Australia’s infernal perpertual growth machine

Ponzi Peter Martin is back with more:

The Bureau of Statistics has produced some shockers – wildly inaccurate employment statistics it has had to disown. But not this time.

An apparent employment surge in one month might be a statistical fluke, the result of a dodgy sample or flawed bad seasonal adjustment. But not a near-record surge that goes on for month after month, 14 of them in a row.

Over the past year a near-record 383,300 more Australians have been funnelled into employment, all but 87,700 of them full-time. In the past month (acknowledging the usual caveat) 61,600 were funnelled into work, all but 19,700 of them full-time.

We won’t get the detailed breakdown until next week, but a look at the latest detailed breakdown we do have, for the year to August, shows that almost all of the jump in employment of 324,900 was in two industries: ‘healthcare and social assistance’ (130,600) and construction (104,400).

…Once it was thought that government investment “crowded out” the private sector. Not at the moment. It’s because of the government investment programs that the private sector is investing too, building projects on contract, handing them over to state governments (which will later sell them) and then starting on the next one. The known pipeline stretches out beyond 2027.

Quite apart from the lack of economic dynamism obvious in dramatically expanded employment in bed pans and bridges, there is one other problem with this kind of jobs boom. It is by definition only short-term.

The bed pan boom will go on as the population ages but, as JPM says “much of the recent acceleration in employment and participation is the result of hiring and participation spillovers related to the national [NDIS] rollout.” Once complete, the spending stops growing and so do the jobs.

It’s even worse for infrastructure, as we’ve pointed out many times, once the spending stops growing, so do the jobs, and we’re approaching the peak already:

Unless the spending improves productivity and incomes it can’t produce a virtuous cycle that keeps growing jobs. There’ll be some of that benefit in the infrastructure but nowhere near enough because the population growth driver has already overrun it:

Basic math (and commonsense) suggests that if you double the nation’s population, you need to at least double the stock of infrastructure to ensure that living standards are not eroded (other things equal). We are only playing at the edges.

And if you don’t build-out the infrastructure efficiently to match the population influx, then productivity and ergo living standards will be reduced, as explained previously by Ross Gittins:

What economists know but try not to think about – and never ever mention in front of the children – is that immigration carries a huge threat to our productivity.

The unthinkable truth is that unless we invest in enough additional housing, business equipment and public infrastructure to accommodate the extra workers and their families, this lack of “capital widening” reduces our physical capital per person and so reduces our productivity.

Think of it: the very report announcing that our population is projected to grow by 16 million to 40 million over the next 40 years doesn’t say a word about the huge increase in infrastructure spending this will require if our productivity isn’t to fall, nor discuss how its cost should be shared between present and future taxpayers.

In already built-out cities like Sydney and Melbourne, which are also the major magnets for new migrants, the cost of retrofitting new infrastructure to accommodate greater population densities can become prohibitively expensive because of the need for land buy-backs, tunneling, as well as disruptions to existing infrastructure – basic ‘dis-economies of scale’.

Indeed, the PC’s Shifting the Dial: 5 year productivity review, released in October, explicitly noted that infrastructure costs will inevitably balloon due to our cities’ rapidly growing populations:

Growing populations will place pressure on already strained transport systems… Yet available choices for new investments are constrained by the increasingly limited availability of unutilised land. Costs of new transport structures have risen accordingly, with new developments (for example WestConnex) requiring land reclamation, costly compensation arrangements, or otherwise more expensive alternatives (such as tunnels).

Victoria is the prime example. After a $1 billion cost blow-out was revealed for the West Gate Tunnel Project, a Victorian Auditor-General’s report also revealed that the cost of Melbourne’s Level Crossing Removals Project, which was funded in part by selling a lease over the Port of Melbourne, has also blown-out by at least $2.3 billion and represents poor value for money. From The Age:

At $8.3 billion, the project is more than 38 per cent more expensive than its initial $5 billion to $6 billion estimated price tag.

And it could end up costing even more, Victoria’s Auditor-General says.

Contrary to the government’s stated objective, many of the 50 crossings on the Andrews government’s list are not among the city’s most congested or dangerous, according to a new report…

Weaknesses in the business case and a politically driven refusal to assess the merits of the 50 selected sites have also undermined the project’s value, the report said…

The business case for the level crossing removal program was completed in April, almost two years after the project started.

It was given a benefit-cost ratio of 0.78, based on a total project cost of $7.6 billion, meaning it would return 78 cents for every dollar spent.

The project’s current cost, $8.3 billion, would erode the benefit-cost ratio further, Mr Greaves’ report said…

Australia is running an infernal perpetual motion machine that force feeds a fat population high-caloric donuts while pushing it to run on an out of control treadmill. Wages fall, purchasing power falls, houses are unaffordable, debt keeps rising, public services deteriorate, brand new infrastructure is clogged but the machine itself keeps on chugging so that a few elites can cream the government cash. Everyone else just stuffs in the empty calories until seized by an infarction.

If that’s you’re version of a jobs boom, Ponzi Pete, then you can keep it.