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"The west has become more like China" - Adam Creighton
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Adam Creighton is an Australian economist and journalist. He is currently the Washington correspondent for The Australian newspaper. In this interview with host Will Kingston, Adam takes us on a whistle-stop tour of the burning economic issues of the day, including cost-of-living, productivity and innovation.
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Transcript
Introduction & Listener Engagement
00:00:00
Speaker
Hello, it's Will here. Before we get stuck into this week's show, I just wanted to say a big thank you to everyone who has been leaving us their ratings and reviews. It's a wonderful way to help us grow Australiana and it's super quick and easy. If you are yet to do so, please leave us one now so we can remain in the good graces of the mystical, algorithmic podcast gods that control our destiny. Now, cue the jingle.
Australiana Podcast & Guest Introduction
00:00:40
Speaker
G'day and welcome to Australiana from The Spectator Australia, a series of conversations on Australian politics and life. I'm Will Kingston. Economics was first called the dismal science by Scottish historian Thomas Carlyle. He was said to have been inspired by Thomas Robert Malthus' gloomy prediction that population would always grow faster than food, dooming mankind to unending poverty.
00:01:04
Speaker
I've always taken a strange comfort in the brutal realism of economics, but it's a philosophy that is increasingly at odds with the post-truth, all about the fields era in which we live. To assess the state of the dismal science in 2023, I'm joined by economist and Washington correspondent for the Australian, Adam Crichton. Adam, welcome to Australia. Thanks for having me.
Evolution of Economic Thought
00:01:26
Speaker
Let's start with a macro view of economics and the state of the dismal science in 2023. How would you assess where it is at as a discipline today? That's a good question. Well, it's much larger than it was. I mean, there are a lot of economists out there employed in both private sector and academia and government. I mean, I think it was Keynes once said that
00:01:50
Speaker
Economics is one of its main uses is as a form of employment for economists, which has certainly proved true. So it's a big discipline. But I would have said it used to be ideologically conservative. But I think in recent decades, it's you know, that's no longer the case. And I think we saw that especially during the COVID crisis. You saw a lot of it.
00:02:10
Speaker
economists say things in public that I thought were, you know, really contrary to the discipline itself and, you know, somewhat crazy. It's a very technical discipline now. I mean, you have to be very good at mathematics to advance in economics by and large. I mean, I start I didn't even fill in economics at Oxford years ago and I started the DPhil PhD going and spent three or four months doing and then kind of gave up. I realised that, you know, the hardcore mathematics really wasn't for me. And so I just left it at the master's
00:02:36
Speaker
So it is very, very technical. And actually, just just on that question, I mean, that kind of I thought it makes it a bit useless, a bit practically useless. I mean, we're very good economists, a very good at mathematics and the arcane models, but these aren't really very helpful to the world practically. You know, they often just state the bleeding obvious with very advanced mathematics. So they don't really offer any new insights.
00:02:56
Speaker
I want to actually tease out a little snippet of what you just said, which was around the encroachment of particular ideologies on economics.
Identity Politics in Economics
00:03:06
Speaker
In the last several years, we've seen the encroachment of identity politics and woke ideology on several fields of science. The most egregious example was probably the medical profession during COVID-19, where there were several medical practitioners who took on decidedly political positions.
00:03:26
Speaker
You see economics as being vulnerable to the same phenomenon.
00:03:29
Speaker
Yeah, look, I think so. I mean, I think not as vulnerable. I mean, I think there have been surveys of different government departments, universities, certainly in the US, I'm sure in Australia. And they'll, you know, look at the political leanings of the disciplines. And I think you'll find your economics is relatively more conservative than the others, but it would still be left of centre on balance without question. Probably extremely so, but it would be less extremely so than the humanities and the social sciences and the other social sciences.
00:03:58
Speaker
I think that's because the discipline, as I said earlier, it's really hard to be good at high level. You have to be very good at mathematics. Of course, if you're good at mathematics, that suggests that you have some grasp of logic and some sort of sense of rationality. I think you do see the hard sciences, the physics and the chemistry and also economics. They tend to be less politically left-leaning than some of the other disciplines.
00:04:21
Speaker
Would that always have been the case though? I would have thought if you went to the Oxford economics faculty in the 1950s, that certainly would have been the case. What's changed? Yeah, that's a very good point, actually. In fact, you would have found probably the science. The sciences used to be more left wing, I would say, at universities than the humanities, which used to be very conservative.
00:04:41
Speaker
So that probably suggests that the humanities type disciplines are more captive to whatever the prevailing political mood of the population or the elites is generally. So they're going to just shift more with the zeitgeist, if you like, whereas the science-based
00:04:58
Speaker
or the mathematics-based disciplines, because I suppose you could say they do have that underpinning of what is truth and kind of a rational basis that they don't change as much over time. That would be my explanation. But I think it's a good point. The interesting thing is, this doesn't have theoretical implications. There are now what I would suggest are quite radical economic theories that get a hearing at very high levels about
00:05:25
Speaker
You've heard in particularly in American politics, among some corners of the Democratic Party, modern monetary theory becoming, if not mainstream, more mainstream.
Understanding Modern Monetary Theory (MMT)
00:05:36
Speaker
It gets me thinking about a fundamental question here, which is, do the rules of economics ever change? Do these sorts of challenges to economic orthodoxy have validity? Yeah, that's a very good question. Just on the modern monetary theory. Perhaps explain it for some people who may not understand the concept. Well, basically,
00:05:54
Speaker
Yes and says the central bank should create as much money as the government wants and spend it until inflation starts rising and then i should write it in so it's basically it says i mean some of the points that makes are i got a descriptive accurate that your money is a creation of government that's true it is i mean the money we use is a creation of government it's fake currency.
00:06:14
Speaker
The bank's created out of thin air. The government creates it out of thin air. I think a lot of people don't understand that. They think it's something external from government when, no, it's really a legal and government construct. That's why we have had bouts of huge inflation. What I was going to say about MMT, which everyone held it down as crazy, but to some extent, we've been practicing MMT now for quite a few years in the sense that
00:06:37
Speaker
Central banks have just created massive amounts of money to prop up government spending programs, right? The Reserve Bank of Australia, Bank of England, the Fed here.
00:06:46
Speaker
They've created trillions of dollars and pounds, et cetera, collectively. And that's what governments have used to subsidize their economies during their COVID shutdown. So that is kind of an MMT type policy, if you like. And now you've got inflation. So MMT would now say, well, now we have to rein in the money creation to get inflation back down again. But that's very hard to do in practice. I think the problems with MMT, the descriptions of how the world works are kind of correct. But its policy ideas are very naive because they
00:07:16
Speaker
They suggest that politicians can easily increase taxes, say, to rein in inflation, when they obviously can't do that. Extremely hard to increase taxes as a politician. So I think the MMT advocates kind of assume, and indeed would prefer, I imagine, a society run by technocrats and not a democracy, because those technocrats could try to fine-tune the economy with money printing and tax rates to get the just right
00:07:42
Speaker
amount of inflation. But the reality is we don't live in a society like that. So I think we have to be very careful with rampant money creation, which is what has just happened. I mean, I think we've so debauched the value of currency now that public finances have become a joke, which we've just sprayed so much money up against the wall, money created out of thin air, that how can the ordinary person have any respect for the fiscal process whatsoever? You know, why to spend hundreds of billions of dollars? You know, let's take Australia, we gave hundreds of billions of dollars
00:08:12
Speaker
to businesses that did not need it during COVID that was paid for out of money made up of thin air. And a lot of those people went and bought artworks and, you know, expanded their home and, you know, had a wonderful old time. I mean, that's extremely so, so bad for public respect in the fiscal process. I don't know how you recovered from that, right?
00:08:31
Speaker
Because, you know, in a few years time, the government's got to say, Oh, we can't afford this medicine for this poor person. Or we can't, you can't afford this. And yet they've just done the most outrageous waste, waste of money. I mean, obscene. So I don't know how you come out of that morally.
Public Debt Concerns
00:08:44
Speaker
Anyway, sorry. I want to pursue this further because I was actually looking at our gross debt, chart of our gross debt for this interview. And obviously COVID was, was disastrous in that regard. But
00:08:55
Speaker
Our gross debt was rising dramatically well before COVID has been going up, give or take, for the last 15 years. This is a trend that is playing out again across most of the Western world. It feels like most Western governments have just given up on fiscal discipline. My question is, why? Is it harder to be more fiscally responsible today than it was, say, 30 or 40 years ago?
00:09:18
Speaker
Look, I think it is. Just on the Australia point first. It's true, actually. I think we've had the biggest percentage point increase in public debt in the world, actually, during COVID. We did start from a relatively good position. Our gross debt to GDP, which is the typical measure, was I think something like 40% or something before COVID.
00:09:39
Speaker
Now it's like 60, which is a very big increase in a very short number of years. You're right. Certainly the 1960s and 1970s, you're right. Governments in Australia and the US and the UK, they paid much more fealty to the idea of balanced budgets and low debt. They came out of the Second World War with massive debts.
00:10:00
Speaker
By and large, they paid them off by the fact that their economies grew very rapidly. They weren't, in essence, paying off the nominal debt at a rapid pace. There was huge GDP growth in the 50s and 60s, and so therefore, the debt shrunk as a share of the economy. Pretty much since the 70s and 80s, it's been creeping up again. I don't think you can blame the left for this. If you look at the United States, it was Ronald Reagan in the 80s who
00:10:23
Speaker
probably more than any other politician in certainly American history, just tripled the debt or just went up massively in the space of eight years. I mean, he cut taxes. He had this idea that if he cut taxes, that would more than pay for themselves. That's not true. I mean, it may be good to cut taxes, but it doesn't necessarily mean they pay for themselves through better growth. So what happened is there's this huge hole punched in US revenue and debt went up enormously during his term.
00:10:47
Speaker
And there was no great kind of disaster. So I think a lot of people looked at that and thought, oh, well, maybe it's not a great disaster if the public debt increases. And so I think that contributed a lot to global realization in rich countries, at least, that it wasn't necessarily a catastrophe, at least now in the short term, if you massively grew debt. And pretty much since then,
00:11:08
Speaker
All countries have done that. I mean, I think the US now has its debts about 100% to GDP. I think Britain's 100%. You know, France and Germany are all around 100% thereabouts. I mean, Japan, of course, you know, it's like 130 or something, something crazy like that, maybe 140.
00:11:24
Speaker
There's been no catastrophe there either. I mean, there are problems in Japan, but seemingly, it's not defaulting. It's not unable to pay its debts. You'd probably say Australia has been amongst the most conservative countries in a public debt sense and New Zealand until recently.
Future of Debt Sustainability
00:11:42
Speaker
That was probably with good reason because they're relatively small countries with their independent currencies. They're
00:11:49
Speaker
They're far away, they have to be careful what foreigners think of their credit worthiness. Are those percentages sustainable, let's say over the next 50 years, if Australia, if those countries have 100 to 150% GDP, debt to GDP ratios in 50 years time, is that sustainable in the long run?
00:12:06
Speaker
Well, look, I mean, I'm not sure. I haven't done the maths. I'm sure someone has on, you know, what, what the cost of servicing our debt is at, you know, 5% interest instead of, you know, instead of two, because that's a huge, it's a huge change. My understanding is it is the fastest growing line item on the Australian budget is just interesting.
00:12:25
Speaker
Because the bonds are all of different lengths and they roll over at different points. And it's when they roll over, the government has to pay the higher interest rate. But some of the debt will be 10 years or more. So it will take a while for some of the debt to roll over. But nevertheless, as you're saying, interest is going up. Is it sustainable? Well, I mean, everyone's been saying for 20 years that the debt's unsustainable.
00:12:49
Speaker
And yet it's still sustainable. So I mean, look at some point it won't be. I mean, where that is, I don't know. It's interesting thought experiment. You know, if there was another COVID, you know, COVID 25 or something, could government spend that same amount of money again or you borrow or create?
00:13:08
Speaker
It's an interesting thought experiment because I don't think they would. I think they'd come up with excuses why we won't do that this time. Even if the disease was exactly the same, right? I mean, so everything else was the same.
00:13:20
Speaker
I don't think you'd see that much spending this time because I think there'd be a realization that it's not sustainable and we can't have another 20 percentage points on our debt, especially at these interest rates. I think there is a realization that we are reaching that point. We don't know exactly where the point is, but we're roughly around it that 100% of GDP, 120% of GDP or something like that, depending on the size of your economy, is about the maximum.
00:13:44
Speaker
Which is kind of, you know, worry. I mean, if there was a war, I mean, you're heaven forbid. God, I hope there's not like a major war, but the debt would go up a lot more than that. The other interesting point to make about the debt levels is we have these debt levels at the same time as we have very high rates of taxation. So we have very high tax and very high debt. That should be somewhat concerning because what my debt point is, you know, if the government increases taxes even more in an emergency, it's going to really hit the economy hard in terms of
00:14:14
Speaker
in terms of people's incentives to work and save. That's a real problem. I think we're in a weak position. The West is in a weak position, I think. A lot of the good economic signs are only because of all the borrowing and public spending, which, as we've just discussed, is not sustainable in the very long run, at least. Let me add another depressing consideration into that analysis of where the West sits right now.
00:14:43
Speaker
We are facing, from what I can see, a demographics crisis over the next 50 years. People across the Western world are living longer, and yet we're having less kids. So we're going to have more people to support and less working age people to be able to pay for them. How does that play out? Where are we heading? What are the consequences of that demographic shift in conjunction with some of the debt issues that we just mentioned?
Demographic Shifts & Economic Challenges
00:15:10
Speaker
Well, look, it's very worrying.
00:15:14
Speaker
And you're right, pretty much all countries, so all rich countries are facing similar problems. I mean, Japan is kind of the future, if you like. You're saying it's 20, 30 years ahead of Australia and America on this demographic time bomb, if you like, for whatever reason, this rich country, which
00:15:33
Speaker
is Japan. People don't have children. The same thing is happening in Europe and also America and Australia. The population shrinks as it is in Japan. I think it's also started shrinking in China too, hasn't it? Although they obviously had one child policy which complicates things. It has, yeah.
00:15:51
Speaker
But I think it started shrinking there as well. Well, I mean, I mean, if it's if if the projections come true, and you know, you never never be certain of these things, because our behavior can change suddenly. So that's always possible. But yes, there is going to be economies are going to shrink.
00:16:08
Speaker
and paying off the debt or maintaining the debt is going to become more expensive in that situation. If you've got these huge fiscal debts and the underlying economy is shrinking, that's a big problem. In terms of innovation, it's probably a huge negative. Fewer young people means generally less innovation. More people in nursing homes
00:16:29
Speaker
That's not great for innovation. I think you'll see a stagnation of not just economic growth based on population, but economic growth based on innovation and development in that sense. The interesting question is with this huge share of the population in nursing homes, whether that creates a big increase in wage rates or not,
00:16:51
Speaker
because we haven't developed robots yet to look after old people. I mean, maybe that's on the horizon, but they're not as good as humans, right? I mean, they can't display the same level of care and concern as a human. So there'll be massive demand for physical labor in the nursing home and health industries. And it'll be interesting to see what that does to wage rates of younger people of whom there'll be fewer and fewer, as we just discussed.
00:17:15
Speaker
So that could see an increase or that could see upward pressure on wages and inflation, which is kind of that. That's kind of a novel take of mine. I don't know whether that's conventional, but the conventional view. But yeah, the shift into the nursing home health care sector will be enormous. And that's going to have impacts on on the careers people choose and and the wages they own in different industries.
00:17:35
Speaker
So there are undoubtedly some very serious challenges that both Australia and the West more generally face from an economic perspective. I want to turn to how our government specifically is thinking about those challenges.
Critique of Values-Based Capitalism
00:17:50
Speaker
And I'll start with Kim Chalmers, I guess you'd say, his ideology, his philosophy, which he has called values-based capitalism.
00:17:58
Speaker
So he has said that Labor wants to change the dynamics of politics towards a system where Australians and businesses are clear and active participants in shaping a better society. What are your reflections on the term values-based capitalism and the principles that underpinned it such as they are?
00:18:17
Speaker
Well, I'm very cynical about politicians and that's not to insult them individually. They have a job to do and they operate in a set of incentives that means they have to waffle and say nonsense all the time in order to keep their base happy, their party members happy. You talk about a gym who I think is a great guy and I know him.
00:18:39
Speaker
All that, but I mean, you know, just these phrases are meaningless. And what decision have they made about anything since they won government that's of any substance? I mean, I don't think they've really done anything in a structural economic sense, have they? I don't know if I'm wrong, because I haven't been there. But, you know, we're having this voice vote, which, you know, you could say, you know, a hardened economist might say is just nonsense waffle and is actually of no consequence whatsoever. It's just a cultural thing for people to argue about. It's kind of entertainment, if you like.
00:19:07
Speaker
But on the economic front, have they changed tax rates? Have they done anything major on the budget? I don't think so. Have they made a difficult decision? I can't think of one from here anyway. And values-based capitalism, well, I don't even know what that means.
00:19:22
Speaker
I know he wrote a 7,000-word essay on his economic views, which I wrote it now. I'm just trying to think what the central points were. I think it was for a greater role for government. Yeah, I think he talked about values-based capitalism in that essay. I mean, these aren't new ideas. These are old ideas and old rhetoric. I mean, we're just going around in circles, really. So look, until I see a concrete policy from the Labour government on economics, then we can evaluate it. But I don't think there is one.
00:19:50
Speaker
Is there a plan to nationalize the Commonwealth Bank or is there a plan to do something? I mean, then we can at least talk about it. No, you're right. I don't think there is. But if I was being fair, I don't really think that there was much in the way of serious reform over the last 15 years, potentially since Howard. My question is, and this is something I reflect on.
00:20:09
Speaker
a lot and it goes to arguably the central challenge of politics of the 21st century is that it just seems like governments don't have either any interest or any skill or any appetite to tackle serious reform. Why is that the case since the 90s and the early 2000s?
Transformation in Left-Wing Politics
00:20:27
Speaker
Well, I think, you know, the force for reform or the force for change, you know, since Second World War and actually before, was always the left of politics, like social democrats, you know, traditional social democrats, whether it was pension systems or, you know, help for the unemployed and health care and so forth. But I think there's been a big change in major left wing parties in the world, especially in the US, which is where I've lived for a couple of years now.
00:20:52
Speaker
The Democrat Party is really no longer a force for change. It's an establishment party that wants to keep things the way they are. It increasingly represents the wealthy, and that's just a statistical fact. I mean, some of its rhetoric may still be about the poor, but if you actually look at its actions, it doesn't really care. It doesn't really want any big changes, right? The point is, to answer your question, you've got left-wing parties now that are no longer change parties. They're not really tax-the-rich parties. They like to talk about that a little bit.
00:21:18
Speaker
But they're not really, because they don't do it. So they really defend the interests of the wealthy. And if you look at donations to political parties in the US, you see that Wall Street banks and the big tech companies, overwhelmingly, they donate more now to Democrats than the Republicans. Right. So no wonder the Democrat Party supports the very wealthy more.
00:21:36
Speaker
The Republican Party, on the other hand, is transforming more, I think, into a working-class party. Structurally, it's changing, which is difficult. It's still got the 1980 Bush Republicans there, but they are shrinking in the party. But the problem with the Republicans is they're transitioning to a workers party. They're still not there, and so they too don't really want to change
00:22:01
Speaker
the fundamental tax rates or structural aspects of society, there's always a lot of pushback. And the other point generally, I might say, is because our societies are so unequal now, I mean, wealth inequality in the US in particular is just extraordinary. I don't have the figures at hand, but the top 1% own something like a quarter of the country or some shopping figure like that, which is about triple what it was after the Second World War. So therefore, we're living in a society where they're very wealthy and very powerful, and they don't want anything to change.
00:22:30
Speaker
Right? Very, very, very reluctant for anything to change. And this is not just the US. You could make the same argument, Britain and Europe and Australia as well. So, you know, wealthy families, they have a lot more wealth than they used to in the 60s and 70s, a lot more. So therefore, just logically, that group of people is a lot more powerful in society, right? They control more things. So that's why you don't see change, too. This is my theory. People don't want to see, you know, those people don't want to see change, obviously. And they don't like politicians who rock the boat in any way.
00:22:56
Speaker
So you're seeing in the US now with Robert F. Kennedy Jr., who I actually really like. I mean, I don't agree with him on everything, but I think he's excellent in many ways. But he's loathed by the establishment here because he dares to question the pharmaceutical industry, which is a no-no. It's a very, very powerful industry. And he also questions the
00:23:14
Speaker
Yeah, the establishment, the security state, which is a vast, vast industry in and to itself. And so you just watch the way the media reacts on the left and the right to him, or left and right, in inverted commas, you know, because I don't even know what those things mean anymore. But, you know, vicious personal attacks, you know, exaggerations, smears, I mean, it's quite something of a whole, actually, when he's just makes pretty sensible points, in my view, but but but their points that the the establishment doesn't want the public to hear.
00:23:42
Speaker
It's really interesting, isn't it? And because of that portrayal in the media,
00:23:46
Speaker
because in the media, the 90% of the coverage would be around his take on vaccines. And then it would be labels like conspiracy theorist or anti-vaxxer. So I'd actually never really listened to him. And I just assumed he was a bit of a kook. And I finally took the time to listen to an extended two hour podcast where he was interviewed. And he's a very, and super intelligent, rational, interesting thinker. And you're right. It is fascinating how,
00:24:15
Speaker
there are particular interests that want to try him in a certain way and again i'm probably more politically engaged in the average punter and yet because of the way that that that trailer is taking place even i just did i wrote him off it's a real real concern what are your reflections on on on my media today.
Economic Pressures on Media
00:24:34
Speaker
Well, this is a topic I've got to be very careful about. Without losing your job, go on. I don't like these sort of questions. But look, generally, the media sector, more than any other, well, the traditional media sector, newspapers in particular, have undergone more changes than any other sector of the economy in the last 20 years. That's absolutely no doubt about that. And it's been stressful and difficult.
00:24:58
Speaker
The resources we have have shrunk, so we have to do journalism differently. It's still a very enjoyable and rewarding job, which is probably why I'm still there doing it. Because the number of journalists has shrunk, the jobs are even more special, I suppose, than they once were. To get a paid journalist gig is rare, and someone's very lucky to have that.
00:25:19
Speaker
Because the good side of the change is that because of the internet, anyone in the world can read what I write. Whereas even 30 years ago, that wasn't the case. Your market was your physical local market as a journalist, and that was it. So for journalists, the scope of...
00:25:36
Speaker
The potential readership and viewership of your work is much greater. The downsides are, of course, that the revenue streams have shriveled up a lot because advertising moved to Google and Facebook and lost the classifieds. All these things are well known. So media companies now, they have to get more of their money from their readers and their viewers.
00:25:53
Speaker
And I think this is the big change, whereas 30, 40 years ago, advertising funded newspapers and the sales were a relatively small component of income. But now that's changed completely. And obviously that has an impact on the stories that run and the choices that editors make. What this process has led to is a polarization of media companies where you have different papers appealing to different groups of the population and appealing to
00:26:22
Speaker
Not wanting to offend their audiences, at least not too much. Kind of have to be delicate. But 50 years ago, an editor didn't care what is really thought about particular subject because he could just say, well, we're going to publish this.
00:26:34
Speaker
And I don't care because we've got all this advertising and you can just read it. But now you've got papers on the left, papers on the right, and they will tend to reinforce sometimes or at least talk about the topics that their readers want to talk about. It's almost like you've got two different... I mean, just moving to cable TV in the US, which is a classic case of that, right? Yesterday I put on MSNBC, which I don't normally watch. It's kind of the left wing channel. And it was just extraordinary, literally for two hours.
00:27:02
Speaker
in prime time, the only topic, the only news item was Donald Trump's documents. There is not a single other story like all these experts on about how terrible it was, how terrible Trump was. And just endlessly, it was like there was no other story. No doubt if you turn to Fox, it would have been, it would have been explicitly Hunter Biden.
00:27:18
Speaker
Yeah, that's right. And every time I put on Fox, which is actually on right now, it's just on how to buy it largely. And look, that's a story, too. I mean, they're both stories. They're both really interesting stories. But the fact that the networks cover them so, you know, so differently is reflects the fact that they have polarized around different markets. And it's just economics. It's not like MSNBC is intrinsically left wing. It's trying to make money. I mean, you can make arguments about the directors and the same with Fox. I mean, people constantly attack Fox.
00:27:45
Speaker
If it's not Fox, just some other company is going to do it. It's just so stupid. It's like attacking a talkback host in Australia. If it's not Alan Jones or whoever it is, it's just going to be someone else. It's a market. It's a lucrative market and it's going to be filled in a free society. I don't understand the criticisms really. That's what people want to listen to. Some people want to listen to this and so they will.
00:28:08
Speaker
So, yeah, some media has changed a lot, I guess, is the bottom line. I still enjoy it a lot. It's hard, but because, you know, you have to produce a lot more, I think, than the one you used to. I mean, you know, what have I done this week? I've done three. I think I've done four TV appearances, this podcast and written eight articles. Would that have been the output that would have been expected of you at the start of your crew?
00:28:29
Speaker
Well, certainly wouldn't be the outward expected of foreign correspondence 20 years ago. But in terms of me personally, yeah, look, I mean, I think the journalists work pretty hard at the Australian. I mean, I started in 2012 as junior economics writer, so economics correspondent. Yeah, look, I mean, you know, I
00:28:47
Speaker
Yeah, it worked hard, but probably now I do write more. I probably do write more. It's hard to think back 11 years ago, but was I writing eight to 10 articles a week? Then probably not. I'll pause there for a second because it is time for a corny, tenuous segue. The media landscape is changing, but one thing that certainly isn't changing is the outrageous quality that you will get from the spectator Australia. We have a wonderful deal for new subscribers. If you sign up for a digital subscription today, you get your first month free, then just $2 a week for the first.
00:29:15
Speaker
Adam is a wonderful economist. I don't even think he would be able to fully comprehend just how we make the economics of that work, but we do. Go to spectator.com.au forward slash join. I want to go now, Adam, to a few... Can I talk about the spectator, just briefly? Please. So the spectator, I actually, you probably don't know this bit of a secret, but I wrote the first
00:29:37
Speaker
I think 67 editorials of The Spectator of Australia in secret from the 3rd of October, 2008. Andrew Neale, the chairman of The Spectator, I met him when I was at Oxford and he took a liking to me. I thought I was interesting and a good writer and it got me to write some things for him. This is in London. When I finished Oxford and came back to the Reserve Bank in 2008, I was missing journalism, missing England. Anyway, Andrew got in touch with me and said, will you be the first editor of The Spectator of Australia?
00:30:06
Speaker
I had to say no because I would have lost my job at the Reserve Bank, obviously. I didn't afford to do that as a 27-year-old or whatever, but I said, well, how about I just write the editorials in secret and you pay me?
00:30:16
Speaker
Now, this is quite bad. It's quite naughty, really, because I didn't tell them. I didn't tell the reserve bank. And if they had have found out, I probably would have gotten in big trouble. But anyway, I mean, I'm sure they don't care now. It was a long time ago, but I did it for 67 weeks in a row in secret. And the only people who knew were John Howard, because he really liked the spectator and he wanted to know who wrote them. And who else? Now, I think it was just John Howard and me, and then when I started working for Tony Abbott, though, in 2000, at the end of 2009, when he became opposition leader,
00:30:44
Speaker
I had to tell Tony and he said, you got to stop doing that while you're a staffer. So then I had, so then I stopped it.
00:30:50
Speaker
But I must say it was a nice little income for 67 weeks on the side. And it was a lot of fun because every week I'd write 900 words on whatever in Australian politics and just no one knew it was me. I did do a quick Google search before this interview because I wouldn't have been surprised if you had done some writing for The Spectator and it didn't come up. But that would explain why it was all done in secret.
00:31:14
Speaker
Let's go to what would be a few of the key economic battlegrounds of the moment.
Government Role in Cost of Living
00:31:21
Speaker
First, I would say is cost of living, which is top of mind for most Australian families. How much power do governments really have to influence cost of living? Well, you know, they do ultimately control money creation, which is a very big lever. And, you know, they control that through the central bank and they control that through the various capital ratios that they set for private banks, you know, which can put a cap on the amount of money that banks can
00:31:44
Speaker
Correct. They can affect these ratios, but they tend not to because they don't understand how the economy works, which I think in some cases is true, or they just don't want to rock the boat, like I say. Banking interests are very powerful. I thought you seized through the global financial crisis and what I would say the non-reforms that followed. Basically, nothing changed after global financial crisis. Arguably, big banks got even more powerful than they were before.
00:32:10
Speaker
because a lot of the small ones collapsed or fall into big ones. There were really no fundamental changes to finance and banking. The reason I'm dwelling on those things is because, like I said, when people go to the bank for a loan, the bank doesn't lend them money. It just creates it. People don't understand that. The bank just says, okay, you want a loan. Here is a deposit account with the money in it.
00:32:32
Speaker
So they just create it and then for the bank's balance sheet, they create an asset which is a loan. So they just literally ratchet up both sides of their balance sheet just like that. It's an awesome power, right? But there's no lending going on. It's just they just make it. So what's happened is that process of the last 30 years, the banks have leveraged themselves up massively. There's a huge amount of credit created. Prices have been going up at a
00:32:57
Speaker
rapid clip. The formal inflation rate has been low up until now, 2%, sometimes even lower in Australia and the US, but of course, asset price inflation has just been enormous. Whether it's houses or the stock market or art or whatever, this
00:33:13
Speaker
huge amount of extra credit that's been pumped into the economy has increased prices just not consumer prices increase asset prices but in many ways that's impoverished people just as much because people who don't have big inheritance is on the way or his parents is.
00:33:28
Speaker
whose parents aren't willing to help them or whatever, it's very difficult to get into the property market, to buy a home, to save. Yeah, cost of living. It's going to be more of an issue. Inflation in Australia, what is it now? Five and a half percent. It's been that for like a year or so. It seems like it'll trend down. It's trending down in the US. It's, I think, 4% now in the US, but that's, of course, still double the target. It's been over 5% for about two years now in the US. That's a lot of inflation. The interesting question for me is, will
00:33:58
Speaker
wages catch up. They haven't been so far, as you know. I mean, wage growth is lower than inflation for the last two years. And so people are getting poorer just looking at the public statistics. So the interesting thing is...
00:34:10
Speaker
Are they permanently poorer? That's a really different question. Are wages going to catch up or not? I think it will take a long time. I just look at my case. I'm not crying poor by any chance, but I haven't had a nominal pay increase for three years, and yet the consumer pricing index has gone up 17% or something during the period of time.
00:34:35
Speaker
And most people would have experienced that sort of situation very few people would have had a pain crease but they've seen prices go through the roof. I mean of course that's not the case if you're a government worker where you don't have to worry about inflation so much because you know it's going to be indexed. Practical fix means for the average person that you are effectively getting a pay cut. Yeah that's right that's right significant pay cut and so people have to be a lot more careful with your money and they they focus a lot more on costs than they were a few years ago. So yeah look I think there's real
00:35:02
Speaker
There's going to be a lot of anger about the situation. It could get really ugly politically. You asked about what can governments do. Well, governments like Australia, very little really. You're pretty much subject to the economic forces of the world. As a government, you can't control those, whether there's inventions elsewhere, whether there's developments or not, what's happening outside your country.
00:35:24
Speaker
I mean the best government can do is try to have sensible regulation relatively low taxes and be efficient and then just hope everything else takes care of itself. Government meddling often doesn't end well when they try to lift minimum wages and artificially improve people's
00:35:42
Speaker
a standard of living. The next few years are going to be very interesting. Does inflation get back to two? We don't know yet. It could just settle at four, which is really problematic. The second one, and relatedly, do wages catch up or not, or are people permanently poorer?
00:35:58
Speaker
So I think that's, and if they're permanently poorer, who caused that? And of course, I would say governments caused that through their insane response to COVID. Like just the most insane thing in world history, I would say, is that just madness over what is a mild cold for 99% of people and people just lost their mind, absolutely lost their minds and may have permanently made us all poorer.
00:36:23
Speaker
And the people who they supposedly say that probably passed on now anyway, because they were 85 and you know, they're just so insane. I struggle to comprehend that even happened, but it helped me understand that because most people think of economics as being cyclical, bad times, they're good times, they're bad times, they're good times. What you're saying there is that potentially,
00:36:43
Speaker
After this kind of bad time when we think about say inflation and stagnant wage growth there may actually not be a good time on the horizon can you can you explain that for me a bit well i need you know for the first part of human history there was absolutely no economic growth at all i mean it was just complete stagnation it's really only since
Economic Growth & Innovation Stagnation
00:36:59
Speaker
the.
00:36:59
Speaker
late 19th century that much happened in the way of economic growth and of course after the Second World War it accelerated massively in the 50s, 60s, 70s and continued into the 80s with a bit of bumps with inflation and so forth. So people have grown up just thinking that we always get richer but most of history that was not the case at all.
00:37:16
Speaker
It's conceivable that we may go back to a period of stagnation. There are lots of economists, Robert Gordon being the most prominent one, who makes very powerful case that there's actually not much innovation going on at all and hasn't been for ages. The only innovation has gone on in the digital space.
00:37:32
Speaker
And of course, I shouldn't say only, that's a big deal, our phones, new apps and all that stuff, communication, the fact that we're doing this podcast like we are. I mean, that's all kind of innovation that's happened in the last 20 years or so. But his point is, outside of that industry, outside of communications, if you like, there's not much happened at all. I mean, the planes, I read a great stat yesterday, it's slower to fly between New York and London now than it was in the 70s. It's an hour slower.
00:37:57
Speaker
I don't know why that is the case, probably some safety regulation, but the broader point is the big things in life, the air conditioning, how we use the length of flights, the speed of trains is more or less not changed in decades.
00:38:11
Speaker
Well, put it this way, I think our grandparents would be shocked how similar maybe things are still. The kitchen of the 1950s is not all that different from our kitchen. I mean, really. OK, the microwave's new, but that's it. So it's not like there's massive differences. So sorry to get back to where we started. Well, I think it's already happened. I think progress has slowed down. We are getting poorer for three years now, which is quite a long time. For three years, we've had high inflation, more or less.
00:38:40
Speaker
And people's wages are shrinking. I mean, you know, in real terms, so they are poorer. So, yeah, I think this is a this is a bad period that we're going through. I think the 90s were maybe like the perfect period. You know, it was like the Halcyon era, you know, right up until 2008, I should say, like 20 years roughly of incredible economic growth and peace. And then you're pretty much since the financial crisis, it's
00:39:03
Speaker
It's been a weird period since then. We had the GFC, then COVID 10 years later, more or less. I'm not that optimistic, to be honest, if you have to look at the trajectory. And this is taking a big step back from economics, but I think you're seeing the West become more like China in its political system. And I'm not saying it's like China, I said more like China. You're seeing that all the time with government wanting to censor people, working hand in hand with big tech,
00:39:29
Speaker
You know, free speech is very old fashioned and not so important anymore. You know, big security stay. And I think this is I think the reason that this is is because to compete with China, you have to be more like it because it has a totalitarian system. It can do things much more quickly than we can. It's much more efficient in some ways.
00:39:48
Speaker
And I think the elites in the West see that and they realise that we need to be more like that if we're going to compete. Let me stress, this is a very sad development to me, but you just saw during COVID this extraordinary change in our behaviour, the extraordinary totalitarian tendencies of the bureaucracy and the elites, which were, well, I mean, the whole response was a Chinese response, we just copied it. So that was really extraordinary. And to me, very worrying.
00:40:14
Speaker
And that in itself is going to slow down our economic growth, right? Because if there's less freedom, there'll be less innovation. And so I think that's going to be another weight on the future, as well as those other demographic issues that we talked about. There were so many interesting strands in that answer. I'm trying to think where to go next. And where I will go is one of the reasons why we potentially haven't seen as much growth outside of the digital realm
00:40:39
Speaker
is because productivity hasn't increased in the way that we would hope. Now, productivity has been lagging in Australia. It's been lagging in a lot of Western countries for a long time. It's an easy concept to understand on an individual level. How can I get more data in the next hour? It's more tricky to understand on a national level. How do you explain productivity in a macro sense? And then why haven't we been able to really improve it over the last couple of decades?
00:41:10
Speaker
I'm very wary of productivity statistics because they really are, as you suggest, it's a concept that we all understand. I guess the amount of output from a given amount of inputs and time, but on a national level, measuring it is almost impossible.
00:41:25
Speaker
And that's just in one country, let alone comparing countries. I mean, they try to do it consistently, but it's hard. I mean, certainly there has been a stagnation in productivity growth. I think it's been used back home recently, hasn't I think Phil Lowe said something about it. It's really bad. But it's been stagnant for quite a while. I mean, in my column is what I used to be a economics editor in Australia. I always used to say, look, the best the government can do is just be as efficient and sensible itself in its rules and its taxation system.
00:41:52
Speaker
I mean, simplicity is something I think that's overlooked too much.
00:41:57
Speaker
you know, governments can save people a lot of time by just making things simple. And then those people can use the freed up time to do productive things. So whether it's tax system and, you know, that's, that's an area that could be a lot simpler. But, you know, something that I always advocated for the tax system, and this is just why productivity is, is difficult to measure is because it kind of treats all costs equally and all production equally. But, you know, a lot of production, a lot of output is, is a negative, I would say.
00:42:24
Speaker
I mean, if you've got a really complicated tax system and you're spending a fortune on accountants as a country, that's stupid. I mean, I would say, and yet that's the same quality expenditure as spending on a wedding or spending on food. I mean, to me, you can't just treat all those things the same.
00:42:40
Speaker
In the US, I'm just looking at ad now on Fox about drugs, right? I mean, prescription drugs, obviously. This is the only country in the world where pharmaceutical companies can advertise on TV, a car in Australia. So the US spends a massive amount on prescription drugs, like just colossal, probably double what we do in Australia, maybe more than double. Is that more productive?
00:42:59
Speaker
I don't know. Is that sensible output? Should it be treated the same as spending on fresh food? I don't know. This is why these aggregate statistics, these macro statistics, I'm not so interested in them really. They can be misleading. Sure, they're
00:43:16
Speaker
Interesting to look at, but I hope I've just hinted at a lot of the problems. That goes to GDP. GDP is one of the major inputs in productivity statistics. It's like GDP per hour worked. That's one measure of productivity. How many hours are people working?
00:43:32
Speaker
I mean, who even knows how to measure that? I mean, how many hours do I work a week? I don't know. Like in my contract, I meant to work 38 hours. If you count it all the time, I'm thinking about work. I'm sure it would be 80 hours or 100 hours. I don't know. Am I working 80 hours a week or am I working 38? That makes a huge difference for the productivity statistics. And I don't think my job is that unusual in terms of the boundary between, you know, work and home life is as frayed massively because of technology and so forth. And so that the very key input of hours worked
00:44:02
Speaker
I just think it's a bullshit statistic. I mean, surely in the 1930s and 40s, it would be much more realistic because the vast bulk of the population were working in farming agriculture. Well, not the vast bulk, but a much, much bigger share is working farming and manufacturing where the government could ask these big employers, look, what are the clock on and clock off times?
00:44:20
Speaker
And you could get a better sense of the actual hours worked. But now I just don't even see how you get that input. And that's just one input into productivity. Then there's the issues with GDP I just talked about. So that's a whole other statistic with its own issues. So my point is, I take productivity statistics with a grain of salt.
00:44:39
Speaker
With your reflection around simplicity, you open the door to what is my final question.
Tax System Reform Proposals
00:44:45
Speaker
I think we could talk for the next three hours, but we are approaching one. Let's say Adam Crichton becomes Australia's next treasurer. Yeah, I used to want to beat that. That would have been nice. I don't think it's going to happen now. Let's say it's the case. What would he do?
00:45:01
Speaker
Well, I would dramatically simplify the tax system. That's been my passion for ages. Well, actually, no, two things I would do. Two things. And even if that's all I did as treasurer and I was removed within a year, I'd be very, very happy. The first would be with income tax system, I'd get rid of all tax deductions. Gone. All of them. And all of the money I would use to lower income tax rates.
00:45:23
Speaker
And those income tax rates be very, very simple. Right. Because I mean, what I want to be able to do is ordinary person or small businessman should be able to work out their tax in their head. Right. Basically marginal tax. And so the rates would be zero, 25, 33 and 50. Right.
00:45:40
Speaker
So zero, you know, a quarter, a third and a half, right? And they would never be able to change from that because those are fractions people can work out in their head. Oh, the Medicare levy would go. That's complete nonsense complexity. So it would be extremely simple tax system. There'd be no reduction. So there'd be no deductions. I mean, there's, there's core free rates, the 50% rate, which is kind of what we have at the moment, except it's 48 or something like that. That would cut in at a much higher level, $300,000, $400,000 a year, right?
00:46:05
Speaker
And those other rates would obviously be somewhere else. And the thresholds would be indexed to inflation. So basically every year, the income tax threshold would increase by whatever inflation was. And so government would not get its annual tax hike, which is completely immoral at the moment because it's not legislated. And yet it happens every year. And it's been happening a lot recently. So yeah, so tax system. And then the other thing I would do is I would scrap compulsory supernuation, which is an incredible disaster.
00:46:31
Speaker
I mean, it's just such a gargantuan disaster. We could do a whole other episode on Superbet. And that, of course, would deliver to ordinary people a 10% pay rise, basically. I mean, of course, I would say, if you want the money, you can go to your employer and ask for it. So I'm not going to say, I'd probably leave the system in place, but I'd just say, now, if you want, you can go to your boss and you can say, I'd actually like to have my 12% instead.
00:47:00
Speaker
if you want, you can get it. That would be a massive increase in income for ordinary people because I assume most people would go and get the 12%. The vast bloated system that we have in Australia that is super, just this cash cow for the finance sector, it really is obscene. It really is absolutely obscene. The thing is, people were already saving enough for retirement. It is just utter crap that they were not. It's always been utter crap.
00:47:25
Speaker
I mean, the mere fact people were dying with inheritances suggests people had enough money because there was still money left when they died. So it's just the most stupid argument. But of course, it's a self-serving argument. The industry wants nothing more than more money for free going into it, forced by government. It's just so absurd.
00:47:42
Speaker
So, yeah, Scrapping Super and a very simple tax system. But they'd be amazing reforms, I think. But I can assure you neither of them is going to happen. Yes, we had fellow economist Cameron Murray on the show a couple of months ago.
00:47:57
Speaker
Yeah, he made the same argument with a similar level of passion. That agenda makes such painfully common sense that you're right. It unfortunately will never happen, but we live in hope.
Episode Conclusion & Subscription Pitch
00:48:12
Speaker
Adam is one of Australia's most insightful journalists, as I'm sure everyone who's listened to this podcast will agree. You can read his analysis on politics and economics in the Australian. Adam, thank you very much for coming on, Australiana. Thanks very much, Will. It was fun. I enjoyed it.
00:48:26
Speaker
Thank you very much for listening to this episode of Australiana. If you enjoyed the show, please leave us a rating and a review. And if you really enjoyed the show, head to spectator.com.au forward slash join. Sign up for a digital subscription today and you'll get your first month absolutely free.