Pushing up population makes us poorer

30 09 2013

Another guest post from Mark O’Connor…..

Mark O'Connor

Mark O’Connor

Economists still find it hard to focus on the infrastructure costs of population growth. These amount to at least $200,000 per extra person; and as Jane O’Sullivan elegantly shows in her Online Opinion article (http://www.onlineopinion.com.au/view.asp?article=10137&page=0), they make a nonsense of the economic case for population growth. And absolute nonsense of the case for seeing the enticement of overseas students (with the implied offer of citizwenship) as a profitable industry. ( Australian universities seem to make only about $2000 profit per overseas student per year.)

Worse still, the real infrastructure costs per extra Australian may well be more than double Jane O’Sullivan’s conservative figure of $200,000. See Will Bourke’s piece on this (http://www.abc.net.au/unleashed/39930.html).

Yet many economists learnt from teachers and textbooks that refused to believe resources could ever run scarce. (If they did, prices would go up, they were taught, and this would supposedly lead to more resources being found, or else a good substitute. There would never be Peak Oil but always Yet More Oil.)

Hence the only constraints on the world’s expanding wealth were the availability of capital (no shortage of that sloshing around at present!) and of labour. Hence they keep advising governments that population growth is good for the economy, despite evidence that the infrastructure cost is bankrupting some of the fastest growing parts of Australia, like the state of Queensland.

This piece (http://theconversation.com/standing-in-the-shadow-of-debt-in-the-sunshine-state-5820?) in The Conversation today by Mark McGovern, a senior lecturer in business, economics and finance, is particularly interesting.

He describes, graphically, how infrastructure costs have bankrupted Queensland, and left politicians with nowhere to go. The public now demands they make huge investments in infrastructure, yet he argues that Queensland’s only survival strategy is what he calls “a moratorium on infrastructure” — and that would be political suicide in the current elections. Queensland, he says, is now on “the path to penury”. It cannot even get by by selling off its public assets. That irresponsible strategy has already, he says, been pretty much carried out.

All that’s lacking in his analysis is any connection to the two related reasons that Queensland needs so much infrastructure — spiralling population growth, and reckless go-aheads for resource-extraction projects.

In McGovern’s abstract phrasing:
The fundamental problem is that expenditures have not increased returns from production sufficiently. We need to confront the inadequate yields from investments if economic and financial integrity are to be restored in Queensland and across Australia.

Or as I would put it, it’s time both governments and economists woke up that pushing up your population tends to make you poorer, and that letting (largely foreign-owned) companies sell off your non-renewable resources for a song won’t then rescue your finances.

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