Gittins: Business cycle means no full employment

Ross Gittins  (28 Nov 2015) thinks it is the job of the managers of the macroeconomy to try  keep the economy growing at full capacity or “full employment”, although the “business cycle means they can never achieve this goal.” I’m guessing Gittins agrees with ‘the managers of the macroeconomy’ that inflation and unemployment are like opposite ends of a seesaw and that keeping inflation down is more critical than having full employment.

“Nigel Ray, a deputy secretary of Treasury, acknowledged in a speech to the Australian Business Economists this week that last financial year, 2014-15, the economy recorded its third straight year of below-trend growth. ‘This means Australia is now in a prolonged period of below-par growth, the likes of which we have rarely seen outside of a recession’ he said.”

And here is Gittins acknowledging that economic growth, productivity, profits etc – is all about labour, exploiting labour actually. It’s not about land, technology, capital – as the owners of that stuff want the rest of us to believe.

“The economy’s potential rate of growth is the rate at which its ability to produce goods and services is growing.

“This, therefore, refers to the supply side of the economy. The supply side involves combining the economy’s three “factors of production” – land, labour and capital – to produce goods and services.

“Here, “land” includes natural resources and “capital” means man-made, physical capital, such as buildings and equipment, but also roads and other public infrastructure.

“But the economists’ custom is to view the economy’s supply side – its capacity to produce goods and services – through the perspective of just one factor, labour.

“So the economy’s potential output is seen as being determined by “the three Ps”: population, participation and productivity. Potential growth in production is determine by growth in the population of working age (everyone 15 and over) plus change in the rate at which people of working age choose to participate in the labour force by working or seeking work, plus growth in the productivity of labour (average output per hour worked).”

 

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