To invest, businesses must expect growing demand. For wages to grow, we need productivity growth from investment. A conundrum. Government is admittedly essential in reigniting this dynamic at the low point of a business cycle, but Graham instead focuses where public expenditure is not up to task: carrying the burden of growing aggregate demand while the private sector is shedding labour.
Total government spending is 39 per cent of GDP in Australia. 60 per cent of that is non-discretionary: public wages; healthcare; schools; welfare etc. Maybe these need greater funding to meet needs – but not for unrelated macroeconomic goals, leaving 16 per cent of GDP to be grown arbitrarily. Wages are over half of GDP – jumping much higher including pensions and other transfers that must maintain some relation to wages. A much smaller growth in wages has a much bigger impact on aggregate demand than a much larger growth in public discretionary spending.
The solution: ensure wages grow with national productivity, and the demand will be there for the private sector to reemploy the labour they rationalise. Recent support for wage growth and protecting of multi-enterprise bargaining by the Albanese government are greater steps to secure full employment than fiscal policy ever could be.