1 00:00:03,800 --> 00:00:06,120 Speaker 1: Welcome to Ask Fear and Greed, where we take your 2 00:00:06,240 --> 00:00:09,200 Speaker 1: questions and do our very very best to answer them. 3 00:00:09,240 --> 00:00:11,800 Speaker 1: I'm Michael Thompson, and good afternoon, Sean Aylmer. 4 00:00:12,200 --> 00:00:14,240 Speaker 2: Good afternoon, Michael Thompson. 5 00:00:14,760 --> 00:00:20,160 Speaker 1: Sean. Today's question comes from Bill and I'm apprehensive asking 6 00:00:20,200 --> 00:00:22,720 Speaker 1: you about it. And the Bill has sent this in 7 00:00:23,560 --> 00:00:25,599 Speaker 1: via LinkedIn, and there's a bunch of ways that you 8 00:00:25,640 --> 00:00:27,319 Speaker 1: can do it. You can do it on LinkedIn, you 9 00:00:27,320 --> 00:00:29,880 Speaker 1: can do it on Instagram or on Facebook, or you 10 00:00:29,920 --> 00:00:31,520 Speaker 1: can head to Fear and Greed dot com today you 11 00:00:31,600 --> 00:00:34,840 Speaker 1: and send you a question in there. But Bill has said, 12 00:00:36,159 --> 00:00:40,000 Speaker 1: we keep hearing the productivity is the saving grace for 13 00:00:40,120 --> 00:00:45,199 Speaker 1: the economy. Is that true? And I'm apprehensive asking you 14 00:00:45,240 --> 00:00:47,560 Speaker 1: that because I know I'm about to get a lesson. 15 00:00:47,880 --> 00:00:50,680 Speaker 1: Oh yes, whether I'm up for a lesson right now? 16 00:00:50,800 --> 00:00:52,199 Speaker 2: Oh, come on like that? 17 00:00:52,720 --> 00:00:54,320 Speaker 1: All right, go on educate me. 18 00:00:54,800 --> 00:00:57,440 Speaker 2: Well, yes is the answer. But there's a fair bit 19 00:00:57,520 --> 00:01:00,320 Speaker 2: to the question. Now, can I recommend a website for 20 00:01:00,440 --> 00:01:04,480 Speaker 2: anyone that wants to know about economics? R BA dot gov, 21 00:01:04,520 --> 00:01:07,920 Speaker 2: dot au go to the education sector. It is one 22 00:01:07,959 --> 00:01:13,160 Speaker 2: of the great resources for anyone interested in economics. Not 23 00:01:13,319 --> 00:01:15,480 Speaker 2: many people, well, I don't know how many people go 24 00:01:15,520 --> 00:01:18,319 Speaker 2: and visit it. But like for a question like this, 25 00:01:18,400 --> 00:01:21,480 Speaker 2: which I got yesterday, I mean, it's kind of a 26 00:01:21,520 --> 00:01:24,080 Speaker 2: complex topic. It's a really complex topic. But if you 27 00:01:24,120 --> 00:01:26,480 Speaker 2: go to the RBA, dot gov, dot AU, they provide 28 00:01:26,680 --> 00:01:32,080 Speaker 2: so much information on this stuff. So that's a prelude. 29 00:01:32,640 --> 00:01:36,080 Speaker 1: Now, productivity that that was just the intro. 30 00:01:36,520 --> 00:01:42,400 Speaker 2: That was Productivity refers to how much output can be 31 00:01:42,440 --> 00:01:46,520 Speaker 2: produced with a given set of inputs. Right, so, you know, 32 00:01:46,560 --> 00:01:49,960 Speaker 2: you put stuff in, you get stuff out, that's fairly easy. 33 00:01:50,360 --> 00:01:52,160 Speaker 2: Can you get more out with the same level of 34 00:01:52,160 --> 00:01:56,240 Speaker 2: inputs If you can, productivity is rising. There are two 35 00:01:56,560 --> 00:02:01,200 Speaker 2: types of productivity. There's labored productivity, so that's how many 36 00:02:01,240 --> 00:02:04,800 Speaker 2: skills I have. You know, whether I'm using AI for example, 37 00:02:04,840 --> 00:02:07,840 Speaker 2: or whether I'm using chat GPT when I'm writing a letter. 38 00:02:08,480 --> 00:02:10,400 Speaker 2: You know, does my boss let me do my job? 39 00:02:11,000 --> 00:02:14,120 Speaker 2: That sort of stuff. So labor productivity is about how 40 00:02:14,160 --> 00:02:18,359 Speaker 2: much I can produce given the stuff like my skills 41 00:02:18,760 --> 00:02:21,400 Speaker 2: tech that type of stuff. The other one is called 42 00:02:21,480 --> 00:02:25,000 Speaker 2: multi factor productivity. Don't be scared off by that term, 43 00:02:25,440 --> 00:02:27,880 Speaker 2: though I did spend a number of years at university 44 00:02:28,000 --> 00:02:31,399 Speaker 2: very scared by that term. But multi factor productivity, it's 45 00:02:31,440 --> 00:02:36,200 Speaker 2: basically output per unit of all the inputs combined. So 46 00:02:36,280 --> 00:02:39,359 Speaker 2: that is labor is one of those. But also you know, 47 00:02:39,840 --> 00:02:43,920 Speaker 2: the capital, the tools you're using, all that sort of stuff. 48 00:02:44,320 --> 00:02:46,800 Speaker 2: I mean, it can include the services that you have 49 00:02:46,919 --> 00:02:50,200 Speaker 2: access to to do your job. It can include the 50 00:02:50,360 --> 00:02:53,560 Speaker 2: energy you're using all that. So multi factor productivity is 51 00:02:53,639 --> 00:02:57,760 Speaker 2: kind of all the stuff that goes in to get 52 00:02:57,800 --> 00:03:00,760 Speaker 2: an output. Labor is just me It's what I put 53 00:03:00,760 --> 00:03:02,960 Speaker 2: in to get an output. Really hard stuff to measure, 54 00:03:03,040 --> 00:03:06,600 Speaker 2: in fact that the Bureau Statistics often doesn't well. In fact, 55 00:03:06,600 --> 00:03:08,760 Speaker 2: there are a bunch of industries it doesn't measure productivity 56 00:03:08,760 --> 00:03:11,079 Speaker 2: on because it's just it's really hard to measure. And 57 00:03:11,360 --> 00:03:15,560 Speaker 2: you know what we're talking about here is this a 58 00:03:15,600 --> 00:03:18,040 Speaker 2: bunch of things which really hard to measure, the inputs 59 00:03:18,160 --> 00:03:21,600 Speaker 2: and the outputs on both sides. The question is why 60 00:03:21,680 --> 00:03:25,119 Speaker 2: is it good? It leads to higher wages? Number one, 61 00:03:25,919 --> 00:03:32,160 Speaker 2: If I am producing more per unit of input, so 62 00:03:32,320 --> 00:03:36,280 Speaker 2: for some reason my output improves, well, there's a reward 63 00:03:36,320 --> 00:03:39,160 Speaker 2: for that. People are paying. You know. Let's say I'm 64 00:03:39,560 --> 00:03:42,960 Speaker 2: making kites, I'm making five an hour rather than a 65 00:03:43,040 --> 00:03:45,760 Speaker 2: four an hour, and someone's buying everyone's buying them, or 66 00:03:45,800 --> 00:03:49,400 Speaker 2: people are buying all those kites. I'm receiving a higher wage. 67 00:03:50,000 --> 00:03:54,040 Speaker 2: That's a good thing. Actually lower prices. Using that example, 68 00:03:54,080 --> 00:03:58,000 Speaker 2: if you produce five kites not four kites, you made 69 00:03:58,000 --> 00:04:00,440 Speaker 2: a side. Rather than taking the money, I will reduce 70 00:04:01,000 --> 00:04:03,960 Speaker 2: the cost of each kite, So it actually lowers prices 71 00:04:04,040 --> 00:04:07,240 Speaker 2: or at least puts pressure on lowering prices higher profits. 72 00:04:07,880 --> 00:04:11,040 Speaker 2: You know, in a big company, productivities improved, there's more 73 00:04:11,080 --> 00:04:14,920 Speaker 2: money for shareholders or for who ever owns the company. 74 00:04:15,360 --> 00:04:17,200 Speaker 2: They may take that and put in the bank, but 75 00:04:17,240 --> 00:04:20,240 Speaker 2: they also might invest it and get other stuff to 76 00:04:20,240 --> 00:04:23,000 Speaker 2: make the company do better. You put all that together 77 00:04:23,040 --> 00:04:25,680 Speaker 2: and you get stronger economic growth. That might be higher wages, 78 00:04:25,720 --> 00:04:29,080 Speaker 2: lower prices, higher profits. What you do find when you 79 00:04:29,120 --> 00:04:32,839 Speaker 2: put there's a concept called the diminishing marginal return. So 80 00:04:32,880 --> 00:04:34,960 Speaker 2: when you put an input in, you might get you know, 81 00:04:35,080 --> 00:04:37,839 Speaker 2: five units back. The next one you get another five units, 82 00:04:37,839 --> 00:04:39,360 Speaker 2: The next one you have to get four units back. 83 00:04:39,360 --> 00:04:41,240 Speaker 2: The next one you get three units back. So kind 84 00:04:41,240 --> 00:04:44,520 Speaker 2: of the more you put in per unit you get 85 00:04:44,600 --> 00:04:48,479 Speaker 2: less back. Why ah, because you know you're tired, or 86 00:04:48,520 --> 00:04:51,279 Speaker 2: you think of it when you have your first bite 87 00:04:51,320 --> 00:04:55,080 Speaker 2: of an ice cream cone fantastic, the second one still 88 00:04:55,120 --> 00:04:57,560 Speaker 2: pretty good. By the time you're at five or six, 89 00:04:57,640 --> 00:04:59,800 Speaker 2: think oh, I don't really want this. It's the same 90 00:04:59,839 --> 00:05:02,960 Speaker 2: so concept, So it's diminishing returns. 91 00:05:04,080 --> 00:05:08,839 Speaker 1: If we had started with ice creams as our model 92 00:05:08,880 --> 00:05:14,479 Speaker 1: here that we're using, I've actually followed you to this point. 93 00:05:14,560 --> 00:05:15,680 Speaker 1: As long as there is not going to be a 94 00:05:15,680 --> 00:05:16,760 Speaker 1: test at the end, please go. 95 00:05:16,839 --> 00:05:19,440 Speaker 2: There won't be. There won't be. So what we're talking about, 96 00:05:20,560 --> 00:05:23,080 Speaker 2: like labor and capital, inputs tend to be subject to 97 00:05:23,080 --> 00:05:28,359 Speaker 2: these diminishing marginal returns. So if you hold inputs constant, 98 00:05:29,200 --> 00:05:32,080 Speaker 2: the more like labor or capital, the more input will 99 00:05:32,160 --> 00:05:36,400 Speaker 2: lead to a smaller and smaller additional output. What productivity 100 00:05:36,920 --> 00:05:41,640 Speaker 2: growth does is gets beyond that. So rather than having 101 00:05:41,640 --> 00:05:47,640 Speaker 2: these diminishing returns, you're actually achieving higher returns, maybe constant, 102 00:05:47,640 --> 00:05:51,960 Speaker 2: but maybe even higher returns, and that actually leads to 103 00:05:52,040 --> 00:05:54,480 Speaker 2: higher living standards because at the end of the day, 104 00:05:54,520 --> 00:05:57,640 Speaker 2: what productivity does is has more goods out there for 105 00:05:57,680 --> 00:05:59,720 Speaker 2: the same number of inputs. If there are more goods 106 00:05:59,720 --> 00:06:02,839 Speaker 2: out there for the same number of inputs, then there's 107 00:06:02,839 --> 00:06:06,320 Speaker 2: more to share around. It's not inflationary because it's not 108 00:06:06,360 --> 00:06:08,599 Speaker 2: like We've pushed up the cost of them. There's just 109 00:06:08,680 --> 00:06:12,200 Speaker 2: more output per unit of input. You think of the 110 00:06:12,240 --> 00:06:16,400 Speaker 2: seventies or eighties or nineties when me, someone else you 111 00:06:16,720 --> 00:06:21,600 Speaker 2: grew up, Michael, compared to now. Productivity is the reason 112 00:06:21,680 --> 00:06:26,440 Speaker 2: why houses now have four or five six TVs, whereas 113 00:06:26,440 --> 00:06:29,520 Speaker 2: when I grew up, we had one TV. That's a 114 00:06:29,600 --> 00:06:34,120 Speaker 2: really tangible example how productivity has improved society. And maybe 115 00:06:34,160 --> 00:06:37,480 Speaker 2: TV watching is improving society. But you kind of get 116 00:06:37,520 --> 00:06:39,360 Speaker 2: the gist of what I'm saying, all. 117 00:06:39,400 --> 00:06:45,000 Speaker 1: Right, Sean. I have understood, and I have followed, and 118 00:06:45,000 --> 00:06:49,680 Speaker 1: I understand the value and the importance of improving productivity. 119 00:06:49,720 --> 00:06:52,000 Speaker 1: But the part that I probably come back to, and 120 00:06:52,040 --> 00:06:54,400 Speaker 1: the part that I do not yet understand, is how 121 00:06:54,680 --> 00:06:57,760 Speaker 1: do you actually do it? How do you improve and 122 00:06:57,960 --> 00:07:00,880 Speaker 1: increase productivity which we all I already know is something 123 00:07:00,920 --> 00:07:03,200 Speaker 1: that is quite hard to measure, But how do you 124 00:07:03,760 --> 00:07:07,240 Speaker 1: do that without a whole lot of additional input in 125 00:07:07,320 --> 00:07:08,640 Speaker 1: terms of money, et cetera. 126 00:07:08,800 --> 00:07:12,760 Speaker 2: Going in so in a really practical sense, you get 127 00:07:12,760 --> 00:07:19,360 Speaker 2: productivity improvements. When wage deals are negotiated and let's say 128 00:07:19,360 --> 00:07:21,360 Speaker 2: someone who's getting paid one thousand dollars, they want to 129 00:07:21,400 --> 00:07:24,040 Speaker 2: get paid eleven hundred dollars, so ten percent increase, or 130 00:07:24,080 --> 00:07:28,360 Speaker 2: maybe it's let's use that freeze and what the employer 131 00:07:28,400 --> 00:07:31,080 Speaker 2: says is okay, but we want to get twelve percent 132 00:07:31,120 --> 00:07:34,840 Speaker 2: more output for that ten percent you're going to get. 133 00:07:35,320 --> 00:07:40,040 Speaker 2: So maybe they cut the roster day off and maybe 134 00:07:40,080 --> 00:07:42,080 Speaker 2: they make people work an extra seven or eight minutes 135 00:07:42,120 --> 00:07:45,960 Speaker 2: a day. So, in really practical terms, that's how it 136 00:07:46,040 --> 00:07:49,480 Speaker 2: has been done over many, many years. Technology is a 137 00:07:49,480 --> 00:07:53,000 Speaker 2: big one. Anyone that uses chat GPT understands how quickly 138 00:07:53,040 --> 00:07:56,240 Speaker 2: it is to write a letter using chat GPT or 139 00:07:56,440 --> 00:08:00,360 Speaker 2: a document and rather than taking two hours, that can 140 00:08:00,400 --> 00:08:05,679 Speaker 2: take thirty minutes. That is a massive productivity improvement. Working smarter, 141 00:08:05,840 --> 00:08:10,480 Speaker 2: So setting up a process in an organization whereby the 142 00:08:10,520 --> 00:08:14,280 Speaker 2: production line has three parts to it, not seven parts 143 00:08:14,320 --> 00:08:17,200 Speaker 2: to it. That might be because of technology change, that 144 00:08:17,280 --> 00:08:20,720 Speaker 2: might be because someone wants to do something differently. However, 145 00:08:21,000 --> 00:08:24,760 Speaker 2: that's a productivity improvement. So it's broadly the answer to 146 00:08:24,840 --> 00:08:30,640 Speaker 2: your question is working smarter. But that manifests itself in 147 00:08:30,720 --> 00:08:35,120 Speaker 2: many different ways through technology, through union negotiations, through manage 148 00:08:35,200 --> 00:08:37,120 Speaker 2: just just thinking oh this is there's a better way 149 00:08:37,120 --> 00:08:40,720 Speaker 2: to do it, through staff cutting out a process because 150 00:08:40,720 --> 00:08:43,679 Speaker 2: they can get a product out quicker that sort of thing. 151 00:08:45,080 --> 00:08:47,600 Speaker 1: Have you ever been at a dinner party and someone 152 00:08:47,640 --> 00:08:49,000 Speaker 1: has actually asked you? 153 00:08:49,760 --> 00:08:52,120 Speaker 2: When someone asks you about economics and you start talking, 154 00:08:52,559 --> 00:08:55,600 Speaker 2: the person that I asks you generally is interested and 155 00:08:55,640 --> 00:08:58,400 Speaker 2: mostly you see the people on either side of them. 156 00:08:58,760 --> 00:09:02,119 Speaker 2: They start after about a minute, starting to stifle the yawns. 157 00:09:02,440 --> 00:09:04,720 Speaker 2: They go to their phone, They look for someone else 158 00:09:04,720 --> 00:09:05,360 Speaker 2: to help them out. 159 00:09:07,600 --> 00:09:13,079 Speaker 1: One person actually died, which wasn't very productive at all. 160 00:09:13,360 --> 00:09:15,679 Speaker 1: I bored him to death. No, look, I think that 161 00:09:15,800 --> 00:09:20,000 Speaker 1: was I learned things good. I learned multiple things. I 162 00:09:20,000 --> 00:09:23,280 Speaker 1: think that was actually sean a very productive Ask Fear 163 00:09:23,320 --> 00:09:24,960 Speaker 1: and Greed excellent. 164 00:09:25,280 --> 00:09:25,840 Speaker 2: I like it. 165 00:09:26,080 --> 00:09:28,079 Speaker 1: Thank you for answering Bill's question. 166 00:09:28,520 --> 00:09:30,920 Speaker 2: No problems at all, Michael, Bill. 167 00:09:30,800 --> 00:09:32,800 Speaker 1: Thank you for the question. And if you have your 168 00:09:32,840 --> 00:09:34,600 Speaker 1: own question, if there's something that you would like to know, 169 00:09:34,640 --> 00:09:38,880 Speaker 1: then please send it on through on LinkedIn, Instagram, Facebook, 170 00:09:38,960 --> 00:09:41,160 Speaker 1: or at Fear and Greed dot com dot au. I'm 171 00:09:41,160 --> 00:09:43,559 Speaker 1: Michael Thompson and this is Ask Fear and Greed