At the start of a video that was part of Javier Milei’s successful campaign to become Argentina’s President, the libertarian economist rips from the whiteboard the tag representing the Ministry of Sport. ‘Afuera!’ yells Milei, which means ‘out’ in Spanish. Next on the floor lands the label for the Ministry of Culture. In no time, disappear the tags for nine other ministries including ones for Education (‘indoctrination’, Milei hollers), Social development, and Woman, genders and diversity.

‘The thievery of politics is over,’ Milei says towards  the end of the 44-second video found on X that was created to highlight that his ‘shock treatment’ for Argentina includes a plan to abolish about half the country’s ministries.

If a Milei-clone were to gain power in Australia, it would be interesting to see which state agencies might vanish. Among the many contenders should be the Productivity Commission.

Why, when so many, especially central bankers, warn about sluggish productivity would someone scrap a body created to lift output per hour worked, a key determinant of long-term living standards? The answer lies in solving why productivity growth slowed worldwide over the technological revolution of the past two-and-a-half decades – in fact, over the life of the Productivity Commission that was created in 1998.

Studies show productivity growth has dropped in advanced economies since the early 2000s and tumbled in emerging countries after the global financial crisis of 2008. The Reserve Bank of Australia says annual productivity growth here slowed to 0.9 per cent from 2015 to 2022, a drop from 1.2 per cent from 2003 to 2014 and less than half the 2.4 per cent recorded over 1993 to 2002. The Productivity Commission estimates this decline has robbed each worker of a ‘real annual’ income boost of $25,000. The US Bureau of Labor Statistics estimates the US’s productivity slowdown since 2005 has cost US$95,000 in output per worker.

But how can productivity wither during an IT revolution? Economists see that productivity growth is derived from three sources: the extent to which firms use capital and labour, the amount of capital invested per worker, and the effectiveness of innovation (‘total factor productivity’ in their jargon).

The degree to which firms employ resources is essentially cyclical. Companies muster resources when demand is solid and conserve them in tougher times. During downturns, productivity growth can sag if firms reduce output but keep their workers, to avoid shedding then rehiring staff. Sluggish productivity due to cyclical factors usually steadies itself. The weakness in productivity has lasted too long to be cyclical.

Investment has been listless for ages so perhaps it’s to blame. But investment’s decline as a proportion of output isn’t big enough to be the culprit. In the US, the contribution of capital intensity to productivity of 0.8 per cent per annum from 2005 to 2018 is just under its average of 0.9 per cent a year from 1948 to 2018.

If it’s not cyclical nor due to low investment, then perhaps structural changes are the problem. One explanation could be that shabby infrastructure leading to traffic jams, slow rail and gridlocked waterfronts is hampering efficiency. Another is the services sector is a bigger part of economies and productivity gains there are harder.

The best explanation for a structural decline in productivity – and one proffered by the Bank of England in 2014 – is low interest rates are to blame because they allow inefficient companies to survive. This explanation is supported by how US business dynamism – the rate at which jobs are created and vanish as companies come and go – has dropped. Another telling US statistic is the national employment share of startups sank to a near-record low of 8.2 per cent in 2019 from 13.6 per cent in 1976.

One way to understand this explanation is to ponder the insight articulated by Austrian economist Joseph Schumpeter in his book Capitalism, Socialism and Democracy of 1942 when he wrote, ‘Creative destruction is the essential fact of capitalism’. By this, Schumpeter meant natural selection was embedded in capitalism. Therefore, don’t impede it.

Most of the focus on creative destruction centres on new technologies, the role of entrepreneurs and competition. But as Edward Chancellor says in his book of 2022, The Price of Time, interest rates play an unrecognised role in driving creative destruction. Their function? They turn time into a cost and businesses that save time win. Low rates, however, imbed delay and create ‘zombie’ firms that deserve to collapse but don’t. These duds kept solvent by free money stop efficient firms from attracting the best workers.

Recessions are notable for how they accelerate creative destruction. Many businesses fail while others need to become leaner to survive. Chancellor cites how in the 1930s when car sales plunged by two-thirds US automakers invested in innovation. Conveyor belts and quick-drying lacquers were among mass-production techniques introduced. Packard halved its factory-space requirement per unit during the decade.

Today’s policymakers seek to avoid recessions at all costs. Hence politicians run endless fiscal deficits, no matter the debt created. Central bankers concoct countless contortions of monetary policy, dismissing the unintended consequences. Their most bizarre invention is negative interest rates, a tax on capital that makes impossible the pricing of time.

By avoiding a series of smaller downturns, however, policymakers hurt long-term prosperity in two ways. One is they have retarded productivity growth. The other is they are setting up a bigger bust. At least the next recession will solve the productivity problem – without the Productivity Commission doing anything.

To be fair, the commission is harmless, just superfluous. Recessions obviously come with social and economic costs everyone wants to avoid. It’s just that policymakers ignore the costs of their promiscuous macroeconomic settings that include asset bubbles, ballooning debt, rising inequality and slumping productivity.

From 1987, former Federal Reserve chair Alan Greenspan popularised using monetary policy as a bail-out tool.

Did he and other central bankers who mimicked the ‘Greenspan put’ realise they have smothered the gains of an IT revolution? Do their fellow technocrats at the Productivity Commission?

Milei probably does.