's really only when workers move in or out of mining that structural change has much effect on economy-wide productivity.

"These movements of labour into and out of mining have been the key driver behind the fluctuations in ... aggregate labour productivity growth," the report concludes.

Now they tell us.

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