Has Australia surpassed its optimal macroeconomic scale? Finding out with the aid of `benefit' and `cost' accounts and a sustainable net benefit index

Abstract

The sustainable economic welfare of a nation depends largely on the sustainable net benefits the macroeconomy confers to its citizens. For this reason, an optimal macroeconomic scale can be considered one where the physical scale of the macroeconomy and the qualitative nature of the stock of wealth it comprises maximises a nation's sustainable net benefits. The corollary of this definition is thus: the physical scale of the macroeconomy should grow only if, in the process, the sustainable net benefits of a nation increase. It should cease to grow once sustainable net benefits are maximised. Whilst it is one thing to promote an optimal macroeconomic scale, it is another entirely to gain an appreciation of the sustainable net benefits yielded by the macroeconomy. Gaining such an appreciation constitutes the central aim of this paper. With the assistance of two separate `benefit' and `cost' accounts to replace gross domestic product (GDP), a sustainable net benefit index is constructed for Australia for the period 1966–1967 to 1994–1995. The index, particularly at the per capita level, indicates that economic welfare in Australia is declining (i.e. the average Australian is getting `poorer') despite per capita real GDP increasing. The index therefore suggests that the scale of the Australian macroeconomy has probably well exceeded the optimum.