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Speaker 1: Warren Hogan. Welcome to Property Insights, Mate, thanks for having

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Speaker 1: me on. Mark finally, well, you know, like I wanted

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Speaker 1: to get you on when you first came out, by

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Speaker 1: the way, I should I should introduce you the or

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Speaker 1: the economists at the at Judo Bank, one of my

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Speaker 1: favorite banks, by the way, and a great team there.

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Speaker 1: And I was one of your very early, not yours,

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Speaker 1: Judo Banks, very early fans, and I still am so,

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Speaker 1: and I should declare the Judo Bank is on our

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Speaker 1: panel and Yellow Bick Road and we are a big

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Speaker 1: advocate for Judo Bank. I've done my advocacy advocacy, and

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Speaker 1: I've also done my qualifications. But but I want to

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Speaker 1: get you on when you were the probably the first

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Speaker 1: person who economist who was prepared to go public are

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Speaker 1: into the media and stand by your position that in

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Speaker 1: order to control inflation as we know it as I'm

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Speaker 1: talking about now, maybe six months ago, yeah, and was

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Speaker 1: about six months ago where in order to control fation

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Speaker 1: the Reserve Bank you were saying, the Reserve Bank actually

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Speaker 1: to pull the interest rate lever up and the words

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Speaker 1: going on, and I think you might have suggested maybe

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Speaker 1: two more rate rises. Yeah, I came out with three

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Speaker 1: then three. Yeah, but at the data of the data

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Speaker 1: of the time might have indicated it.

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Speaker 2: Well, it's the number. It's the number of where you've

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Speaker 2: got to get the real interest rate. But we can

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Speaker 2: talk about you.

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Speaker 1: That's what I want to talk about. So you know,

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Speaker 1: I did the podcast with Kookie and we've had Chris

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Speaker 1: Joy sitting in there. So Chris Joy's in your camp

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Speaker 1: or Chris was. I'm not sure if he still is.

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Speaker 1: I bumped him yesterday. I should have asked him. But

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Speaker 1: Chris did a put out a note on Cooler Bar

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Speaker 1: about prior to the last meeting, I'd say week or

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Speaker 1: two pro last meeting, and said that there is a

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Speaker 1: beaks with the rates up again and that he was

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Speaker 1: expecting of the rate rise and then after that there

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Speaker 1: will be a crash the mid recession.

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Speaker 2: Very optimistic.

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Speaker 1: Yeah. So, and then Kukulus is the more in the

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Speaker 1: dubbish territory into the rate increases. He's saying there's enough

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Speaker 1: and that's enough and the time will sort it out.

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Speaker 1: Are you still in the put a rate give us

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Speaker 1: a rate rise territory?

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Speaker 2: Yeah, I've still got a rate hike in for November

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Speaker 2: and checking a little fifteen basis point hiking December to

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Speaker 2: get us to four seventy five. Whether it will happen,

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Speaker 2: I don't know. All I know is that any other

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Speaker 2: Reserve Bank board would have had the cash right up

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Speaker 2: around five and a half percent, probably last year. They're

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Speaker 2: trying to experiment. Earlier this year there was recovering business

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Speaker 2: activity in Australia, and the recovery and employment suggested the

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Speaker 2: experiment wasn't working. We've now just about running out of

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Speaker 2: all of our nominal tightening. The changing the cash rots

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Speaker 2: washed its way through the system takes twelve dart eight months,

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Speaker 2: and that leads us with the real interest rate, and

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Speaker 2: the real interest rate is barely above zero. And that's

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Speaker 2: what economists actually model and analyze the economy, just like

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Speaker 2: real GDP, real wages, all that stuff. I'm actually aghast

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Speaker 2: at the lack of reference to real interest rates in

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Speaker 2: the professional economist community.

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Speaker 1: Can you explain that then?

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Speaker 2: It is? Yeah, it's just just just simply the interest

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Speaker 2: right minus inflation. It's just like you know, you look

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Speaker 2: at your wage growth and if it's a cash rate,

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Speaker 2: of course, yeah, we can use anything. I use the

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Speaker 2: ninety day bank builders to give a sense of what Okay,

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Speaker 2: banks have to pay I often refer to as the

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Speaker 2: NED zero. I refer to the really today's NED zero.

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Speaker 2: So that's the cash rate minus yeah, inflation, and that's

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Speaker 2: about where it is now and has been for the

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Speaker 2: last six months. But you put aside the ten years

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Speaker 2: before the pandemic history of this country and all other

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Speaker 2: shows you it needs to be at least at the

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Speaker 2: long run rate of growth, which in this country is

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Speaker 2: around two two and a half or even higher to

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Speaker 2: get rid of inflation. In fact, a zero real interest

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Speaker 2: rate would have been the grounds for creating inflation in

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Speaker 2: most of our past. So everything I'm watching as it

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Speaker 2: plays out is playing into this. Look, this slow drawn

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Speaker 2: out process is weighing on the economy, there's no doubt.

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Speaker 1: But business part of the economy.

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Speaker 2: Yeah, and it's very uneven as we know, and we've

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Speaker 2: heard all those discussions. And look, I think now as

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Speaker 2: we're sitting here in September that there Reserve Bank actually

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Speaker 2: probably regrets not just doing what they needed to do.

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Speaker 2: The experiments failed.

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Speaker 1: Can we talk about the experience. I mean obviously they

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Speaker 1: haven't said experiment.

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Speaker 2: They have. Yeah, the Deputy Governor's called an experiment when

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Speaker 2: she was Deputy Andrew Howse of the new Deputy about

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Speaker 2: two months ago. Yeah, I mean it's essentially this idea

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Speaker 2: that you want to try and maintain the gains of

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Speaker 2: the labor market from the pandemic. Well, we've done that

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Speaker 2: in space. You know, we've created three hundred and eighteen

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Speaker 2: thousand jobs in the first seven months of this year,

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Speaker 2: which is just off the charts. We averaged before the

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Speaker 2: pandemic seventeen thousand a month to keep unemployment steady, and

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Speaker 2: we're getting fifty odd one thousand now. I mean, this

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Speaker 2: is a booming jobs market and that's why the bottom

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Speaker 2: end of the housing market's doing well. Anything under a

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Speaker 2: million countrywide is probably going very well because we're creating

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Speaker 2: incomes and demand for housing and people have got the

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Speaker 2: income and the access to credit to go and buy

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Speaker 2: those cheaper homes. What are their cheaper homes?

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Speaker 1: Can you tell me? Would you mind appointing on how

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Speaker 1: much contribution in terms of the jobs market the federal

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Speaker 1: government and also state governments have done in terms of

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Speaker 1: their spending.

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Speaker 2: Yeah, it's huge, especially especially this year.

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Speaker 1: In last budget for sure. Yeah.

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Speaker 2: Well, it's actually the debate that started in the last

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Speaker 2: week or so is right on the government spending, not

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Speaker 2: only in creating jobs in the public service, and a

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Speaker 2: lot of them are important frontline jobs around it. In fact,

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Speaker 2: we can't get enough teachers and nurses and police people

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Speaker 2: and all this sort of staff. But they are creating bureaucrats,

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Speaker 2: particularly at the state level, and of course then they're

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Speaker 2: throwing money into things that are private sector. Job has

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Speaker 2: been driven by the public sector, like the ndies and

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Speaker 2: various other programs like that, So they are dominating it.

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Speaker 2: But it actually doesn't matter because it's income in the economy,

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Speaker 2: and you're seeing that in the housing market that people

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Speaker 2: have buy five six hundred thousand dollars homes because they've

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Speaker 2: got a job. It feels like a secure job. It's great,

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Speaker 2: But have we got the balance right? And I actually

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Speaker 2: think the experiment's a bit of a fluff. What it

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Speaker 2: was was that all of us, both of us included,

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Speaker 2: when we were on this march up in rates two

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Speaker 2: years ago, we're worried about our massive exposure to variable

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Speaker 2: mortgage rates without any country in the world that has

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Speaker 2: sort of eighty ninety percent variable, and all of us

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Speaker 2: thought four hundred basis points, you know, this is going

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Speaker 2: to knock the wind out of the place, and all

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Speaker 2: of us have got to be honest with ourselves. It's

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Speaker 2: unbelievable how well this economy is performed.

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Speaker 1: How do you put that down to most.

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Speaker 2: People were not paying it at the zero. They're paying

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Speaker 2: off their mortgage ahead of time, and most people are sensible, right.

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Speaker 2: I mean, this idea is so much to the commentary

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Speaker 2: if you're look it in terms of the macroeconomy, if

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Speaker 2: you apply it down to the individual level, it says

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Speaker 2: you're a bunch of videos. You're making bad decisions. I've

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Speaker 2: been doing this for thirty years and people don't generally

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Speaker 2: in mass make bad decisions. So look, we had a

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Speaker 2: lot more resilience in there. Michelle Bullock, when she was deputy,

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Speaker 2: actually gave a speech about eighteen months ago when she

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Speaker 2: got first made deputy doing the analysis of all these

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Speaker 2: securitized bundles of mortgages, and said, actually, there's heaps of

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Speaker 2: wheel rooms in here. Remember, yeah, and someone's got to

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Speaker 2: listen to it. But look, that was what we were

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Speaker 2: worried about. And I think that sort of worry about

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Speaker 2: the exposure we had to higher rates then morphed into

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Speaker 2: this experiment. But we've created, you know, probably over a

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Speaker 2: million jobs since the pandemic, and I mean maintaining the

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Speaker 2: gains of the pandemic. We've done that and then some.

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Speaker 2: So look, it's if the inflation goes away, fine, that's great.

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Speaker 2: I hope I'm wrong. I've been saying I hope I'm

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Speaker 2: wrong a lot last two years. But you know, it

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Speaker 2: doesn't just go away. And it's insidious and it's destructive,

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Speaker 2: and it's the thing that destroys open and free economies,

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Speaker 2: and it's the thing that destroys open and free societies.

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Speaker 1: So can I just go back and then to talk

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Speaker 1: to you about this? So this correlation between the unemployment

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Speaker 1: rate as opposed to employment rate or the rate of employment,

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Speaker 1: the unemployment rate and the fact that I think we're

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Speaker 1: sitting at like unemployments like four point one or four

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Speaker 1: point two now right now, where do you think Because

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Speaker 1: there has been some references in some of her more

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Speaker 1: recent statements and or public appearances, she has been indicating

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Speaker 1: that unemployment is without these aren't her words, but unemployment

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Speaker 1: is too low. I do remember reading a paper that

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Speaker 1: she wrote when she was deputy governor that talked about

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Speaker 1: a non accelerating inflation rate of unemployment of around four

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Speaker 1: and a half percent, which sort of indicates that would

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Speaker 1: be that would indicate to me that at the time

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Speaker 1: would have been the the rate of unemployment that she

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Speaker 1: would like to see. That would probably cure inflation or

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Speaker 1: the cost of living.

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Speaker 2: Yeah, we'll get us back into balance at least.

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Speaker 1: Where do you think she I mean, they're not talking about,

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Speaker 1: but where do you think they secretly unless they've already

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Speaker 1: revealed where they would like to see unemployment as an

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Speaker 1: indicator for people listening to this, well, if they head

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Speaker 1: towards that number, if they get as a ten towards

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Speaker 1: that number, mathematically, we're likely to see a rate reduction

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Speaker 1: because that's likely the same time we're going to start

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Speaker 1: to see inflation get to the territory they want it

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Speaker 1: to be.

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Speaker 2: Yeah, So I think the accepted wisdom at the moment

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Speaker 2: the RBA is thinking is four and a half's about

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Speaker 2: the right number. It's a bit low, and if you

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Speaker 2: can fine tune it when you're trying to shift the titanic,

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Speaker 2: it's not that easy. Yeah. If you can go to

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Speaker 2: five and then come back to four and a half

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Speaker 2: pretty quickly after that, then you've done a great job.

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Speaker 2: So I'd say the signal for a rate cut is

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Speaker 2: likely that pathway between four and a half and five.

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Speaker 2: But I just warned on a couple of things with

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Speaker 2: the unemployment rate at the moment. First of all, we've

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Speaker 2: had an unprecedented surge in population, so asking the RBA

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Speaker 2: and anyone to keep up with all these extra heads

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Speaker 2: to find jobs for it, it's an absolute miracle. It's

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Speaker 2: the unemployment right, it's not six.

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Speaker 1: I can't understand. And by the way, it is in

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Speaker 1: six and six point two in Europe, six point two

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Speaker 1: in Canada and six something like that in the UK.

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Speaker 1: Like the US is different. North America is different, but

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Speaker 1: like we're so far out of kiltive with the rest

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Speaker 1: of the world, not only in terms of our cash

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Speaker 1: rate or official rate, but also with our unemployment number

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Speaker 1: other than the US. Yeah, there is there politics around this.

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Speaker 2: Ah, definitely there is, And I think this is the

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Speaker 2: politics is now. Really it's all coming to a head

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Speaker 2: right now last few weeks. Something's going to give in

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Speaker 2: the next little well, and I think it'll be a rate.

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Speaker 1: But how does that work? Warren? Like, I mean, I mean,

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Speaker 1: she's not being told by Jim what to do treasurer.

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Speaker 1: But is she I don't understand like this experience. Why

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Speaker 1: is an experience? Like how does all this work?

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Speaker 2: I think my view on the problem political problem the

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Speaker 2: RBA board has is two fold. One is they have

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Speaker 2: a government which is a lot more vocal and a

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Speaker 2: lot more clear in their views on where interest rate

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Speaker 2: and can be critical. Yeah, we've seen in the last

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Speaker 2: little while, so that's a real issue. Then you know,

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Speaker 2: the Coalition of copped two rate hikes in election campaigns

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Speaker 2: and these guys are sort of winging about one a

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Speaker 2: year out. But anyway, they're cognizant of that. But that

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Speaker 2: being said, treasurers come and go, Prominises come and go.

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Speaker 2: That's not the issue. What I think they're worried about

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Speaker 2: is they're standing in the community. So yeah, rotation, Yeah,

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Speaker 2: it broader support. You know, the Reserve Bank is one

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Speaker 2: of Australia's finance institutions the last thirty years, a big

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Speaker 2: part of our modern prosperity and that toughness that came

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Speaker 2: with it. I mean, Glenn Stevens was disliked regularly for

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Speaker 2: raising rates, but he did the right thing and I

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Speaker 2: think after the problems of the guidance in the pandemic,

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Speaker 2: which was really stupid and I wrote about it in

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Speaker 2: the Afar. At the time, I didn't know inflation was

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Speaker 2: like going around the corner, but it was really stupid idea.

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Speaker 2: And I think the other thing was is that we

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Speaker 2: were tell the RBA was telling everyone in late twenty

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Speaker 2: one and early twenty two, we're different from the rest

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Speaker 2: of the world. We had our heavy lockdowns late, we

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Speaker 2: got knocked out of kill to we got a six

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Speaker 2: month head start, lucky country. No, the RBA said we're different. No,

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Speaker 2: we're saying we've got a head start, get on with it.

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Speaker 2: They didn't. So they've made these pretty bad eras, the

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Speaker 2: likes of which they haven't done in the third last

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Speaker 2: thirty years. And I think if with no political cover

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Speaker 2: from Camber, if they high and then the economy collapses,

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Speaker 2: they that scares them. That's what really keeps from Shelle

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Speaker 2: Bullocker work at night, in my view, is that they

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Speaker 2: are seeing to trigger some sort of significant downturn and

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Speaker 2: it just works on top of this other.

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Speaker 1: And I don't think Treasure has helped because he sort

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Speaker 1: of pretty much put the headlights on its basically said

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Speaker 1: you're causing Australia properly at the moment. If she then

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Speaker 1: puts the rates up, he will go to that.

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Speaker 2: That's I think that's why we've had such a visceral

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Speaker 2: response in the broader community from people like me to

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Speaker 2: the comments from the Treasurer are talking out smashing the

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Speaker 2: economy before the national accounts and then of course it's

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Speaker 2: all played out since is because the thinking was, look,

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Speaker 2: they're not going to get any political cover and if

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Speaker 2: they hike again, you know they're going to basically have

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Speaker 2: camera reporting at them saying blame them, you're the one.

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Speaker 2: But they're actually doing that now and they haven't aked

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Speaker 2: they're doing it even though under instruction, under agreement, under

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Speaker 2: the experiment they're doing keeping our rates lower. They're actually

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Speaker 2: it's really dangerous. They're leaving Australia exposed to inflation that's

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Speaker 2: really destructive. There's no guarantee that it's gone overseas. Remember

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Speaker 2: this is something that people sit there and think it's

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Speaker 2: all fine overseas, but their inflation has been held down

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Speaker 2: by the big fallen goods prices, which was the original shock.

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Speaker 2: Remember when it came in in the FED said it's transitory. Yeah,

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Speaker 2: it's transitory. It just takes three years. These things don't

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Speaker 2: happen quickly. So the services inflation in America, Europe, everywhere,

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Speaker 2: everywhere is still.

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Speaker 1: Running at forty five. What is that, Well, it's just everything.

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Speaker 2: Our economy is eighty percent services, so everything from your

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Speaker 2: dentist to chemist to you vet.

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Speaker 1: It's all of this stuff that we mainly spend our

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Speaker 1: money on.

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Speaker 2: And it's why it's regarded as domestic because it's not

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Speaker 2: internationally traded. It's local, and it's happening everywhere. And it's

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Speaker 2: because money was so cheap and there was so much

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Speaker 2: fiscal stimulus. And to be fair, our goverment's doing a

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Speaker 2: little bit better on this front, but in Europe, in America,

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Speaker 2: they're just pumping money into these economies with massive deficits.

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Speaker 2: We get some stability in these economies. If the FED

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Speaker 2: cuts four or five times in the next six months,

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Speaker 2: in the economy response positively. Watch out. This is like

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Speaker 2: the mid seventies and again, and that's if you look

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Speaker 2: at the history, that was the disaster in the late seventies.

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Speaker 2: So look, we're very vulnerable to that because we didn't

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Speaker 2: even get up to those levels. I mean thinking about

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Speaker 2: the FED they're going to cut next week and or

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Speaker 2: you know, at the end of September and they can

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Speaker 2: cut then then three more times before Christmas. And their

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Speaker 2: interest rate is still above ours here in Australia. I mean,

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Speaker 2: it's absolutely crazy how far out of whack we are.

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Speaker 2: And now they're real interest rate right now is five

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Speaker 2: and a half the funds rate. They're short term interest

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Speaker 2: rate minus a three point one percent core inflation rate.

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Speaker 2: So what's at two point four their long term gross

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Speaker 2: about two two and a quarter. It's a little bit tight,

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Speaker 2: where at four point three five with inflation, let's call

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Speaker 2: it three to nine, so we're half a percent. So

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Speaker 2: that's the problem I have and as an economist to actually,

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Speaker 2: I'm not doing this for anyone. I'm doing this for

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Speaker 2: the broader community. I've been doing it for long enough.

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Speaker 2: That's my warning is, you know, and it's been right.

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Speaker 2: You can hear what the Reserve Bank's saying. They've got

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Speaker 2: their finger on the trigger. Any other central bank that

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Speaker 2: we've had in the last thirty years, when it's Glenn

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Speaker 2: Stevens phil Ian McFarlane, they would have hiked in May

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Speaker 2: and they would have hiked again in August.

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Speaker 1: And do you think it, But do you think at

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Speaker 1: the end of the day, the reason that they're not

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Speaker 1: doing it, the reason they're having this experiment, so call it,

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Speaker 1: is to protect the reputation because they're worried about the

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Speaker 1: the the back channels.

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Speaker 2: And the media.

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Speaker 1: That's what I'm talking about, bat channels.

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Speaker 2: Yeah, well, well it's really pretty obvious. I mean, there's

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Speaker 2: this whole swathe of the media that sort of views

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Speaker 2: this whole thing. I'm amazed at how people can even

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Speaker 2: see like slightly higher interest rates as any payoff for

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Speaker 2: the devastation that's been done by inflation. It's destroying people's

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Speaker 2: lives who are lower middle incomings. We don't see it

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Speaker 2: every day because there's are people who don't hear about

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Speaker 2: it's happening though, and their living standards are going backwards

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Speaker 2: big time. So you know, there's a big part of

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Speaker 2: the community that wants them to cut rates for political reasons.

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Speaker 2: Not just the politicians, but the whole ALP base is

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Speaker 2: now being trained to say rate cut is required, rate

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Speaker 2: hike is absolutely devastating. Let's call out twenty five percent

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Speaker 2: of the population. It's baked in, no analytical economics about

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Speaker 2: it whatsoever. That's just a view. It's a political view.

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Speaker 2: I mean, this is houses false profits right, the Deputy

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Speaker 2: Governor's speech. I mean, I've been doing this for a

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Speaker 2: long time, Mark, as you know, and a lot of

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Speaker 2: people have an endgame in mind. Where's the cash right going,

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Speaker 2: what's the economy doing, what's the un employment right doing.

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Speaker 2: That's not scientific scientific none of us know the future.

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Speaker 2: So my job as a forecaster is put forward a

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Speaker 2: proposition and a series of pathways, and then the scientific

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Speaker 2: method says I look at everything to disprove why I'm right.

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Speaker 2: And that's not what most people do. Most people look

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Speaker 2: at things to make themselves feel like they're on the

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Speaker 2: right track. And that's why this is the worst economic

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Speaker 2: debate this country's ever seen, or I've ever seen in

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Speaker 2: thirty years.

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Speaker 1: Well, it's not a debate, that's the problem.

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Speaker 2: It's horrible.

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Speaker 1: Do you think there's given where interest rates are and

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Speaker 1: let's say we don't have a rate rise, but we

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Speaker 1: don't definitely don't have a rate reduction. Do you see

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Speaker 1: the recession given the national accounts? More recently, do you

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Speaker 1: see the end of when I think comes out again

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Speaker 1: at the end of January or something like that. Do

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Speaker 1: you see us in negative not necessarily no, most problems

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Speaker 1: up either.

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Speaker 2: Well, we're about to get it. We're getting a big

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Speaker 2: kick right now, though we haven't seen it in the

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Speaker 2: data yet from the tax cuts. You know, this is

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Speaker 2: twenty five billion. You know, my argument about you know,

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Speaker 2: this is all the fault of interest rates is wrong

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Speaker 2: is partly because one of the biggest hits to household

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Speaker 2: financial positions has been bracket creat It's been worth if

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Speaker 2: we didn't have any bracker rep in the last three years.

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Speaker 2: I reckon, it's sixty billion a year now. So we've

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Speaker 2: got twenty five billion tax cut. It's actually just halting

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Speaker 2: bracket creep this year.

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Speaker 1: It's a year, it's only years worth it.

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Speaker 2: Yeah, but that'll give it a kick. And then there's

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Speaker 2: the cost of living subs. But this employment and the

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Speaker 2: other thing is you know people, you know, economists view

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Speaker 2: this immigration as like almost a linear They are here,

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Speaker 2: they're spending. It's not what people tell me about the

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Speaker 2: way immigration works. That million people, we're yet to see

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Speaker 2: their impact on this economy and it'll be positive. That's right.

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Speaker 2: Then they're going to need ourses, they're going to need

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Speaker 2: to go to Harvey Norman. Yeah, they're going to need

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Speaker 2: to do a lot of things which they don't do

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Speaker 2: in the first six months they're here.

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Speaker 1: They've got jobs, they will be able to do it.

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Speaker 2: It takes time, and so there's a lot of reasons

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Speaker 2: to think this economy is actually going to go all right.

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Speaker 2: It won't grow much. This is the other thing that

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Speaker 2: a lot of economists in the last month or so

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Speaker 2: I've been trying to get across in the broader community.

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Speaker 2: The economy is capacity constraint. We've only got so many

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Speaker 2: skilled people. We've only got so many cranes, we've got

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Speaker 2: so many factories, we've only got so many hospitals, you know,

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Speaker 2: and we've got this big bulge of population and all

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Speaker 2: this money being thrown in the economy in the last

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Speaker 2: five years, and it's just grown out of its skin.

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Speaker 2: And that's why the Reserve Bank saying we've got a

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Speaker 2: you know, it's a bit too hot, And then the

403
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Speaker 2: Treasurer is saying, well, it looks weak to me. It's hot,

404
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Speaker 2: and it's not hot because it's hot what we knew

405
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Speaker 2: in the old days of four or five percent growth.

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Speaker 2: It's hot because the economy can't grow by more than

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Speaker 2: one percent We're.

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Speaker 1: Lucky to get that because of capacity capacity.

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Speaker 2: Yeah, we've only got so many skills, We've got so

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Speaker 2: much capital, We've so much equipment. I mean, it grows

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Speaker 2: every year, but it's but at the moment, the government's

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Speaker 2: actually doing the growing and it's potentially crowding out the

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Speaker 2: private sector, which will help, which will reduce the ability

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Speaker 2: for us to grow our capacity. But businesses are still investing,

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Speaker 2: which is good. And governments are investing in infrastructure, which

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Speaker 2: I'll never get up them for that because we are

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Speaker 2: always behind on infrastructure in this country.

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Speaker 1: But what about whether we're investing in employment.

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Speaker 2: Yeah, well, I actually think I was talking about unemployment before. Look,

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Speaker 2: the thing is is that one of the big changes

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Speaker 2: in our economy which people just don't seem to be

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Speaker 2: wrapping their head around, is we've seen this massive demographic shift,

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Speaker 2: the retirement the baby burmers. It's a shift, a sixty

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Speaker 2: years cyclical shift in a thing called the dependency ratio,

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Speaker 2: which is the ratio of people who do not work

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Speaker 2: in the economy to those of the overall economy, so

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Speaker 2: young and old versus the overall economy. And of course

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Speaker 2: dependency has been falling as the baby boomers came into

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Speaker 2: the workforce, and that meant more and more labor versus

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Speaker 2: the total consumption total population, and therefore wages pressures were

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Speaker 2: kept under control, and of course we had excess labor.

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Speaker 2: Unemployment has been the problem in most countries for the

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Speaker 2: last sixty years. Top of mind for economists that's gone. Wow,

434
00:20:57,960 --> 00:20:59,560
Speaker 2: labor shortages are here forever now.

435
00:21:00,040 --> 00:21:02,919
Speaker 1: Labor shortages, Yeah, that's the new employment as opposed to

436
00:21:04,200 --> 00:21:05,359
Speaker 1: unemployment being a problem.

437
00:21:05,480 --> 00:21:08,280
Speaker 2: Yeah. And then if we don't recognize that, then we

438
00:21:08,320 --> 00:21:11,320
Speaker 2: won't do the things we need to. But most importantly,

439
00:21:11,359 --> 00:21:13,919
Speaker 2: what we need is a microeconomic approach to the labor markets.

440
00:21:13,920 --> 00:21:16,920
Speaker 2: We've got a massive skills mismatch. We've got to get

441
00:21:16,960 --> 00:21:19,240
Speaker 2: people who are going to lose jobs because of AI

442
00:21:19,560 --> 00:21:22,560
Speaker 2: or whatever it is, or just changing industry structure and

443
00:21:22,680 --> 00:21:25,080
Speaker 2: retrain the mid career. I mean, we've been talking about

444
00:21:25,080 --> 00:21:28,040
Speaker 2: this for fifteen years about people having to change careers. Well,

445
00:21:28,200 --> 00:21:30,480
Speaker 2: now's the time for it to happen, because the economy

446
00:21:30,520 --> 00:21:33,440
Speaker 2: is actually going to change radically in the next decade.

447
00:21:33,480 --> 00:21:35,600
Speaker 2: AI is going to play a huge role. And if

448
00:21:35,600 --> 00:21:37,800
Speaker 2: we can harness this, the wealth that's going to be

449
00:21:37,840 --> 00:21:40,800
Speaker 2: created for this country as countries all around the world

450
00:21:41,280 --> 00:21:43,680
Speaker 2: is like nothing we've seen. It is the hugest thing

451
00:21:43,800 --> 00:21:44,960
Speaker 2: in two hundred years.

452
00:21:45,320 --> 00:21:48,600
Speaker 1: Are you and that sounds like a massive structural shift,

453
00:21:48,640 --> 00:21:53,399
Speaker 1: But are you disappointed in the way this government is

454
00:21:53,440 --> 00:21:54,920
Speaker 1: approaching our economy.

455
00:21:56,359 --> 00:21:59,119
Speaker 2: I always give them a chance, what you might call

456
00:21:59,160 --> 00:22:01,119
Speaker 2: a swinging voter. I've never been a member of a

457
00:22:01,160 --> 00:22:05,640
Speaker 2: party because of what I do. And Jim came out

458
00:22:05,680 --> 00:22:08,200
Speaker 2: and said, we're going to have a conversation, and that

459
00:22:08,359 --> 00:22:11,320
Speaker 2: was the first budget and the second budget. But look,

460
00:22:11,359 --> 00:22:14,640
Speaker 2: they're just growing government care economy. It all comes from

461
00:22:14,760 --> 00:22:17,440
Speaker 2: the pandemic. This idea that everyone needs to be looked after,

462
00:22:18,280 --> 00:22:20,320
Speaker 2: this idea that we're such a wealthy country that we

463
00:22:20,320 --> 00:22:22,760
Speaker 2: can focus on that. And that's fine. I think we

464
00:22:22,800 --> 00:22:24,840
Speaker 2: all agree we'd love to do that. But what we've

465
00:22:24,880 --> 00:22:27,800
Speaker 2: got to understand is we're not a wealthy country simply

466
00:22:27,840 --> 00:22:29,600
Speaker 2: because we've got heaps of stuff to dogether the ground,

467
00:22:29,640 --> 00:22:32,200
Speaker 2: or we've got a grew agriculture base, we've got a well,

468
00:22:32,320 --> 00:22:34,600
Speaker 2: we're one of the wealthiest countries in the world because

469
00:22:34,600 --> 00:22:37,240
Speaker 2: our economy is hot shot. It was a market economy,

470
00:22:37,240 --> 00:22:40,160
Speaker 2: price signals. We're great capital markets. You've lived it, you've

471
00:22:40,200 --> 00:22:42,360
Speaker 2: seen it. How much wealth it can create, how much

472
00:22:42,359 --> 00:22:44,560
Speaker 2: people can get capital to invest in their right industries.

473
00:22:44,800 --> 00:22:47,760
Speaker 2: Well that's all been wound back by big government crowding

474
00:22:47,760 --> 00:22:51,000
Speaker 2: out the private sector, lots of ir regulations, stopping the

475
00:22:51,080 --> 00:22:54,240
Speaker 2: labor market flexibility. And I think this is going to

476
00:22:54,240 --> 00:22:57,800
Speaker 2: be a disaster because we're basically unwinding what Hawk and

477
00:22:57,880 --> 00:23:01,080
Speaker 2: Keating did. And Hawk is the greatest Australian Prime minister

478
00:23:01,160 --> 00:23:04,159
Speaker 2: of all time because of what he did, despite his base,

479
00:23:04,600 --> 00:23:07,119
Speaker 2: and these guys are actually unwinding it. They're going back

480
00:23:07,160 --> 00:23:08,880
Speaker 2: to Whitland and it's a disaster.

481
00:23:09,160 --> 00:23:11,480
Speaker 1: But that's sort of a little bit surprising given the

482
00:23:11,520 --> 00:23:15,359
Speaker 1: gym was did his PhD on Paul Keating. Yeah, I

483
00:23:15,359 --> 00:23:16,440
Speaker 1: mean it is a bit surprising.

484
00:23:16,840 --> 00:23:19,159
Speaker 2: Oh look it is. I mean I think they're just

485
00:23:19,280 --> 00:23:21,680
Speaker 2: looking for the big vision, right, and they've got one,

486
00:23:21,760 --> 00:23:25,840
Speaker 2: this sile idea of the fourth economy and the mission economic.

487
00:23:25,480 --> 00:23:28,760
Speaker 1: They be in the government, yeah, or the government sector.

488
00:23:28,760 --> 00:23:30,840
Speaker 1: I mean, what do you mean by the fourth economy.

489
00:23:31,040 --> 00:23:32,920
Speaker 2: I don't know, that's just what he talks about. I

490
00:23:32,960 --> 00:23:35,480
Speaker 2: think it's all about the you know, the energy transition

491
00:23:35,720 --> 00:23:39,679
Speaker 2: and yeah, so look that's all great, but you know,

492
00:23:40,000 --> 00:23:42,760
Speaker 2: it's actually not the vision for the economy. That's that's

493
00:23:42,800 --> 00:23:45,400
Speaker 2: like something we have to do. I remember a banker

494
00:23:46,280 --> 00:23:49,120
Speaker 2: named them said, Oh, we're doing all it, We're doing agile,

495
00:23:49,119 --> 00:23:50,800
Speaker 2: we're doing all this, and I just looked and thought,

496
00:23:51,520 --> 00:23:54,720
Speaker 2: that's not a business strategy, that's a business necessity. Anyway.

497
00:23:54,760 --> 00:23:57,679
Speaker 2: The point I'm getting at is if we undermine how

498
00:23:57,760 --> 00:24:01,840
Speaker 2: effective our free market economy years, we're not going to

499
00:24:01,880 --> 00:24:04,960
Speaker 2: get the kind of resource allocation and investment and business

500
00:24:04,960 --> 00:24:07,920
Speaker 2: confidence and that animal spirits in our SME sector, which

501
00:24:07,960 --> 00:24:10,320
Speaker 2: as you know, I look at a lot, we're going

502
00:24:10,359 --> 00:24:12,240
Speaker 2: to snuff it out. It'll take years, and by the

503
00:24:12,359 --> 00:24:14,600
Speaker 2: time you do it, it's gone. And then we're already seeing it.

504
00:24:14,640 --> 00:24:17,200
Speaker 2: Our living standards have taken a massive step back already,

505
00:24:18,400 --> 00:24:20,719
Speaker 2: and I would hate to see this continue, particularly as

506
00:24:20,760 --> 00:24:23,920
Speaker 2: we're on the cusp of this great industrial revolution. That's

507
00:24:23,960 --> 00:24:27,080
Speaker 2: the real thing, and it's all about labor shortages, and

508
00:24:27,119 --> 00:24:30,159
Speaker 2: it's all about that incentive for business to go and

509
00:24:30,160 --> 00:24:32,560
Speaker 2: invest in labor saving technology. I'll seeing the Gold Coast

510
00:24:32,600 --> 00:24:35,360
Speaker 2: on the weekend. I saw two guys cleaning the outside

511
00:24:35,400 --> 00:24:37,760
Speaker 2: of one of the big apartment blocks. No one's going

512
00:24:37,800 --> 00:24:39,439
Speaker 2: to be doing that in ten years drones will be

513
00:24:39,480 --> 00:24:42,400
Speaker 2: doing that. You know, we've got this cave. It's unbelievable.

514
00:24:42,400 --> 00:24:46,719
Speaker 2: I mean, the whole history of these revolutions, starting with

515
00:24:46,760 --> 00:24:49,439
Speaker 2: the first one in Britain, was about freeing up labor

516
00:24:49,480 --> 00:24:52,080
Speaker 2: to go and do something else, and that's what this

517
00:24:52,160 --> 00:24:54,679
Speaker 2: will do. We've got to do it because of labor shortages,

518
00:24:55,119 --> 00:24:56,920
Speaker 2: but it also free out labor to go and work

519
00:24:56,920 --> 00:24:59,240
Speaker 2: in the care economy or whatever it is. But we've

520
00:24:59,280 --> 00:25:01,120
Speaker 2: got to get that right. And of course we want

521
00:25:01,119 --> 00:25:04,000
Speaker 2: our market signals working right, so businesses are investing.

522
00:25:04,240 --> 00:25:08,840
Speaker 1: So you're you're actually is talking about the government, and

523
00:25:08,840 --> 00:25:12,960
Speaker 1: it's not just the voter elected politicians, it's everyone below them,

524
00:25:13,280 --> 00:25:16,080
Speaker 1: all the advisors, well, the bureaucrats, all the people sit

525
00:25:16,119 --> 00:25:20,480
Speaker 1: below them. You're talking about actual kicking off, real proper

526
00:25:20,480 --> 00:25:21,640
Speaker 1: structural change.

527
00:25:22,280 --> 00:25:25,679
Speaker 2: Well, no, I mean, I actually think our our economy

528
00:25:25,720 --> 00:25:28,240
Speaker 2: has broadly been working pretty well for the last thirty years.

529
00:25:28,240 --> 00:25:30,880
Speaker 2: I'm sort of saying, make sure it keeps working, you know,

530
00:25:31,040 --> 00:25:34,200
Speaker 2: so you know, if anything, our ir system was tightening

531
00:25:34,240 --> 00:25:36,240
Speaker 2: up before these guys came in, and then they've gone

532
00:25:36,280 --> 00:25:38,360
Speaker 2: another level and they've got the issues with the unions.

533
00:25:39,000 --> 00:25:42,240
Speaker 2: You can see in terms of Sizer government. The problem

534
00:25:42,240 --> 00:25:44,359
Speaker 2: with the Sizer government now is if you're in a

535
00:25:44,400 --> 00:25:47,199
Speaker 2: world of labor shortages, which we are as opposed to

536
00:25:47,200 --> 00:25:50,960
Speaker 2: the old world of labor abundance, unemployment being the problem

537
00:25:51,359 --> 00:25:54,320
Speaker 2: you go and do all these care economy jobs in ndis, well,

538
00:25:54,359 --> 00:25:56,879
Speaker 2: you're going out and paying up to hire people that

539
00:25:57,320 --> 00:25:59,360
Speaker 2: the next small business person can't hire.

540
00:25:59,200 --> 00:26:01,159
Speaker 1: Correct square, And if you want to get them, we've

541
00:26:01,160 --> 00:26:02,800
Speaker 1: got to pay more. And if I'm going to pay more,

542
00:26:02,840 --> 00:26:04,800
Speaker 1: I'm going to cost push and I'm going to push

543
00:26:04,800 --> 00:26:05,520
Speaker 1: my prices up.

544
00:26:05,760 --> 00:26:08,679
Speaker 2: That was. That was That's the essence of it. So

545
00:26:08,720 --> 00:26:10,160
Speaker 2: you go back to the start this year in terms

546
00:26:10,160 --> 00:26:11,959
Speaker 2: of the cycle, I was in the same camp as

547
00:26:12,000 --> 00:26:14,600
Speaker 2: everyone else. To your consumer's slode. Business wouldn't be able

548
00:26:14,600 --> 00:26:17,360
Speaker 2: to pass on cost pressures. They would have a panel hit,

549
00:26:17,359 --> 00:26:21,240
Speaker 2: they'd pull back on hiring an investment. That's happened mildly,

550
00:26:21,440 --> 00:26:23,560
Speaker 2: but business has been resilient and they've been able to

551
00:26:23,640 --> 00:26:26,080
Speaker 2: keep passing things through. And then the government's gone to

552
00:26:26,160 --> 00:26:27,320
Speaker 2: throw money at the economy.

553
00:26:27,480 --> 00:26:29,359
Speaker 1: So can I should stop you therefore, because that's an

554
00:26:29,400 --> 00:26:31,960
Speaker 1: interesting point. So you mentioned chemists and dentists and blah,

555
00:26:31,960 --> 00:26:36,040
Speaker 1: blah bah, why do businesses or how how is it

556
00:26:36,080 --> 00:26:38,600
Speaker 1: the businesses have been actually able to pass it through?

557
00:26:38,680 --> 00:26:40,800
Speaker 1: Or more important, how is the consumers that actually accepted

558
00:26:40,880 --> 00:26:42,920
Speaker 1: and paid it? Is that because they're all going to

559
00:26:43,000 --> 00:26:46,200
Speaker 1: new they're all employed in big government. I mean no, no,

560
00:26:46,280 --> 00:26:47,280
Speaker 1: I mean I think where is that?

561
00:26:47,280 --> 00:26:48,880
Speaker 2: I think there's a couple of things. One is that

562
00:26:48,960 --> 00:26:52,199
Speaker 2: you know this idea, we've still got inflation expectations. Ink it, well,

563
00:26:52,200 --> 00:26:54,720
Speaker 2: I'd be careful so they copy it. Well, people don't

564
00:26:54,760 --> 00:26:56,879
Speaker 2: have lost their bearings. They walk into calls now. It's like,

565
00:26:56,960 --> 00:26:59,640
Speaker 2: you know, prior to the pandemic, you know all these

566
00:26:59,680 --> 00:27:04,680
Speaker 2: people shopping. I was like it knew everything chaos. Okay,

567
00:27:04,720 --> 00:27:06,800
Speaker 2: I'll just have that. Jeez, the stake's expensive. You know,

568
00:27:06,880 --> 00:27:10,199
Speaker 2: whatever it is, you're asto bearing. So that's worrying. But

569
00:27:10,320 --> 00:27:14,200
Speaker 2: the reality is is that people have access to credit,

570
00:27:14,240 --> 00:27:16,800
Speaker 2: all liquidity in the household sector in this country like

571
00:27:16,840 --> 00:27:18,960
Speaker 2: never before. I mean, your whole career has been built

572
00:27:18,960 --> 00:27:22,199
Speaker 2: off the back of that. I accessed to credit by

573
00:27:22,240 --> 00:27:24,679
Speaker 2: the retail sector that came out of the deregulation the

574
00:27:24,720 --> 00:27:27,240
Speaker 2: eighties the nineties, and then all the wonderful innovations that

575
00:27:27,960 --> 00:27:31,280
Speaker 2: Keating did the deregulation, but it opened up the financial system. Right,

576
00:27:31,600 --> 00:27:34,960
Speaker 2: but now people have redraws. Even if you'd got none

577
00:27:35,000 --> 00:27:36,879
Speaker 2: left in that reing up your bank extend by fifty

578
00:27:36,920 --> 00:27:40,480
Speaker 2: grand done on the phone in and week. So think

579
00:27:40,480 --> 00:27:43,400
Speaker 2: about it this way. Despite all the problems about retail

580
00:27:43,400 --> 00:27:46,680
Speaker 2: spending and everyone's talking about, the reality is real retail

581
00:27:46,760 --> 00:27:49,760
Speaker 2: sales in this country are still eight percent above whether

582
00:27:49,760 --> 00:27:53,720
Speaker 2: it were in twenty nineteen. Right, let's talk about consumption.

583
00:27:53,840 --> 00:27:56,840
Speaker 2: Let's even say it's only one percent above. Income is

584
00:27:56,880 --> 00:28:02,160
Speaker 2: down eight How does that work? Well, saving less, borrowing,

585
00:28:03,000 --> 00:28:05,560
Speaker 2: not paying off the mortgage as much. It's what economists

586
00:28:05,600 --> 00:28:08,159
Speaker 2: call consumption smoothing. So you take a hit to your income,

587
00:28:08,359 --> 00:28:09,840
Speaker 2: the last thing you got to do is suddenly change

588
00:28:09,840 --> 00:28:11,760
Speaker 2: your lifestyle. You know you still want to go to

589
00:28:11,800 --> 00:28:14,600
Speaker 2: the snow, you still want your children going there, et cetera,

590
00:28:14,640 --> 00:28:17,520
Speaker 2: et cetera. So you consumption smooth you fill in the gap,

591
00:28:17,560 --> 00:28:20,080
Speaker 2: you save less, your balance sheet toterierrates for a period

592
00:28:20,119 --> 00:28:21,679
Speaker 2: of a few years, and only when you think this

593
00:28:21,760 --> 00:28:24,040
Speaker 2: is a permanent state of affairs do you then make

594
00:28:24,080 --> 00:28:26,040
Speaker 2: the big adjustments. Now there's no doubt that's been happening

595
00:28:26,080 --> 00:28:29,040
Speaker 2: at the individual level across this economy. But en mass

596
00:28:29,119 --> 00:28:31,879
Speaker 2: Australians still have this confidence in our future, which I

597
00:28:31,920 --> 00:28:34,600
Speaker 2: see in the SMME sector. I can see it in

598
00:28:34,640 --> 00:28:37,000
Speaker 2: the way consumers are behaving that they're willing to run

599
00:28:37,080 --> 00:28:40,400
Speaker 2: down their long term financial position to keep things going.

600
00:28:41,560 --> 00:28:43,600
Speaker 2: It would be an absolute tragedy if we ended up

601
00:28:43,600 --> 00:28:46,040
Speaker 2: giving up on our future like that, because I think

602
00:28:46,120 --> 00:28:48,880
Speaker 2: in our bones people know that all the foundations of

603
00:28:48,920 --> 00:28:50,719
Speaker 2: what made this country great is still there, whether it's

604
00:28:50,720 --> 00:28:54,560
Speaker 2: the resources, the agriculture, the good capital markets, the immigration,

605
00:28:54,760 --> 00:28:57,520
Speaker 2: all the things we have to have politicians and stuff out,

606
00:28:57,560 --> 00:29:02,000
Speaker 2: but they're actually generally pretty sensible. So I just think

607
00:29:02,000 --> 00:29:04,200
Speaker 2: that we've got this great future and we just want

608
00:29:04,200 --> 00:29:07,280
Speaker 2: the economy to operate as effectively as possible. Right now,

609
00:29:07,320 --> 00:29:09,640
Speaker 2: with the economy at capacity, you've got to be careful.

610
00:29:09,720 --> 00:29:12,440
Speaker 2: In fact, we may need a bit of short term

611
00:29:12,440 --> 00:29:14,880
Speaker 2: pain in order to get ourselves back onto a sustainable

612
00:29:14,920 --> 00:29:17,680
Speaker 2: path with inflation low, and then we can really roar

613
00:29:17,760 --> 00:29:19,120
Speaker 2: ahead into the rest of this decade.

614
00:29:19,440 --> 00:29:21,520
Speaker 1: How much do you think the wealth effect a particular

615
00:29:21,560 --> 00:29:26,760
Speaker 1: where the contribution property makes has actually is contributing to

616
00:29:27,760 --> 00:29:30,360
Speaker 1: consumers have been prepared to pay more and to save less.

617
00:29:30,680 --> 00:29:32,680
Speaker 2: I think that's been a big part because, as I

618
00:29:32,680 --> 00:29:35,240
Speaker 2: said before, that example of the readraw or the extending

619
00:29:35,280 --> 00:29:36,360
Speaker 2: the loan and how easy it is.

620
00:29:36,680 --> 00:29:39,400
Speaker 1: So the confidence is the difference between what ire, I'm

621
00:29:39,400 --> 00:29:40,200
Speaker 1: a place of worth.

622
00:29:40,520 --> 00:29:42,800
Speaker 2: Yeah, well, so you keeps going up. You've sort of

623
00:29:42,840 --> 00:29:44,240
Speaker 2: been hanging in there for a year and a half

624
00:29:44,280 --> 00:29:46,000
Speaker 2: and then earlier this year, you know, you sort of

625
00:29:46,040 --> 00:29:47,479
Speaker 2: you've got a bit of a debt built up on

626
00:29:47,520 --> 00:29:51,320
Speaker 2: something or a credit card, and your house price has

627
00:29:51,360 --> 00:29:53,360
Speaker 2: gone up by fifty grand. And I'm talking about the

628
00:29:53,400 --> 00:29:56,560
Speaker 2: average Australia, not you know, wealthy people. They go, well,

629
00:29:56,720 --> 00:29:59,120
Speaker 2: actually I can go and I'm going, okay, well I

630
00:29:59,160 --> 00:30:01,520
Speaker 2: can take I can get you know, things to give

631
00:30:01,560 --> 00:30:03,920
Speaker 2: me twenty and just cover that and then I'm back off.

632
00:30:04,080 --> 00:30:04,760
Speaker 1: Yeah.

633
00:30:04,800 --> 00:30:07,000
Speaker 2: So that all reflects this great confidence, and of course

634
00:30:07,120 --> 00:30:10,000
Speaker 2: underpin out, of course is the equity in housing, yeah,

635
00:30:10,240 --> 00:30:12,600
Speaker 2: which you know again we've got to protect that, you know.

636
00:30:12,840 --> 00:30:15,160
Speaker 2: I mean, I don't see a major problem. I can

637
00:30:15,200 --> 00:30:17,720
Speaker 2: see ten percent down at some stage, but that's not

638
00:30:17,760 --> 00:30:20,000
Speaker 2: a big deal. It's a forty year asset. It'll be

639
00:30:20,000 --> 00:30:22,200
Speaker 2: a bit disruptive. You'll know better than anyway in the

640
00:30:22,240 --> 00:30:26,280
Speaker 2: short term. But that's and I think it's real because

641
00:30:26,280 --> 00:30:28,760
Speaker 2: we don't have enough property. We don't have enough dwellings

642
00:30:28,800 --> 00:30:32,080
Speaker 2: in this country, and we certainly are not.

643
00:30:32,160 --> 00:30:34,000
Speaker 1: Looking like we got and we won't have enough either,

644
00:30:34,320 --> 00:30:36,560
Speaker 1: not for three to five years. No, it's just not

645
00:30:36,600 --> 00:30:38,880
Speaker 1: going to happen because the cost of everything's just too ridiculous,

646
00:30:38,920 --> 00:30:42,400
Speaker 1: and the infrastructure is just no good getting approvals, you know,

647
00:30:42,520 --> 00:30:44,840
Speaker 1: the confidence of developers come back in the marketplace, et cetera.

648
00:30:44,880 --> 00:30:46,760
Speaker 1: It's just going to keep going on. I got one

649
00:30:46,880 --> 00:30:49,080
Speaker 1: really important question for I want to ask you. It's

650
00:30:49,080 --> 00:30:52,320
Speaker 1: a bit political, but and you may you may have

651
00:30:52,360 --> 00:30:55,360
Speaker 1: mattered to answer, but Matt Common has recently come out

652
00:30:55,400 --> 00:30:57,320
Speaker 1: and said and I actually agree with him, and I've

653
00:30:57,320 --> 00:31:00,320
Speaker 1: had the same conversation with Jim Chalmers, but come out

654
00:31:00,320 --> 00:31:04,960
Speaker 1: and suggests that we we increase just tea we zuome it.

655
00:31:05,040 --> 00:31:08,440
Speaker 1: We have like a have a fixed rate of ten

656
00:31:08,440 --> 00:31:10,520
Speaker 1: percent of the variable rate sitting in it between ten

657
00:31:10,560 --> 00:31:14,960
Speaker 1: and fifteen up and down in lockstep with the RBA.

658
00:31:15,480 --> 00:31:16,320
Speaker 1: What do you think about that?

659
00:31:16,480 --> 00:31:18,880
Speaker 2: Yeah? Yeah, And Phil Low actually mentioned this on his

660
00:31:18,920 --> 00:31:23,560
Speaker 2: way out, that we need to complement the independent central

661
00:31:23,600 --> 00:31:28,480
Speaker 2: bank and monetary policy with an element of fiscal policy

662
00:31:28,640 --> 00:31:30,680
Speaker 2: that is also independent.

663
00:31:30,200 --> 00:31:31,440
Speaker 1: Without changing taxes.

664
00:31:31,640 --> 00:31:34,040
Speaker 2: Yeah, well, you can raise the gets is an easy

665
00:31:34,080 --> 00:31:34,600
Speaker 2: one you could have.

666
00:31:34,880 --> 00:31:37,440
Speaker 1: I mean income taxes. I mean just like it's not

667
00:31:37,440 --> 00:31:38,400
Speaker 1: like we've.

668
00:31:38,280 --> 00:31:40,760
Speaker 2: Got to cut income taxes. Our income tax burden this

669
00:31:40,800 --> 00:31:44,080
Speaker 2: country is ridiculous. It's really bad. So we've got to

670
00:31:44,080 --> 00:31:44,800
Speaker 2: work out a way.

671
00:31:44,680 --> 00:31:46,920
Speaker 1: To cut and payroll taxes. So maybe better way he

672
00:31:47,040 --> 00:31:49,120
Speaker 1: is to play around the Jews totally, totally and what

673
00:31:49,160 --> 00:31:51,560
Speaker 1: they need the states. Yeah, well, the problem is.

674
00:31:51,440 --> 00:31:53,880
Speaker 2: It's a state tax and we need to rule that

675
00:31:54,000 --> 00:31:57,760
Speaker 2: off the ten percent and then this becomes a federal tax.

676
00:31:57,840 --> 00:31:58,560
Speaker 1: Yeah.

677
00:31:58,600 --> 00:32:00,840
Speaker 2: What we've learned from this episod so it is monetary

678
00:32:00,840 --> 00:32:03,480
Speaker 2: policy should not be overused. The problems that we're seeing

679
00:32:03,520 --> 00:32:05,920
Speaker 2: in the last eight months either way, either direction, exactly.

680
00:32:06,000 --> 00:32:08,120
Speaker 2: So don't complain to me about five hundred basis points

681
00:32:08,160 --> 00:32:12,160
Speaker 2: of right hikes when it came from zero. And yeah,

682
00:32:12,240 --> 00:32:14,400
Speaker 2: so that's the idea. I think they overcooked it. But

683
00:32:14,800 --> 00:32:17,000
Speaker 2: that's another point we have to learn. The RBA actually

684
00:32:17,000 --> 00:32:20,240
Speaker 2: did resist prior to the pandemic. But if the FED

685
00:32:20,320 --> 00:32:22,720
Speaker 2: and the Bank of England and the Bankage of bann

686
00:32:22,760 --> 00:32:25,040
Speaker 2: are all at zero, there's only so long we can

687
00:32:25,080 --> 00:32:26,640
Speaker 2: do that, we get sucked into it, or else the

688
00:32:26,720 --> 00:32:30,000
Speaker 2: eusie dollar will go. So we've only got so much independence.

689
00:32:30,040 --> 00:32:32,200
Speaker 2: But I have a feeling, and I hope this doesn't happen,

690
00:32:32,240 --> 00:32:34,280
Speaker 2: but I've got a feeling that when this episode is

691
00:32:34,280 --> 00:32:36,400
Speaker 2: all said and done, whether it's in three years or seven,

692
00:32:37,080 --> 00:32:39,080
Speaker 2: central banks will be doing a lot less in the future.

693
00:32:39,760 --> 00:32:43,080
Speaker 2: And if we could also augment that with something like that,

694
00:32:43,080 --> 00:32:43,800
Speaker 2: that would be great.

695
00:32:43,960 --> 00:32:46,239
Speaker 1: And so because I'm in favorite, you're in favor as

696
00:32:46,280 --> 00:32:46,600
Speaker 1: long as.

697
00:32:46,480 --> 00:32:48,040
Speaker 2: We have the right structures in place. I'm in favor

698
00:32:48,040 --> 00:32:52,360
Speaker 2: of industry policy if it is run by independent governing

699
00:32:52,440 --> 00:32:55,360
Speaker 2: counsel and not the cabinet. I mean, in a way,

700
00:32:55,440 --> 00:32:58,600
Speaker 2: what we want from our government is, you know, is

701
00:32:58,640 --> 00:33:02,920
Speaker 2: to focus on running as effectively as possible, and you know,

702
00:33:03,960 --> 00:33:05,720
Speaker 2: do that well before you start coming up with your

703
00:33:05,720 --> 00:33:08,960
Speaker 2: grand plans or changing things or whatever. And look, that's

704
00:33:08,960 --> 00:33:11,160
Speaker 2: a level of sophistication we're a long way from in

705
00:33:11,160 --> 00:33:14,400
Speaker 2: this country. But you know, unfortunately, I think we're on

706
00:33:14,440 --> 00:33:17,320
Speaker 2: the The risk factor for a major crisis in this

707
00:33:17,400 --> 00:33:20,280
Speaker 2: country is the highest it's been in thirty four years,

708
00:33:20,320 --> 00:33:24,520
Speaker 2: since the late eighties. And you know, whether that's I'd

709
00:33:24,520 --> 00:33:26,320
Speaker 2: probably put it as a one in four in the

710
00:33:26,320 --> 00:33:29,880
Speaker 2: next three years, and that'll be where you sort of

711
00:33:29,920 --> 00:33:32,000
Speaker 2: get real change. I hope it doesn't happen. I hope

712
00:33:32,000 --> 00:33:32,920
Speaker 2: we get through this well.

713
00:33:33,000 --> 00:33:36,640
Speaker 1: But so the risk factor, the outcome of the risk

714
00:33:36,680 --> 00:33:40,720
Speaker 1: factor being becoming not a probability but an event is

715
00:33:40,760 --> 00:33:43,680
Speaker 1: more like is around to stand living stand living well.

716
00:33:43,800 --> 00:33:46,280
Speaker 1: That's already happening at a great rate.

717
00:33:46,360 --> 00:33:47,880
Speaker 2: What happens if the cash road has to go to

718
00:33:47,920 --> 00:33:49,920
Speaker 2: six and a half, you know exactly what that'll be

719
00:33:49,960 --> 00:33:52,080
Speaker 2: the same as seven and a half in eighty nine.

720
00:33:52,880 --> 00:33:56,040
Speaker 2: And I think we bounced out of the ninety one

721
00:33:56,120 --> 00:33:58,440
Speaker 2: recession for a range of reasons, not least all those

722
00:33:58,440 --> 00:34:02,080
Speaker 2: reforms that Hawk and Keating did, but also stronger world

723
00:34:02,120 --> 00:34:06,440
Speaker 2: economy China, UK hasn't got over the GFC. If we

724
00:34:06,480 --> 00:34:09,640
Speaker 2: have another financial crisis like the ninety one that was

725
00:34:09,680 --> 00:34:12,120
Speaker 2: our financial crisis, that wasn't another session that was a crisis.

726
00:34:12,200 --> 00:34:14,080
Speaker 2: I was west back, my father's on the border, west

727
00:34:14,080 --> 00:34:14,480
Speaker 2: back at all.

728
00:34:14,719 --> 00:34:16,959
Speaker 1: I remember David Morgan, mate, Yeah.

729
00:34:16,640 --> 00:34:18,680
Speaker 2: It was tough, but I just don't think we'll bounce

730
00:34:18,680 --> 00:34:20,040
Speaker 2: out of it. So I think this is one of

731
00:34:20,080 --> 00:34:22,000
Speaker 2: the other things is that I've been saying when I

732
00:34:22,000 --> 00:34:24,160
Speaker 2: can't really do this in the media, but when I

733
00:34:24,200 --> 00:34:28,720
Speaker 2: speak to presentations, is what will we pay to avoid

734
00:34:28,760 --> 00:34:31,000
Speaker 2: that scenario? How much insurance would you pay right now?

735
00:34:31,040 --> 00:34:34,280
Speaker 2: Would it be two rate hikes? And everyone no matter levered.

736
00:34:34,560 --> 00:34:36,399
Speaker 2: I remember I was in a New surreal estate agent

737
00:34:36,400 --> 00:34:39,040
Speaker 2: giving this presentation, and they didn't they wanted to hear

738
00:34:39,080 --> 00:34:41,279
Speaker 2: from this guy calling from rate hikes. When I explained it,

739
00:34:41,280 --> 00:34:43,480
Speaker 2: they said, yeah, we'll take that too to avoid six.

740
00:34:44,320 --> 00:34:46,000
Speaker 2: But of course the government won't take the two.

741
00:34:46,239 --> 00:34:49,520
Speaker 1: They won't take any at the moment, and if they

742
00:34:49,680 --> 00:34:52,520
Speaker 1: get one, they're going to blame the RBA. Yeah, we're

743
00:34:52,520 --> 00:34:54,640
Speaker 1: just going to create a confidence issue.

744
00:34:54,719 --> 00:34:57,439
Speaker 2: Yeah, man, for sure. And look this is I'd never

745
00:34:57,760 --> 00:34:59,960
Speaker 2: be calling for rate hikes to put the economy into

746
00:35:00,440 --> 00:35:03,320
Speaker 2: I actually think that the best chance of staying on

747
00:35:03,360 --> 00:35:06,120
Speaker 2: the narrow path was a slightly higher interest rate going back.

748
00:35:06,160 --> 00:35:06,880
Speaker 1: Have we've gone past that?

749
00:35:07,440 --> 00:35:10,160
Speaker 2: Well? The windows closing, Yeah, it's a good point I feel.

750
00:35:10,320 --> 00:35:13,520
Speaker 2: And this is more gut instincts, which is dangerous from

751
00:35:13,520 --> 00:35:16,280
Speaker 2: your economists, But I feel that windows closing.

752
00:35:16,400 --> 00:35:19,320
Speaker 1: Yeah, I got my cut feeling is too, which tells

753
00:35:19,360 --> 00:35:21,120
Speaker 1: me that we're going to stay higher for longer.

754
00:35:21,440 --> 00:35:24,000
Speaker 2: Yeah, that's right, and I think that's painful. And Michelle

755
00:35:24,000 --> 00:35:27,880
Speaker 2: at the last Michelle Bullock at the last press conference

756
00:35:27,880 --> 00:35:29,320
Speaker 2: at the end there was a bit of a throwaway

757
00:35:29,360 --> 00:35:31,080
Speaker 2: and someone asked a question. Then she said, I just

758
00:35:31,080 --> 00:35:34,160
Speaker 2: think everyone wants this to be over with. We should

759
00:35:34,160 --> 00:35:35,680
Speaker 2: have just hiked and we'll be cutting by now.

760
00:35:36,360 --> 00:35:39,840
Speaker 1: And that's sort of shorthand for saying exactly that, it's.

761
00:35:39,719 --> 00:35:42,359
Speaker 2: Exactly right and we're dragging it out. I mean, is

762
00:35:42,440 --> 00:35:45,799
Speaker 2: this sixth quarter, eighteen month per capita recession where our

763
00:35:45,800 --> 00:35:48,959
Speaker 2: living standards are measurably going down quarter after quarter after quarter,

764
00:35:49,320 --> 00:35:51,600
Speaker 2: any better than a short shart recession we bounce out of.

765
00:35:52,320 --> 00:35:55,399
Speaker 2: I don't think so. I think we're so much more

766
00:35:55,400 --> 00:35:59,560
Speaker 2: resilient than politicians feel that, you know, we are, you know,

767
00:35:59,600 --> 00:36:02,319
Speaker 2: And again this idea of recession, So many Australians think

768
00:36:02,320 --> 00:36:05,120
Speaker 2: about the early nineties recession as a recession that wasn't

769
00:36:05,120 --> 00:36:07,480
Speaker 2: a recession. That was a full blown financial crisis. Our

770
00:36:07,560 --> 00:36:10,880
Speaker 2: banking system stopped providing credit to the economy.

771
00:36:10,440 --> 00:36:12,680
Speaker 1: To financial stability, was under attack.

772
00:36:13,239 --> 00:36:17,640
Speaker 2: Totally a normal recession, even a bad garden variety of recessions,

773
00:36:17,680 --> 00:36:19,960
Speaker 2: nothing like that and in a world where we've got

774
00:36:20,040 --> 00:36:23,520
Speaker 2: labor shortages, I think the main effect will be on

775
00:36:23,560 --> 00:36:26,040
Speaker 2: all these zombie firms. We've got all these businesses that

776
00:36:26,120 --> 00:36:28,880
Speaker 2: are going to start rolling over that haven't and that

777
00:36:28,960 --> 00:36:31,160
Speaker 2: will create some short term unemployment, but that actually free

778
00:36:31,239 --> 00:36:33,799
Speaker 2: labor up to go into other areas, which is this

779
00:36:33,880 --> 00:36:36,759
Speaker 2: idea of the skills match things. So yeah, I don't

780
00:36:36,800 --> 00:36:40,160
Speaker 2: think we're doing it the right way. I've been not

781
00:36:40,480 --> 00:36:42,680
Speaker 2: being critical. I mean, I did worry about the variable

782
00:36:42,719 --> 00:36:45,960
Speaker 2: rate exposure at the start, so you know, yeah, and

783
00:36:45,960 --> 00:36:47,719
Speaker 2: I had a high cash rate than everyone and that's

784
00:36:47,960 --> 00:36:50,400
Speaker 2: sort of where it got to and that's fine. But

785
00:36:50,680 --> 00:36:52,160
Speaker 2: I think now it looks like we needed to go

786
00:36:52,160 --> 00:36:55,279
Speaker 2: to five five and a half last year, and the

787
00:36:55,360 --> 00:36:57,600
Speaker 2: question now becomes how we're going to get out of

788
00:36:57,640 --> 00:36:59,920
Speaker 2: this and the next six months, next three months I

789
00:37:00,040 --> 00:37:04,000
Speaker 2: think probably the most critical three months in Australia's modern

790
00:37:04,200 --> 00:37:09,440
Speaker 2: economic history, probably since yeah, and maybe since the the

791
00:37:09,800 --> 00:37:12,359
Speaker 2: GST and all that sort of stuff. But it's all

792
00:37:12,400 --> 00:37:14,520
Speaker 2: about how does a consumer respond to the tax cards?

793
00:37:15,160 --> 00:37:17,839
Speaker 2: Is this public sector jobs juggernaut going to roll on?

794
00:37:18,600 --> 00:37:21,239
Speaker 2: And of course the most important thing is are we

795
00:37:21,360 --> 00:37:23,400
Speaker 2: going to get the step down? In inflation that basically

796
00:37:23,480 --> 00:37:25,920
Speaker 2: the RBA forecast need. They keep pushing out the return

797
00:37:25,920 --> 00:37:28,800
Speaker 2: to target, They keep pushing it out their credibility. Like

798
00:37:28,840 --> 00:37:30,960
Speaker 2: they might be worried about tipping the economy into recession,

799
00:37:31,320 --> 00:37:33,600
Speaker 2: that bigger pitch issue. But in the end they've got

800
00:37:33,640 --> 00:37:34,560
Speaker 2: to get rid of inflation.

801
00:37:35,160 --> 00:37:35,759
Speaker 1: That's their job.

802
00:37:35,880 --> 00:37:38,120
Speaker 2: That's their job, and of course that is what secures

803
00:37:38,120 --> 00:37:41,760
Speaker 2: our prosperity. Anyone who thinks you can trade off inflation

804
00:37:41,840 --> 00:37:44,319
Speaker 2: with anything is just doesn't know.

805
00:37:44,280 --> 00:37:46,920
Speaker 1: What thee Yeah it is, it is.

806
00:37:47,000 --> 00:37:52,560
Speaker 2: Yeah, these people notice Joseph Stiglitz was out here and

807
00:37:52,920 --> 00:37:54,719
Speaker 2: he was a hero of mine, as you and I

808
00:37:54,760 --> 00:37:56,640
Speaker 2: was a kid and studying economics, and he was a

809
00:37:56,640 --> 00:37:58,600
Speaker 2: great academic. But I think, you know, the fact that

810
00:37:58,600 --> 00:38:01,200
Speaker 2: the world works differently to what it academics think about

811
00:38:01,320 --> 00:38:03,680
Speaker 2: has got in more sort of. I mean, the idea

812
00:38:03,680 --> 00:38:05,759
Speaker 2: that it's just arbitrary is wrong. I mean, I can

813
00:38:05,800 --> 00:38:08,319
Speaker 2: explain to you quickly why the whole economy is based

814
00:38:08,320 --> 00:38:10,600
Speaker 2: on relative price changes. When the orange price goes up

815
00:38:10,680 --> 00:38:13,320
Speaker 2: versus the apple price, that sends signals to producers and consume.

816
00:38:13,520 --> 00:38:15,960
Speaker 2: There's billions of these relitive price changes every day. The

817
00:38:16,000 --> 00:38:19,080
Speaker 2: reason you don't have zero inflation is that our economy

818
00:38:19,120 --> 00:38:22,799
Speaker 2: doesn't work instantaneously. These price changes take years to work

819
00:38:22,840 --> 00:38:24,920
Speaker 2: their way through, So you need a little bit of

820
00:38:24,920 --> 00:38:28,080
Speaker 2: inflation to pragmatically allow the economy to work. If you

821
00:38:28,120 --> 00:38:31,279
Speaker 2: targeted zero, then any price that went up would be

822
00:38:31,320 --> 00:38:33,840
Speaker 2: required to also have a price go down, and that

823
00:38:33,880 --> 00:38:36,279
Speaker 2: would be bad for the economy. That would cause people

824
00:38:36,320 --> 00:38:38,319
Speaker 2: to fall out of business and stuff like this. So

825
00:38:38,800 --> 00:38:43,480
Speaker 2: it's a pragmatic number that's about price stability. That is

826
00:38:43,520 --> 00:38:45,479
Speaker 2: a little bit of inflation allows the economy to work.

827
00:38:45,719 --> 00:38:49,080
Speaker 2: But all the evidence shows that any inflation, as it

828
00:38:49,120 --> 00:38:52,080
Speaker 2: goes up, the cost to the efficient operation the economy

829
00:38:52,360 --> 00:38:55,680
Speaker 2: rises exponentially. And of course the higher you put your target,

830
00:38:56,440 --> 00:38:59,279
Speaker 2: the harder it is to hit. So two to three

831
00:38:59,280 --> 00:39:01,200
Speaker 2: is that I actually think ononder three is the right number.

832
00:39:01,280 --> 00:39:03,040
Speaker 2: Not that we're going to be bothering the one for

833
00:39:03,080 --> 00:39:05,680
Speaker 2: a while because we're in a new inflationary world. That

834
00:39:05,840 --> 00:39:08,840
Speaker 2: change independency cycle that I talked about, that's also a

835
00:39:08,880 --> 00:39:11,040
Speaker 2: shift in the cost of capital and the cost of labor,

836
00:39:11,080 --> 00:39:13,600
Speaker 2: and it's on a one way trajectory. It's not steep

837
00:39:13,640 --> 00:39:16,440
Speaker 2: and heavy, but interest rates are going to be on

838
00:39:16,520 --> 00:39:19,640
Speaker 2: average higher in ten years than they are now. And

839
00:39:20,160 --> 00:39:22,400
Speaker 2: you know we've we've just got to recognize this the

840
00:39:22,440 --> 00:39:24,839
Speaker 2: operational environment if we want to let what you do

841
00:39:24,920 --> 00:39:27,120
Speaker 2: is you actually want government and the RBA not to

842
00:39:27,160 --> 00:39:29,480
Speaker 2: be a factor. You want the private sector economy to

843
00:39:29,480 --> 00:39:31,840
Speaker 2: go and do what it does. Get onto this technology,

844
00:39:31,920 --> 00:39:34,480
Speaker 2: make your production processes better, go and buy this stuff,

845
00:39:34,520 --> 00:39:36,839
Speaker 2: go on holidays, do the things that we have done

846
00:39:36,880 --> 00:39:39,360
Speaker 2: as austrains in the last thirty years, which makes it

847
00:39:39,400 --> 00:39:43,040
Speaker 2: a great society, not a government run country.

848
00:39:44,080 --> 00:39:47,160
Speaker 1: Wargan, Well, that was one hell of a speech made.

849
00:39:47,200 --> 00:39:49,320
Speaker 1: It sounds like you're running for treasure. Sorry, Mark, No,

850
00:39:51,080 --> 00:39:52,439
Speaker 1: that's what I wanted to want to get you done,

851
00:39:52,440 --> 00:39:54,239
Speaker 1: because I want to get the Warren Hogan, the real

852
00:39:54,280 --> 00:39:56,600
Speaker 1: Warren Hogan out. Thanks for much, but I really appreciate it.

853
00:39:56,640 --> 00:39:58,479
Speaker 2: Fantastic. Thanks Mark, Thanks for having me on the show.