Australia has a productivity problem. You've heard this before. But the usual story - a gradual slowdown, structural shifts toward services, Baumol's disease - misses what's actually happened.
The real story is starker: Australia had exactly one period of meaningful productivity growth in the last 45 years. It lasted about twelve years. Before and after: stagnation. And since 2015, even the strategies that previously masked this problem have stopped working.
The original Phillips Curve is a beautiful empirical regularity: lower unemployment meant higher inflation. Policymakers in the 1960s thought they faced a stable menu of choices - trade off a bit more inflation for a bit less unemployment, or vice versa. The current Phillips curve in respect of Australia looks like this.
I have been trying to get an understanding of why the US invaded Venezuela. So far I have a bunch of theories, none of which I find compelling.
Australia's potential GDP growth is closer to 2% than the 2.5% Treasury assumes. The difference matters for inflation, interest rates, and fiscal policy.
