In the long term the strength of our economy determines not only investment returns but also our living standards. If the economy is performing well, that usually reflects improving productivity, output per worker. So incomes can rise. Company profits will also increase so share prices will rise too.

Looking forward, there are some impediments likely to retard healthy economies, both in Australia and other countries.

There is a trend towards bigger governments as voters embrace policies that give them short term benefits, rather than policies that are good for the economy. This means more welfare such as the NDIS in Australia.

The public sector is less efficient and productive than the private sector. Voters have forgotten that smaller governments allow businesses to grow and employ more people.

Bigger governments also mean higher taxes, with tax taking a larger share of total economic production. Often there are also bigger government deficits and more government borrowing.

In Australia the ABS says the net debt of all governments has risen from 18 per cent of total annual economic output in 2013-14 to 32 per cent in 2024-25. Greater debt also means more of future tax collections must go in interest payments.

Overregulation is another retarding factor. Each year brings more restrictions. They limit entrepreneurship from doing its creative work. Australia’s best example is the housing shortage. Demand and supply find balance quickly if allowed. Tight restrictions and long approval times are the problem.

The current Government’s reregulation of the labour market has reduced employment flexibility, resulting in fewer jobs. Overregulation has caused a shortage of financial advisers. Starting any simple business requires many approvals.

The reversal of globalisation will be another problem. Tariffs were slowly reduced over the last half century. Free trade and inter-dependence were embraced. Now the US is reintroducing tariffs and protectionism. That will slow trade, raise costs and reduce efficiency of production.

The much higher cost of energy caused by the move away from fossil fuels is another problem. That will continue to raise the cost of producing everything, and the cost of living. 

Many countries have aging populations. In Australia and most developed countries the proportion of the population over age 65 is increasing. The proportion of working age will continue to decrease for decades to come.   

None of these retarding factors will cause a slump in living standards or investment returns in the near term. However they will slow gains in both over the long term.