“Sook” is a sledge used in federal parliament in the sitting fortnight just ended. It could be used, too, to describe money market operators who’ve been offended by recent speeches given by the Reserve Bank’s deputy governor, Andrew Hauser.
Hauser’s objective in using language such as “false prophets”, “charlatans” and “buffoons” wasn’t to create a new class of sooks but to warn against overconfidence in predicting where the economy is heading.
If he cops some Aussie sledging for doing that then it’s a price well worth paying for the nation’s sake.
Many economic commentators seem weirdly confident that they know for certain where the economy is heading.
My greatest criticism is of those who fire up their models that of necessity are reliant on the past performance of the economy – as if nothing ever changes.
A classic example is the dreaded wage-price spiral that was evident in the early 1980s when Australia had a centralised wage-fixing system and union membership exceeding 50 per cent of the workforce compared with less than 13 per cent today.
Many of those arguing for further interest rate increases had cited the risk of a wage-price spiral as one of their justifications. Yet the Reserve Bank has repeatedly said there is no evidence of it materialising.
These Recessionistas speak of an inflation crisis when the underlying inflation rate is less than 4 per cent, not a long way above the Reserve Bank’s mandated target band of 2-3 per cent.
Hauser points out that “eye-catching language secures clients”, his take-home message being to refrain from overconfidence in predicting where the economy is heading.
It was only a few weeks ago when Recessionistas were demanding 2-3 cash rate increases. Is it possible they had advised their clients that the Reserve Bank would be forced to increase the cash rate?
If so, in other professions this would be called a conflict of interest.
Some have protested that they are advocating further cash rate increases to avoid a recession, with all its horrible economic and social consequences. With the ABS reporting in its most recent release that quarterly GDP grew at a meagre 0.1 per cent it’s implausible that further cash rate increases could keep Australia out of recession.
Indeed, per capita GDP has contracted in the last four quarters reported, Australia saved from an extended recession only by population growth fuelled by a bounce-back in immigration following the border closures of the pandemic period.
Perhaps the view of some Recessionistas is that we need a good recession to clean out the pipes and get rid of low-productivity workers from the paid workforce. Wow, average labour productivity would rise, making the economy better off without them!
My concern is that recessions tend to be self-perpetuating; that they smash business and consumer confidence, which takes a long time to recover.
And yes, I confess to a social concern: low-skilled workers who are thrown out of their jobs can become stressed and violent towards their partners and children.
When I entered parliament in 1998, I set up a bipartisan group, Parliamentarians Against Child Abuse, having seen the consequences of unemployment in low-income communities.
Stick that into your economic models.
Hauser’s laudable message is don’t be over-confident in your predictions of where the economy is heading. Instead, observe the data constantly and make the best judgements based on highly imperfect information that you can.
Sounds sensible to me.
That data should include not only ABS releases, which report dated data, but real-time data issued by banks and employment agencies such as Seek. And it should and does include frequent Reserve Bank liaison with the business community.
And perhaps the ABS should abandon its monthly CPI series, which can be notoriously unreliable owing to its limited coverage of consumer items and vulnerability to temporary increases in the prices of some items owing to poor weather and overseas conflicts.
In my view, the emerging data could justify a pre-Christmas cash rate reduction or one or more in the New Year. That is, if the Reserve Bank takes seriously its dual mandate of low inflation and full employment – which Hauser and Governor Michele Bullock assure with enthusiasm that it does.
That’s my opinion. Others are welcome.
But it is ironic that one of the strongest criticisms of the Reserve Bank before the recent reforms implemented by Treasurer Jim Chalmers was that it operated as a cloistered monastery, unwilling to share its thinking with the public. Now that it is doing so, its vociferous critics are offended. People living in glass Hausers should not throw stones.
Craig Emerson is managing director of Emerson Economics, director of the APEC Study Centre at RMIT University and adjunct professor at Victoria University’s College of Business. He writes a fortnightly column for the Financial Review.