That the union movement is a shadow of its former self is no impediment to the gratification it gives the Liberals (and the national dailies) to portray the unions as the economy's great bogeyman. Trouble is, the ministers don't seem to have looked at the stats lately. As the Reserve Bank summarised the story on Friday: ''Various measures of wage growth are now around the lowest they have been over the past decade or longer.'' Since the economy has been growing at below trend, with slowly rising unemployment, for quite a few quarters, this is hardly surprising. More worthy of serious discussion is the argument of Professor Ross Garnaut and others that, if the economy is to gain lasting stimulus from the belated fall in the dollar, it will need to be accompanied by a fall in real wages. It is true that a fall in the dollar leads to a rise in the prices of internationally tradeable goods and services.

It is also true that the fall in the nominal exchange rate has to be accompanied by a fall in the real exchange rate (the nominal rate adjusted for our inflation rate relative to those of our trading partners) if it is to cause a lasting improvement in the price competitiveness of our trade-exposed industries. What doesn't follow is that the real exchange rate can fall only if real wages fall. For a start, it doesn't require wages to grow no faster than the inflation rate for that rate to be unchanged. All that's need is for wages to grow no faster than the inflation rate plus the trend rate of improvement in the productivity of labour (often taken to be 1.5 per cent a year). Thus are the benefits of productivity improvement spread around the economy in the form of rising real wages (and, thanks to indexation, rising real pensions) without adding to inflation. As it loved reminding us, this is just what happened throughout the Howard government's term. It follows that real wages would need to fall only to the extent that the increase in inflation caused by the fall in the dollar exceeded the trend rate of productivity improvement. (Of course, the need for slower wage growth would also be reduced to the extent that our trading partners' inflation rate happened to be higher than ours.)

Let's do some figuring. The Reserve's rule of thumb is that a 10 per cent fall in the dollar adds between 0.25 and 0.5 percentage points to the annual inflation rate over each of the following two years or so. Since its peak last April, the Aussie has fallen by about 15 per cent against the US dollar. But it's misleading to focus on temporary peaks, so a more representative fall would be less than 14 per cent. And we really should use the fall against the more economy-wide trade-weighted index, which reduces the depreciation to about 11 per cent. There may be a fair bit more to come, of course, but so far we don't have a lot to worry about. There's no sign we need a fall in real wages, just lower-than-normal real growth. And if you take the danger level of economy-wide nominal wage growth to be 4 per cent (that is, the inflation-target mid-point of 2.5 per cent plus trend labour productivity improvement of 1.5 per cent), we're looking very restrained. The wage-price index never got out of hand even at the height of the resources boom, and by September its annual rate of increase had slowed to a terrifying 2.7 per cent. Not.