Thursday, November 25, 2021

The ABC: A Grand Obsession - my talk for ABC alumni

Like many journalists who’ve honed their careers at the ABC, economics writer Peter Martin began in a small local newsroom and moved through the ranks to become a specialist reporter and a foreign correspondent. Having subsequently worked in commercial media, he has a renewed appreciation of the ABC, both professionally and personally. Here he reflects on his strong lifetime attachment to the ABC, and the lessons he’s learnt about both the skills of the profession and the responsibilities of being a public broadcaster. 

The ABC: A Grand Obsession

By Peter Martin November 25, 2021

I was recently asked to talk to ABC Friends at Armidale, in the Northern Tablelands of NSW, about my two decades at the ABC.

It reminded me of my first ABC job interview… well it wasn’t an interview at first, it was a phone call. An ABC news executive named Ian Wolfe had phoned me at work in the Commonwealth Treasury after I had submitted an application aged 25 and said — “we’ve got to talk”.

We arranged a time, not at my work, and I started spouting all sorts of pent-up thoughts about the ABC local Canberra news and how we could make it better.

I should point out that the ABC local Canberra news is not to be confused with the ABC’s parliament house newsroom which deals with national issues.

It’s analogous to the ABC New England North West news – it covers what’s happening where listeners live, for what was then the 250,000 or so listeners who lived in and around Canberra.

There are more than 50 such newsrooms across the country from Esperance to the Eyre Peninsula, from Ballarat to Broken Hill, and in busy rural centres like Tamworth, Port Macquarie and Muswellbrook.

I mention Muswellbrook because my wife Toni Hassan was ‘the newsroom’ there. When I say she ‘was the newsroom’, it was (and is) a one-person newsroom.  She would get in early to update and present the radio news, then spend the rest of the day out and about meeting people and writing about it for the next bulletin.She was embraced by the community and became important to it.

Later she went on to win a Walkley award and a Human Rights award for her reporting on the health of asylum seekers in detention, but she began her ABC career in Muswellbrook.

Sally Sara began her ABC career in Renmark in South Australia’s Riverland. Later she reported from Africa for the ABC (twice) and from Jakarta, India and Afghanistan, presented Landline and now presents The World Today.

But she started in Renmark, being embraced by and reporting to her local community.

No other organisation has anything like the presence of the ABC throughout Australia. Fairfax Media, now part of Nine Entertainment, the organisation I worked for until recently, has hardly any reporters away from Sydney, Melbourne, Canberra, Perth and Brisbane. It has no reporter in Adelaide, none in Darwin and none in inland Australia. It relies on phone calls.

The ABC doesn’t have to. It is in all of those places and in many, many more domestically and internationally. It attends the press conferences, meets the people who are planning and doing things.

Sometimes being on the spot had unexpected consequences.

When I was in Japan as the ABC’s Tokyo correspondent, I got into a fight of sorts with the Adelaide Advertiser. Feeling the need to support South Australian industry in the form of Adelaide’s Mitsubishi car plant, it insisted that my reporting from Tokyo about Mitsubishi’s plans to shut down the Adelaide plant was wrong.

Peter Martin at the National Press Club in Canberra, 2021. (Photo: Lyn Mills/NPC)

But it wasn’t wrong. I was there talking to the Tokyo executives, attending the Tokyo press conferences with a translator, a camera and a microphone.  The Advertiser wasn’t.

Like most of the Australian media apart from the ABC, the Advertiser didn’t know what was happening on the ground.

The ABC has staff in Port Moresby, Jakarta, Tokyo, Bangkok, New Delhi, Nairobi, Beirut and Jerusalem, as well as Washington and London, and when possible in Beijing. This is expensive, but it lets the ABC do what no other Australian organisation can do: report from the ground, where things are happening.

Commercial TV networks typically have two overseas bureaus; in London and Los Angeles. A lot of the work they do there is watching TV and adding value where they can. There are exceptions of course, such as Amelia Adams’ coverage of the January 6 storming of the Capitol building in Washington for the Nine Network. But nonetheless the commercials choose Los Angeles rather than New York or Washington for their US bases not because more happens there but because the time zone makes it easier to co-ordinate TV feeds with Sydney.  

But I’m getting ahead of myself.

I was on my lunch break from the Treasury, talking to ABC news executive Ian Wolfe at a million miles an hour.

He stopped me, slowed me down, and said — tell me about yourself.

His key question to me in that cramped room I’d found in an office away from the Treasury was… why? You’re an economics graduate, you’re handling briefs that go to the Treasurer… why would you want to leave that to report on local news, he asked me.

I told him it was because it was the most fun you could have (I’d worked in community radio) and the work that mattered the most.

Later, at another time, I told him about the ABC and me… about how as a child in Adelaide I would wake up at 5.50 am so I could go to the kitchen to hear the ABC radio test tone, then the sound of a kookaburra and the national anthem at 6 am, followed by the day’s first programs: “Readings from the Bible” and “English for new Australians”.

And I told him about how later, when I got my own radio, which glowed at night (it had valves) I would leave it on throughout the night, the volume turned down, because it was my friend; about how when I went through the list of the things I would rescue from the house should it burn down, the only one on my list was my Bakelite Stromberg-Carlson radio.

… About how later on at night my mind was expanded by the voices of experts from around the world on Radio 2’s LateLine, whose closest equivalent these days is Late Night Live.

… About the radio plays that took me to another world in the way TV could not have done, about how they made me read the books.

… About how the subjects I’d chosen at university were ones I thought might help me to work at the ABC. I chose drama, the acting course (so I could work on radio plays), politics (so I could be a reporter on radio current affairs programs), and economics because… well, it looked new and exciting, and no-one knew what was going on.

I abandoned drama, concentrated on economics, and in my last year the Treasury asked me to leave Adelaide and come to Canberra.

I did, but let’s put it this way. When I left to go to the ABC a colleague wrote on my card “now you’ll be a round peg in a round hole”.

Learning the ropes

Before going to the ABC I had presented the local Canberra news on the community radio station 2XX, a great training ground because I had to do everything. I collected the news. I phoned people, got to know all the members of the ACT House of Assembly, cycled to Queanbeyan to attend council meetings and lived and breathed the town I was in… because that was my mission… to tell people about it.

I also learnt how to write. There were scarcely any courses for journalists then. Instead, I recorded and typed up ABC and commercial radio news bulletins and looked at the shape of the paragraphs, the length of each sentence, the order of the words, the work each sentence did. Then I replicated it in the pieces I wrote.

To apply for a job advertised at the ABC I typed up a transcript of their local news for that Monday morning, then my version and made the point they were both prepared with the same available information and the same aim of entertaining and informing in the same slot of five minutes.

It was a risk. I didn’t know if it would annoy them or get me the job.

As it turned out, the only hiccup was when Ian Wolfe asked me to send him a tape of my voice. He called me back and it would be fair to say that he wasn’t impressed. But he thought, maybe, after I’d got the job, someone could work on that.

I thought there was no higher calling than telling people what was going on. 

Before long I transferred to the ABC in Sydney (a huge and frightening city compared to Canberra or Adelaide), working as a finance reporter, on the news at triple-j and in the ABC Science Unit, in the old William Street premises. 

Back in 1984: Peter Martin in the ABC radio news “dog box” at William Street where police, ambulance and fire service radios were monitored.

At times, the jobs overlapped. I remember the glorious balmy evening when I walked to a studio on one side of William Street and presented a science program at 6.30 pm, and then when it finished at 6.55 dodged the traffic to get to the triple-j building on the other side of the street to present the news.

I learned the most about the responsibilities of a public broadcast journalist at ABC radio current affairs, the unit that makes AMPM, and The World Today.

The executive producer of PM Kerrie Weil was upbraiding us one night for getting something wrong.  “You are just caretakers” she told us, adding: “we are all just caretakers”.

What were we taking care of?

A set of traditions that were the ABC’s own. There are no programs quite like AMPM and The World Today, not on the BBC or anywhere else. They are unopinionated, engaged, fast, and up-to-date, up-to-the-second.

I remember listening to PM one afternoon while sitting on the steps of the National Library in Canberra, reluctant to go in because what I was hearing was so compelling. The presenter Hew Evans was taking Parliament House reporter John Highfield through what had just happened in parliament that afternoon.  It was immediate, far more so than would be the newspaper reports the next morning, and unfiltered, yet with context explaining why it mattered, delivered without wasting words.

The style can seem impolite to whoever is being interviewed. That’s because we don’t want to waste the listeners’ time. For AM and PM, the recorded interviews are edited to make them even more concise. We cut out ums and errs.

Questions aren’t merely questions, they are part of a production. We were told to ask a question, get the answer, and then jump in before the interviewee could get to the next point, so that we could ask a question headlining that point. We were creating a piece of theatre, a “to-and-fro”.

And the questions had to be questions. The short ones are the good ones. “Why” is usually the best.  Instead of putting to someone allegations that they avoid tax, it is better to ask “do you pay your taxes?”

Some questions are bad ones. “How angry are you?” invites the interviewee to step out of the zone she or he is in and estimate a quantity. A better question is “are you angry?”

If there’s not an answer, you can repeat the question, but (and this is a rule taught to me by former PM presenter Paul Murphy) never more than twice. After hearing the same question three times, the listener will understand that it won’t be answered and you can move on.

For my own interviews I immersed myself in the other person’s head, seeing things from their point of view (something that came easily). It meant I didn’t come across as aggressive or opposed to them in any way.

Each piece had to be short. For AM, typically 2½ minutes, occasionally as many as three.

Radio isn’t like newspapers. Listeners can’t pass over stories that don’t interest them. Unless there’s another story that does interest them coming along very soon, they will turn off. So you don’t waste their time and don’t waste their airwaves.

Also, because it’s not like newspapers, you need to be super clear.

Newspapers are non-linear (to use the jargon). If someone doesn’t understand a sentence in a newspaper they can go back and read it again, or go to the end of a book review and see what the conclusion is, or cast their eye back to when a person or idea was introduced.

Radio is unforgivingly linear. Each step of the argument needs to build on the one before it, it can’t refer back more than a second, and it can’t refer forward. If one step isn’t clear the moment it is outlined the whole thing breaks down.

You should, I was told, imagine you are writing for a grandmother who has the radio on in the kitchen while she is making a cake, preparing for her daughter to visit, and is deaf.

If you can engage her, you’ve done your job.

Oh, and because of developing events, you have to work fast.

Making a difference

Of course, you could learn all the technical skills and still be – in my opinion – an appalling radio current affairs reporter. You could entertain and engage, while only telling people what they already knew, or already believed.

Access to the airwaves is a privilege. Time is the ultimate non-renewable resource. To waste time, to waste the airwaves telling people things they already know or could have guessed, is in my view unforgivable.

We, the people who create content for the airwaves on behalf of the ABC, have the opportunity to give people something extra, to expand their way of thinking about things, just a little bit each time. It’s planting a seed.

It might be that putting more money into superannuation leaves workers with less while they are working; it might be that government debt needn’t ever be paid off; it might be that when investors buy existing homes, owner-occupiers can’t.

I cottoned on to the power and importance of this when I was a child in 1969 watching commercial TV news.

A group of anti-Vietnam War activists had announced plans to publicly burn a pet dog at Flinders University in protest at the use of napalm in Vietnam. They took a photo of the dog and put it in the newspaper.

That night, the TV news reported that they had called it off and included the voices of people in favour of and against, along with vision of the event.

And that’s where it might have stopped.

But the editor or reporter did something else. After the last words, the camera lingered on a flyer, a discarded piece of paper on the ground as someone walked over it.

It read “Napalm burns people”.

The power of that picture and the message it conveyed stayed with me, planted a seed. It didn’t tell me what to think, but it did expand my view of possible views about the world.

Leaving people with something more, enlarging their view of the world just a bit, is to me an honouring of a sacred trust. But it’s hard, mechanically – it takes less time to tell people what they already know.

This is important when you are measuring time on air in seconds, and when you are yourself short of time. Telling people something they don’t know, or suspect, might involve building a new supporting argument which will take up a chunk of the time you are meant to be using for that day’s developments.

So I try to do it a little bit at a time.

These are informal lessons, conveyed by osmosis. Another I learned is that you, the broadcaster, matter. Far more than you will ever fully realise.

I got inklings of this at AM and PM... people would ring in as if I was their friend, as if they knew me, as if I was important to them.

Humbling doesn’t begin to describe the realisation.

Some of these people had few in-person friends. They were stuck at home because they had retired or were infirmed. I was something they had, bouncily sharing my insights and letting them in on what I had heard.

If ‘Comfort’ and ‘Joy’ are two of things that matter most (Comfort and Joy was the title of a 1984 movie about a radio announcer), it’s the privilege of people who are on the radio to provide it.

Many of those who do it best do it innately. But it can be taught.

I was taught it by Arch McKirdy, the legendary presenter of Relax with Me on ABC metropolitan and regional radio in the 1960s and 1970s, one of the best broadcasters there ever was.

When I arrived at ABC Sydney in the mid-1980s he was “Director of Radio Presentation”.  And his job was, well, making us human – ideally more human than human, because the airwaves have a flattening effect. You need to be a little bit larger than life to overcome it.

And he took me on, as well as Norman Swan, Geraldine Doogue and Fran Kelly, teaching us how to present not in the formal old ABC style, but naturally.

The secret… 

He would start by telling us to put the width of a fist between our lips and the microphone, and then to imagine a personal friend on the other side (for me it was my mother Margaret).

Then we had to really value that person, to recognise that they were clever and interested even though they might know nothing about the topic, and then to talk to them, to tell them why it mattered rather than reading words.

I quoted Geraldine Doogue in an obituary I wrote for him Arch in 2013.

“It was about your brain as much as your voice. His contention was that you had to remove every barrier between yourself and your audience, to let people see who you were. And you had to like who you were.”

Perhaps the most important thing I absorbed over two decades at the ABC is that the airwaves belong to the public. Commandeering them to tell people what we think is theft. 

Alan Jones, Ray Hadley, perhaps even Phillip Adams are in a different position. But Leigh Sales, Fran Kelly, myself, we’ve no right to tell people what to think. We wouldn’t. It’s an abuse of trust.

So my key lessons boil down to not wasting the airwaves:  give people something extra, offer friendship, and don’t steal.

You’ll hear a lot about how the ABC is under threat, and it is, but it has enormous and growing strengths which flow from a long tradition of responsibility and trust. 

We would be lost without it. Seriously. Imagine COVID and bushfires without its reliable and comprehensive coverage. 

Australians are right to depend on the ABC. And the people who work for our national broadcaster must never forget the obligations that this imposes on them.

Peter Martin AM worked at the ABC for two decades on programs including AM, PM and the World Today, as well as two years as Tokyo correspondent. He is now Business and Economy Editor for The Conversation and a Visiting Fellow at the Crawford School of Public Policy at the Australian National University.


Wednesday, November 24, 2021

‘Can-do capitalism’ is delivering less than it used to: 3 reasons why

The good news is supposed to be that when the government gets out of the way “can-do capitalism” will have us roaring back to where we were before.

That’s the prime minister’s newest slogan, and we had better hope for more.

The unpleasant truth is that before the pandemic Australia’s economy was disturbingly and unusually weak. Can-do capitalism wasn’t doing what it should.

Reserve Bank chief economist Luci Ellis put it this way a few days after Morrison talked about freeing the engines of the economy to do their work.

In the decade or so leading up to the pandemic, there was a nagging sense that these engines of prosperity were running out of steam – investment was low, productivity growth was lagging, and many of the behaviours we associate with business dynamism were on the decline.

Outside of mining, business investment had been shrinking as a share of the economy for more than a decade.

Private non-mining business investment, share of nominal GDP

Net of second-hand asset transfers. ABS, RBA

Outside of the ride-share industry, fewer businesses were being created and fewer businesses destroyed.

“For all the talk of disruption, the overall sense one gets from the data is of a bit less dynamism or inclination to shake things up,” Ellis said.

And we were in the middle of a “great resignation” of a different kind to the departures from jobs being seen in the United States.

Australians were increasingly resigned to staying in the jobs they had. Job switching had sunk to all-time lows.

Proportion of employed Australians who switched jobs during the year

Australian Bureau of Statistics

In short, despite technological revolutions, despite a government saying it was getting out of the way, and despite record low interest rates that made it cheap to invest and expand, in the lead-up to COVID-19 businesses weren’t doing that. By the time the pandemic arrived, annual economic growth had slid to 2.1%.

Government hasn’t been holding business back

One thing Ellis says can’t explain the pre-pandemic reluctance of businesses to invest is government regulation pushing up costs. She says if costs had been rising, inflation wouldn’t have fallen to near record lows.

And if labour costs had been rising, wage growth wouldn’t have fallen to unprecedented lows, and firms would have been investing more in machines to replace workers.

Businesses themselves have been unusually cautious

There’s evidence to suggest that in the decade since the global financial crisis Australian (and other) firms have become more risk-averse.

Instead of falling with the falling cost of borrowing, the “hurdle” rates of return that businesses tell the Reserve Bank they require in order to justify investments have remained stubbornly high.

It’s a “won’t do” rather than a “can do” mindset, and Ellis says it might be because Australian managers don’t want to be associated with projects that fail, or because their firms have only limited management capacities and don’t want to commit to projects in case better ones come along.

Except for some firms

Her most intriguing suggestion is that some firms are market leaders at installing new technologies (especially those driven by artificial intelligence) – so much so that their competitors can’t catch up.

Tip Top Bakeries produces more than one million loaves of bread a day and delivers to more than 18,000 locations Australia-wide.

It used to send out its trucks in hub-and-spoke patterns using schedules drawn up by humans.

Since it began using artificial intelligence and machine learning to route trucks in configurations no human would have thought of, it has cut its distribution costs 14% and lifted its gross profit after distribution 7%.

Ellis makes the point that earlier technological innovations such as laptops and spreadsheets were easy to use.

Artificial intelligence and machine learning might be the first new technologies to be actually harder to use and require a rarer set of skills than those they replace.

The few “superstar” firms that adopt these new technologies (such as Woolworths with its fully automated distribution centre) are becoming able to do things their smaller competitors cannot, locking those lesser firms into a “low-wage, low-investment groove”.

Ellis cites evidence that the spread of technological knowledge has slowed, leading to a “winner-takes-all world” of increasing industry concentration.

It might still be possible to convince a lender you’ll be Australia’s next big thing in an industry with a market leader, but it’s getting harder.

‘Can-do capitalism’ needs help

The third possible explanation advanced by Ellis for the growth of the “think carefully before attempting” mindset over the past decade is in sharp contrast to Morrison’s distinction between “can-do capitalism” and “don’t-do governments”.

It’s to do with long-term cycles.

When conditions are weak, Ellis says, firms focus on defending what they’ve got instead of pursuing new opportunities.

We’ve been in that cycle for a decade, possibly made worse by governments withdrawing support in order to get nearer to balancing their budgets.

Now that governments are spending big and abandoning caution to fight the pandemic there’s a chance the cycle will turn.

It would be great if she turns out to be right.

If she is, it won’t be because the prime minister was right. It’ll be because business needed a leg-up.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.


Wednesday, November 17, 2021

The embarrassingly easy way to cut the cost of electric cars

Prime Minister Scott Morrison says he wants to keep prices down.

Without his party in power, “you’re going to see petrol prices go up, you’re going to see electricity prices go up”.

There’s something practical he can do straight away to stop prices from rising.

Apart from a home, a car is the most important purchase most Australians make.

We typically hold on to our cars for six years, and most last many years longer.

This means that when we buy a car we have to have an eye on the future, on what it will make sense to drive half a decade down the track.

Electric cars are cheaper overseas

In almost every way, certainly when it comes to running and maintenance costs, electric vehicles are the best option.

And yet their price is set to come down far faster overseas than in Australia.

Here’s why.

Europe has imposed what it calls CO₂ emission performance standards.

They don’t relate to particular cars, as the term “performance standards” suggests, but to an average of what’s sold over each company’s entire range.

From 2020 each manufacturer’s cars are limited to an average emissions of 95 grams of carbon dioxide emitted per kilometre, and vans to an average of 147 grams emitted per kilometre.

It’s up to the companies how they achieve this. They could do it by selling more low-emission and fewer higher emission conventionally-powered cars, or they could do it by selling more electric cars.

If they haven’t sold enough electric cars to get under their brand’s emissions ceiling, they have to discount them to sell more in order to get average emissions down.

In Europe, electric sales are valuable

In the first year of the new European standard, average emissions from new passenger cars registered in Europe fell 12%. The share of electric cars tripled.

In 2025 the standard will become tougher again, requiring a further 15% cut in average emissions, and then from 2030 (for cars) a further 35%.

The big car manufacturers are finding it hard. It’ll make every electric car they sell valuable for them, valuable enough to sell cheaply, but only in Europe (and Canada, China, India, Japan, Korea, Mexico and the United States, which have similar standards, sometimes called fuel economy standards).

The International Energy Agency says four in five of the cars sold worldwide are subject to such standards.

In places where they are not (such as Australia) there is no particular reason for an international manufacturer to go all out to sell an electric car. It won’t help them meet a standard.

Australia has standards, sort-of

Not that Australia doesn’t have standards, of a sort. Since 2008 all new cars sold in Australia have had to display a sticker quoting fuel economy and emissions per kilometre.

The standards for actual CO₂ emissions are voluntary. The Grattan Institute kindly says they are “lacking in ambition and have often not been met”.

Faced with one of the few big markets in the world in which there is no particular imperative to sell electric cars, international manufacturers direct them elsewhere and sell higher emission cars here.

Their local arms want to sell better cars here, but are overruled.

The local head of Nissan puts it this way:

clear and consistent direction from governments is a critical signal to car makers to prioritise the importation of the latest low and zero-emissions vehicles

The local head of Volkswagen is more blunt.

Every six months we do an update with a board meeting on the electric vehicle environment in Australia. They are sitting in waiting for something to change, you know, but nothing ever changes. I guess the way I would put it is that it is embarrassing

It isn’t just that there is no particular incentive to discount an electric car sold in Australia. It is that there’s an incentive to charge more.

Without standards, we are an unattractive market

It harms a manufacturer’s profits to sell an electric car here that could be used to lower its average emissions profile in (say) Europe. It makes sense to do as much as is needed to keep it out of Australia.

Fixing the anomaly would be easy and would actually bring prices down, as well as increasing the limited range on offer. And it would help buyers of conventional vehicles worried about the price of petrol. New cars would use less.

Australians able to buy electric cars because of the change would find they used no petrol at all.

Introducing international-grade standards would not require a tax and would not require a tax concession. It would merely require regulations of the kind in place elsewhere.

Business won’t object. The Business Council asked for the change four years ago. Australian car makers won’t object. We no longer have any.

Petrol refiners won’t object. They are finding it hard to reduce the sulphur and other pollutants that kill hundreds of Australians each year. The government has advanced them up to A$250 million to help.

But carbon dioxide is different. We don’t need good quality fuel to reduce it, merely good quality cars. We are able to put them in the hands of more Australians near-costlessly.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.


Monday, November 15, 2021

Top economists see no prolonged inflation, no rate hike next year

Despite appearances – especially in the United States – the era of high inflation isn’t set for a comeback in the view of Australia’s leading economists, and most see no need for the Reserve Bank to lift interest rates next year.

In the US, figures released last week showed the consumer price index surged 6.2% in the year to October, the most since 1990. So-called “core” inflation (which excludes volatile prices) climbed 4.6%, also the most for 30 years.

US underlying inflation

US consumer price index for all urban consumers, all items less food and energy, city average. US Bureau of Labor Statistics, St Louis Fed

Former US treasury secretary Larry Summers is talking about a jump to 11% as over-heating becomes entrenched, necessitating rate hikes in the United States, Britain and Australia.

But the 55 leading Australian economists surveyed by the Economic Society of Australia and The Conversation this week aren’t buying it. They point out that Australia’s underlying inflation rate (while climbing) is much lower, at 2.1%.

US and Australian underlying inflation

Australian Bureau of Statistics, US Bureau of Labor Statistics

Whereas in the US wages climbed 4.6% in the year to September, in Australia they climbed 1.7% in the year to June, an official figure that will be updated with readings from the September quarter on Wednesday.

32 of the 55 top economists surveyed by the Economic Society of Australia rejected the proposition that the current combination of Australian fiscal and monetary policy posed “a serious risk of prolonged above-target inflation”.

Only 12 supported it. When weighted by the confidence of respondents expressed on a scale of 1-10, backing for the proposition shrank from 22% to 20%.

Independent economists Nicki Hutley and Saul Eslake said fiscal policy (government spending) was set to tighten as COVID spending programs expired, making projected high inflation unlikely.

Harry Bloch said the prices of Australian services were predominantly determined here, by Australian wage rates, which were held back by the bargaining strength of unions and government wage setting policies.

Big inflation would require wage inflation

Matthew Butlin, until this year South Australia’s Productivity Commissioner, said prices were rising quickly in asset markets such as those for land and shares.

“The pressure simply to recover the real value of wages, let alone increase their real value, will be significant,” he said. Australia risked a wage-price spiral.

Rana Roy foresaw temporary high inflation until high energy prices and supply chain disruptions passed, but “temporary” in the sense that the hyperinflation in Germany’s Weimar Republic was temporary, lasting from 1921 to 1923.

Suppressing the higher inflation would require deliberate corrective action.

Higher rates, but not yet

Asked when the Reserve Bank would next lift its cash rate to combat inflation, most nominated 2023. Only 15 of the 52 economists who answered the question expected a hike next year, putting the majority at odds with financial market pricing which backs in several hikes during 2022.

Reserve Bank Governor Philip Lowe said earlier this month he didn’t expect to have to lift the cash rate until 2024, a proposition backed by only 10 of the 52 economists who tackled the question.

Most (33 of the 55) believed the Reserve Bank had managed the economy well during the past five years, effectively used the tools available to it to achieve its goals of maintaining the stability of the currency, ensuring full employment and furthering the “economic prosperity and welfare of the people of Australia”.

Only 15 believed the bank had managed things badly.

Fabrizio Carmignani said it could be argued the bank had kept its cash rate too low for too long and also argued that it had failed to get inflation up to its target band, two apparently contradictory positions.

Paul Frijters said that by targeting the underlying inflation rate as calculated by the Bureau of Statistics, which excludes much of housing, the bank had “cooked the books” to avoid having to increase interest rates.

John Quiggin said the bank should abandon its inflation target of 2-3% and instead target nominal GDP growth, doing whatever was needed to get the economy to grow at a nominal rate of 6-7%.

No clear case for an inquiry

The economists surveyed were divided about the need for an independent review of the Reserve Bank after next year’s election.

The Organisation for Economic Co-operation and Development and the International Monetary Fund have backed a review of the kind proposed by Labor, which would examine the bank’s mandate, board structure, and hiring and communication processes.

Asked about the idea in the survey, former Labor minister Craig Emerson said the bank had consistently undershot the 2% lower bound of its inflation target, causing unnecessarily high unemployment and low wages growth in part because it had targeted projected rather than actual inflation, and its projections had fallen short.

In October last year Governor Philip Lowe announced the bank would switch to targeting actual inflation, saying it would not be lifting its cash rate “until actual inflation is sustainably within the target range”.

Other panellists including Joaquin Vespignani argued that by targeting only measured inflation the bank had created “a bubble in the housing market which is not consistent with economic prosperity”.

More economists on the RBA board

Panellists including Ken Clements argued there was a case for appointing more board members with the economic expertise needed to challenge bank officials.

Former OECD official Adrian Blundell-Wignall argued the bank’s structure and goals were the broadly right ones. We should “not try to fix what isn’t broken”.

James Morley was concerned an independent commission of inquiry might be “highly politicised and lead to unrealistic expectations about what monetary policy can and should do”.

The Bank of Canada reviewed its performance and frameworks in cooperation with the federal government every five years, a practice that would work well in Australia.

Detailed responses:

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.


Friday, November 12, 2021

How government modelling found net-zero would leave us better off

The government’s decision to target net-zero emissions by 2050 will leave each Australian nearly A$2,000 better off by then compared to no Australian action.

That’s what we were told in a six-point summary of the government’s economic modelling released at a press conference on Thursday October 26, days before the prime minister left for the Glasgow climate talks.

Slide from the prime minister’s October 26 press handout.

Prime Minister Scott Morrison said at the time the actual modelling would be released “in due course”, later clarifying that it might not be released for a fortnight, after which the Glasgow climate talks would be almost over.

The 100-page summary of modelling prepared by the Department of Industry, Science, Energy and Resources and the consultancy McKinsey & Company was released on Friday afternoon as the climate talks were concluding.

The document tells us both how the $2,000 figure was arrived at and the question that was asked.

The question that was asked

McKinsey and the department were asked to compare economic outcomes in 2050 after 30 years of “no Australian action” with economic outcomes in 2050 after 30 years of “the plan”.

“No Australian action” meant that every developed country other than Australia cut its emissions to net-zero by 2050, and all of the world apart from Australia did whatever else was needed to hold global warming to 2°C.

Australia would find it harder to raise money because of its reluctance to commit to net-zero (meaning its borrowing costs would incorporate a “risk premium”) and would get access to only those improvements in technology that were available elsewhere.

“The plan” involved Australia continuing “to invest in technological breakthroughs,” acting as an “enabler to support consumer choice and voluntary adoption of other technologies”.

Australia would adopt a target of net zero by 2050, escaping a risk premium.

The government would invest more than A$21 billion to support the development and deployment of low emissions technologies including clean hydrogen, ultra low-cost solar, energy storage, low-emissions materials, carbon capture and storage and soil carbon to 2030, and continue to play a “direct role” beyond that.

Otherwise, emissions would be reduced on “a voluntary basis”.

Importantly, and so the size of the voluntary action can be incorporated into the modelling, the voluntary emissions reductions are assumed to be the same as what would be expected if Australians faced a carbon price (or tax) that climbed to A$24 per tonne of carbon dioxide equivalent by 2050.

Emitters finding it hard to cut emissions as much as they or consumers or investors wanted would be able to buy international “offsets” (overseas emissions reductions) at a price that would climb to A$40 per tonne of carbon dioxide equivalent by 2050.

$2,000 per person better off

The modelling concludes that under “the plan” each Australian would be almost A$2,000 better off in 2050 compared with under “no Australian action”.

That’s $2,000 per year in so-called gross national income per capita, but it’s less impressive than it sounds. The latest stats have gross national income per capita approaching A$80,000.

That’s not what’s received by any one individual, but what’s received by businesses and all sorts of other entities averaged across the population.

Compounding economic growth means that by 2050 that dollar sum will be two to three times as big, against which (and given all the uncertainties) a projection of an extra $2,000 amounts to little difference.

A reasonable way to interpret the modelling is that, compared to “no Australian action”, the “plan” won’t impose significant costs on Australians.

Where the $2,000 comes from

Which isn’t to say that there won’t be big costs.

The world will move away from coal and liquefied natural gas – two of Australia’s biggest exports – but what is assumed is that will happen in any event, under both “the plan” and the “no Australian action” scenarios.

Unless you were to assume that the rest of the world won’t pull its weight in getting to net-zero (and the modelling does not assume this) Australia not pulling its weight does almost nothing to rescue its exports.

The $2,000 comprises two parts. $375 is the benefit to Australia of avoiding investors being less keen to invest in a country that isn’t pulling its weight.

The modelling says Australia would score an average of 5.5% less investment per year under the “no Australian action” scenario compared to under “the plan”.

The other $1,625 derives from the development of new industries, spurred in part by the government’s $21 billion, the most important being hydrogen production which by itself would lift national income per person by about $1,000 of the $2,000.

What was released Friday afternoon is not the modelling itself but a government-authored “summary”.

Although it is difficult to compare the McKinsey modelling with the Treasury modelling prepared for the Gillard government ahead of the 2012-2014 carbon pollution reduction scheme, it is notable that both arrived at a similar conclusion: that over time, action to reduce emissions will cost Australia little.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.


Wednesday, November 10, 2021

2022 looks like an ideal time for a government to land re-election

At the risk of being political – and politics is important, it will determine how we are governed for the next three years – economic conditions could scarcely be better for a government seeking re-election.

The economic things that matter most to most people are, in my view:

  • jobs – if employment is climbing rather than falling, most people are not at much risk of losing their job

  • economic growth and wages growth – if things are getting better rather than worse, even in small ways, people feel better about the future

  • the ability to buy a home – if it is getting hard, even for other people or for their children, they are concerned about what the future will become

  • mortgage rates – as long as rates stay low they know their own personal budget won’t go out of whack

Other things are said to matter, but I am less than convinced; among them are the state of the federal budget (whether it is “back in the black”), tax cuts (once granted they are forgotten – Julia Gillard gave back more than the carbon tax and wasn’t thanked for it) and esoteric concepts such as government debt.

Jobs aplenty

Earlier this year, just before the eastern states went into lockdown, more of Australia’s population was employed than ever before, more hours were worked than ever before and more jobs were on offer than ever before.

Total hours worked fell during the lockdown months. But in those states without long lockdowns (those other than NSW, Victoria and the ACT) hours worked kept climbing to still-higher all-time highs. It’s an indication of what’s likely in NSW and Victoria now their lockdowns are over, something the Reserve Bank says it can already see happening in NSW.

The proportion of those working who say they’re underemployed (working fewer hours than they want) dived to an eight-year low before the mid-year lockdowns.

I haven’t mentioned the unemployment rate (officially 4.6%) because at the moment the rate can’t be taken seriously.

It is that low mainly because to be counted as unemployed you need to be actively looking for work, and many workers stood down during the lockdowns and available to work were not searching, and also because of an oddity in the way the Bureau of Statistics counts non-resident workers.

Regardless, absent any lockdowns, in practical terms it is set to be easier to keep and find a job than it has been for a long time going into an election.

Wage growth climbing

Last year’s recession brought with it a collapse in wage growth as employers froze or cut wages, something that’s now being unwound as the economy picks up, albeit, as the Reserve Bank notes with apparent disapproval, “weighed down by more muted public sector wages growth”.

The bank’s latest forecasts, released on Friday, have wage growth climbing from 1.7% to almost 3% over the next two years, which will be the fastest growth in a decade.

Actual and forecast wages growth

Annual growth in ABS wage price index, excluding bonuses and commissions. RBA, ABS

Three per cent is still lower than the wage growth we had come to expect before it fell off a cliff with the end of the 2010s resources boom, and it’s still lower than the Reserve Bank needs to sustainably meet its inflation target.

But it holds out the prospect of an improvement at a time when private sector wages are already improving, which is what matters for the way people feel.

Forecasts have consequences

Economic growth – the catch-all measure for what’s happening in the economy – is set to climb out of the lockdown slump and accelerate throughout next year before settling back to the 2-3% that was common before the recession.

It also won’t be good enough, but it will be moving in the right direction, and accelerating strongly next May, at the time we are likely to be asked to vote.

These forecasts matter because similar ones (prepared by the Treasury instead of the Reserve Bank) will underpin the economic statement or budget released before the election and the Pre-election Economic and Fiscal Outlook released by departmental secretaries without political input during the campaign.

They will become the accepted narrative.

Easier home price growth

After soaring a frightening 21% in the past year to barely affordable highs, there’s every chance home prices will ease off. On Melbourne Cup Tuesday, the Reserve Bank withdrew its support for the near-zero three year bond rate that banks had been using to fund ultra-cheap fixed rate mortgages.

It’s no longer possible to get a three-year fixed rate mortgage for less than 2%.

A few weeks earlier the Australian Prudential Regulation Authority instructed lenders to refuse mortgages to borrowers who couldn’t withstand an increase in mortgage rates of three percentage points (such as an increase from 3% to 6%).

APRA expects the instruction to cut the maximum that can be borrowed by 5%. By election day price rises might have slowed or stopped.

And low rates for some time yet

Higher variable mortgage rates would unsettle Australians (even though many are finding it easier to make their payments than they have in years).

The good news is that on Friday the Reserve Bank nominated 2024 as the year it expects to begin to lift the record-low cash rate that sets the price of variable rate mortgages.

2024 is half a political cycle away.

Even if the first hike comes sooner (and financial markets expect it to come sooner) it won’t be imminent at the time we will be asked to vote.

All sorts of things determine election outcomes.

The economy is only one. But right now, next year’s economy is looking good.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.