(Australian) Nation happy with commodity price boom

From the Sydney Morning Herald (Part 2)

By Jessica Irvine
December 10, 2011

WELLBEING grew twice as fast as gross domestic product in the September quarter thanks to a big rise in national income from the boom in commodity prices and cheaper imports.

The Age-Lateral Economics Index of Australia’s Wellbeing rose 2.2 per cent in the quarter, outstripping GDP growth of 1 per cent.

The index is an Age initiative that adjusts GDP for changes in the nation’s stock of physical, natural and human capital, and in health, income inequality and job satisfaction.

In other good news, the pace of deterioration in our physical and mental health eased slightly in the September quarter. But the erosion of our natural environment continued to be small, but growing, which is negative for wellbeing.

The negative impact on wellbeing from job dissatisfaction grew 2 per cent, due to a slight rise in the jobless rate around mid-year.

Our human capital – the knowledge and knowhow of our population – grew 1.4 per cent during the quarter, adding to wellbeing, although human capital was only up 1.6 per cent over the entire year, due to a fall in the proportion of school students staying on to year 12.

The lead author of the index and chief executive officer of Lateral Economics, Nicholas Gruen, said the fall in school completions came after a particularly strong year. ”Last year saw a significant and somewhat atypical increase in school completions, which was pretty good really given the level of employment.”

Annual growth in wellbeing over the year ended September was 4.3 per cent, also exceeding GDP growth of 2.5 per cent thanks to a strong, 6 per cent rise in national income.

Australia’s terms of trade – the price we receive for our exports versus the price we have to pay for imports – soared 13 per cent over the year and while GDP strips out this price effect, the wellbeing index does not.

The chief economist of Bank of America-Merrill Lynch Australia, Saul Eslake, agreed the index’s measure of net national disposable income was a better measure of the nation’s wellbeing than GDP.

”GDP is designed to be a measure of the volume of production of goods and services,” he said. ”Net national disposable income is not a measure of production, but a measure of income and, in particular, the command you have as a nation over the goods and services produced by the world as a result of the production that you have done.

”It is even better as an indicator of a nation’s wellbeing because it removes that part of the income that is paid to foreigners, because you can’t spend that.”

Dr Gruen warned that the findings showed Australia’s national wellbeing was particularly vulnerable to swings in commodity prices.

”That should lead us to be wary that just as we rode the terms of trade up, they’re likely to come down and that will depress our wellbeing as it occurs.”

He said that the positive contribution from the growth in our human capital was an unqualified positive. ”Unless we have high levels of long-term unemployment, the knowhow we develop is with us for a long time.”

This story was found at: http://www.smh.com.au/national/nation-happy-with-commodity-price-boom-20111209-1ont4.html

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