Financial stress is rising and life satisfaction is falling, but Australians’ discontent runs deeper than household budgets to growing distrust in politics and government.

These are dog days for Australians, it seems. Some of this despondency is easily explained, but some requires us to dig deeper.

To an economist, it’s hardly surprising people are unhappy. To ordinary punters, their big complaint is the rapidly rising cost of living. But though we know that the rate of inflation – that is, the prices of the goods and services we buy – is above the Reserve Bank’s target range of 2 to 3 per cent a year, economists know that’s not the real problem.

The rise in prices – the cost of living – is unceasing. So the rise in prices we’ve seen in recent years is merely on the high side of normal. Normally, it’s not the centre of our discontent. Why not? Because our wages also rise unceasingly.

Normally, our wages rise at a rate just a bit higher than needed to cover the rising cost of living. But that’s what’s not normal. Over the past five years or so, wages haven’t grown by enough to cover price rises, let alone leave us with a modest increase in our “real” wage that would deliver a small rise in our standard of living.

My guess is that changes to industrial relations and the wage-bargaining rules in recent decades have left employers able to hold wages down in a way they couldn’t before. Why this doesn’t seem to worry the Labor federal government I’m blowed if I know.

But this neat economist’s explanation of our woes isn’t........

© Pearls and Irritations