Adam Creighton at The Australian, Adam Carr at Business Spectator, Chris Joye and Paul Bloxham at the AFR are Australia’s merry band of hot young media economists. All have condemned the RBA rate cut in the past few days. Creighton argues the economy is not weak enough. Bloxham argues monetary policy is already working and asset bubbles may emerge. Carr argues the RBA is bailing out a failed fiscal policy. Joye argues the RBA board of business people are vested interests they always want to cut.
I could debunk each of these arguments one by one, indeed I have, over and over. But today I want to explore why this group – who I have previously mocked as “bullhawks” – exists. There is a more serious failure to consider.
In all of the arguments put by this muscular quartet, one crucial dimension is overlooked. None of the young guns mentions China and its rebalancing. None mentions the terms of trade correction. None mentions the approaching mining investment cliff. None looks beyond the conventional considerations of inflation, fiscal and monetary policy, near-trend growth or asset prices. None of these guys seems able to imagine for a moment that Australia is actually at risk.
Ironically we could sheet some blame home to the RBA. It too has struggled to adapt to the emerging new reality with its uber-bullish China forecasts and notions of endless commodity booms. Our young economists have been weaned on this millennial drivel and so may be unable to challenge it.
There is also the fact that as young economists, our four brothers have been bred in an environment dominated by silly Pitchford thesis notions that the current account deficit doesn’t matter so long as debt is in the private sector. This framework gives little thought to the quality of growth in the economy.
There may, as well, be a generational psychology at work. Our young guns have never experienced a recession in working life (unless they were in the coal mines at puberty!) and have no personal grasp that it is possible.
All appear to be in their mid thirties which means we can add the arrogance endemic to Generation Y, the entitled generation, raised on ceaseless praise in a school system more focused on self-esteem than enlightenment. These are not folk that easily imagine a world of want.
For three of the characters there is also the pressure of working in the sell-side of Australian investment advice. Of course each is arguing we should not cut rates, which appears hawkish, but that is just as easily couched as an extension of a bullish thesis that nothing has changed in Australia, nothing can really go wrong here.
A corollary of this point goes beyond the young men themselves. It may be that they have been hand-picked for their views, by a media that has no better idea about its business model that to pander to that same sell-side. Certainly the rise of MB is proof of that.
Whatever it is, it is not serving the nation well. Rather than seizing the challenge of the times, driving for innovative solutions, our young guns are shirking it, hiding behind a veneer of convention that makes their elders appear like the radicals. But their elders are not. They are MILES behind the curve in facing up to what is at the very least a generational challenge to the Australian economy and probably an historic one.
We can look at the 1991 recession as a benchmark for what we are trying to avoid in the years ahead. It’s a decent starting point. But it would not be remiss to look further back, as far even as the 1890s depression which came on the back of the unwind of the gold rush and subsequent property boom. There are obvious parallels to consider.
What I am saying here is pretty simple. Whether it is the post-GFC new normal or the great rebalancing underway in China, Australia is caught in the fight of its life and so long as the dollar stays high we are losing.
Time to wake up and smell the coffee, fellas.
