The realities of Australia's future: two key books

These two books work well together in explaining where Australia is headed. The first is global in scope and provides an excellent background for Ross Garnaut's study of Australia.

Alpert spells out the global economic convergence and its implications. Garnaut focuses on what that convergence means for Australia and how we should manage it.

Both should be read by anyone involved in shaping the nations future.

The Age of Oversupply: Overcoming the Greatest Chalenge to the Global Economy, Daniel Alpert. (Portfolio/Penguin 2013)

This book by Daniel Alpert is very global realist. It is well written, the arguments are easy to follow without the oversimplification and repetition that such big-picture books often use. He produces some great numbers and he is talking about now, not speculating about the distant future.

Alpert is a very experienced US economist, banker and writer. He has worked extensively in Japan and also in China. He has co-authored work with Nouriel Roubini. I came across this book by reading the very highly regarded Martin Wolf from the Financial Times. Wolf had to admire the book while being unwilling to be so realist.

Alpert's basic thesis is that over the last thirty years nearly two billion workers have joined the global economy. They are eager to work and many have considerable education and skills. Their savings, plus the monetary expansion of the rich nations in trying to cope with financial crisis, has also resulted in a huge growth in global capital. As a result we are now experiencing oversupply of capital and labour. That has some vital implications.

The established policies of governments and central banks, of dropping interest rates or expanding the money supply by "printing money" or borrowing from foreigners to grow government spending, no longer work as they used to. There is too much money already available.

At the same time it is hard to generate profits in most industries because rich-nation jobs (and the high consumption they generate) are being transferred to poorer counties where the workers are paid less and save much more. In the global economy competition is fierce, taxes are hard to collect and government powers reduced.

Alpert points out that according to economic theory we will eventually reach a new equilibrium that accommodates these workers and the extra cash, but that could take decades and would mean all the rich nations would have significantly lower living standards. If we fail to find good solutions there will be great pressure for bad ones.

My only problem with the book relates to one of the chapter headings. Alpert's final chapter is called, "In Pursuit of Pragmatism". It is actually about realism, not pragmatism, but we can forgive him making the mistake as the difference is only now being made clear.

His solutions include raising funding for health and education because they lift living standards and increase competitiveness while not being too directly in the line of global competition. He does not oppose Keynesian spending as long as it is used to increase competitiveness, not just to buy off consumers for a few more years. There are also many more specific ideas for reform of national and global economic management. He sees growing total wages as a share of the economy as basic to recovery.