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Speaker 1: Welcome to Ask Fear and Greed, where we answer questions

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Speaker 1: about business, investing, economics, politics, and more. I'm Michael Thompson

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Speaker 1: and hello Sean Aylmer.

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Speaker 2: Hello Michael, Sean.

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Speaker 1: I have got a cracker of a question for you today,

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Speaker 1: and I know that in asking you this question, I

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Speaker 1: am asking you for a lesson.

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Speaker 2: Oh I like it. I don't know what the question is,

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Speaker 2: but I love the economics lesson. Oh I like it

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Speaker 2: even more?

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Speaker 1: Go on, Oh yeah, oh yeah? Is there, Professor Aylmer,

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Speaker 1: a sweet spot for the economy? Is there a point

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Speaker 1: at which economic growth and unemployment and inflation and wages

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Speaker 1: and everything is just all in alignment. Is there a

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Speaker 1: sweet spot for the economy?

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Speaker 2: The answer is yes, but you're only there for a minute,

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Speaker 2: and you never know when you're there until after we

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Speaker 2: had a good yeah, pretty good time then yeah. I mean,

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Speaker 2: economists aren't known as dismal scientists for no reason, because

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Speaker 2: something is always about to go on. So in economics,

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Speaker 2: when you talk about sweet spots, you probably economists would

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Speaker 2: talk about optimality, an optimal point.

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Speaker 1: And sweet sweet spots definitely have better more marketing appeal.

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Speaker 2: I think, at the risk of boring you Michael, not listeners,

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Speaker 2: but you because your attention spent is so poor.

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Speaker 1: It is very short, isn't it? It is? It is.

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Speaker 2: In economics, there's something called preato optimality. You want to

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Speaker 2: look smart in economics, you guys at proto optimality.

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Speaker 1: Yeah, stropped a couple of preretos.

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Speaker 2: That's right. It's a point where resources are allocated in

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Speaker 2: a way that no one can be made better off

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Speaker 2: without making someone else worse off. So effectively, resource and

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Speaker 2: resources are always scarce. There's never enough resources, be that

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Speaker 2: money or food or whatever you want. When it's preto optimal,

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Speaker 2: resources are allocated as efficiently as possible. So, in a sense,

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Speaker 2: you could call that in theory the sweet spot for

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Speaker 2: the economy. What it doesn't take into account is what

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Speaker 2: people are thinking and feeling and wanting and all that

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Speaker 2: sort of stuff. So it's not kind of a realistic concept.

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Speaker 2: So let's just take it to real life economies. They're moving, changing,

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Speaker 2: shifting all the time. So just when an economy arrives

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Speaker 2: at its destination, looks up and goes, eh, that's what

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Speaker 2: I've felt somewhere else, Like it never stays anywhere. You

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Speaker 2: mentioned the big three variables Economic growth, inflation, and unemployment.

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Speaker 2: So what if we could grow it let's say three

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Speaker 2: percent three and a half percent, four percent, unemployment, inflation

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Speaker 2: two and a half percent. I reckon that'd be pretty optimal.

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Speaker 2: Like I reckon would all say, wow, this is pretty cool.

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Speaker 2: And all these things are related to each other. And

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Speaker 2: at the moment, I mean, economic growth is a bit slow,

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Speaker 2: but inflation, as we found out yesterday's around that two

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Speaker 2: and a half to three percent, unemployments around four percent,

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Speaker 2: the economy is probably growing one and a half to

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Speaker 2: two percent. So right now you could almost argue, might

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Speaker 2: not feel like it a bit of a sweet spot.

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Speaker 1: We're getting close to a sweet spot, so.

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Speaker 2: It doesn't it's two out of three, ain't bad.

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Speaker 1: It's not necessarily a requirement that there's always going to

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Speaker 1: be kind of one out of whack and the other

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Speaker 1: tool being used to kind of force it back into

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Speaker 1: kind of into shape.

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Speaker 2: In a way, it is what you're saying. It's true

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Speaker 2: because if you think of the employment market, right, if

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Speaker 2: there are lots of people without a job, then you know,

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Speaker 2: small business hiring someone doesn't have to pay as much,

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Speaker 2: so it takes the heat out of inflation. So they

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Speaker 2: all work together. I think you think the economy is

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Speaker 2: traveling along and Taylor Swift says I'm going to tour

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Speaker 2: Australia and it goes fantastic. I want to pay nine

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Speaker 2: hundred dollars for a Tailor Swift concent And this literally

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Speaker 2: happened last year. And so there's this big boom in

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Speaker 2: the cities that Taylor Swift played in Melbourne and Sydney.

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Speaker 2: So people spend their money on Taylor Swift. They don't

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Speaker 2: have the money to spend it on other stuff, so

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Speaker 2: other parts of the economy drop back. What if you

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Speaker 2: know there's a global leader who says, let's put tariffs

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Speaker 2: on the world. What if there's another global leader who says,

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Speaker 2: let's invade my neighbor and send energy prices through the roof.

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Speaker 2: Like that's just the reality of what goes on. So

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Speaker 2: to my original point, there probably is a sweet spot.

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Speaker 2: You're probably there for a minute and you never know

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Speaker 2: that you're there. And it's when those three economic variables

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Speaker 2: economic growth, inflation and unemployment or the labor market are

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Speaker 2: at a prato optimal point. But you ain't ever going

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Speaker 2: to stay there.

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Speaker 1: You do realize I'm going to use all of this

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Speaker 1: now at a barbecue or something. If I'm going to barbecue,

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Speaker 1: that'd be I'm going to pick my audience and I'm

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Speaker 1: just going to go, hey, guys, what are your what

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Speaker 1: do you reckon about? That pereto optimality? And knowing my

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Speaker 1: like there is going to be an economist there, and

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Speaker 1: they go, ah, yeah, well what do you think, Michael,

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Speaker 1: what do you reckon? And that is the moment at

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Speaker 1: which you will see the blood drain from my face

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Speaker 1: and go, oh dear, good luck bluffing your way out

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Speaker 1: of this one.

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Speaker 2: It reminds me of the story that when I was

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Speaker 2: in birthing classes my first child, Charlie, and they went

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Speaker 2: around the room and said what do you love doing?

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Speaker 2: And I said, I love sea kayaking. I think it

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Speaker 2: was or something like that, I'm mad sea kayaker. And

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Speaker 2: it turns out that one of the guys in the

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Speaker 2: class was Australia's champion sea kayaker and he came after

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Speaker 2: this and said, you want to go sea kayaking? At

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Speaker 2: some point I said, I only said that to me,

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Speaker 2: my wife laugh like I was making it up, So

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Speaker 2: you were you. I was caught out touching you were

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Speaker 2: not a sea kayaker. I'd never been on a sea

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Speaker 2: kayaker in my life. But I was just sort of

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Speaker 2: saying it because I knew the only person in the

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Speaker 2: room there that would not take it seriously was my wife.

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Speaker 2: And so I just said that, and this bloke came

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Speaker 2: and said, don't go sea kayaking. I'm like, no, all right.

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Speaker 1: So in summary, I need to make one hundred percent

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Speaker 1: sure that there are no economists around before I start

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Speaker 1: spouting off about pereto optimality.

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Speaker 2: Before making the core or as we like to call it.

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Speaker 1: A sweet spot for the economy. That is great. Thank

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Speaker 1: you Sean for answering that question. That's a really good explanation.

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Speaker 1: Thank you, Michael, class dismissed. I think you excellent. Say

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Speaker 1: right about now. Look, if you've got your own question

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Speaker 1: that you would like us to answer. It can be

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Speaker 1: anything about business and investing, about economics or politics, or

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Speaker 1: name your topic relationships. Get into that, maybe, Sean. Then

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Speaker 1: send it on through via LinkedIn, Instagram, Facebook, or at

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Speaker 1: Fearandgreed dot com dot au. I'm Michael Thompson and this

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Speaker 1: is ask Fear and Greed