Why are Australian economists so dumb?

The RBA has finally made it to where it should have been ten years ago:

Turning to the broader policy question, we have been considering what more we can do to support jobs, incomes and businesses in Australia to help build that important road to the recovery. The options have been laid out in previous speeches by the Deputy Governor and myself and I don’t plan to elaborate on these again today.[1] While the Board has not yet made any decisions, I thought it might be useful to close today by highlighting three of the many issues we are working through.

The first is how much traction any further monetary easing might get in terms of better economic outcomes. When the pandemic was at its worst and there were severe restrictions on activity we judged that there was little to be gained from further monetary easing. The solutions to the problems the country faced lay elsewhere. As the economy opens up, though, it is reasonable to expect that further monetary easing would get more traction than was the case earlier.

A second issue is the possible effect of further monetary easing on financial stability and longer-term macroeconomic stability. This is an issue that we have paid close attention to in the past when we were considering reducing interest rates in a relatively robust economic environment. It remains an important issue today, but the considerations have changed somewhat. To the extent that an easing of monetary policy helps people get jobs it will help private sector balance sheets and lessen the number of problem loans. In so doing, it can reduce financial stability risks. This benefit needs to be weighed against any additional risks as people take more investment risk in the search for yield. We also need to take into account the effect of low interest rates on people who rely on interest income.

A third issue is what is happening internationally with monetary policy. Australia is a mid-sized open economy in an interconnected world, so what happens abroad has an impact here on both our exchange rate and our yield curve. In the past, the interest differentials provided a reasonable gauge to the relative stance of monetary policy across countries. Today, things are not so straightforward, with monetary policy also working through balance sheet expansion. As I noted earlier, our balance sheet has increased considerably since March, but larger increases have occurred in other countries. We are considering the implications of this as we work through our own options.

In short:

  • First, the bank is ready to cut deeper. For now, it’s to 0.1% but soon enough it will be negative rates.
  • Second, the bank will have to co-operate with ARPA on financial stability though it will be a long time before the latter tightens, sadly.
  • Third, the bank is going to print and roll out the bond curve to crush yields and the Australian dollar carry trade.

Here’s what the economics fraternity said leading into Phil Lowe’s speech at the always monetary reactionary AFR:

“Compared to prior downturns, the recovery in consumer sentiment is the sharpest seen in the history of the series and underlies the particular nature of this shock,” NAB economists said.

Citi, Morgan Stanley and Deutsche Bank are among the economists who now think a rate cut is questionable.

“I expect that Lowe will push back on pricing a November rate cut in his speech on Thursday,” Deutsche Bank’s Philip O’donaghoe said. “It will be very important if he doesn’t push back.

Citi’s Josh Williamson said last week’s upgrades to economic forecasts by Treasury meant the RBA would soon follow with an upgrade and that also calls into question the need for a rate cut in November.

Morgan Stanley’s Chris Read said in a note to clients last week that COVID-19 restrictions would also play into RBA policy, making “further easing this year less likely”, particularly after a stimulatory federal budget.

BetaShares chief economist David Bassanese has said the strong near-term fiscal stimulus provided in the federal budget could reduce the chances of the RBA cutting interest rates.

Other economists including Professor Warren Hogan and former RBA governor Ian Macfarlane have also warned against cutting next month.

Instead, Phil Lowe gave the most dovish speech of his life. How did they all get it all so wrong?

  • First, the AFR encourages any and all retrograde monetary policy discussions to protect its big advertisers, the banks.
  • Second, they read each other’s stuff and hug the median opinion index instead of thinking for themselves.
  • Third, they have totally misread the budget as stimulatory while the RBA clearly has not.

Which is just as well because it sure as hell wasn’t. The budget was a bizarre experiment in trickle-down economics that somehow conceived enormous deficits without providing any stimulus. The embrace of the budget by the AFR and its phalanx of monetary dills is all the more ironic given it is they that have been so hawkish on rates to force the government to boost fiscal.

This points to the fourth and final failure of the economists. Putting the budget into historical and intellectual context, which exposed it as both heretical and ill-targeted, was completely overlooked for a few headline deficits.

That just about sums up everything that is wrong with economics and economists today.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


    • It’s about as simple as that. Nearly all economists are soothsayers, paid by the rich, to screw the poor.

      Under the 1959 law, RBA’s charter is meant to be about maintaining currency stability, full employment, plus Aussie prosperity and welfare. These days, they strive to maintain debt, the market, and the GDP. Not quite the same.

    • Or if you go outside what the mainstream are saying you get told that it is not your job and that your job, is in fact, to do basically what everyone else does.

  1. I think as the magnitude of the ScoMo Frydenburg budget failure starts to really dawn – and I dont think that will be until circa February – March and the return to normal insolvency laws – there will be another budget where the government will be porking like billyo and tossing ideological baubles out of the budget just in case they never get the chance again. It is that grim.

    And that 10 year kip the RBA is just awakening from is the the precursor of a new era screaming ‘faaaaaaarrrrrrkkkkkk!’ For Australia.

    Somewhere along the line economics became a belief system rather than a science – and the elites the media the universities and the corporates and bureaucracies have spent a generation burning unbelievers

    • happy valleyMEMBER

      I think the return to normal insolvency laws will be can kicked down the road way past March next year – dare I say it, to never return to normal. Comyn, CBA MD, has basically said CBA will likely have Strayan dream mortgagees on banking COVID ventilators for years. As for the Scotty from Marketing/Fraudenberg budget, they are such spinmeisters (Goebbels would be proud of them) that the regular Strayan “punter” will never see through them until it’s too late. When SFM wins the next election and control of both houses, the penny will drop for “punters” but by then it’s game over for ever for them as SFM opens the warm foreign body floodgates and rams through WorkChoices 2.0 with Michaelia as chief spinmeister as to how good it will be.

      • Display NameMEMBER

        I think you are right. New paradigm. We are just pretending to be in business. Nothing can fail anymore. Print money and just pretend everything is good. Quick, lever up and enjoy the good times.

    • Scomo and Joshie going all out to hide the true level of unemployment from the dopey Joe public who feel the pain of this crushed economy, but are brainwashed by complicit idiots in the MSM not to believe it. Just look at the consumer confidence reports and the utter lies from the ABS, Treasury and the government about how few people on JobKeeper will lose their jobs or how few Jobkeeper-supported businesses will supposedly fail. But are people actually going to spend money they don’t have or can’t risk? A Feb/March mini-budget will be a pork-aholic’s wet dream. The beatings will continue until morale improves. Meanwhile, China keeps ratcheting the screw. What export will be next? The Banks are gorging themselves on TFF and paying off their offshore debt with free money from the RBA, hand over fist. At some point soon all of this has to land on the A$ like an anvil.

  2. happy valleyMEMBER

    Accountants just deal in rubbery figures, but economists deal in fake money, fake cures, fake everything?

  3. An exception for the Budget ‘working’ to some degree might be with state and Fed govt money booming into infrastructure projects, and the like – else, yes, I can’t see the Budget working – it is an ideological wank developed by relatively poor business people for either relatively poor business people and/or those that know how to convince the LNP to feed their Rentier mouths…

  4. An economists life…school, university, employed by a large public or private institution and finally retirement funded by their huge superannuation balance.
    You seriously wonder why they are so dumb? Those of us they have spent any amount of time in small business can tell you why.

    • +1 you have it right. Also I’ll add: paid to look into the economy and forecast, but not feeling any consequences whatsoever if their predictions, their models, and even the facts that they base their intuitions on, can be totally misleading or used to interpret any slant on a policy they want. By contrast to other professions: medicos (a bad doctor = bad patient outcome), engineers (a bad engineer = collapsing bridges), even lawyers (a bad lawyer = client doesn’t see justice).

      I dunno, someone want to correct me?

  5. chuckmuscleMEMBER

    Think it also speaks to the irrelevance of investment bank research. Going down the path of paying for research will hurt fundies at first, but I think quality will improve and (hopefully) clients will benefit from lower commissions and better ideas.

    • chuckmuscleMEMBER

      Should add, all of these economists don’t actually handle money in any meaningful way. Therefore being wrong or hugging the index doesn’t matter. All that does matter to them is the quality of the spread they put on at lunch for fundies. Speakers at those lunches are predominantly public servants (RBA, ministers etc) so if the economists are too risky they won’t get the speakers they want.
      Complete circle jerk, no added value ever.

    • happy valleyMEMBER

      “Insanity: doing the same thing over and over again and expecting different results.” – Alfred Einstein – summing up economists for what they are

  6. pfh007.comMEMBER

    The entire debate about the RBA is pretty dumb as the mindset of those engaging in the debate is so thoroughly baked with 1980s economics thinking that few can see beyond their blinkers.

    When more of the same or much more of the same is all there is on offer you know we have a problem.

    Open your minds folks.

    • Jim's Central Banking

      I think I’ve said it before, but they won’t be happy until we’re Japanified and funds own all the assets. Suddenly, with these last rate cuts, we’re going to fix 30 years of failure and Ponzi growth. The failures of those who have gone down this path before us don’t matter. If you disagree with the plan you lack creativity and vision.

      We are just super lucky that China is going ex-growth (any day now) and immigration will never come back to previous levels…

  7. “Why are Australian economists so dumb?”

    “Since stability has been the norm for 75 years, institutions and conventional thinking have both been optimized for incremental change. This is an analog of natural selection in Nature: when the organism’s environment is stable, there’s little pressure to favor random mutations, as these can be risky….

    Radical reforms are not just frowned on as 1) unneccesary and 2) needlessly risky, there is no institutionalized process to propose, test and adopt radical changes because there is no need for such a process…. Rather, human organizations and conventional thinking marshal formidable forces to suppress anything which threatens the status quo, because why risk upsetting the feeding trough unless it’s absolutely necessary?…As the crisis deepens, the default setting in organizations and conventional thinking is that incremental changes and reforms will be enough, because they’ve been enough for four generations.

    Each stage of the crisis draws whatever conventional response causes the least pain. First, the “rainy day fund” is drained to keep everyone at the feeding trough.” The recommendations are either too timid and clearly inadequate or they’re too bold and risky. So incremental policy and budget tweaks are adopted as acceptable institutional defaults….. etc

    what’s absolutely necessary to human organizations and conventional thinking is the suppression of potentially dangerous novel ideas because the worst-case scenario is that the novel ideas upset the feeding trough all the insiders have come to depend on.


    Australian economists are no better and no worse than most other establishment economists, the only difference between Australia’s problems and the rest of the worlds is that our economy is a hybrid between the West’s same demographic and debt saturation issues, and benefiting from China’s industrialisaiton.

    The point is, as the above article makes, Organisations only employ conventional thinkers, because unconventional thinking is too likely to upset the trough at which all the establishment have been feeding at. Where change is made it is made incrementally so as not to upset the status quo.

    That is your answer, and it is an answer which MB are just as guilty of recommending, because the MMT, the QE, etc are just incremental measures in the journey to debt saturation and demographic decline – rather than let things fail, which would result in radical change, EVERYONE prefers incremental changes to the existing system in order to save it and preserve the status quo.

    “Please Sir, can someone replace my rusty chains and repair the crumbling wall to my prison?”

  8. Economists in the main have little idea how an economy creates wealth. This lack of understanding then translates in policies that actually destroy the wealth generating capacity of an economy. Each new generation of economists are taught the same garbage. There are a few stumbling around trying to create an alternate perspective.

    • Jumping jack flash

      Lol. In the New Economy debt is wealth.
      After all, if you’re a bank that’s certainly the case. Surely it is the same for everyone…

  9. Jumping jack flash


    “… in the past when we were considering reducing interest rates in a relatively robust economic environment.”

    Seriously? Why would this even be necessary?
    Well it is easy to know why. To get the debt growing again of course because the debt growth has been pitiful for the past 10 years.

    And then, the masterpiece.

    “To the extent that an easing of monetary policy helps people get jobs it will help private sector balance sheets and lessen the number of problem loans. In so doing, it can reduce financial stability risks.”

    What does this actually mean? Is he seriously trying to link job creation with lowering interest rates without mentioning “more debt”? the debt is the problem. The debt is why we don’t get any new jobs or higher wages.

    And then he mentions “lessen the number of problem loans.”? How could it possibly do that?
    Oh, as a result of all the jobs that magically appear as a result of the easing! Of course! That must be it.

    Or maybe he is hinting that we need debt growth to improve stability and create jobs again?

    I guess he can say what he likes, and his job is done if people believe him.
    None of these magical extra jobs have actually appeared though, except for the purposes of wage theft so a few lucky people can grab at some more debt. Maybe that was the entire point?