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Speaker 1: Welcome to Ask Fear and Greed. Well, 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.

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Speaker 1: Sean got a great question for you today. It is

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Speaker 1: one of those ones where if you are allergic to jargon,

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Speaker 1: then this is probably going to help you out because

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Speaker 1: these are those terms that pop up all the time.

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Speaker 2: Right.

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Speaker 1: The question is what's the difference between fiscal policy and

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Speaker 1: monetary policy? And then there's a follow up question to

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Speaker 1: that is which one really runs the show?

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Speaker 2: Well, it depends who you ask, doesn't it. So fiscal

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Speaker 2: policy is all about government spending. Now that includes taxation,

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Speaker 2: energy rebates, you know what, it spends on defense, on health,

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Speaker 2: on the ndies, on education, all that type of stuff.

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Speaker 2: So fiscal policy is very much what the government controls

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Speaker 2: money takes in, the money it spends. Monetary policy is

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Speaker 2: managed by the central bank. Now in Australia and the

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Speaker 2: US for the time being, the central bank is independent

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Speaker 2: of government. And that's a great advantage of monetary policy

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Speaker 2: is that the independent central bank decides what to do

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Speaker 2: about interest rates. Now, when we talk about monetary policy,

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Speaker 2: you can pretty much exchange word monetary for interest rate policy.

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Speaker 2: The way there is a being does it. It sets

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Speaker 2: a basically they call a cash rate, but it's like

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Speaker 2: the benchmark rate, and all other interest rates are set

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Speaker 2: off that. That's that's how it works.

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Speaker 1: Okay. That is a fairly blunt instrument, though, isn't it

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Speaker 1: Like it goes up or it goes down, and it

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Speaker 1: affects a whole lot of things just with moving that

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Speaker 1: one rate.

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Speaker 2: Right, Yeah, so there's plenty in this. The thing about

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Speaker 2: fiscal policy is that you can target stuff. So the

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Speaker 2: energy rebates that the government is paying every quarter seven

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Speaker 2: hundred and fifty dollars, is it? I might have that

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Speaker 2: number wrong, Curt. Remember that sort of energy rebate is

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Speaker 2: really targeted interest rates. As you just said, it just

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Speaker 2: hits everyone. So whether if you're buying a home and

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Speaker 2: you're rich or you're poor and there's an interest rate increase,

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Speaker 2: it just wax you. So it is a very blunt instrument.

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Speaker 2: There's another type of policy which we don't talk about,

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Speaker 2: which we need to add to this. Oh yeah, yeah,

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Speaker 2: that's got you excited. Go on, fiscal there's another one.

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Speaker 1: Oh, please be something really exciting. Crypto policy or something.

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Speaker 2: Almost No, nothing like that. Sorry. It's called wages policy,

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Speaker 2: also known as income's policy.

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Speaker 1: And significantly less exciting than I thought it was going

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Speaker 1: to be.

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Speaker 2: The thing about wages policy, it's all about trying to

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Speaker 2: influence wages and labor costs to keep inflation under control.

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Speaker 2: So earlier this week we had the wage price index

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Speaker 2: come out and that sort of talks about how high

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Speaker 2: wages have gone. So outside fiscal and monetary policy, the

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Speaker 2: government can try and influence wages policy. Unions try and

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Speaker 2: influence wages policy. That type of thing. Now, what you want,

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Speaker 2: you want all three to work together. So let's say

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Speaker 2: we have wages policy trotting along having a good time.

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Speaker 2: You want monetary and fiscal policy such.

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Speaker 1: A good image.

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Speaker 2: You want monetory in fiscal policy to work hand in hand.

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Speaker 2: But regularly that doesn't happen. So you remember all the

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Speaker 2: debate last well we've been having it probably for two

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Speaker 2: years now. But the idea that why doesn't the Reserve

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Speaker 2: Bank cut interest rates? And some people have said because

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Speaker 2: government is spending too much. Now there is truth in

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Speaker 2: that if fiscal policy, yes, in government spending was reduced,

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Speaker 2: that would take heat out of the economy. And gives

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Speaker 2: some room for the Reserve Bank to cut interest rates,

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Speaker 2: but because the government is spending so much, that at

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Speaker 2: the margins at least, And I mean I don't know

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Speaker 2: the internal workings of the Reserve Bank and what shell

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Speaker 2: Bullock's thinking, but the fact that government is spending so

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Speaker 2: much probably just says, well, we don't need to do

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Speaker 2: as much. So you really want these different policies to

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Speaker 2: work hand in hand.

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Speaker 1: So in terms of the follow up of which one

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Speaker 1: runs the show, it's like, you really can't say one

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Speaker 1: is kind of more important than the other, because one

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Speaker 1: is a blunt instrument that influences a whole lot. The

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Speaker 1: other can be very very large but can also be

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Speaker 1: very targeted.

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Speaker 2: Yeah, I mean, I think fiscal policy is more important

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Speaker 2: because it's bigger, and it can target and it's more

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Speaker 2: relevant in many ways. Okay, but monetary policy doesn't have

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Speaker 2: the political pressure that fiscal policy lives under. So in

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Speaker 2: a sense, I think monetary policy is more pure. You

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Speaker 2: just have a bunch of economists saying this is what

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Speaker 2: we need, whereas fiscal policy you've got a bunch of

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Speaker 2: politicians saying this is what we need.

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Speaker 1: So monetary is pure. Fiscal is a little bit dirty.

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Speaker 2: I did quite say that it's.

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Speaker 1: And then wages is just kind of the poor cousin

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Speaker 1: that no one really mentions.

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Speaker 2: Yeah, no one talks about wages and incomes policy.

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Speaker 1: There you go. Well we did today, Sean. We have

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Speaker 1: struck a blow for the poor neglected branch of policy.

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Speaker 1: That was great. I've learned a lot today. I mean,

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Speaker 1: I've always learned something from you, but really today I've

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Speaker 1: got something that I could use out a barbecue on

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Speaker 1: the weekend.

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Speaker 2: Go for it. Please. Hey, yeah, so my name's Michael.

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Speaker 2: Do you want to talk wages policy stuff like that?

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Speaker 1: Listen, you can actually hear all of the invitations to

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Speaker 1: barbecues just drying off in an instant. Thank you very much, Sean.

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Speaker 2: Thanks Michael.

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Speaker 1: I remember, if you've got a question that you would

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Speaker 1: like us to answer, and it can be anything really,

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Speaker 1: and then send it on through via the web. Start

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Speaker 1: social media LinkedIn Instagram, Facebook, any of those. Send you

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Speaker 1: questions through and we'll answer it very soon. I'm Michael

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Speaker 1: Thompson and this is ask Fear and Greed