No cause for pessimism for the Australian economy

Comments on Henry Ergas “Policies standing in the way of management can do great damage”, 16/07/2012, http://www.theaustralian.com.au/news/opinion/policies-standing-in-the-way-of-management-can-do-great-damage/story-fn7078da-1226426636726

Ergas has made an important contribution to the current debates on the multi-speed economy associated with the mining boom and on productivity.

The latter first. I have made a comment on the shortcomings of the viewpoint by Gruen et al that poor manager performance was the main reasons for the latest productivity slow down, by referring the charts consisting of one cross section international data with a time seires of Australia's productivity. That mix is problematic, because it says little how the international comparison has changed over time. Further, it is doubtful that international productivity would have performed better in recent years over the pre-GFC period.

For Henry's viewpoint on the Dutch Disease in the Australian economy, although it is correct to say that adjustments are inevitable when mining booms as a result of increases in international demand for mineral and a consequential rise of the Australian dollar, the view that no policies can offset or lessen the adverse impact of the mining boom on other trade exposed sectors is likely to be false.

For one thing, his mining tax design was one of policies that could just do that if the policy was designed and implemented properly.

Further, monetary policies could be designed in such a way that lowers both the demand of Australia for international capitals and the Australian dollar.

A fine combination of fiscal and monetary policies together would make the adjustments much less painful than they have been.