Donald Trump has two sides. One side takes actions to stimulate the US economy via business supportive policies, which sometimes are outside the square. The other side manipulates his media messages, which have proven to be unreliable, with his many “war is over” public revelations being a case in point. And news out today tells us Treasurer Chalmers seems to be taking Trump lessons on delivering dodgy media releases, while unfortunately he’s yet to take a Trump tutorial on how to back business.
The AFR today reveals that “Treasurer Jim Chalmers has backflipped on the government’s approach to forecasting productivity to avoid an embarrassing downgrade in a major report released next week.”
The AFR’s Deputy Economics Editor Michael Read has revealed the news about statistical book cooking, which looks staggeringly worrying. “Treasury advice prepared last month and seen by the The Australian Financial Review shows the government has dumped the 20-year average previously used to set productivity forecasts and reverted to the Coalition-era 30-year average, methodology Chalmers once described as ‘rubbish’,” Read reported.
This change to what was once used for predicting productivity has been manipulated for next week’s Intergenerational Report. By switching from 20-year forecasts to 30-year forecasts, the Treasurer can avoid going public that our productivity expectations needed to be downgraded. No Treasurer wants to be linked to pathetic productivity prospects on their watch, so Jim has called for a new numbering process to keep his figures looking pretty damn good.
But the problem is that he and his Treasury team are cooking the books and rearranging reality, so thank the Lord that Read and the AFR can inform the public of such ordinary behaviour. The only problem is that the mainstream media and the social media platforms that carry most of the news nowadays to the majority of voters won’t find this sexy enough to compete with some salacious story from the celebrity-dominating world that captures the imagination of modern Australians.
That said, I have a problem. Jim and Treasury’s book cooking on productivity might be actually more right than wrong!
The AFR says Treasury wants to use an average productivity figure of 1.2% over the next 40 years, which is at odds with the RBA, the NSW Government and many economists, who say a number around 0.7% or 0.8% is more believable.
Meanwhile, the AFR explained that “HSBC chief economist Paul Bloxham said Treasury’s 1.2 per cent productivity growth assumption was unrealistically high.
“Over the past decade, Bloxham said annual productivity growth had averaged just 0.3 per cent.”
Who is right will depend on how AI will pump up productivity and this is where the Treasurer and his team of obedient number crunchers could be on the money.
The government’s optimistic forecast relies on the premise that artificial intelligence will deliver economic gains, a scenario that has so far failed to materialise.
On Tuesday night, I listened to legendary hi-tech US fund manager Cathie Wood, who’s in Australia explaining her ARK Venture Fund, which has been brought to Australia by Associate Global Partners, which I hold shares in.
More relevantly to this AI call story, Wood explained how since 1900, average global growth has been 3.1%. Wood talked about how this could grow to an unbelievable 7% number which would shock economists, including me!
However, she isn’t alone seeing the potential of AI.
This from Oxford Economics shows Jim and his economics team could be on the money.
This is what the economic thinktank from the UK has told us: “How artificial intelligence (AI) reshapes the economy is one of the most consequential, and most contested, questions in macroeconomics at the moment. Rather than settle on a single answer, we put bounds around it: four modelled pathways for growth, productivity, and employment. By 2060, G7 GDP could be 8% higher in an AI Breakthrough scenario, while a Disappointment scenario may see it fall by 4%.”
What this says is big numbers are possible, but those big numbers for growth, 8% or minus 4%, so, this gives Jim an excuse for changing his view on productivity projections using 30 years rather than the 20 years he previously said were more reliable figures for forecasting productivity.
I think AI has enormous potential for elevating economic growth but it will need governments that permit it to be used effectively to ensure productivity rises to cut costs and lower inflation, as well as interest rates.
AI is potentially the magic pudding or secret sauce that could solve a lot of our economic problems, such as very low productivity, but we need a Treasurer who doesn’t put too much heat in the ‘kitchen’ such that key investors and business builders want to get the hell out of here!
Anyone interested in Wood’s track record, here’s her ARK Innovation ETF chart since October 2014, which shows that it is up 308.15% or around 25.6% per annum since inception.
ARK Innovation ETF (ARKK)
History has shown that she has copped ups and downs believing in hi-tech, Elon Musk, AI and the potential of the USA, but it has all been on a rising trend.
