US Treasury Secretary Janet Yellen claims the US economy is not in a recession, despite two consecutive quarters of declining GDP. Economics Explored EP151 guest Darren Brady Nelson disagrees with the Treasury Secretary and argues she is taking a political position. Whether she’s being political or not, Janet Yellen has certainly taken a big risk, as Darren and Gene discuss. Darren and Gene also talk about the review of the Aussie central bank, the Reserve Bank of Australia, particularly how climate change could figure in that review. Darren argues the review team should have a broader range of views represented, including Monetarist and Austrian perspectives.
About this episode’s guest – Darren Brady Nelson
Darren is Chief Economist of the Australian think tank Liberty Works and he’s also an Economics Associate at the CO2 Coalition in Washington, DC. For Darren’s bio, check out the regular guests page.
Links relevant to the conversation
While it’s the NBER that declares whether the US economy is in recession, this CNBC report notes: “Since 1948, the economy has never seen consecutive quarterly growth declines without being in a recession.”
But many economists are skeptical about whether the US is in a recession, including recent podcast guests Stephen Kirchner and Michael Knox.
Stephen Kirchner on the US recession question.
Michael Knox’s Economic Strategy: Fed hikes rates, but Fed says no recession (PDF).
Transcript: US recession, climate change & monetary policy w/ Darren Brady Nelson – EP151
N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.
Gene Tunny 00:01
Coming up on economics explored…
Darren Brady Nelson 00:05
like to see seemed to have sold or sold for political purposes as the head of Treasury in the US each year is a political appointee. So you know, that is, to some extent a political position.
Gene Tunny 00:19
Welcome to the economics explored podcast, a frank and fearless exploration of important economic issues. I’m your host gene Tunny. I’m a professional economist based in Brisbane, Australia, and I’m a former Australian Treasury official. This is episode 151. On whether the US economy is in a recession. Joining me is returning guest Darren Brady Nelson. Darren is chief economist of the Australian Think Tank Liberty works. And he’s also an economics associate at the co2 coalition in Washington DC, as well as chatting about the US economy. Darren and I discuss climate change and the review of the Reserve Bank of Australia. In the shownotes. You can find relevant links and details of how you can get in touch. Please let me know your thoughts on what either Darren or I have to say. I’d love to hear from you. In the show notes. I’ll include links to some great commentary on whether the US actually is in a recession from two previous guests, Michael Knox and Steven Kirschner, so make sure you check those links out. Right now for my conversation with Darren, thanks my audio engineer Josh Crosby, his assistants in producing this episode. I hope you enjoyed. Darren Brady Nelson, Chief Economist at Liberty works. Welcome back to the programme.
Darren Brady Nelson 01:35
Thank you. Good to see you. I guess it’s been a while since we last spoke about woke capitalism, I think.
Gene Tunny 01:41
Yes, that’s right. That was a few months ago. So yeah, it’s good to catch up. Again. This is a 100 and 51st episode, and this is your 11th appearance on the show if I’m counting correctly. So yeah, we get around to another chat every 15 episodes or so. So it’s a it’s about time to catch up with you. So it’s great to have you on the show again.
Darren Brady Nelson 02:06
Yeah, congratulation, because I’ve been so prolific. 151 That’s great.
Gene Tunny 02:11
Yeah, well, it’s, it’s just drip by drip. Really? It’s one per week, and they they mount up. Yes. Thankfully, we’re out of the COVID period, although I had it recently. And I was in isolation, but we’re, we’re over all of that. That craziness, which was dominating the conversation for a while, and now we’re getting on to two other issues. Okay, so I thought we could chat now about the US GDP figures and we had some big news last week. Last week in Australia, you’re, you’re still on Saturday there I think Darren in in the states in DC. And we’ve got to now we’ve got two consecutive negative quarters of GDP growth. So GDP grew at an annualised rate or didn’t grow, it fell at an annualised rate of 0.9% in the June quarter, and that followed a decline of I think it was 1.6% in the March quarter, that’s at an annualised rate. Okay, so there’s a big debate about whether the US is in recession or not. Darren, what do you think is the US in a recession at the moment?
Darren Brady Nelson 03:26
Um, well, yeah, I would say so both it, you know, I must admit, in this conversation, you know, certainly, you’re going to be more expertise that I, you’re, you’re a guru of sort of macro economic indicators, and all that, you know, particularly from your treasury background, but other things you’ve done, too. So, you know, maybe I’ll be asking you some questions, too, and hoping to get some answers. But yeah, I’m not sure. Maybe you know, the answer this, but, you know, entire time I’ve been, you know, first studying economics and being an economist, putting aside the debates on whether two consecutive quarters is the greatest definition or not, it seems to have been the definition for a long time. And the most interesting thing I’ve seen recently, and I guess this would have been headlines, I imagined in Australia as well, was the Biden ministration going? No, no, that’s not really the technical definition of a recession. I don’t think I recall it administration, you know, democrat or republican ever, that they may come up with excuses and say, it’s not well, you know, it’s not our fault. It’s the previous administration and all that sort of stuff, our you know, external circumstances. But this is really the first time someone’s ever, you know, including, you know, some of the economists that the Biden administration has, are on record, obviously, talking about in the past that yes, the recession. You know, the technical definition, if you like is the two consecutive quarters of negative growth. So it’s been very interesting time. Once again, I guess in the 2020s, including a lot of media organisations and our favourite, you know, sort of Neo Keynesian economist Krugman coming out and also defending that the Biden administration on Oh, well, it’s not really a recession. So it certainly fits the technical definition that, you know, if you’d like I grew up with. And, you know, that’s, that’s certainly my impression, you know, just actually being in the US. Is it dire just yet? Yes. On the inflation front, yes. But unemployment, you know, still is fairly low. And putting aside the fact that participation rate, you know, that’s a little bit of a worry, but the unemployment rates not so bad at this stage. And usually, obviously, that’s, you know, if you’d like a key secondary indicator, besides GDP itself, that people usually turn to right away, you know, before they maybe dig into, you know, what aspects of GDP have gone down, energy manufacturing, etc, etc?
Gene Tunny 06:02
Yeah. Okay. So there are a few things you mentioned there, Darren, so yes. Not not as strong. Yes. So, yeah,
Darren Brady Nelson 06:09
I’d say yes. technical definition. You know, kind of weak, yes. In a kind of more judgement point of view.
Gene Tunny 06:16
Yep. So you referred to what the White House was saying, and what Janet Yellen in the treasury was saying. So I might just read that out. And then we can go from there. And I can, I can let you know what, what I thought about that. So what, what Janet Yellen said and this is reported by the Financial Times, The White House has maintained that the US economy is not at present in a recession, with Treasury Secretary Janet Yellen saying earlier this week that she would be amazed if the NB declared it was okay. So what what she’s talking about there is the National Bureau of Economic Research, which is I think it’s attached to that attached to Harvard or MIT or one of those East Coast universities. There’s this elite group.
Darren Brady Nelson 07:01
I think it’s I think it’s independent. I mean, look, I don’t know, but I think it’s, it’s more independent than even being associated with one particular university, I think, yeah,
Gene Tunny 07:10
yeah. Yeah, I think you’re right. Yeah. But it’s, it’s an elite group of macro economists, some of the top people and you’ll have regarded, yeah, some of the leading lights of economics on it. And they will, they will date the business cycles, they will declare whether the economy’s in recession or not, and, and generally, what they’re looking for is a sustained downturn that lasts several months, so more than one quarter. And they look at a broad range of indicators. So it’s not just GDP. But that having said that, it looks like GDP is a very, I mean, it’s an important part of it, because it’s that comprehensive measure of economic activity. And one thing I noticed when I was preparing for for our chat, is there was a report from CNBC, where it noted that I don’t think there’s ever been a recession that the NBR has called, which didn’t have two consecutive quarters of GDP growth, if that makes sense. So let’s where’s the actual passage? I
Darren Brady Nelson 08:21
think that’s not correct. I think the they did they call the recession, you know, during the pandemic, and that wasn’t two quarters, I think. So they do have a bit of leeway. But they tend to usually use the two quarters as part of the definition as a, you know, key component.
Gene Tunny 08:38
Okay, look, I’ll have to check that I thought I was ready. I thought I read that. That earlier today. I had that somewhere here in my notes. Okay. Okay. So we might go back to what, what Janet Yellen, what she said here, so she underscored the message at a press conference on Thursday, emphasising that the economy remains resilient. Most economists and most Americans have a similar definition of recession, substantial job losses and mass layoffs, businesses shutting down private sector activity slowing considerably family budgets under immense strain. In some a broad based weakening of our economy. She said, That is not what we’re seeing now. Okay. It seems to me that’s that’s a pretty risky call from her because it does she is running the risk that that the NBA does eventually define this as a recession. And that’s going to be incredibly embarrassing for the administration. So yeah, that would be my sense of it. I think it is a big call from Janet Yellen. And it may be too early to tell. But look, a lot of there are a lot of economists out there who seem positive about the US economy. But that said it does appear that I mean, is it the interest rates, is it what the Federal Reserve’s been doing that’s causing issues? Is it inflation that’s hitting Consumers, what do you think are the main forces affecting the US economy at the moment? Darren?
Darren Brady Nelson 10:06
Yeah, I think, you know, you’ve definitely touched on two key components. But just comment on Janet Yellen. But you know, Janet Yellen was was totally wrong on inflation. So, you know, you know, in, that didn’t seem to impact her sort of credibility within her sort of circle that she goes around with, and the people who hire that didn’t seem to make any difference. So probably won’t next, you know, when she’s proven wrong on recession, which I think she already has been. Yeah, I mean, that inflation is like, one of the key things, it’s, you know, the biggest problems in the US, and obviously, even the Federal Reserve, which has been, you know, the Federal Reserve is part of the process of creating inflation. So, but, you know, they’ve, they’ve gotten spooked, even if the boat administration itself has not, which they, you know, at least publicly, they keep on, you know, they don’t seem to be, you know, they acknowledge it a bit, but they don’t really kind of acknowledge it as bad as you know, even though the official statistics are showing. So, you know, you have, like, you know, I’ve I guess we’ve talked about this many times, but, you know, you have kind of two things going on at once, you know, the, the unprecedented levels of money printing, and, you know, the credit that goes with it, which, you know, from, if you’d like, from a macro point of view, is hitting the demand side. And then on the supply side, they’re doing all sorts of, you know, the Biden administration’s policies are just hurting supply, and hurting productivity, so and competition. So you know, that can sometimes you’ll make up a lot for that money printing, you know, the supply side can react to it, and really dampen what, you know, it’s for the money to the demand side of things. So, you know, energy is a classic one, you know, they had a complete 180 on their energy policy. So the US went from the number one energy producer in the world to not that anymore, and, you know, record time, essentially?
Gene Tunny 12:08
And is that the bottom administration’s fault in your view,
Darren Brady Nelson 12:12
yet? Well, exactly. It’s not just their fault. That is literally their policy. You know, they they’re, they’re going for the sort of green transition, if you like, No, you know, come hell or high water. Right. So, which includes, you know, mounting allowing oil companies to extract oil and all sorts of things. oil, natural gas, coal, etc. And they’ve also hit agriculture with bad policies as well. You know, manufacturing. Yeah, it’s, you know, literally, if you want to destroy an economy, the buy administration is basically ticking all the boxes of you know, their policies. And, you know, putting aside, you know, you can argue whether that’s intentional or unintentional, but I think there’s not too many, if you like, remotely free, market friendly economists who think the buying policies are particularly good
Gene Tunny 13:10
rod, okay, I’ll have to have a closer look at some of the policies. And in come back to that, I just want to go back to that definition of recession, I think I might have missed or may not have communicated properly what that factoid in that CNBC report was. So what they were saying was that, in fact, every time since 1948, the GDP has fallen for at least two straight quarters. So they’re not saying that, if it’s that they would, I mean, there could be recessions if you don’t have this, and that’s what you were saying with the pandemic that was, like you could call a recession, if you don’t have the two negative quarters. But what this point is, is that, in fact, every time since 1948, the GDP has fallen for at least two straight quarters, the NBA ultimately, has declared a recession. So you can have a recession, even if you don’t have the two quarters, but every time you’ve seen it in the data, they’ve the NBR is ultimately called the recession. So what Janet Yellen has done is, yeah, that’s a really big call on her part. And, I mean, Janet Yellen, someone with a distinguished academic reputation, and yep, so really, really big call and potentially it will, will backfire on her so yeah, have to wait and see about that. Yeah,
Darren Brady Nelson 14:38
yeah, y’all want to make it you know, like she’s she seemed to have sold or sold for political purposes. Not unusual that that, you know, it’s not like this has never been seen before. Most of her sort of like topics when she gets into public is less focused on inflation and, you know, recessions and she’s talking about equity and diversity and inclusivity You know, all that sort of stuff? You know, as for? Well, I guess, you know, I guess she is that the head of Treasury in the US each year is a political appointee. So, you know, I guess, you know, that is, to some extent, a political position. Although, you know, usually in the past, it’s been Department of Justice and Treasury have, you know, usually been less partisan, if you like, you know, the people regardless of whether it was democrat or republican in charge, but you know, things have changed quite a bit. Certainly this century and certainly in the 2020s.
Gene Tunny 15:33
Yeah, exactly. Okay. So you mentioned the supply side. Before, we one thing we’ve had in Australia here is just the the ongoing disruption to supply chains. And I mean, the random things just been unavailable in the supermarket’s cuantas seems to have lost its mojo can’t seem to run a flight on shedule any, any any time anymore. And partly, that’s because they lost people during the pandemic. And now we’ve got people on isolation leave, like if you get COVID and have to isolate for seven days, and that’s disruptive. Things just don’t seem to be working as they once did. Is that the same in the States? Have you noticed that in the US? Yeah,
Darren Brady Nelson 16:21
I think some extent, less. Although I understand aviation has been kind of bad here, too. But I haven’t actually been, you know, I’m just going on to sort of news reports and talking to other people that, yeah, they’ve had, you know, things. Well, you know, what happened in the US probably, maybe more than as surely as a lot of pilots, either were, you know, let go or just left because they didn’t want to get the vaccine. Right. So, you know, that was in the federal government has a bigger say, in aviation than they do and other industries, for instance, particularly on employment. And so yeah, that’s all contributed, including also understand, not just pilots, but you know, other people in the aviation industry, you know, various hubs, you know, the people needed at the airports and the hubs as well, you know, similar sort of circumstances. The the supply chain disruption in general, I haven’t noticed it as much in terms of like, you know, like at the grocery store, there was a period where there was a little bit of that. And, but not as bad, but certainly, you know, there were issues as well, in the US, perhaps, maybe not as bad in terms of like, you know, grocery stores and whatnot. So, yeah, it’s been, yeah, again, the 2020s have been very weird times. And I don’t think it’s some sort of like natural market outcomes as such, obviously, markets wrecked, and they, you know, the impact, but I think there’s just the amount of, really over the top interventions and status sort of policies in the 2020 2020 has taken me by surprise, you know, we’ve been prepping backwards, if you like, towards bigger and bigger government, and I think, you know, reaping the rewards. I don’t know why people, even people who, you know, seasoned economists, who should kind of know better, you know, the more the government does stuff and interferes the worse things get it it literally is becoming, like, more and more like an Atlas Shrugged world? I don’t know if you’ve read Atlas Shrugged. probably familiar with the premise anyway. It’s, it’s like that was John go. Like, I’m like Atlas Shrugged there. You know, there were places to escape to in that world, the fictional world of as many, as you can see, in this world, when, you know, all the governments are, have uniform sort of policies on COVID and uniform policies of not tackling inflation, you know, and all that. And maybe it will be interesting to see if the elbow government copies the Democrat lead, which I suspect they will, you know, if Australia gets two quarters of negative growth, that they’ll go that’s not really a recession, you know, we’ll be interesting to see if they go down that road as well.
Gene Tunny 19:12
Yeah, but I mean, one thing that we’ve we’ve traditionally relied on to keep the economy growing is migration, just the, you know, addition of people and and that those consumption, and so that’s starting to pick up again. Look, yeah, possibly that try and redefine it. I mean, I don’t think we’re, we’re at risk of that at the moment. Although having said that consumer confidence has dropped with the, you know, the higher interest rates, so people are freaking out over just the, the increases in interest rates we’ve seen already, because it looks like they just, you know, borrow lots of money during the when interest rates were really low. In the end, you even had the I mean, the Reserve Bank, Governor, I mean, I couldn’t believe it. He last year he was saying, Oh, the interest rates will, our official cash rate will stay at point one until 2024. And arguably, he misled people. And so I mean, he really has a lot of questions to answer for. And there is the Reserve Bank of Australia review, which I’ve talked about in this programme. I don’t know if you’ve had a look at that at all. Darren,
Darren Brady Nelson 20:22
oh, no, tell me Give me Give me a synopsis of what drove that. And what’s happening? Well,
Gene Tunny 20:28
I mean, the RBA has been under a lot of criticism in recent years for for different reasons. I mean, there’s been one group of economists who’ve been critical of it, because they argue that they didn’t, that they kept in their head interest rates too high in the lead up to the pandemic. Now, whether that’s true or not, I, I think it’s debatable, but I’ve had people like Peter tulip and Steve Kirschner on the show. I mean, they they’re very good economists. I think it’s worth considering their view for sure. Their argument is that if you try if you’re trying to achieve the inflation target of two to 3%, so that the so they they were arguing that because inflation was actually lower than that you had scope to have looser monetary policy, lower interest rates, to have more employment growth. And there was some modelling that was done by Andrew Lee, who’s a Labour Party MP and a former a new professor, and Isaac gross, who’s an economist at University of Melbourne, I think. And they showed that if the RBA had met its inflation target, it allowed if it had lower interest rates and let the economy grow faster. You could have had, I think it was like 250 to 300,000 more jobs in the economy. So there were a group of economists criticising the RBA from that direction. And they were saying that, well, the RBA was too concerned about households taking on too much debt. So they didn’t want to have interest. They didn’t want to put interest rates lower. And look, I mean, I could see why the bank would be concerned about that. So that’s why I’m not fully on board with that criticism of the bank. That said, I think it is good to review the Reserve Bank, because it is a bit of a it’s not exactly transparent what they’re doing. So I think there could be greater transparency. And I mean, since last year, when Phil Lowe was making those sort of bold calls, that turned out to be wrong within months, right. It was obvious that we’re in the in the new year when we started getting those inflation numbers that the Reserve Bank would have to act. And so I think they lost a lot of credibility over that. So it’s important now to to have this review. And they’ve appointed So Caroline Wilkins from she’s a former Deputy Governor of the Canadian central bank. They’ve got Gordon to Brewer, who’s a former bureaucrat, I worked for him when he was in the treasury. And he was also at a new at times. He’s good. He’s good value. And Rene fryer McKibben, who’s a professor of economics at ASU. And so they’re going to review the board like the how’s the there are issues to do with board composition, who’s on the board? There’s issues to do with the inflation target, but I’m not sure they’ll do much about that they might tweak some of the language. And then there’s issues to do with the transparency of the board’s decision making what do they release to the public every month? So that’s essentially what the reviews about and I think it’s, it’s a good thing that they’re doing that. So yeah, that’s it. So yeah, it’s worth definitely worth keeping an eye on. Okay, we’ll take a short break here for a word from our sponsor.
Female speaker 24:01
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Gene Tunny 24:30
Now back to the show.
Darren Brady Nelson 24:33
So are they the reviewers? Are they sort of, you know, leftist? Senator, for the most part, you know, like a Keynesian and MMT and, you know, something else or what, what’s, what’s the story there?
Gene Tunny 24:47
I’d say the typical mainstream macro economists. So however, however you’d like to characterise that, the definitely not MMT if you had to give them a label, maybe you could You give them a new Keynesian label, possibly. But yeah, they’re not I don’t think they’re radical in in any particular direction. They’re non political appointees, which is a good thing. One of the big ish questions and something that I think the Prime Minister Anthony Albanese, so elbow, as we call him, one thing he will be, he’ll be getting pressured to put a trade union representative on the board. So they’ve had one in the past, I think Bob Hawke, our former prime minister was on the board in the 70s, when he was the head of the A CTU. And then we’ve had various other ICTU secretaries on the Reserve Bank Board, there are some people pushing for a regional rep. But, you know, one thing that Peter Tula, who’s chief economist at Centre for independent studies has been pushing for he’s, he’s he said that the problem is, we don’t have enough people who know about inflation and monetary policy on the board. And so we need more of those people. We need more, it’d be better to have more economic experts or economists on the board.
Darren Brady Nelson 26:05
Yeah. Yeah. And maybe, also further, how about a variety of use, and not just the one kind of, you say, mainstream, and but that’s still a worldview, it’s still it’s still a way of looking at things. And it’s not the only way of looking at things, you know, the combination of, you know, essentially New Keynesians, for the most part, with maybe a little, you know, like 8080 20, Keynesian monetarist? You know, that’s maybe what, you know, most mainstream sort of macro, folks, you know, that’s kind of what they’ve learned and whatnot, be good to, you know, have somebody else, you know, have an Austrian point of view, have maybe a full on monetarist point of view, you know, whatever it is something that’s not just the one point of view, you know, so, so it’s not just Tweedledee and Tweedledum, you know, every time for the, you know, either on the board or this review, you know, I’m not saying these people aren’t smart, or anything like that the three people you mentioned, but I suspect they don’t, they’re, you know, there’s not gonna be a whole lot of push and shove between the three. So
Gene Tunny 27:04
I think the review in a way, please presumes that there won’t be radical changes. I mean, we’re not, I mean, the reserve bank is going to continue as a, an institution, we’re still going to have fiat money is that the sort of thing that you would you think should be up for review that we should be looking at something more fundamental?
Darren Brady Nelson 27:25
Well, at least have one person on there who can be the dissenting voice to say, something like that, but I’m saying like, you know, like, you know, even if it was like, say, one Keynesian one, monitor someone Austrian, I think you might get a pretty decent review out of that, you know, with the monetarist if you like, in between the two to some extent. So, you know, you still have 2221221, you know, want to keep a central bank going, but we just, you know, good to kind of be realistic about, you know, what, you know, what a central bank does, and, you know, what inflation is, what monetary policy is, you know, all that sort of stuff. That’s fine, if the board, you know, I’m not saying, you know, the board should be all full of economists, even if it was a mix of those types of economists, I think it’s fine to have some other, you know, you know, depending on how big the board is, you know, you know, there would be room, I guess, for a union and a business representatives and maybe some other stuff as well, that’s fine. And then they should also review, you know, also the, you know, the goals of the Reserve Bank, you know, obviously, what’s legislation, there’s a lot of stuff in there besides inflation, you know, maybe, you know, just to look at it, and kind of whether all that needs to be in there, or whether there’s should be a better balance, or you should prioritise and go, you know, inflation is number one, and then something, you know, that type of thing. It’d be great. If it was a, you know, a lot of these reviews aren’t all that genuine, you know, they already have a political goal. I mean, you say they’re not political, but it always is, you know, you know, to some extent, they’re under certainly under pressure anyway, regardless of who they stick in there to review things. Now, in the past, you know, some of these reviews have been a lot less political than others, there’s always a political element, you know, like the competition policy review wasn’t particularly political, but there’s always a little bit of an aspect to it, of course, you know, I’d be surprised if they’re not under, you know, some fairly great political pressure to, you know, start going beyond and started looking at, you know, kind of cultural war type stuff, too, you know, that they want to ingrain, you know, sort of race, gender, race and gender and all that other stuff. You know, I’ll be I’ll be pleasantly surprised as if that isn’t going to be a part of
Gene Tunny 29:37
the review. So, as far as I’m aware, race and gender What won’t be at this stage, I don’t think but one thing that possibly will be now whether there’s a culture war issue or not, I don’t know I think I’m not sure it’s, I guess, it does get there are aspects of it that are part of the Ultra wall but the debate about the climate. So, Warwick McKibbin, who is he’s a professor of economics at ASU. And he’s actually the husband of one of the reviewers. But you know, she’s independent of she’s, she’s her own person. You know what, I’m Rene fryer. And she, she’s, she’s work. So, by definition,
Darren Brady Nelson 30:22
you know, at least the old school definition marriages, you’re not your one flesh. But anyway, I understand what you’re trying to say. Okay.
Gene Tunny 30:29
Yes, yeah. So I don’t think she’ll necessarily go along with with works for you. But Warwick was at the conference of economists in Hobart two weeks ago, where I call COVID. And he was on he was, it was good conference. Other than that, it was a great conference.
Darren Brady Nelson 30:46
And super spreader of it.
Gene Tunny 30:49
Yeah, that’s right. And Warwick was on the panel. And now we’re talking about the Reserve Bank review. And one of the things he one of the points he made is that we’ll have to, we may have to amend actually, I think he’s saying we will have to amend our inflation targeting settings or our our goals or objectives, or we’ll have to amend that to incorporate climate change, because we have to recognise that if we’re going to be increasing the will, if we’re going to be responding to climate change, we’re going to introduce a carbon price and one that increases over time. So that’s the, that’s what you need to have that sort of lowest cost adjustment path. So to minimise the cost of adjusting to climate change, you’ll need to have a carbon price that increases and so that’s going to be increasing prices. So you’ll need to look through the inflation, you’ll have to ignore the inflation that comes from the carbon price. So I think culture war issues won’t come into it. But the I think the climate climate change will come into the RBA review.
Darren Brady Nelson 32:01
Okay, well, that’s good to know. It’s terrible news. But it’s not surprising,
Gene Tunny 32:06
though. But But doesn’t it make sense? What Warwick is saying? I mean, if you’re going if the if a government does introduce a carbon price, and you’re going to have increasing prices because of that, then that’s, that’s not really inflation that the central bank should be concerned about? I mean, what do you think of that?
Darren Brady Nelson 32:25
It still should be concerned about it, even if, you know, you know, this is all about thinking about the costs and benefits. It sounds like, just assuming, okay, well look, you know, we’re just not going to worry about the downside of our carbon tax and our climate policies, you know, because it’s such a, you know, unquestionable good to pursue this. That’s, that’s ideology. That’s not economics, that’s really bad economics. And it’s also bad constitutional law, you know, like, to what enshrine you know, certainly a very long standing fad, you know, of the climate sort of industry. But, you know, the concept of inflation, you know, it’s something that stands the test of time, you can disagree on various aspects of it, but it’s always going to be, you know, to the extent you’re gonna have monetary policy, inflation is going to be an important thing to be thinking about, right. Climate change, may not be, you know, like I’ve, you know, been following this debate since the mid 90s. And, you know, I can tell you, Well, just look at the polling, you know, I can’t speak for Australia, but in the US, it’s, you know, something along the lines of it’s well outside the top 10 of topics that people are concerned about in the US, for instance, then you want to start because, you know, elites like him, are in a position to influence these things they want to shove in, you know, the things that they care most about. And I think it’s just atrocious to think you can stick that into the Reserve Bank act. Yeah, sure. You another government can come along and potentially change that if they want, if the if the electorate says, Alright, you know, you’ve been trying to convince us that, that the end of the world has been coming for 30 years, it hasn’t arrived, we no longer trust you. Sure, that might happen. And then, you know, government could change things, but you know, so it’s a bit hard to change stuff in legislation, a lot of damage can be done in the meantime.
Gene Tunny 34:20
Okay. So on where it’s where they’d make the change, it probably wouldn’t be in the act, they would have it in the agreement between the treasurer and the Reserve Bank. If I remember correctly, I think the general view on the Reserve Bank act from the late 50s Was that all look, you know, some of the language is a bit outdated. But you know, maybe leave that alone, you can do all you need you want to do within the agreement between the treasurer and the Reserve Bank. So I think that’s where they would, they would adopt something like that. So yeah, just on that Reserve Bank X, I think, I think what I talk about in that is that the Reserve Bank is supposed to set monetary policy to, to have a stable currency to have to achieve full employment and to promote the prosperity of Australians or something. Something broad like that. Yeah. Yeah. So they’ll probably leave that. And then they’ll, they’ll do whatever they want to do with regard. If they if they did want to put some wording in about climate change, it’ll probably be very vague, because it is all very vague. What’s, you know, what do you? We don’t really, I mean, I’ve got no idea what’s going to happen here in Australia. I mean, politically, it’s, you know, it’s such a vexed issue. And you’re saying is not in the top 10 issues in the US, it’s certainly in the top 10. It’s top five, top three here in Australia. I mean, the previous government lost Blue Ribbon seats, seats that it’s held for decades, seats in affluent areas of Sydney and Melbourne. And it lost them because of climate change was people in those seats are extremely concerned about it.
Darren Brady Nelson 36:07
Yeah, look, there’s a different point of view. You know, that? Certainly they did. But I wouldn’t extrapolate to say that, that is a that means Australia as a whole, has the same views as these inner city suburbs, they’ve just changed the demographics and the ideological viewpoints of these people. That’s why That’s why they lost. You know, these are, you know, just like we’ve seen around the world, it’s, you know, the, it’s the rich and upper class professionals who gravitate towards status policies and status causes, like climate change the working class, and in the middle, and lower middle classes do not. And you know, electoral politics, you know, isn’t just a straight representation of what the entire nation views necessarily. And putting aside the fact that the polling is often biassed and bad and misleading and all that sort of stuff, but that decide. So, ya know, I’ve seen some other people who, you know, Australian, you know, intelligent Australian commentators, James Allen, and people like that. We’ve been having a bit of look at that, to see whether that, you know, that mainstream narrative is actually true. They certainly lost obviously, those seats, they were blue ribbon, but they’ve been changing and moving left for a while now. So many are burdened with just comedy, obviously, particularly in the in the US, you know, how climate change is almost really a non issue from you know, abroad electorate point of view, not, you know, not any specific electorates. Yet, that doesn’t stop the policies from carrying on and then you have all these perverse outcomes of like, you know, I imagined Albanese will get more copy a lot of what the Biden administration so, you know, the push for electric vehicles? Well, you know, electric vehicles are still being produced by coal and natural gas, you know. So you’re really in many ways, you’re not, you actually might even be increasing carbon dioxide emissions through transitioning to electric vehicles from from petrol vehicles. And the fact is, you know, most of the world is actually increasing the use of coal, mostly India, China, Brazil, etc, etc. And even there’s even been a coal like I said, there’s been a coal comeback, even in Western countries as electric vehicle usage gets ramped up. So you know, that and these people don’t go, oh, no, we, you know, they still keep the same people who say there’s an existential problem, keep on producing, keep on pushing electric vehicles, for instance, so that their actions speak louder than their words that it isn’t really an existential crisis. It putting aside the fact obviously, all these elites tend to keep on buying beach side homes and all these sorts of stuff. I think just look at their actions speak much louder than than their words. So we’re getting this system where we get a worse electrical system because they keep on showing throwing more and more unreliable and expensive renewable energies on top of it, yet, they’re not actually starting to take much of the load of electricity production, they’re just sitting there costing more money and hurting the rest of the system. Yet, we’re still relying, and we’re going to keep on relying on on coal and natural gas and the only renewable energy we’re going to lie and it’s going to be, you know, water, hydro, and, you know, putting aside the fact you know, allow many new hydro to be built, but it’s bloody reliable. You know, us Quebec, is, you know, if it wasn’t for Quebec, all the hipsters in New York would be having more blackouts because they’re wrong on water that you know, hydro from Quebec coming down into the US.
Gene Tunny 39:55
Where is that is that near Niagara Falls, or is it is that up in that Region. Yeah,
Darren Brady Nelson 40:00
I mean, kubek is like, you know, the king of hydro in that part of the world, not just for Canada fact, Quebec is mainly supplying electricity to the US part of the population bigger. And that sort of the northeast of the US. So, you know, that’s kind of insulating on, you know, the sure they can shove on some more solar panels and wind, but that’s not really generating a lot of electricity. And we also the perverse effect from that, you know, you know, the main thing that, besides all the kind of pollutants, the actually the toxic sort of chemicals, and all the stuff that it’s needed for electric vehicles needed for solar panels needed for wind turbines, which obviously have detrimental environmental effects. They need coal, natural gas, and hydro to make those things in the first place. Not just to be the ones that really, you know, supplemented when the winds up blowing, and the sun’s not shining. But if it wasn’t for all the, you know, the fossil fuels, it couldn’t even build this stuff in the first place. So it all you’re doing is shoving all this stuff, people making a lot of money. A lot of people are virtue signalling, you know, sort of, you know, they keep on crying wolf for what, like 30 years now. There’s, you know, there’s nothing, you know, there’s there’s no significant evidence that we have a problem. Well, I’ll
Gene Tunny 41:15
push back and say we just had a 40 degree Celsius day in England that they’ve never had in their whole history. And so
Darren Brady Nelson 41:23
you go back, and we look at the Paleo challenge. You look at the evidence, all right. For instance, in the US this damn out in the Colorado River is having you know, it’s because of climate changes is at its lowest level, lo behold, a study, you know, two weeks prior to them making such statements show that they’ve had more levels on the Colorado River 2000 years ago, you know, so, no, I mean, yeah. And we’ve had warmer periods, we’ve had more carbon dioxide in the atmosphere in times. No, none of this. None of this is accurate. It’s all cherry picked to scare the poop out of people to accept these policies they want anyway. And you watch it when we’re old men, we’re going to be the people will go yeah, we’ll look okay, this thing didn’t happen. But I think it was the right thing to do anyway, you know, you hear that a lot. Even now they go like it will even for wrong, it’s the right thing to do. How’s it the right thing to do to make people poor? And have people in Africa starve? How’s that the right thing to do?
Gene Tunny 42:22
Okay, so in a future episode, we’ll have to come back to this. Darren, and we’ll see where we are with the with the data.
Darren Brady Nelson 42:28
You want to see the green policies and action. Look at Sri Lanka.
Gene Tunny 42:31
Yeah, yeah. Look, I’m not I’m not. Yeah, I’m not advocating for these policies, necessarily. Yeah. But I do recognise
Darren Brady Nelson 42:42
that you that’s just kind of a, like, whoever’s watching this. It’s like, you know, you want to see the future, the potential future that Sri Lanka, that’s, you know, that that’s, you know, the way you know, Australia could look, you know, if they’re not careful.
Gene Tunny 42:55
And what did they do? They actually required organic. Org organic produce, did they they been did they ban the importation of some fertilisers?
Darren Brady Nelson 43:07
Lasers? You know, yeah. So, you know, that. Yeah, fertiliser was was the main thing using, you know, green organic things instead of actual fertiliser. You know, they’ve really, you know, this is what this is, what’s happened in countries like Sri Lanka and African countries is to get their aid money. They do the green agenda, essentially. And it’s just a disaster. You know, I’ll tell you the countries that won’t be it won’t be China won’t be India, you know, the bigger countries that don’t need the foreign aid. You know, they’re not going to it’s like, yeah, fine. And there’s also strategic implications, obviously, yes, yes. We’re, you know, who controls the green energy market? Ultimately, China, Communist China
Gene Tunny 43:51
produces a lot of the solar panels. That’s correct. Yeah. Yeah.
Darren Brady Nelson 43:54
When to their, you know, if they are almost a monopoly on this, you know, and increasingly, all the support technology for it as well. So, and in China, this is not a coincidence. It’s not like, who the market chose China, they were just the best people to do it. This is like, this is a plan. It’s a strategy by the Chinese government, they, and you can see it’s written down. There’s books written on this by them to say, Oh, this is what we’re gonna be trying to do, you know, that basically, it’s their mind calm. So don’t be surprised, you know, like, you know, when they when some of this stuff comes true. You know, they have a plan that the Chinese economy is not a free market economy by any stretch of the imagination. You know, it’s it’s a government controlled run for the purposes of, you know, for the benefit of the Communist Party and the strategic interests of China. You know, this is it’s not like you’re dealing with, you know, the Netherlands, that sort of thing. So that’s also a huge thing. Because they’re an aggressive mode. Free power. And you know, when the time’s right, you know, they’re, they’re gonna take action, you know, Taiwan and whoever else, you know, eventually over over time gets in their way. So, you know, to aid and abet this, you know, through these green policies that, that are aimed at a problem that doesn’t really exist or certainly not in the scale. And certainly, even if the problem doesn’t exist, too deep, you know, to essentially decarbonize the economy is just like literally the worst solution for it. And to decarbonize it in a way that, you know, benefits China immensely. These just terrible policies the whole way through and, and, you know, you know, you know, people hopefully one day will be held accountable for this.
Gene Tunny 45:46
Rod. Okay, we might go back to GDP just before we wrap up, and yeah, I think I agree. Look, there’s a big book, there’s a big debate to be had about those, those policies for sure. I mean, from Australia’s perspective, given that mean, we’re such a small part of the world doesn’t make sense for us at this stage to to adopt those policies on a large scale. I mean, we, I mean, we should, my view is we need we should try to cooperate internationally. But we need to ensure that that other countries are following through with their commitments. And I’m not sure that that has always been the case, or it is the case. So that that’s my, my perspective on that. Bond GDP. I guess the view is that, that my sort of thought is that Janet Yellen certainly went too far. The US possibly could be in a recession, despite the fact that jobs growth has been strong, despite the fact that you’ve got unemployment at 3.6%, you could be going into a, you could be in a downturn, the GDP figures, if you look at the composition of them, you had inventories falling, that was a big part of it. So businesses were selling goods, but they weren’t replacing their their inventories. So that that could be a signal that they’re not expecting. They’re worried about the future about future sales, we had a drop in residential construction. That was one. And so that’s, that’s probably driven by the increase in interest rates. At the same time consumption spending was up. So that’s why the summer economists are thinking it’s a bit of a mixed report. And and we’re not entirely sure, but yeah, my take on it would be, yeah, the GDP numbers are definitely something be concerned about. And Yellen probably went too far. When she said, not, we’re not in a recession. I think that certainly could come back and invite her. Do you have any final thoughts on the GDP numbers? But where the US economy is that
Darren Brady Nelson 47:55
pretty much agree with what you just said? And obviously, time is going to tell. I think the bad ministration policies are very bad. And that’s going to come home to roost. So I think, you know, it’s not going to be good times, economically for the US and if it’s not good times, economically, for us, it’s not worth it. Kinda, you know, is obviously a major player, but it’s not the really, you know, in terms of, it’s not the engine of growth for the world. Just yet, the US still pretty much is so you know, when the US sneezes everybody catches a cold.
Gene Tunny 48:39
Yeah, yeah, that’s right. I remember that. That was a that was a popular. So it’s a popular scene in Australia, in the Reserve Bank and Treasury. So yeah, absolutely. Okay. Darren Brady Nelson. Thanks so much for your time. It’s great to catch up. Yes. And I look forward to chatting with you again in the future.
Darren Brady Nelson 48:58
Always great to be on your show and see Eugene, thank you.
Gene Tunny 49:02
Thank you. Okay, that’s the end of this episode of economics explored. I hope you enjoyed it. If so, please tell your family and friends and leave a comment or give us a rating on your podcast app. If you have any comments, questions, suggestions, you can feel free to send them to contact at economics explore.com And we’ll aim to address them in a future episode. Thanks for listening. Until next week, goodbye
Thanks to this episode’s guest Darren for the great conversations, and to the show’s audio engineer Josh Crotts for his assistance in producing the episode and to the show’s sponsor, Gene’s consultancy business www.adepteconomics.com.au.
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