Discussion of Measuring Economic Progress

One of the strongest motives in life is the desire to ‘keep up with the Joneses’. In economic debate, this tendency is reflected in a concern with international rankings of various kinds. These rankings are frequently used to bolster a variety of spurious arguments. A typical form of the argument is ‘Australia has declined relative to country X on scale Y, and we should therefore adopt policy Z (claimed to be practised in X)’. With an appropriate choice of criterion, almost any country can be used as the model. For example, New Zealand’s per capita income has declined by 20 per cent relative to that of Australia over the past decade or so – hardly a promising basis for an argument based on relative performance. However, if attention is focused instead on the current account deficit, New Zealand can be made to appear as a model worthy of emulation. Ian Castles has made a number of useful contributions pointing out this kind of argument, and this paper is no exception. First, Castles makes a number of judicious points about the general notion of ‘league tables’, and the idea that Australia’s supposed slide from the top of the international table last century to a mediocre position today justifies some or other program of radical reform. In the 1980s, this idea was combined with observation of the performance of the ‘tiger economies’ to justify the prediction that Australians would soon become ‘the poor white trash of Australia’ in the absence of free-market reforms. (The same claim was occasionally used to justify interventionist policy as well.) In fact, the notion that Australia was exceptionally wealthy in the late 19th century is a statistical artifact arising from peculiar features of a frontier economy (Quiggin 1987). It is, in any case, entirely irrelevant to our current situation: with what possible policy decisions could a comparative advantage in wool production and the existence of some modest gold deposits have been made an engine of world-beating economic growth?