Economic Literacy

The Visible Hand in Economics gives a neat lesson in economic literacy on the issue of productivity growth.

Paul Walker also joins in, dismissing the argument that merely increasing productivity doesn’t necessairly boost GDP or wages, and they quote Paul Krugman of all people:

Economic history offers no example of a country that experienced long-term productivity growth without a roughly equal rise in real wages. In the 1950s, when European productivity was typically less than half of U.S. productivity, so were European wages; today average compensation measured in dollars is about the same. As Japan climbed the productivity ladder over the past 30 years, its wages also rose, from 10% to 110% of the U.S. level. South Korea’s wages have also risen dramatically over time. (“Does Third World growth hurt First World Prosperity?” Harvard Business Review 72 n4, July-August 1994: 113-21.)

Both major parties in Australia understand the importance of productivity growth. That is why they support the Australian Productivity Commission.

The challenge for John Key is to have policies that will help productivity growth.