Australia will run an overt command economy by 2040 – Casey Handmer's blog

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Australia’s Fiscal Point of No Return

Last September I wrote about Australian economic stagnation — how taxation past the Laffer curve’s point of peak growth, zero public sector productivity improvement since 2001, and the systematic eradication of manufacturing and ICT from the economy have combined to produce economic stagnation and flatlining living standards. The NDIS and similar social spending were the only parts of the economy "growing," but because this spending is not cumulatively generative, it’s not able to sustain long term high quality public benefits. In other words, we’re burning the seed corn.

[Edit: This post generated a surprising amount of coverage, including on news.com.au, The Australian, the Daily Telegraph. I’m pleased that the problem is now obviously undeniable. The question is what to do about it.]

The post generated a question I couldn’t answer at the time: when exactly does this become irreversible? During my recent visit in December 2025, I paid close attention to the function (and dysfunction) of the service economy and was forced to the uncomfortable realization that government spending already controls and distorts such a large fraction of the market that it is not clear whether the Hayek knowledge problem is being solved at all.

In other words, the economy is producing gross shortages and excesses of many goods because government interference in natural pricing mechanisms is so excessive that information transfer through prices no longer exists in a functional way. This is clear in the case of housing, education, healthcare, and now fuel, but also occurs almost invisibly in nearly every other economic edge node that Australians routinely use.

This motivated me to investigate the situation more thoroughly. The answer is not unexpected but quite dire. Australia passed the point of no return in 2013, and is now 13 years into a probably irreversible zombie-fication of its economy.

[Edit May 2026: I have had a few questions about how Australia’s future command economy would reveal itself. Here’s a rough sketch. First, some part of the "basket of goods" will have economically or electorally unacceptable levels of unaffordability. Usually this occurs in the trifecta of housing, healthcare, or education, and is probably driven by housing unaffordability for reasons beyond the scope of this discussion. In any case, you’ll never see gnashing of teeth over, say, scarcity and high prices in the case of consumer electronics, because in these sectors a lack of overregulation and a robust private manufacturing base has driven constant improvements. For example, a top of the line TV is now cheaper than wall it covers! Or a computer is cheaper than the furniture it sits on.

In response to high prices, politicians will generally want to be seen to "do something" and increasing supply through, eg, deregulation or better industrial policy is not direct enough. So first they will announce a subsidy. This could be a first home buyers grant, rent support, direct transfer payments, benefits of various kinds, etc.

Subsidizing demand, of course, does nothing to increase supply if supply is artificially constricted by regulation or some other source of scarcity, so this only has the effect of driving up prices while simultaneously draining the public purse.

The next step, when the cost of direct subsidy is too much of a drain on the tax base but, in the usual way, politically impossible to roll back, is to reach for price controls. Some fundamental necessity is too expensive and subsidies haven’t solved the problem? Simply ban any vendor from providing the service for a price deemed unacceptably high by an increasingly powerful arm of economic control. Of course, price controls just exacerbate a lack of supply because they disincentivize suppliers from entering the market. This has occurred in housing (rent control), construction (anti-gouging provisions after natural disasters), health care (single payer pricing), etc.

When this predictably fails to solve the problem and repeated intrusions into the healthy function of a transparent and mostly free market have destroyed a previously vibrant industry, the government is left with no other options than to reach further into the autocratic closet and start nationalization. In Australia, most healthcare and education is already nationalized, housing has a strong government component, and the current discussion is around controlling price and nationalizing the few private healthcare operators who provide expert specialist services outside or adjacent to the public system.

The correct thing to do, however, is to back off and liberalize normal economic functions. If housing is too expensive, make it easier to build new houses – don’t just try to re-allocate scarcity.]

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