The Flogging of Punchinello

Edwards responds to Pincus

by C H

The point of Beyond the Boom is that the decline of the investment phase of the mining boom, the decline in mining output prices and the decline in our terms of trade do not necessarily mean we are heading into recession or depression as some have warned. Here we are, well into the inevitable decline in the terms of trade and well past the peak in mining investment, yet despite grim predictions, we are getting by. Growth has slowed and no doubt will remain less than its potential until non-mining investment and household consumption strengthen. Even so, real output growth is around 2.5% or a bit better, unemployment is stabilising and we are creating jobs. For three years now labour productivity growth has been well above the average of the last few decades, and in the most recent numbers multifactor productivity has turned the corner and is now again increasing. Wages growth has slowed more than expected and the exchange rate has usefully depreciated.

All these are good and hopeful signs. There is no economic crisis, no collapse. We do not have, as Maurice Newman, the chairman of the Prime Minister’s Council of Business Advisers predicted, zero growth. We have not, as economist Ross Garnaut predicted, fallen into the worst recession since World War II. So far, so good. Things are turning out pretty much the way expected in Beyond the Boom, and not least because the boom was not as big as widely supposed – and in many respects is not yet over.  The Interpreter


Edwards still doesn’t address the point that the structural balance of the economy has shifted. Private debt is high, housing is in a speculative blow off, bank balance sheets are stretched and the composition has shifted markedly towards mortgages, banks are holding little capital, the LMI’s are undercapitalised and on and on. I’m not making the point that things go badly, I’m just frustrated that there is no analysis of this outside of the guys at Macrobusiness and I’m inclined to think that they’re Cassandra’s.

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