Living standards fall as unreliables rise

Today, some 'clean' electricity sources are called 'renewables'. Reflecting their intermittent, weather-dependent nature, I prefer 'unreliables'. As suggested by Matt Ridley and others.

We'll never see the promised 100% dependence on unreliables. They're far too costly, all-up. But living standards will fall as governments push unreliables higher, and cut base-load power.

Most agree promoting higher living standards is a good idea. How can this be done?

More productivity. The only game in town. No extra pie, no extra slices. For anyone. It's not possible to increase all living standards unless more output is produced from less inputs. Redistributing incomes shuffles pie slices. It doesn't add to the pie. It may well shrink it.

Without more pie, announced policies claimed to boost incomes for all will fail. 'Magic puddings' are the fantasies of Bunyip Bluegum and Norman Lindsay. Not the real world.

Such policies drive more inflation, less growth, or both. Paying more cash incomes than real outputs must deliver more inflation, more unemployment, or both, to clear markets. As now.

They are unfair. More inflation and/or unemployment most hurt the economically weak. That's especially the jobless and those on lower incomes. As now. The RBA's inflation concern is right.

Where to start? We must know where we are, and why. The following is based on ABS data.

GDP growth. There's lots of public and political focus on inflation-adjusted (that is, 'real') GDP. Real GDP increased 1.1% in the latest year available.

GDP per capita. For a start, measuring living standards requires dividing real GDP by persons receiving it. Real GDP per capita fell 1.3% in the latest year available.

Real net national disposable income. Even real GDP per capita doesn't tell the full living standards story. It doesn't allow for terms of trade effects, net income from overseas, and other stuff. These are covered in an all-up measure, real net national disposable income per capita. In the latest year available, this measure fell by 2.8%. The terms of trade fell by 7.3%.

Productivity. Capacity to pay overall increases in living standards is determined by productivity. In the latest year available, GDP per hour worked did not increase at all. Real unit labour costs increased by 3.4%.

Increasing unreliables reduces living standards. Everybody can see what's happening to power bills. There's worse to come. These add inexorably to more and more cost-of-living pressures, giving the lie to government claims they're providing cost-of-living relief.

Temporary power subsidies today are paid for by taxpayers now, or on the national credit card later. We all pay for them, one way or another. When they stop, power bills surge even more.

Energy is the major, pervasive, input driving living standards. It affects all elements in the supply chain. Higher living standards need more efficient use of (net) cheaper energy. Always have.

Because of soaring energy and other costs in Australia, some businesses are already cutting back local operations, or closing down. They cannot pass these higher costs on to their customers. Some are shifting production offshore to more competitive, lower cost, locations.

Australia was, and still is, a resources superpower. That reflects our natural comparative advantage. Yet we are pilloried for contributing 1% to global emissions production (and falling).

Worse, governments now assert Australia has a 'new' global 'comparative advantage' in at least two of the unreliables, because we are a sunny and windy spot, and the sun and wind are free.

This is nonsense. It 'gaslights' people who think. It's the province of economic illiterates.

Allowing for weather intermittency, the cost of unreliables' harvesting equipment (PVs, turbines, batteries, and specialised new transmission lines everywhere), and the short economic lives of the first three of these, Australia has neither a comparative, nor an absolute, advantage in them.

We cannot compete with other countries producing this stuff at scale. Sensibly, we import it. We export stuff where we have a cost edge. In net terms, our living standards gain from this trade.

What can we learn from the current unreliables bluster to promote higher living standards?

Recognise announcing something does not make it so. Previous and current prime ministers and premiers have learned – and taught us – this lesson. By ignoring it. They still do.

Stop the 'ad hominem' political 'blame game'. It doesn't fix problems. Political groupies aside, it probably turns most quiet voters off. Most avoid the polls. Until election time, of course.

Use evidence-based analysis to develop policy solutions. Remember evidence-based policy? It's the antithesis of simplistic, sloganised, impractical, 'in your dreams', ideology. Current government policy announcements often sound more like oft-repeated religious mantras.

Start with an objective audit of what's gone wrong. If we don't understand why things have gone wrong in the past, how can we possibly fix them in future? Ignore the past and you'll be forced to re-learn history's lessons.

Encourage 'frank and fearless' advice. Once, that was what the 'official family' was required to deliver. We can't know what in-confidence advice is provided today. Indeed, we shouldn't, lest that constrain the advisers.

But I worry:

Frank and fearless?
Do I dare?
Just tell me what
you want to hear.

may be where we're going.

If these lessons are absorbed, maybe we can start boosting living standards once more.

And, on the way, using reliables, keep the lights on.