Transcript of Question & Answer Session What Has Australian Macroeconomic Thought Achieved in the Past Century – And Where Can it Contribute in the Next?

Well, thank you, Andrew, for giving us drive to the dryless of our reforms that I rattled off at the beginning. So I’m sure you all have lots of questions for Andrew. I believe there’s a roving mic. Please.

Hi. It’s name redacted. Thank you, Deputy Governor. Looking back over the past 100 years, I can’t help but think like today the macroeconomic problems have been solved in a way. You had the Great Depression. You had problems in the 70s and 80s which all this can be summarised with the misery index so adding the level of inflation to the level of unemployment today it’s around 7. It was big double digits in the 70s and 80s and into the 20s in the Great Depression. There’s just so much anxiety and pessimism about the macro economy and yet on that simple measure it’s in better shape than it has been for basically half a century. What accounts for all this pessimism and anxiety beyond Donald Trump? We’re in good shape right now.

I can honestly say from here … got views on that, it’s an interesting chart you can draw of your misery index and consumer confidence. You can draw this charge across countries. For most of its history the relationship between your index, that index and consumer confidence is pretty close. In the most recent period it’s broken down in exactly the way you describe the things we were told to and they’re in our mandate to target are in a good place but people are fed up. They’re not just fed up in the UK. My home country. You can see that in many other countries as well. A number of people, some in this room, have tried to answer what I think is genuinely a very interesting question that you’ve just described, I think it’s a fact by the way, If you ask politicians they will tell you that they hear this around the global. A simple answer would be that the price level has risen so far in the past three, five years. Again, not unique to Australia. In fact, Australia hasn’t had the largest increase. One of the larger ones was in the UK. And it turns out that people are not just focused on the first differential in prices. They’re focused on the level of prices as well. Now, the answer to that is clearly not or I think it’s not to deflate the price level back to where it was. Some people think it is. Maybe some in this room. But I think we have to recognise the Central Banks to start with. That some of that is on us and some of that is important for us to think about the importance of continuing to deliver our mandate going forward. I think the other challenge which again I maybe will frame this in the context of the UK but it does apply elsewhere is the sources of growth. Now, your misery index doesn’t include that but probably if you were to sort of overlay on top of that the underlying sustainable growth rate or productivity growth or GDP or whatever metric you might want to use you might find that that has some role to play as well. So looking forward more than necessarily today it’s incumbent on all of us, as I think I was trying to say, not just to think about how we protect ourselves from shocks, that’s jobs for organisations like the RBA but to think about the next sources of growth. It’s not just a challenge for Government but it’s a whole of economy challenge and a vital one. Maybe some of our models tell us that households are smarter than public officials and they see the challenge coming of simple facts like are my children going to be better off than I am. Do I have job security, all of those sorts of things that obviously sociologists in particular are thinking about. Whether they feed into that. You could if you were being ruthlessly dismal economists map that back to questions like sustainable growth rates in the economy. In the UK at the moment is going through a very real live experiment of what it means when your sustainable growth rate is depressed or for a lot of other things as that … productivity, it’s not about everything but it surely is about everything and we’re probably all going to face into that, I think.

Hi, Deputy Governor. Name redacted from name redacted. Just interested particularly in light of what we’ve seen overnight and just this week over tariff announcements coming out of the US. How concerned are you about the actual policies being announced but the unpredictability about what these announcements are made and what effect does that have on your decision-making going forward?

Well, I mean you put your finger on it and you’ve almost answered your own question. The challenge with what’s happening at the moment is, firstly, about the level effect, if you like. But, secondly, the enormous amount of uncertainty, indeed many would say unpredictability in the global economy. We’re all watching this like hawks. I say we, I mean globally Central Banks. Situations are evolving very rapidly. There are a number of acronyms, perhaps I won’t repeat but you’ll know as a journalist. One I might not repeat but you have in mind, nothing ever happens … which people are now using. Which does seem a very surprising and puzzling development as these enormous macro changes appear to be happening in the world. The financial markets, in particular, shrug and move on. Equity markets higher now today than before they were in the liberation day. Events, measures of implied volatility in markets back to historic lows. Those are interesting developments. You can either be a market believer and say, well, these guys get it right more often than we do so they must have something we don’t or you could worry a little bit about that. Your question how worried are we about it, we are very, very focused on it. The level of uncertainty is clearly elevated and the implications I was saying in my speech for a global trading economy like Australia with these fundamental changes are very profound. That said the first round effects clearly we’re in the bottom rank of - there’s an interesting fact if you draw the liberation day tariffs according to actual balances in trade, I’m sure you have done this those of us on the 10% bottom level actually Australia should be subject to a negative tariff for quite some substantial amount given the surplus that they’ve historically run with for us. The first round effects, and I’m not telling you anything you don’t know, the first round effects of US tariffs are probably minor. The effects on the global economy are profound. Our forecast on which policy is based in May already includes an element of downward revision to global and domestic activity on the back of both uncertainty effects which might cause people to delay investment and the direct effects on trade. What is interesting about data I would say globally as well as in Australia so far and it’s very early days is perhaps some of the worst predictions of what this might mean have not yet come to pass. Obviously in the US and Europe the forward looking surveys got very negative and have come back a little bit. They’re still a lot worse. We actually haven’t seen that in Australia. We haven’t seen business sentiment or household sentiment, although depressed according to the question we had before, get substantially worse. I think that’s an interesting development as I try and educate myself, talking to Ross earlier about what I’m trying to do to learn about the Australian economy. I go around the country quite a bit trying to meet firms around the liaison program. It is interesting although many firms are worried about it they are not yet seeing the effects. One thing I would say maybe from my experience of the UK and Brexit is that in Brexit the day after Brexit happened everyone thought the world would end and it didn’t. 10 years on you’re seeing some of the profound effects of some of those changes for sustainable growth rates and some of the fundamental things in the economy and going back to the things at the beginning will have more and lasting effects than here today gone tomorrow probably long answer, sorry don’t know if I have answered your question but anyway, you want me to move on.

The question at the back.

Thank you for the history. Can you put on the public record the year that the economists at the Reserve Bank entered the real world for accountants and businessmen and looked at the distribution of assets in Australia because 50 years ago in 1975 the guy you mentioned who did the GDP figures.

Cofflin.

Colin Clark. He informed me of my book in 1975 on democratising the wealth of nations was all about wealth because it was all about the distribution of assets. When did the Reserve Bank come into the real world, was it prior to that?

It was a good question. I might take that as they say in the senate on notice and we’ll come back to you. I’m going to slightly be cheeky with your question, the broader question about the distribution of wealth, as I understand the anonymity of your question of macroeconomic is super interesting and obviously it has a big political dimension … but the question of how the distribution of wealth in economies affects macroeconomic outcomes, I am sure there are some people in the room working on that. I know that Guy de bell when he was earlier in the week talked about his next top pick set of issues terrifically important. I hope as your challenge provocation taken that the RBA does live in the real world. I think it’s horrifically important … that Central Banks don’t sit in the ivory tower. We do need our spreadsheets and models. I personally spend a good deal of time with Jackie - well, not Jackie now. Jackie years ago came to work with me at the Bank of England on secondment. She thought she was going to learn what we did and take the learning back to another country. Turned out we were behind Australia. Jackie spent two years teaching us how to do liaison properly. I should have put Jackie in my speech. Australia has another legacy of teaching the old country how to do things properly, that was all about getting out and talking to people and businesses. If we ever are not in the real world you should call us on it.

Thank you. Name Redacted. The birth of macroeconomic thought was almost like a democratic expansion of economics because suddenly workers were in the picture of what a good economy was. Good wages, consumption, demand function, GDP growth. GDP growth then became something that was aspired to, united everyone, businesses, governments on one agenda. What we’ve seen in recent decades you’ve referred to explosions and job insecurity, stagnated living standards and a collapse of belief essentially in the institutions, including Central Banks and the mission of growth. There’s the recent new gov poll in your home country in the UK that showed that 75% of people support a wealth tax of 2% on assets above 10 million pounds and Guy de bell opened the conference saying a big problem of the crisis of economics is that there’s a lack of - there’s a lot of lip service to redistribution but no tangible policies being put forward. So my question to you, is Australia ready for a discussion on redistribution? Do we need growth to have some qualitative kind of frameworks around that rather than just big picture and if so what would those policies be?

That’s a good last question, isn’t it? Wow. That’s called a Googly, I’m not good at cricket but it’s probably something like that. If I’m totally honest I think it’s a bit outside of my wheelhouse to have you a good answer on that. One thing I would say, perhaps I didn’t emphasis this enough in my speech but Ross may do so, when you look at what’s distinctive in Australian policy and policy debate, and I think it’s true as it was in the past, the determination to ensure that the gains from the country’s success are distributed in ways that are perceived to be fair is high on the list of priorities in Australia and perhaps rather higher if I may say so than in my own country or elsewhere. Whether that has led to more equitable outcomes or whether it needs to in the future I don’t think I - I don’t know enough to give you a sensible answer. But it is striking and if I were to do a second speech I think that question of how does the concepts of the fair go distributing the loss that Giblin talked about right up to the wages accord and all the rest of it, what role has that played in the macroeconomic outcomes of Australia, the successful macroeconomic outcomes of Australia and is there something for the broader world to learn there from Australia. There may well be. I apologise that’s not a very good answer to your question but I think you’ve put your finger on something important.