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 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 average productivity 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.