AN ECONOMY FIT FOR HUMANS

Balmoral Lectures, Queenwood school, Wednesday, March 6, 2019

Some of you may remember Jill Tuffley, who was for many years in charge of economics teaching at Abbotsleigh. In 1988, Jill wrote a textbook to go with the new syllabus in HSC economics, which she asked me to launch. I complimented her on her choice of title, Our Economy, though I noted that, had I written the book, I’d have called it My Economy.

But Jill was right, of course. It is our economy, it belongs to all of us because we are the economy. It disturbs me to find people who feel alienated from The Economy, as though it belongs to other people – the rich and powerful, I suppose – who impose their will on us without us having any influence over what it does to us. In truth, though there may well be powerful people who have more influence than we do as individuals, it is our economy for two reasons. The first is that if, as they say, the Church of England is the Tory party at prayer, the economy is all of us at work and play. Or, as the first great economics textbook writer, Alfred Marshall, famously put it, economics is the study of humankind in “the ordinary business of life”. The second reason it’s our economy is that we live in a democracy, we each have a vote, and governments know that, if we get too dissatisfied with how the economy is working, we’re perfectly capable of tossing them out of office – as we’ve done many times before.

This is the point of my title, An Economy Fit for Humans. Ordinary people in the economy far outnumber the “1 per cent” of rich and powerful people, so it’s the job of governments to ensure the economy is run for the benefit of the ordinary people. The needs and preferences of the business class can’t be disregarded – it is a market economy, after all, which leaves most of us reliant on the private sector for our employment and our consumption – but business should be seen as just a means to an end. Its needs and wishes should be catered to only to the extent necessary to ensure the economy satisfies the public’s needs and wishes.

That’s what I mean by saying we should be fashioning an economy that’s fit for humans – for the people who make up the economy, and for whom it exists to serve. To that end, I think we’ve got a fair way to go. Many of us aren’t getting as much satisfaction as we should be. I don’t have any magic answers to all our discontents to offer tonight. Rather, I hope to offer some clarifying observations, drawn from some of the conclusions I’ve reach in more than 40 years of observing, thinking and writing about the economy.

That experience has made me aware there are fashions in economic thinking, and left me a strong believer in the pendulum theory of history. After World War II there was a strong view in Britain that the economy wasn’t working well and that the answer was to nationalise the key industries so governments could ensure good decision-making in the public interest. Even in Australia we nationalised the utilities – electricity and water with, in NSW, a privately-owned gas monopoly whose prices were so tightly regulated that it might as well have been publicly owned.

By the time of Margaret Thatcher in the late 1970s and Ronald Reagan in the early 1980s, the post-war pendulum had begun swinging back the opposite way. There was a strong view that the economy wasn’t working well and the answer was to privatise government-owned businesses, deregulate industries and outsource the provision of government services so market forces could bring about greater competition and efficiency in the economy’s functioning.

Today, with all the dissatisfaction over the way people have been mistreated and over-charged by the deregulated banks, the privatised electricity market, as well as the way “contestability” for vocational education and training was rorted, young people and those on temporary visas have been paid less than their legal entitlements, and much else, I think it’s now clear that, after about 35 years of what its critics now call “neo-liberalism”, the pendulum is now swinging back the other way, towards re-regulation of industries, more government intervention in markets and more vigorous policing of the laws applying to businesses.

Why does the pendulum keep swinging from over-regulation to under-regulation and now back the other way? I think it’s because “the truth is somewhere in the middle”. Trouble is, that’s not an emotionally satisfying position to espouse. It’s too vague and offers little illusion of certainty. We find it much easier and more attractive to gravitate to one extreme or the other. I don’t want to live in a heavily regulated economy and deal with government-owned businesses run like take-it-or-leave-it, get-back-in-the-queue monopolies. But nor do I want to live in an economy so lightly regulated that big businesses feel entitled to mistreat or overcharge their customers and think obeying the law is optional. We learnt from the GFC that market economies can’t be left to their own devices and do need to operate within a set of rules laid down by government. But setting rules that actually achieve their intended objectives without unintended consequences is much harder than many people realise. The truth may be somewhere in the middle, but putting your finger on it – finding the sweet spot - is devilishly hard.

Economics focuses on the material aspects of our lives – the production of goods and services and the consumption of those goods and services; the getting of money and the spending of it. It’s idle to deny the importance of the material aspect of our lives. I’m never impressed by people who claim to have a soul above money and the material. The great danger of our age, however, is falling into the habit of thinking the material is the only aspect of our lives that matters. Of attaching too little importance to all the other aspects: to our family lives, our relationships and social interactions, to the importance of leisure, re-creation, music, culture and spirituality. Over-emphasising the material is an occupational hazard for economists, because it’s their special area of expertise. It’s a great temptation for business people because how much money you make is the great metric of success, the objective measure of how well you’re doing in the comp. And it’s a pitfall for politicians because they mistakenly conclude it’s the main thing we want from them. This means it’s up to us to keep economics in context and stand up to people who want to make us richer at the expense of our relationships and cultural interests.

I think we’ve put too much emphasis on achieving economic growth. It’s stated aim is to raise our material standard of living at a faster rate, but usually offers no guarantee that the proceeds of that growth – the extra income – is distributed reasonably fairly between the bottom, the middle and the top. The business people who urge growth most strongly are probably hoping their income will grow a lot faster than yours. I think we’d do well to put more emphasis on better quality than greater quantity. There’s a tendency for those keenest to see faster growth to ignore the non-monetary costs it brings – the congestion, stress, anxiety and sometimes depression people suffer. If our material standard of living rises at the expense of our quality of life, why is that a good deal?

Politicians on both sides strive for economic growth because they believe a higher material standard of living will make us happier. I think that assumption’s far too narrow as a summary of what we want from governments. Sometimes I think the politicians would do more to increase “aggregate happiness” by trying to reduce un-happiness. The national disability insurance scheme is costing a lot of money, and it’s still got a lot of bugs in it, but it must surely be doing a lot to make the disabled and their families happier than they were. Unemployment – especially among the young – causes a lot of unhappiness and we ought to care more about it. We could be doing better on helping people with mental health problems. And, of course, doing better on eliminating domestic violence.

Before we leave the question of economic growth, however, I do have to remind you that, if we choose to have a growing population then, with a growing number of people needing jobs, we do need growth in the size of the economy to accommodate them.

We do need to accept that, economic activity can do damage to the natural environment – the ecosystem, if you like – especially if we do that activity the way we’ve long been doing it. It would be extremely short-sighted for us to continue practices that are damaging the environment we all live in and depend on. To use a word we use so often it’s lost its punch, such foolhardiness is unsustainable. If we keep doing what we’ve been doing, the time will come when the natural environment is so degraded it stops functioning. Then it will be too late to reverse the damage. I’m thinking of climate change, but much more than that. If we continue taking too much irrigation water out of the Murray-Darling because there are farmers and towns whose present existence depends on that water, eventually the river will dry up and there will be no more water to over-use. So I see our environmental arguments as being about short-sightedness. Our reluctance to pay short-term costs in return for the avoidance of much higher costs at some indeterminate point in the future. People worry about leaving government debt to their grandchildren, but not about leaving them a natural environment that’s stopped working.

If we became less gung-ho about economic growth, one of the potential benefits could be fewer bosses cracking the whip at work. I don’t see why being pressured and mistreated at work is a cheap price to pay for having our real wages grow by 2 per cent a year rather than 1 per cent. Actually, I don’t see that treating your staff unreasonably is the way to get the best out of them. One of the biggest things I care about – though you don’t see me writing about as often as I’d like to – is the need for us to get more satisfaction from our working lives. We spend so much of our lives at work that a big pay packet is poor recompense for doing a job you hate or for putting up with always being given a hard time. As individuals, it’s worth us moving around until we find a job we enjoy and a company we like working for, even if that does involve less pay. There’s much more I could say, but organisational psychologists have long understood the way to structure job responsibilities so as to make them more satisfying. There is some evidence that happy, fulfilled workers lead to higher profits. But, even if that weren’t true, I don’t understand bosses who don’t much care how unhappy their workers are.

But having said all that about governments doing more to reduce unhappiness and bosses doing more to ensure their troops get more satisfaction at work, I don’t want to leave you with the impression I think the economy can be like a Sunday school run by loving and infinitely forgiving mums, where nothing unpleasant ever happens and all is sweetness and light. The main source of pain and unhappiness is change. But we can’t have – and wouldn’t want – an economy where nothing changed. Change is inevitable because we’re affected by changes coming from overseas, which are beyond our control. We can’t build a wall that protects us from all external influences on us. But the greatest source of change is advances in technology, which bring us many benefits but, as we’re seeing with the digital revolution, often involve upending industries, my own among them. Generally speaking, consumers get better products, while producers get turned upside down. Some change is social - for instance, the long campaign to reduce discrimination on the basis of race, ethnicity, religion, sexual preference and, of course, discrimination against women, which has come a long way during my lifetime and has further to go. Yet another important source of change stems from our growing understanding of the damage we’re doing to the natural environment by the fossil fuels we burn, our farming practices, our disposable society and much else. So, while just about all change is disruptive, that doesn’t mean all of it is bad. Much of it is for the best. Similarly with change initiated by governments – invariably labelled “reform” – which often is necessary, but may not always be wise or well done. Certainly, it’s government-initiated change we feel freest to resist. Too often we resist change for selfish, short-sighted, NIMBI reasons. We can’t hope to live in an economy where the industry structure never changes, where old industries decline and new industries expand, where people lose their jobs and suffer a lot until they find new ones. We ought to be giving those people more help than we are to make the transition, but we shouldn’t be attempting to stop progress in its tracks.

However, that’s not to say some change shouldn’t be resisted. It should. Take, for instance, the notion that the rise of the “gig economy” means the end of stable, full-time jobs for our children. I think that notion is wrong and defeatist and must be resisted. It’s wrong because it’s not what most employers would ever want and, in any case, it wouldn’t happen because, under pressure from the electorate, governments won’t allow it to happen. It should be resisted because it would lead us to an economy that wasn’t fit for humans.

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How to lose water, waste money and wreck the environment

If you want a salutary example of the taxpayers’ money that can be wasted and the harm that can be done when governments yield to the temptation to prop up declining – and, in this case, environmentally damaging – industries, look no further than Melbourne’s water supply.

The industry in question is the tiny native-forest logging industry in Victoria’s Central Highlands. The value it adds to national production of goods and services is a mere $12 million a year (using figures for 2013-14).

The industry's employment in the region was 430 to 660 people in 2012 – though it would be less than that by now. Few of those jobs would be permanent, with the rest being people working for contractors, who could be deployed elsewhere.

Successive state governments have kept the native-timber industry alive by undercharging it for logs taken from state forests. The state-owned logging company, VicForests, operates at a loss, which is hidden by grants from other parts of the government.

Coalition governments are urged to keep propping up the industry by the National Party; Labor governments by the Construction Forestry Maritime Mining and Energy Union.

What’s this got to do with Melbourne’s water supply? Ah, that’s the beauty of a case study by David Lindenmayer, Heather Keith, Michael Vardon, John Stein and Chris Taylor and others from the Australian National University’s Fenner School of Environment and Society.

I’ve written before in praise of the United Nations’ system of economic and environmental accounts (SEEA), which extends our long-standing way of measuring the economy (to reach gross domestic product) to include our use of natural resources and “ecosystem services” – the many benefits humans get from nature, such as photosynthesis.

Lindenmayer and co’s case study is one of the first to use the SEEA framework to join the dots between the economy (in this case, native forestry) and the environment (Melbourne’s water supply).

Melbourne’s population of 5 million is growing so rapidly it won’t be long before it overtakes Sydney as the nation’s largest city.

So many people require a lot of clean water, a need that can only grow. Almost all of Melbourne’s water comes from water catchments to the city’s north-east.

Logging of native forests has been banned in all those catchments except the biggest, the Thomson catchment, which holds about 59 per cent of Melbourne’s water storage.

Trouble is, the water that runs off native forests is significantly reduced by bushfires – and logging.

This is the consequence of an ecosystem service scientists call “evapo-transpiration” – the product of leaf transpiration and interception and soil evaporation losses.

This means the oldest forests produce the most water run-off. When old trees are lost through fire or logging, the regrowth that takes their place absorbs much more water.

Logging done many years ago can still reduce a forest’s water run-off yield today. The Fenner people calculate that past logging of the Thomson catchment has reduced its present water yield by 26 per cent, or more than 15,000 megalitres a year. They calculate that, should logging continue to 2050, this loss would increase to about 35,000 megalitres a year.

Assuming the average person uses 161 litres of water a day, the loss of water yield resulting from logging would have met the needs of nearly 600,000 people by 2050.

The SEEA-based case study shows the economic value of the water in all of Melbourne’s catchments is more than 25 times the economic value of the timber, woodchips and pulp produced from all Victoria’s native forests.

This is partly because, thanks to past fires and overcutting, only one-eighth of the native timber logged in Victoria is good enough for valuable sawlogs, with the remainder turned into low-value pulp and woodchips for making paper. (This is true even though the trees being logged include lovely mountain ash, alpine ash and shining gums.)

Turning to the Central Highlands alone, in 2013-14 the annual economic value of water supply to Melbourne was $310 million, about the same as the value of its agriculture. Its tourism was worth $260 million – all compared to its native timber production worth $12 million.

But the main thing to note is the trade-off between the different uses to which land can be put. Use it to produce water supply, and it’s very valuable. Use it to produce water supply and native timber, however, and you reduce the value of the water by far more than the chips and pulp are worth.

And why? To save a relative handful of workers the pain of moving to a different industry in a different town. And save the mill owners the expense of adapting their mills to chipping plantation wood rather than native wood. When did they deserve the kid-glove treatment the rest of us don’t get?

As for all the water that won’t be available to meet Melbourne’s growing needs, how will we replace it? Not to worry. We’ll get it from the desalination plant. It will cost $1650 more per megalitre than catchment water, but the Nats and the CFMMEU know we won’t mind paying through the nose to continue wrecking our native forests.

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Beware of groupthink on why the economy’s growth is so weak

According to our top econocrats, the underlying cause of the economy’s greatest vulnerability – weak real wage growth – is obvious: weak improvement in productivity. But I fear they’ve got that the wrong way round.

We all agree that, in a well-functioning economy, the growth in wage rates exceeds the rise in prices by a percentage point or two each year. On average over a few years, this “real” growth in wages is not inflationary, but is justified by the improvement in the productivity of the workers’ labour.

If this real growth in wages doesn’t happen, then real growth in gross domestic product will be chronically weak. That’s because consumer spending accounts for about 60 per cent of GDP.

Consumer spending is driven by household disposable income which, in turn, is driven mainly by wage growth.

We would get some growth in GDP, however, because our rate of population growth is so high. But look at growth per person, and you find it’s growing by only about 1 per cent a year.

It’s long been believed that real wages and productivity are kept in line by some underlying (but unexplained) equilibrating force built into the market economy.

Since the two have kept pretty much in line over the decades, few economists have doubted the existence of this magical force, nor wondered how it worked.

In America, however, real wages haven’t kept up with productivity improvement for the past 30 years or more.

And, as Reserve Bank governor Dr Philip Lowe acknowledged while appearing before a parliamentary committee recently, for the past five years nor have they in Australia.

Unlike the unions, which see the weakness in wage growth as the result of past industrial relations “reform” shifting the balance of wage-bargaining power too far in favour of employers, Lowe remains confident the problem is temporary rather than structural.

“Workers and firms right around the world feel like there’s more competition, and they feel more uncertain about the future because of technology and competition,” he said.

So, be patient. As the economy continues to grow and unemployment falls further, workers and their bosses will become more confident, wages will start growing faster than inflation and everything will be back to normal.

To be fair, Lowe is saying we have had “reasonable” productivity improvement over the past five years, which hasn’t been passed on to wages.

It would be better if productivity was stronger, of course, and “there’s been no shortage of reports giving . . . ideas of what could be done” to strengthen it.

But last week the newish chairman of the Productivity Commission, Michael Brennan, broke his public silence to give an exclusive statement to the Australian Financial Review.

“Productivity growth has been disappointing over the last few years in Australia, as it has been in many countries. There are no magic wands . . . but there are some clear remedies for Australia that should start with a focus on governments’ capacity to influence economic dynamism and productivity,” he said.

Oh, no, not that tired old line again. If wages aren’t growing satisfactorily, that’s because productivity isn’t improving satisfactorily, and the only way to improve productivity is for governments to instigate “more micro-economic reform”.

So, weak wage growth turns out to be the workers’ own fault. Their electoral opposition to “more micro reform” is making governments too afraid to do the thing that would raise their real wages.

We’ve become so used our econocrats’ neo-classical way of thinking that we don’t see its weaknesses.

It’s saying that, if the problem is weak demand, the cause must be weak supply, and the solution must be faster productivity improvement, which can be brought about only by “more micro reform”.

This ignores the alternative, more Keynesian way of analysing the problem: if the problem is weak demand, the obvious solution is to fix demand, not improve supply.

Since the global financial crisis, the developed countries, including us, have suffered a decade of exceptionally weak growth.

We’ve had weak consumer spending because of weak wage growth, the product of globalisation and skill-biased technological change, which has diverted much income to those with a lower propensity to consume.

With weak growth in consumer spending, there’s been little incentive to increase business investment rather than return capital to shareholders.

It’s this weakness in business investment spending that’s the most obvious explanation for weak productivity improvement.

That’s because it’s when businesses replace their equipment with the latest model that advances in technology are disseminated through the economy.

Our econocrats are like the drunk searching for his keys under the lamppost because that’s where the supply-side light shines brightest.

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Who pays for Google and Facebook's free lunch?

There may be banks that are too big to be allowed to fail, but don’t fear that the behemoths of the digital revolution are too big to be regulated. It won’t be long before Google and Facebook cease to be laws unto themselves.

It’s the old story: the lawmakers always take a while to catch up with the innovators. But there are growing signs that governments around the developed world – particularly in Europe and Britain - are closing in on the digital giants.

And here in Australia, the Australian Competition and Consumer Commission is busy with the world’s most wide-ranging inquiry so far, which will report to the newly elected federal government in June. The commission’s boss, Rod Sims, gave a speech about it a few weeks ago, and another this week.

Sims says the commission’s purpose is “making markets work” by promoting competition and achieving well-informed consumers, so as to deliver good outcomes for consumers and the economy.

With this inquiry into the operations of “digital platforms”, he acknowledges that they have brought huge benefits to both our lives as individuals and our society more broadly.

“They are rightly regarded as impressive and successful, and very focused, commercial businesses. Google and Facebook are rapidly transforming the way consumers communicate, access news, and view advertising,” Sims says.

Each month, he says, about 19 million Australians use Google to search the internet, 17 million access Facebook, 17 million watch content on YouTube (owned by Google), and 11 million double tap on Instagram (owned by Facebook, along with WhatsApp).

The inquiry has satisfied itself that this huge size gives the two companies considerable “market power” – ability to influence the prices charged in certain markets.

“However,” Sims says, “being big is not a sin. Australian competition law does not prohibit a business from possessing substantial market power or using its efficiencies or skills to outperform its rivals.”

But the dominance of Google and Facebook does mean their behaviour should be scrutinised to see if it is harming competition or consumers.

To this end, the inquiry is focused on three potential areas of harm. First, the well-publicised issues of privacy and the collection and sale of users’ data.

Second, the digital platforms’ role in the advertising market, which is moving increasingly on line, where it’s estimated that 68¢ in every digital advertising dollar is going to Google (47¢) and Facebook (21¢).

And that’s not including classified advertising, the loss of which has been the biggest single blow to this august organ.

Sims says Google sells "search advertising", aimed at making an immediate sale, whereas Facebook sells "display advertising", aimed a making consumers aware of the product.

The pair sell ad space in their own right while also facilitating the advertising space sold by others, particularly the media companies. But the opacity of their algorithms and arrangements make it hard to know whether they favour their own ads over other people’s.

Advertisers say they don’t know what they’re paying for, where their ads are being displayed or to whom. This makes it harder for media companies to capture their share of advertising moving online.

Of course, higher costs for advertisers translate to higher prices for consumers.

Third is the digital platforms’ effect on the supply of news and journalism, the primary issue given to the inquiry.

Sims says newspapers and free-to-air radio and television are a classic example of a “two-sided market”. They serve consumers but, rather than charging them directly for the service as other businesses do, they cover their costs and profits by charging advertisers for access to their audience. (Newspaper subscriptions and cover prices accounted for only a fraction of their costs.)

Digital platforms aren’t just two-sided, they’re multi-sided. They, too, provide their services free, and charge advertisers, but also collect and sell to advertisers information about their users’ habits.

Google and Facebook select, curate, evaluate, rank, arrange and disseminate news stories. But they use stories created by others; they don’t create any news stories of their own. If they did, we could see this as no more than tough luck for the existing news media.

But as well as using the existing media’s stories to attract consumers and advertisers, about half the traffic on the Australian news media’s websites comes via Google and Facebook. So they have “a significant influence over what news and journalism Australians do and don’t see,” Sims says.

With the existing media having lost so much of its advertising revenue to the platforms, it’s not surprising they’ve had to get rid of at least a quarter of their journalists. There are a few new digital-only news outlets, but even they are having trouble making it pay.

Trouble is, news and journalism aren’t like most commercial products. They not only benefit the individual consumer, they benefit society as a whole. “Society clearly benefits from having citizens who are able to make well-informed economic, social and political decisions,” Sim says.

So news and journalism is a “public good” – if left to the profit-making private sector, not as much news and journalism will be supplied as is in the interests of society.

Public goods are usually paid for or subsidised by governments using taxpayers’ funds. If we want the benefits of Google and Facebook without losing the benefits of active, independent and challenging news media, taxpayers will have to help out.

Sims is canvassing several proposals before completing his final report. Since the former newspaper companies have realised they’ll never get much of a share of digital advertising, they’re now putting more hope in persuading their regular users to pay directly by buying subscriptions.

With the long-established attitude that everything on the internet should be free (or, at least, seem free), they’re finding it hard going.

That’s why I think Sims’ best suggestion is making personal subscriptions to the news media tax deductible, provided the outlet is bound by an acceptable code of conduct.

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Top economy manager wants you to get bigger pay rises

This year more than usually, if you want straight talking about the state of the economy and its prospects, listen to the econocrats not the election-crazed politicians.

Late last week, Reserve Bank governor Dr Philip Lowe had more sensible things to say in three hours than we usually get in a month.

He was giving evidence to the House of Representatives standing committee on economics. For a start, he left little doubt about his disapproval of the way the two sides are turning the election campaign into a bidding war.

It’s clear the reason the election is being delayed until May is so Scott Morrison can use the April 2 budget to announce tax cuts in addition to the three-stage, $144 billion-over-10-years cuts he announced in last year’s budget.

He’s upping the ante not just because he’s behind in the polls, but also because Bill Shorten is promising to make the first-stage cuts about twice the size of Morrison’s. And big increases in spending on health and education.

Plus Shorten is claiming he’d have bigger budget surpluses. How? By reducing tax breaks used mainly by higher income-earners. The risk, however, is that Labor could get locked into cutting taxes and increasing spending, but not be able to get its revenue-raising measures through the Senate.

What would be worrying Lowe is that, just as we’ve come within sight of returning the budget to (tiny) surplus – but before we’ve made any progress in repaying the huge debt successive governments have racked up over the past decade – both sides have declared Mission Accomplished and started promising tax cuts galore.

Lowe said we should be running big budget surpluses and cutting back the debt as a sort of insurance policy against the next downturn in the economy – which he doesn’t see happening in the next year or two, but will happen one day.

Consider this. When the global financial crisis hit in October 2008, Lowe’s predecessor acted to protect us from the tsunami by cutting the official interest rate by 4 percentage points in about as many months.

Trouble is, we’ve since entered a low growth, low inflation world, and interest rates have remained low. The official interest rate is just 1.5 per cent. So the central bank has little scope to stimulate the economy the way it did last time.

In that case, the government should use its budget to stimulate the economy by splashing cash, spending on school playgrounds and the like.

See the problem? We won’t have much scope to do that, either, if we’ve been so busy awarding ourselves tax cuts that we’ve made little progress in reducing all the debt we’ll be starting with.

Moving on, Lowe said the economy’s two main worries were the weak growth in wages and falling house prices. But he stressed that wages and household income were far more significant than house prices.

If you were thinking it was the other way round, that may be because the media have misled you. “It’s largely the income story which doesn’t get talked about enough, because the media love talking about property prices,” he said.

Whereas household income, coming mainly from wages, used to grow by about 6 per cent a year (before allowing for inflation), in recent years it’s grown by less than 3 per cent.

Lowe didn’t say it, but what economists see as weak growth in wages, most ordinary mortals perceive as the worsening “cost of living” – which polling shows is now voters’ greatest concern.

People are having trouble balancing their own budgets, not because prices generally are soaring, but because their wages aren’t growing a per cent or two faster than prices, the way they used to.

Lowe is confident wages will gradually improve, but “if we have another five years where workers don’t get their normal share of productivity growth [that is, if wages don’t return to growing a per cent or so faster than prices each year], we’ll have all sorts of economic, social and political problems”.

Gosh. He did have some good news, however. He’s confident employment will continue growing strongly because the rate of job vacancies is higher than it’s ever been.

And whereas economists have long believed the rate of unemployment couldn’t fall below “about 5 per cent” before we started getting excessive wage settlements and rising inflation, Lowe now believes unemployment can fall further to “about 4.5 per cent” before there’s a problem. (May not sound much to you, but it gives us scope for 67,000 more jobs.)

Lowe says there’s more competition between the big banks than we’re told about. Remember a few months ago when they raised their mortgage interest rates by between 0.1 and 0.15 percentage points?

That’s what they told the media and what they wrote on their price lists. In truth, however, rates rose by only 0.03 or 0.04 points. Why? Because too many of their customers threatened to take their business elsewhere.

Finally, some free advice from the nation’s most powerful economist: “I encourage everyone who has a mortgage, if they haven’t done so recently, to go and ask their bank for a better deal. And if the bank says no, go look for another bank.”

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