Inflation, tariffs and productivity. August 1, 2025

In short

Podcast Summary: Motley Fool Money - Episode on Inflation, Tariffs, and Productivity (August 1, 2025)

Overview In this episode of "Motley Fool Money," hosts Scott Phillips and Andrew Page discuss critical economic issues, including recent inflation trends, potential interest rate cuts, and upcoming tariffs. They also touch on the significance of productivity and government interventions in the economy.

Main Topics Discussed

Inflation Trends
Recent Inflation Rates:
Headline inflation fell to 2.1%.
Trimmed mean inflation stood at 2.7%.
Noted that the trimmed mean excludes the top and bottom 15% of price changes to provide a more stable average.

Implications:
Discussed the RBA's (Reserve Bank of Australia) forecasting challenges, emphasizing the wide confidence interval indicating uncertainty in future rates, which could swing from 0% to 5%.

Impact on Interest Rates:
Speculation around potential interest rate cuts given the low inflation rates.
Noted that if the inflation rate continues to trend down, there might be room for up to three rate cuts.

Tariffs and International Relations
U.S. Tariffs:
Mentioned Donald Trump's potential increase of tariffs from 10% to possibly 15% or 20%.
Discussed how these tariffs could heighten inflation and impact both the U.S. and Australian economies negatively.

Market Reaction:
Acknowledged the market's evolving perception of Trump's tariff announcements, with less immediate concern compared to earlier reactions.

Productivity Summit
Skepticism Towards Productivity Initiatives:
Phillips expressed skepticism about the upcoming productivity summit, arguing it would likely result in more discussion than action.
Critique of government initiatives as often being PR exercises rather than substantive changes.
Suggested that genuine productivity improvements could come from simpler, more direct actions rather than lengthy talks and bureaucratic processes.

Corporate Welfare and Economic Implications
Discussion on Mount Isa:
Addressed potential government support for Mount Isa’s copper smelter, highlighting the issue of corporate welfare.
Criticism of propping up failing businesses at taxpayer expense, arguing it distorts market dynamics.

Moral Hazard:
Noted that continuous bailouts create a moral hazard where companies might take undue risks, assuming they will be rescued if they fail.

Call for Real Accountability:
Phillips emphasized the need for politicians and bureaucrats to be held accountable for economic decisions that have widespread impacts.
Criticized the lack of genuine economic reforms stemming from political motivations and lobbying interests.

Key Takeaways

Economic Forecasting Limitations:
The uncertainty surrounding economic forecasts, especially regarding inflation and interest rates, highlights the complexities of economic management.

The Role of Tariffs:
Tariffs have a dual impact; while intended to protect domestic industries, they often lead to higher consumer prices and inflation.

Government Interventions:
Governments should focus on effective, evidence-based policies rather than performative discussions that do not lead to real change.

Need for Simplified Systems:
Complex bureaucratic systems often fail to serve their purpose effectively, suggesting that simplifying processes could yield better outcomes.

Critical Examination of Policies:
Encouragement for listeners to critically assess government policies and initiatives, emphasizing the importance of transparency and accountability in economic governance.

Conclusion The episode underscores the importance of understanding economic trends and the potential implications of government policies on everyday lives. Phillips and Page advocate for a more straightforward approach to economic issues, urging both consumers and policymakers to engage with the complexities of modern economics critically.

Written by AI. May contain mistakes. Listen to the episode to check what was said.

Hear the part that matters, and keep it.Open this episode in VO. Double tap your headphones to save a moment as you listen.

Get VO free

Transcript

Automatic transcript. May contain errors.

0:07Welcome to Motley Fool Money, the podcast that might put its hand out for a little bit of government support like everybody else in the country. I'm Scott Phillips from The Motley Fool. He is Andrew Page from Australia's premier online investment club. If I'm not mistaken, the business known far and wide, sometimes confused with The Wizard of Oz, but otherwise known as strawman.com. Mr. Page, welcome back, sir. Welcome. Welcome back to you. Thank you. We were never gone, but it's been five weeks since we just spoke. And as we just said off air, wow, has that been five weeks? It doesn't feel like five weeks.

0:43It was like maybe a couple of weeks, but time is a flat circle, as I like to say. Also flies when you're having fun. It does. Probably that's part of it as well. It's not much more fun than doing what we do. Mates, a big five weeks and then not much happening. Markets had all-near all-time highs, so that was kind of nice to be able to go away. I famously said every time I've never done anything with my portfolio when I've gone away for any length of time because it goes up or it goes down. What if it goes down? What if it goes up? It went up, so I was happy about that. You need to go on holidays more often if that's the impact.

1:15Well, by the way, since I've been back, the mark's gone up every day. So I'm just saying, you know, you're welcome to Australia. You know, so look, you and I have talked. Let's pick up where we left off. You and I talk regularly about the folly of forecasting and making predictions, right? And can I say, I'm not someone who loves Schroden-Froden necessarily. I try and be a little classier than that, but I did. You're a better man than I, but yes, go on. Not entirely, because I'm about to say it. I did thoroughly enjoy, and apologies to those people who are of the yoke I'm about to speak. The market had said there was a 95 % chance of a rate cut last time the RBA met, and they didn't cut rates.

1:55They went, oh, we were sure you would. Yeah, that's kind of the thing. So I did very much appreciate it. Every now and again, the RBA should do that, just to remind people that trying to forecast, I guess, is stupid. So for everyone who was slavishly following those forecasts, lost a lot of money, trying to bet on currencies and God knows what. Well, again, good sharding for you. Good luck to you. You've reminded me, I saw an article in the AFI, I've got it here, July 25. Christopher Joy was writing about the RBA forecast here. So they did a bit of, they crunched the numbers on some of this. And they're basically sort of saying it's a coin flip.

2:30Like that's the good of it. So just to give you a quote, to give you a sense of how tough the forecasting challenge is for the RBA, Kulabar, that's his fund, estimates that 95 % confidence interval around the central bank's one-year-ahead forecast of 2.6 % for core inflation spans from 0.7 % to 4.5%. That is a total word salad, right? And like people going, I don't get it. So he goes on, put more bluntly, the RBA is 95 % confident that within the next 12 months, it could be slashing interest rates to zero or raising them to above 5%. So just when you pair back the language here of confidence intervals and statistical standard deviations, in plain English, they're basically saying we're not 100 % sure, by the way, because you can't be 100%.

3:19We're not 100%. It could be outside of that range. But we're 95 % sure. And this isn't in 10 years. Let me just hasten to add. In one year, with the 800 different PhD economists that we employ, we're pretty sure it's going to be between 0 % and 5%. My grandma could get that accurate. She's never studied a day of macroeconomics in her life. Anyway, I couldn't help but tweet out. It's just like, how does anyone take these guys seriously anymore? And yet, there's an entire field of economists who will happily make their own forecasts on the back of that. so you kind of for Joyce that's fine I don't know whether he makes forecasts of rate movements or not the rest of the world does and to kind of go stupid RBI they don't even know I'll make a forecast though it's like hang on so you kind of I've told this story before I think I've told it publicly I'm sure I have I was sitting at a news desk with another analyst at one point talking about company guidance and I said oh you know companies don't know what's going on why would you bother he said well what else do we put in the spreadsheets so if you know that was actually a banger of a line right if it was if it was sarcastic and a little wry yes that's right oh no you're serious yeah oh you're being serious right now yeah okay I'm gonna put something in the spreadsheet so I'll take your number even though I know it's wrong it's like well okay fine let's go with that okay alright so enough enough joy at other people's sorrow and loss mate well maybe not enough but enough for now never enough never enough this week though I'm not gonna speculate on rates i have a view but i won't speculate um pretty good inflation numbers i thought 2.1 percent was the headline rate for the last 12 months um 2.2.1 percent 2.7 was the trimmed mean by the way i'm going to explain that only because someone asked me on twitter i looked it up and i don't i think i've ever explained what the trim mean is specifically so i'll do it just for fun the the abs the bureau of statistics take all the information all the data of all the products right everything going up and down and they crunch all that together to get an average headline inflation rate.

5:21Headline just means total, average, aggregate, call it what you want, that number. Trimmed means, well, actually, there's a really, really, really big range of increases and decreases. And it's probable, in their view, and statistically, I think it's probably true more often than not. They're smoothing it because they said, well, there's some stuff that went down, but that's kind of unusual and an outlier. There's stuff that went up, that's kind of unusual and an outlier. Let's kind of take off the rough edges. So the trimmed mean literally they take off the top 15 % of price increases and the bottom 15%, which could be decreased in some cases, I'm sure are, and they average the middle 70%.

5:56So that's what the, if you ever wondered, trim, they trim off the top 15 and the bottom 15%, and the mean is just the average. So they average what's left. And that's the 70 % in the middle. So that was the trim mean. That was 2.7%, still under 3%, still a little bit higher than the midpoint of the range, the jargon the RBA uses these days. In other words, they say two to three, so two and a half the target effectively. And they're still a little bit above that. Here's the other one I wanted to share with our listeners, mate. And you know this, but I'm going to try and do this justice in an audio format, which is hard to do.

6:26If you look at the way they do an annual number is they basically, you're comparing it to this time last year, right? But what we know during that is this four quarterly buckets in a year, right? Obviously. And the last four from the oldest to the most recent were 0.2%, then 0.2%, then 0.9%, then 0.7. So keep that in mind, 0.2, 0.2, 0.9, 0.7. 0.7 was the most recent one. Every time you do a new quarterly inflation dollar, you effectively drop off the last quarter, add one, right? Let's imagine kind of leapfrogging forward one at a time. When you do that, we're going to drop off one of those 0.2s.

7:04now if i would suggest when but no one knows for sure the next one comes out if it's more than 0.2 even if it's less than the 0.7 we got this month or this quarter if it's more than 0.2 in other words you're dropping off 0.2 you're adding something back if we're adding 0.3 or 0.4 or 0.5 or less than 0.7 the annual inflation rate will actually go up so if that's kind of a bit weird just kind of think it through right down on a piece of paper if you need to uh if you actually you want to see it, I've tweeted about it. If you're on Twitter, at TMF Scott P, you'll see the actual ABS graph. We can go to the ABS website and see it.

7:36Basically, what I'm saying is this is about as good as it gets unless quarterly inflation drops to almost zero. It is going to go back up because mathematically, it just has to because that's the way the numbers work. Now, it doesn't have to if inflation is less than 0.2 for the quarter, but it would be a remarkable fall for the last two, which were 0.9 and 0.7 % respectively. Did I do that? Any justice, mate? Can you help our listeners uh no i think you did it pretty well um i'm just i was just searching up the tweet i'm finding it here so headline fell to 2.1 which is excellent trim mean meaningful at 2.7 quarterly at 2.7 is 2.8 percent if annualized so we need right right right yes no no you've made it perfectly clear i i don't know what i would add the charts there too that picture would show 0.2.2.9.7 do you know what i'll pull you up on this please because it's it's just a bugbear of mine and you've done nothing wrong you've done nothing wrong because it's what it how didn't say what you wanted me to say well that's always that is always an error everywhere and always an error um but but what we do is we plot these charts as percentage change which is deceptive and i i think that if you want accurate but deceptive it's absolutely accurate it is but i just what am i getting at here i think when you the the pub test is a is a good test right And you went into any pub, cafe, whatever setting you want to do for the average person, quote unquote, and sort of say, here's an inflation chart because I don't know.

9:02It's sort of this wiggly line. It kind of seems to oscillate sort of between one and four more or less over, you know, 95 % confidence interval. They would, I'm sure, very quickly add. But that's not what we experience. What we experience is how prices change over time. So what is the better chart is the cumulative change in prices. Yeah. And it's a small point, but I just think whenever I see charts like this, it just sort of looks like not much has happened because it's a death by a thousand cuts. Everyone knows this in their bones, right? Because we're living it. Unless you're an asset rich boomer.

9:38Sorry. I had to throw that in there just for a bit of spice. But for everyone else of us, we know it in our bones that it's just sort of like there is something that's almost – you're not doing this. I'm not hastening the word. No, I know you are. But the iconocrat who gaslights you into going, it's 2.1%, what are you worried about? And it's like, well, all I know is that every hour I work is worth about 20 % less than it was five years ago. I know that the bank account that I had that had$2 ,000 and it doesn't buy$2 ,000 worth anymore. So you're telling me that there's some trim mean inflation that's 2.7 % and you're telling me that that's good and that I need to stop worrying and that, wait a sec, there's a politician on the TV saying, hey, we won.

10:22Inflation's fixed. It's like, well, I don't feel that. I don't feel – and I just think that's – it's a more accurate chart if that's what you want to get at. And no one presents it that way. It's probably trying to understand, exactly. Well, you know, to give some heft to that point, mate, when you're talking about it, I've gone back to share prices. If you look at share price chart, you don't just see a sequential up 1%, down 1%, up 1%, down 1 % every day. Otherwise, that chart will be roughly flat, right? You see the aggregate price over time. Imagine the inflation chart, a share price chart in quarterly blocks where it said just plus five, minus two, plus five, minus one, plus eight, plus three, minus two, minus one.

11:02Look, that's good. Shares are going up again. The last couple of months, the share price has gone up a bit. Yeah. It's like, well, okay, but in aggregate, what does that look like? Am I richer? And to your point, that's... And by the way, I don't think they do it deliberately. I think it's a way to explain the changes because the other problem with the aggregate chart is if you're looking at the most recent change, if you get an all-time chart for Berkshire Hathaway and then you look at the last month and try and work out whether the price are up or down, you can't see it. So it's informative, but it's not the story.

11:28The irony, of course, is the ABS and their data actually uses exactly what you're talking about. They base inflation to an index of 100. I think September 2017 for the month, I looked it up the other day. So the number goes up. So the number was 126.7, I think, the most recent quarter, and 126.4 the quarter before. In other words, it's 26 % more expensive than it was in 20, what did you say? 2017. 2017. That's the last one. Okay. Yeah. And it was, well, we can argue about whether it should be inflation or not, which I know you have a view on. But from 2017 and 2020, it was pretty negligible. So it's 20 % in the last five years, as you've already pointed out.

12:03It's really, it's huge. And the thing is, and this is why I like this idea of a K-shaped economy. I don't like it at all. I hate it. But I do like the framing of it, which is there'll be two broad buckets of people listening to this who go, that's not my experience. Things feel pretty good. And there's those, it's like, yes, that is exactly right. And you're like, what's the difference between those two buckets? One bucket has assets because inflation tends to be good for assets because money, you know, value seeks a shelter is what it tends to do because humans aren't idiots. As a general rule, we like to like preserve the purchasing.

12:40Let me walk that back a little bit. It's like to be too general. Yes, conceptually, I'm with you. No one in Australia, not even the 70 IQ, you know, right left end of the curve person, thinks that leaving their money in a bank account for 10 years is good. No one thinks that that's a good idea, right? Bill and inflation is a thing, yeah. Because we know it's a thing, right? And it's just sort of like everyone gets that deeply in their bones. And so it's sort of like, it's just, you're right. It's not that anyone, I don't know if it's an intentional misdirection or anything like that, but I just, I can empathize with the common man, quote unquote, who looks at that and goes, you're all full of, you know what?

13:22That's right. You know, and you go, well, actually, actually if you look at it from an kind of static, it's like you have F off, right? Like that's just, it's a bit of an insult. And again, if it is, if you, if the, And this is what really tugs at the heartstrings. Like for millions of people, like the real value they have is the labor that they have to offer the economy. And like, we've just made your labor less valuable. And any cash that you've managed to scrape together, we've made that less valuable as well. But the stock market's at a record high. So, and unemployment's low. So, what are you complaining about?

13:56I will say, I mean, we do need to also look at those things, particularly on income level from a real income basis. It's not just the price. It's, you know, you've said many, many times, is the only thing that really matters price-wise is how many hours do I have to work for a thing? That's all that matters. And so the price is not, if you've got a pay rise and the price goes up, maybe there is no difference in the number of hours worked for per thing. But yes, you're right. That's what they call the real purchasing power, i.e. wages adjusted for inflation or inflation adjusted for wages in either case is what we really should be looking at.

14:24Again, the ABS doesn't produce that either. And you've said lots of times, it's a single aggregate basket. If my wage goes up and yours doesn't, we both have a different experience of real inflation, right? Because everyone's circumstances the difference. And it just quite comes back to, I'm really not trying to instigate a class war, I'm really not. But if you're a QC or a brain surgeon or, you know, it's like you can name your price. You just can't, you have such bargaining power on that. And I've picked some very top tier kind of professions there, but there's a long list of just, you know, it's like, I have a pretty valuable skillset as a coder or whatever I happen to be.

15:01You know, I can turn, when inflation goes up and turn around and say, I need more of a, I need, I need a race. Right. When you're on a factory line or cleaning toilets or something that's less glamorous and where there's less of a supply issue, you don't have that. And so you, in real terms, you very much go backwards. So it's sort of like, it's just, I don't know. My only point is here is that we've always got to be careful with economic measures is that we can draw from it this narrative that we want. and I'm as guilty as that as anyone. And the other second point is that we all of us do this.

15:36We all look at it through our own lens. I'm feeling better or I'm feeling worse. Therefore, that's just the state of play. And it's just, you said it, it's an average aggregate thing and it's deeply inaccurate as a result of that. It's still telling because average is better. It's something and it's what we can't literally list every single person's like real wage change over the last five years. And know their basket of goods. We can't do it. We can't do it. So we're kind of framed. But I just like to make the point because no one does it. And I go out of my way to find and read this stuff. It's just always framed in the same way.

16:14And every now and again, I think it's worth just saying, well, there is a different perspective here. I like it. Last thought for me is one you normally thought you were going to say, actually, which is when we say inflation is coming down. Yes. What we're saying is the rate of increase has slowed. So prices aren't coming down. Yes. We're punching you in the face a little softer than we were just a moment ago. Which we'd all prefer, right? If you've got to punch me, softer is better. So, you know, if we're going to have inflation, less is better than more. So it's a win. It's a win. But prices took out just less quickly than they were.

16:44And it just matters, right? Well, it's interesting. This is a whole other point. Let's not go there, but I'll just say this and might drop and walk away. There's one thing. This is what I really struggle with, and I've really contemplated deeply in recent years, is it's not just that that is the state of play. Yes, prices have been going up at a certain rate. What's more fascinating is, yeah, we design it that way. We want that to happen, and then we say it's a good thing. Now, that's a whole other conversation. We'll have it one day. One day we'll have it, but it's kind of like, again, to the person who is disinterested, more so because they're just too busy trying to get on with living and putting a roof over their head, it's sort of like, come again?

17:30We're not just talking about the outcome because of quote-unquote global macro events. We're talking about, no, no, no, we target this. We design it this way. And it's just kind of interesting. Anyway. I will say again, and we've talked about the RBA before and what they sure shouldn't do. But just for the sake of clarity, will I cut rates next time they meet? I have no idea. No one else knows either. Everyone had guesses with various - They're going to be data dependent. in time. Well, so that's the thing, right? So the CPI 2.1%. Monthly inflation by the way for June was 1.9%. So there is some sense it might be coming down further.

18:09Wait, is it monthly was 1.9? Yeah, for June. Over the year? Yes. Okay. By the way, the quarterly CPI is going away in October. I had missed this. Why? They've had the monthly one running alongside the quarterly one for almost a decade. A bit over a decade. Almost a decade. they're now comfortable enough that they will start doing the quarterly and what they'll do is they'll be doing two thirds of the basket so basically saying we'll sample two thirds of the basket which is easy to collect do that every month but do the really proper full go every quarter they're now going to take the quarterly one the entire process does that every single month we're going to have a monthly inflation number which will be legitimately all items which means there won't be added up to the quarterly but basically moving forward from October we'll get a monthly CPI which is a a high quality CPI, higher than the previous monthly one we've got, and as good at quality.

19:00And we can argue about sampling and stuff, but the accepted goal standard is the quarterly one. That methodology and data will go to monthly from October. Okay, so we're just doing it more frequently. Yeah. What I was going to say was, just to inform for those listeners, you probably all know, to inform our listeners, the RBA has said they want insurance to be sustainably at the midpoint. That's 2.5%. Now, we've already talked about the fact and may not stay at 2.1, so they won't be carried away with that. They've also said in the past they think neutral rates, in other words, neither stimulatory nor contractionary, so they're not trying to add or remove demand from the economy.

19:36It's about 3.5%. I think I've said before there was some work done late last year, so that might be as low as 2.9 % now, that neutral rate. Either way, they're at 3.85%. So the thinking of the RBA will be that they want to get – If the economy doesn't need stimulation or retardation effectively, then somewhere between three and three and a half is probably neutral. Now, they're 3.85 % now. Effectively, when they no longer have to slow things down inflation-wise, we should expect a cash rate between three and three and a half. Again, I don't know what they will do next time they meet, not as anyone else, but reasonable to believe based on their own methodology and their own orthodoxy that they will cut rates further when they get to a neutral inflation because the current rate is contractual.

20:26So I'll just leave it there. And it may be next time, it may be the time after, it may not happen at all. My big one next time, no view on what they will do other than if they follow their own orthodoxy, there is room somewhere between one and three rate cuts to get to neutral.

20:44Let's move on, shall we? I'll just, I'll make one thing and it's going to be a little mean. No, it's going to be very mean. But I, and I don't want to name names or anything like this, but sometimes it's worth digging into the authors and the methodologies behind some of these statements. Not specifically what you're saying, but I saw read during the week, the RBA. You. Yeah, I know, right? The RBA said, oh, our 2020, July, 2025 bulletin has been released. In this, we've got some papers on how the global shipping costs affect Australian inflation, international students on the Australian economy, and some real-time labour quality index.

21:23So very, very econometric kind of deep, dense kind of stuff. From the Reserve Bank of Australia, very official. And you go, well, that's interesting. So obviously, the one that caught my eye was the global shipping costs causing inflation during the pandemic, which I've got a very strong view on. Anyway, I read it. It was 13-page of dense econometric kind of analysis. And I took the time because I'm just petty like this to really read it and interrogate it. And a couple of things that came out of it. One, it was a single author who was 24, 25, graduated from university with a joint law economics degree.

22:03Now, this isn't to say anything bad about that in and of itself. And apologies to anyone who's sort of in this sort of demographic and below. But at 25, you know stuff all about stuff all, right? You just do. I did. I still know nothing about nothing and I'm twice your age, right? It's just, there is no way I am listening to a 25 year old who's never worked in the real market, the real economy, who's done a couple of degrees and has done this 13 page deep dive analysis. And then the headline is, yeah, global shipping rates cause prices to go up. And like, see, see, that's what it was. And then you drill into it.

22:39And then when you actually look at it, it's like, actually, there's nothing substantive that we can take from this because the data is so messy and the methodology is still pretty rough. So in other words, when you actually look at what was said, again, putting aside the fact it was a child who said it. Oh, God. Right? There you go, listeners. I'm not having a go. I wish I was 25, right? But I don't put a 25-year-old in head, you know, like telling us all how the economy should work and like the, you know, the intricate mechanisms behind sort of the country's inflation. But basically, there's a headline, right, that says this thing and all the journalists run with it.

23:22Look what the RBA said. The RBA said this thing. Wow, the RBA, that's a huge institution, incredibly well funded, full of PhDs and et cetera, et cetera. No, this was a single 25 year old graduate student, non-peer reviewed. And when you actually read the thing, it says it was inconclusive. That's what it said, right? And I'm saying this more to myself as to anyone else. Because what you do and what I do, and we all do it, is we look for things that confirm our bias. So if you had that view, and plenty of people did, they saw that and they go, look, see? See, the RBA said it. Ha ha, I'm right. Or in my case, ah, it's wrong and I need to dump all over it.

24:02And it's just we search for these things and we look for things that have the veneer of authority. And the RBA is right up there with that kind of veneer, as is the ABS. And I'm not trying to suggest necessarily otherwise, but it's always important to go back to the source material and question it. I'd say this just with investing alone. Like Motley Fool puts out a recommendation to buy. Great. That's brilliant. Scott loves this store. Go have a look at it yourself, right? Like don't trust verify, I think, is a really, really important kind of thing to do. and more so when it comes from a very big, powerful institution because the stakes are too high to just go, trust me, bro.

24:43I think on it. Am I being too harsh there? No, you're dead right. Well, I suspect that paper wasn't published without anyone from the RBA giving a read and a tick off by someone. So the primary author made me something. I'm sure that Michelle Bullock said, anyone who's publishing anything under the RBA letter, if you work here, publish a paper, knock yourself out. Someone signed off on it. Yeah. Yeah, so it might be a little bit harsh in terms of that. But I'm a scientist. I would just say peer review is very different to your boss said, yep, looks okay. Oh, totally. But that's true of any, I mean, you and I do stuff all the time like that.

25:14I mean, if the only thing we can, if the only analysis we trust is something that's been peer-reviewed science, then, you know, the entire publishing industry can shut up shop, right? So there's degrees of, there's degrees. But you're right, we shouldn't take it as gospel the way we would take. I mean, that's economics in general, right? It's a dismal science for a reason. You know, it's not, economics is not a science. It's a best guess of what's going on. And I'm holding a mirror up to myself here. Let's say for this, there's no reality in which this happened, but let's say the RBA published a paper that said, we can't forecast our way out of a wet paper bag and we're completely ineffective at doing any of our, you know, achieving our mandates.

25:50Without reading it, I would be retweeting that. I would be shouting, I would be going, see, see. And then if you turn around and said, yeah, but it was, you know, it was a 22 year old but still right we all do it right so I'm hyper aware of it so I'm making the point just biases are real right and like always question and not you don't have to come at it from a cynical kind of place but it's good to have a healthy degree of skepticism particularly when it's coming from extraordinarily influential and powerful groups because the stakes are too high the stakes are too high to go trust me bro Cows on a mountain, mate.

26:31Cows on a mountain? The stakes are high. That's right. How have I never heard that before? I just made that up. Did you? I'm sure someone else has done it before. You said it twice. There's going to be a stake joke here somewhere. I'm sure millions of people said it. I don't recall ever hearing it. That is the epitaph. The creator of, like, on Cows on a Mountain. I love it. I'm so stealing. All right, go for it. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

Read the full transcript

27:06Mate, let's stay a little bit macro just for a second. I don't know that I have a lot to say on this, and maybe you do or maybe you don't. But it's notable that Donald Trump over the weekend, as he likes to on Sunday afternoon, I think, at his time, we woke up to the news that maybe this base 10 % tariff that was allegedly reciprocal, but hard to have a reciprocal tariff if everyone gets whacked with the same number, maybe as high as 15 or 20 percent and my my only um assumption here is he's actually been astonished how much he's got away with yeah the europeans signed and by the way i've also tweeted during the during the week which i quite enjoyed my own work on was uh donald trump saying he's got a deal on tariffs is like the school bully saying he's got a deal with the kid who steals lunch money from to steal his money every day it's like you know the deal with europe was um yeah you can you put a 15 % tariff on our stuff, I guess that's better than something else.

27:57I mean, the deal was basically how much could you get away with for the EU to say that's okay. It turned out that they knew I was going to get whacked with something and they were happy, relieved with 15%. That was apparently a deal. It's like, what was that? No, we got nothing out of it. We just, we're going to hit, get hit. Ben, your point about being punched, we got a deal. I'm only going to hit them a little bit hard rather than really, really hard. Hey, we'll just shake hands, smile, you know, sign the dotted line. We got a deal now, haven't we? So yeah, I suspect, honestly, mate, Trump's got away with what he thought he could or would.

28:24He's like, maybe I've got some money on the table here. Maybe I'm going to go back to this 10 % and so I get away with 15 out of 20. No, we don't know if it's going to happen or not. We don't know what the final numbers will be. Apparently, 1st of August is supposed to be. So this goes where on the 1st of August. It'll be still with the 31st of July US time. So I don't know. We'll know by the time this hits the airwaves. We may. But yeah, just an interesting time to be alive. I don't really have much to say in terms of the impact other than worse. Worse for America, worse for Australia. Why? Why?

28:51Because things will be less competitive and Americans will pay more. Yep. So equally bad. Well, worse than it was, but for the same reasons we've talked about before. So no real new views on this one. Any thoughts from you or observations? Well, I think the fascinating angle to all of this is that the glow, I think the broader investment community has just reached a point of, we just don't take anything this guy says seriously. We all change. Yeah, exactly. yeah like when he first came out of this oh my gosh he's doing this oh my god he's doing and now it's like well we'll see and and that's that that's that's a perfectly in fact the only rational conclusion to land on it's like for a person who changes his mind as often as he changes his underpants you know it's kind of like yes yes so when when i saw that it was kind of like i just like i'll believe it when i see it like when the ink is dry and it's actually all happened and even then i was gonna say even then it can be rolled back he'll change it that's right or change it so i think the only the only certainty is the uncertainty to to to you know i know it's completely useless kind of thing to say but it's it's kind of true so you're right it's not great it would be better with uh an actual free trade it'd actually be great to have real capitalism for once you know um but be nice also if the tooth fairy existed and it's just you gotta deal with the way things are.

30:14Correct, correct, correct. Yeah, so look, no particular news other than that's probably going to, you know, make things worse economically. By the way, and I don't want to get back into rates, but the US Fed held rates steady overnight, our time on Wednesday night. So we were putting this on Thursday morning. And apparently, it seems likely that part of the reason why is that the Fed is expecting more inflation driven by tariffs. And so they're simply having to hold rates higher than they otherwise would have. That was a split decision, like 7-2, I think. But yeah, hard to know what will happen economically in general other than, as we've said before, the Atlanta Fed is predicting a recession.

30:54The Fed board, the rate-setting board, seem to believe there's a decent chance of inflation. So they've got to keep basically the inflation protections, i.e. higher rates, in place. So more to come. What would be dangerous? I think to your point about changing your mind, I think you're right about that. The other thing I would say to people is don't believe just because the announcement's been made, you felt the impact, right? So this has been going for now six months, right? Yeah. Trump's inaugurated six-odd months ago. Thank God, it's only three and a half years left. But that's... Only. Right?

31:23Well, yeah. That's a long... This six months feels like a long time. My point is the tariffs haven't actually had an impact yet. So, you know, people say, well, the tariffs place, nothing's happened yet. The other evening's fine. It's like, no, this is not... This is still the prelude, right? Well, they have had an impact. Go on. But in a good way. And here's something that you've really got to wrap your head around as an investor or just an observer of markets and the economy is that there's this really super important concept called reflexivity, which I think George Soros coined originally. But it's this idea that this is an arena that's very dynamic, right?

32:01And all kinds of feedback loops in it. So what has happened is a lot of, well, I should say a lot, some certain economic measures have actually improved greatly. You go, wait a second, everyone's talking about how hard it is, all these tariffs are coming through, why is that? And you think about it for half a second, you go, well, everyone's bringing their orders forward to get ahead of the head. So I'm a US importer, what do I do? I was like, well, it's going to cost me a lot more very soon, so let's fill the warehouse full of it. And then the econocrats turn around and go, look, Inventories are growing.

32:37Imports have grown. Like, aha. See? There's nothing to see here. It's like, well, no, you're seeing the very natural reaction, the very rational reaction from those who operate business trying to get ahead of this kind of thing. And it's just like that is, what would you do? And consumers as well, by the way. Same. And consumers as well. If you're buying their things, if you're going to buy a TV from Japan, buy it now. Don't wait till, yeah. Back to the point, you can point to any kind of economic measure to confirm your own narrative. So if you've got the view that everything is great, it's like, well, there's some evidence for you right there.

33:09Now, that equation needs to balance. It's not exactly, but, you know, if you've pre-ordered a bunch of stuff, when the tariffs come through, not only are they going to be more expensive, but you're not going to need as much stuff because you've already bulked up your warehouse. So you're probably going to get some pretty ordinary quarters in there as well, I would suggest, right? Right. So it's just sort of, and I think this is the classic mistake of so many sort of mainstream sort of economists and thinkers that they, they, they operate in this world of all else being equal. Yeah. Which is a, which in the, in the all else being equal world.

33:43Yes. If nothing else changes, but you change this one thing, we can probably figure out what's going to happen. Except we live in a reflexive world. We live in a dynamic world. We live in a world full of feedback loops. It's chaotic. It's messy. It's full of humans, like people reacting and then counterreacting and then anticipating reaction and anticipating the anticipation of the reactions. And it's just sort of like it's why any one of these one figures in any isolation next to kind of sort of useless there. So I don't know. I don't know what my point is other than it's going to be bad, right?

34:16Like, it's just no good is going to come out of adding 15 % tax for Americans to import the stuff that they're not importing because they like the French. That's right. Because they like the cheese. I can buy cheaper and locally made, or I can buy worse things for a higher price from France. Because Viva la France. Like, no, no one's doing it. They're buying that stuff. Like, again, again, you've got to, we all do this in macroeconomics. You've got to bring it back to the human level. It's like, why are people doing that? Because they want it. Why do they want it? Because they're human. They're subjective.

34:50They just want it. My daughter wants some stupid toy thing. And I don't know if it makes any sense. But she's not wrong. That's what her heart wants. You know, I want to buy some intangible magic internet. But it doesn't make any sense. But it's what I want. I mean, who's right or who's wrong here? It's like humans are just going to human. And we're going to want the things that we want. And it's just sort of like, I don't know what I'm trying to say here. Other than all of these big high-level views are necessarily going to just miss the deep, I think, a lot of the time. And at best, what you can do is, we've said many times, is look at the sort of general direction and trend of things.

35:31There is signal in that. That change is insane, yeah. Absolutely. And the other key thing is to talk a little bit about this off-air is just to try and form your view holistically. in sort of like, there's one data point, interesting, tells you something, very limited, but it tells you something. But what's really telling is how has that changed and how has that changed in combination with 15 other really important things, 50 other important things as well. I mean, that's even true of the inflation numbers we started by talking about. There's the headline, there's the trim mean, there's the quarterly, there's the monthly, there's individual categories.

36:03And you kind of start to think about that. Okay, well, you know, why are you in the headline? 2.1%, therefore rates are cut. It's like, well, probably, but, you know, what else is in that data? What else do we know? It's why the market got so badly wrong last time. It's because the RBI had a different view of the data based on, it wasn't just number down, rates down. It doesn't work that way as well. Well, hang on, there's a quarterly and there's a monthly and there's oil and petrol and there's energy and there's housing and there's, okay, all these things. Now what are we going to do? And there's risks that come down the pike.

36:31It is absolutely, as you say, a much more complex combination of factors. Not just about inflation, but that's just a single example where there are half a dozen really good, valuable, useful numbers that contextualize each other, let alone then looking forward, thinking about why, thinking about what else might happen, thinking about the risks or opportunities. It's a very complex world. Well, which is part of the frustration. Sorry, just very quickly. Back to the RBI. That's part of the frustration because they look at CPI, they look at unemployment, and they pull one lever. So everything we just said I think is true.

37:01I think it's self-evidently true if you spend half a second thinking about it. And yet the very people who have got the most influence over all of this or certainly one of the top two key players that have top influence, And so they go, yeah, nah, we're just looking at these two numbers. And then we're pulling this one lever. Yeah, it's funny, right? Like on one hand, I was going to say we give too much time and space to monetary policy. Yep. And I think considering it equal to fiscal policy is on one level very reasonable because money is money is money. And you've talked long and lyrically about the value of money and the price of money and stuff.

37:35On the other hand, if you had a department of the Australian Economic Management Division of Treasury. God help us, yes. No, but what I mean is, and you include all the tax and spend decisions that governments could make within there. And so, right, the economy is X. We want to take it to Y. What should we do? You wouldn't say, well, have half the people over here on interest rates and half the people over there on tax. You'd say, well, we've got, I've used the FA18 versus biplane example a million times. But we've got all these levers and dials and switches and all this stuff. One of those is the cost of money.

38:08And there's all these other ones. And, yes, the cost of money lever is a big one and super impactful and there's all those things. So it's not – I don't mean to say it's equal to any of those other choices. But, you know, if you want to – There's more dials on the dashboard. Right? And so we kind of – and that's my other – I know you're critical of the RBA itself. I don't share the kind of fundamental ideological underpinnings. But you're also right. The forecasts are crazy. But we – governments love it, right? We're like, we're looking over at Michelle Bullock. Oh, bloody Michelle Bullock, this, that, the other.

38:37It's one of those things where action – we miss – the dog that doesn't bark in the nighttime, right? What do we talk about every month? Inflation. What do we talk about every six weeks? Interest rates. And why? Because there's a meeting. If we had a tax and spend announcement once a month, where Jim Chalmers got up and said, this is what I'm changing, this is what I'm not changing. We're like, well, why didn't you change the tax rate? Why didn't you change welfare? we don't because there's no there's no set meeting for that stuff but because it's a meeting where a department has to choose up down or nothing yeah it becomes this focal point it's like well every time we talk about the art what the rba is doing we should equally say probably three times as loud three times as long and what does the government of the day do this is not a labor or liberal thing it's just a the government the treasurer yeah could do a million things okay maybe not a million maybe dozens of things to be part of that solution to deal with those problems Should they choose?

39:27When we just look at the RBA and ignore the rest, we're doing ourselves and I think economic understanding a massive disservice. Absolutely too. And I just, I should say that the other, as I do, I was going on about this stuff to your friend the other day. No. And they're like, you're so negative. You're so negative on the RBA. You know, cut them some slack. And I just thought it was a really strange thing. It's like, which is true. I am. I am negative on it. But at the same time, it's kind of like, Like why the more power and influence we the people impart to these people, the more that they should be accountable.

40:00I just kind of think if you're in government or you're in one of these big public institutions that are phenomenally influential and powerful in the sense that they literally, there's a direct line between the things that they think and do and the quality of life that we enjoy. You know, it's sort of like what we have to, we don't have, it's not about being nice here right yeah you you you add as soon as we shirk from speaking truth to power or at least being allowed to be openly critical and questioning of power like if if we lose that as a as a normalcy then or it's kind of seen impolite to speak ill of the emperor or you know which is where it's going in the u.s at the moment like these political appointments happening because Trump doesn't like them.

40:50Do you think that is such a slippery, scary slope? So I'm not saying I'm right. Totally, I'm right. But if I'm not right. But hypothetically, if you weren't, yes. But if I'm not, hypothetically, like the point is, it's just sort of like, I think we should celebrate more in this country or this idea of not being afraid to be critical of things, not to attack the person, not to do ad hominem attacks, not to just be negative for the sake of being negative, but to go, hey, actually, you're making a pretty bold assertion there. I don't understand and I want you to explain it. It's not you're too dumb to understand it, leave it to the experts.

41:27Just that's what really angers me more so than it's a different way of looking at the world. It's just more like the second that we're not able to be critical or question what those in power do, we're just headed towards a dark place. And I know it doesn't look like that now, but like no one just like wakes up in an authoritarian regime, right? Like you tiptoe towards that stuff. And I really got to walk that statement back because I don't think that we're going that way in Australia. I really don't. But it's just at the same time, it's like I do find it a bit strange that if you're mean to the RBA, people go, don't be mean to the RBA.

42:03Yeah, yeah. No, no. I'm going to be, even if I'm wrong, I'm going to be mean to the RBA. And if they don't like it, they can hand back their million-dollar paychecks, right? Like it's that simple. Yeah, I agree. Policy decisions need to be scrutinized and those making decisions need to be accountable for the outcomes. And you've got to explain yourself. You enjoy your privilege and power by the grace of the people. As corny as that sounds, that's why we put you there. You're answerable to us. Bloody answer it. You know, don't waffle on with a whole bunch of jargon and then tell me that it's good that I've lost a quarter of my purchasing power since COVID.

42:38Like, no, no. Unpack that a little bit for me because that's a bold statement and things feel like they're not going great for me at the moment. And I'm really sick of you gaslighting me and saying that things are great, right? Like, anyway. I hear you. I was, when we put this agenda together, I thought, now I'll have some ranting, but I should know better. So let's add it to the ranting. Speaking of governments too, by the way, this decision has not yet been made as a time of recording. I think it's very likely to be made because of reasons. Waila got a whole lot of money from the South Australian and federal governments when the steelworks hit the skids.

43:16Mount Isa is no longer going to be mining copper and the Mount Isa smelter is apparently hit the skids as well. Chance it gets shut down at some point. and so as any good self-respecting small town regional small town in australia does they've put their hand out to the government to prop up the mount isa copper smelter the government's plural by the way queensland and uh the federal government uh and i don't know history would suggest the governments will trip over themselves to throw lots and lots and lots of money at a regional town because votes uh and i don't have anything you just said i haven't said about Wyala other than to repeat the craziness of pretending we can support effectively, you know, company towns as welfare projects if an employer threatens to or does pull out of an area or that we should run a loss-making smelter to somehow prop up a community.

44:12It just, I understand the human impact, right? I sound cold and callous when I'm saying this and I'm aware of that. the reality is that we don't prop up businesses just because they might fail. The whole idea of corporate welfare, this is exactly what that is. Whether the company gets the money, however it's managed. If the Motley Fool went to the government and said, oh, look, we might close down unless you pay half our wages. The government says, bad luck, off you go, get stuffed. Is there an opportunity for me to stand in a hard hat in front of a blue-collar worker? No. In a marginal electorate that they might be mean to me if I don't do that.

44:48We don't care. Correct. We're not there. Yeah. Oh, it's so depressing. I wish I had more to say. I mean, I'm just going to, you know, what I said about Loyola is the self-title here. I will say, now, Bob Caddy gets half a bokeh and half a brick bat for this one. Of course, you expect Bob Caddy's into the electorate, right? So he's saying, okay, well, I want the money. And you got it because you got it. He likes to be people. Pollos like votes. That's all you need to know. You're not going to get votes by going, so it sucks to be you guys. Who cares? Yeah, I don't care about that. I don't care about my electorate.

45:18Or if you can lose your jobs. But at least, at least he's saying we should get some money and the government should own half of the smelter if we're going to do it. We've talked about bailouts and equity before. I wouldn't do it at all. It's a stupid idea. But if you're going to, at least Cater is halfway right saying I want the money. I disagree. But if we're going to get the money, we should get an ownership stake. That is the - Ownership stake in a loss-making entity propped up by public money. That is the problem. That's a great investment. Well, except the alternative is no equity in an entity popped up by government money where the money goes to the corporate landlord.

45:47This is Glencore, by the way, for those who don't know. Oh, poor Glencore. I know. Oh, so hard. Doing it tough. We've got to run a welfare project to keep this thing a lot of economic. Are these the same Glencore that's sort of there to tout free market capitalism when it suits? But as soon as it's gotten a little bit tough, it's like, can we have some free socialism, please? Everyone's smaller government, just not to them. It's just, it's so transparent. It's so transparent. And the thing is, what I don't get is the people, the kind of people that jump to the defense of this because you would think ostensibly it's sort of like, again, this doesn't happen to small business.

46:25If the local fish and chip shop went out of business, no one's getting a hand out there, you know, or a local farmer or anything like that. Massive, you know, multi-billion dollar corporation gets in trouble. Oh, no, we have to because the workers. I'm like, do you really think it's about the workers? Do you? Oh, I do, actually. I do, actually. I do. Yeah, it is. They don't care. They call you nothing for them. It's the votes, mate. It's absolutely the votes. That's what I was going to say. Well, that's not the workers. That's the votes. That's the votes. Sorry, of course. Yeah, yeah, yeah. But the votes are because of the workers rather than the company.

46:57What is the perception of the workers? It's just you've got to follow this line of thinking through, and you've also got to be able to reasonably say where you draw that line. So it's sort of like, okay, all right, we're doing this now. okay why are we doing this give me give me an explanation as to why this is good and by the way we're not doing this because we've got an abundance of extra money yeah no else to put it we don't have enough we're already well beyond our means in terms of our living expenses as a country so so it'd be different it's like gosh we're just drowning in cash every day you know so we're borrowing like crazy our kids will have to deal with that at some stage um in fact we're kind of dealing with it now on the cost of living crisis but anyway that's that's a whole other thing.

47:38But so not, not only, not only that, but it's like, if we are going to do it, let's just do it for the big businesses, not the small businesses. I don't, I don't get it. And again, your point, I mean, you've got to, you've got to quickly add this addendum to, to, to avoid sounding like some really hardcore laissez-faire capitalist, but it's got nothing to do with worker rights and protection. Of course, those things are important. Of course, welfare is important. That's got nothing to do with it. And a good system that sort of looks after the underprivileged and the unfortunate, it's a separate discussion to the economic merits of one individual operation, right?

48:18So you can't muddy the water with that kind of stuff and go, oh yeah, but you don't care about work. Of course I care. I really find it very fundamentally important to the society that we live in that if you've been delivered a tough blow or something, we're not just going to throw you out into the streets. Like there's, there is, there is protections in place. That's a separate conversation. And don't, don't try and mince our words by, by pivoting towards that, because that's not what we're talking about. We're talking about corporate welfare for the big end of town using our money, which we don't even have.

48:52And then that's the egregious part. And how anyone can say anything otherwise is just, I'm waiting for someone to go, well, well, you haven't thought of this. And maybe that's true. But just don't point to Steve, right? Don't point to bloody Steve who works at the plant, who's got a mortgage, because that is a cop-out. Well, once you get to that point, that's every single worker in every single company ever, no one's allowed to be sacked because that person might have a mortgage. Let's see where that leads us. Exactly. Well, here's the thing. If we did that, 85 % of us still work in agriculture.

49:23Yes. We would have the living standards of 1850. Yep. Really, really. People say, oh, we should do that for... Okay, we'll do it for Whaler. Then we'll do it for Mount Isa. Then we'll do it for whichever jobs get put out by AI. Then we'll do it for... The economy won't change. We won't progress. None of the jobs we have today would exist in Australia if we protected those jobs that would have been lost in large and small areas on the basis of new technology, overseas competition. We have an Australian textile industry still. We pay five times as much for our T-shirts. We're making crappy Australian cars for double the price.

49:55How far back do you want to go? We have no computers because accounts clerks might get put out of work. Push it even further. I don't even think you'd have a lot of these operations because think about it from the entrepreneurs. Again, businesses, it's just people, right? The rest is made up structural kind of human imagination. There's just people. Now, think about you. It's just like you live in that world. It's like I'm going to save up money. I'm going to defer consumption. I'm going to take that money and I'm going to put it at great risk and I'm going to try and what I'm going to try and do is deliver some really good value to people so they buy my product.

50:31So they're happy and I'm happy and I get a return on the risk that I take. And genuinely, I've got friends who think that's a bad thing. It's like, but so now in this world, wait a second, I get paid the same either way, right? Yeah. And the government's just going to put money in my pocket. Yeah. So why am I taking the risk? Yeah. You know, it's not about - As an employee, why would you bother even trying to make things better either? I'm not going to do anything. There's no upside. There's no risk. There's no upside. Not doing it. It's really, really, really easy for me just to keep my head down and clip the ticket, right?

51:03Yeah, we're all getting poorer. No one's trying to do anything, you know, interesting. It's like we see it as this, we see profit as this evil thing. And it's sort of like, look, extortion and rent-seeking type profits in, you know, regulatory protected industries with monopolistic, but there's a whole different, there's a whole other thing, right? But in terms of like the profit incentive is so fundamentally important. And if you think that you're above that, I just ask you to go to your boss and ask to get a pay cut. Of course it matters. You're not being greedy. You're being, and maybe you're being self-interested, but you're just basically saying like any other human being on the face of the earth, if I'm going to do something, if I'm going to risk something, there needs to at least be a potential for a reward.

51:45Otherwise, I'm not going to do it. That's just pure rationality. And you can frame that in any ideology that you want. So that's what you said was 100 % correct, except that it's worse than that because no one's bothering to start up any business, right? Because why would I do it? Yeah. So, yeah, anyway. And yet, and yet, look, I've said a million times democratic capitalism is the worst system except for the other one that's been tried. So I was going to say politicians will politic and they will and that's democracy and we get what we get. we just got to hope for a better brand of democracy.

52:21Well, I'd actually, I agree, but I go a step further and say a better brand of capitalism. Oh, good. I retweeted it the other day. It's a great T-shirt. I saw it's like, we've never tried pure capitalism. I don't think we have, right? And because of this kind of stuff, because it's like, we saw it in the GFC. We saw it in 2000. We always see it. It's like big business gets way over their skis and we bail them out. and we call it capitalism and everyone goes oh capitalism really sucks it's like yeah but that's not like bailing capitalism on the way up sure but but socialism on the way down and selective socialism for those that that are the the biggest and most powerful that that's not capitalism i'm sorry i will say the only thing i will comment and not to defend but to explain or contextualize is just the argument for wayler and mount isa is these are effectively one company towns where the fallout goes further.

53:17There's not a justification to do it necessarily. I wouldn't do it, so I'm not saying we should. Well, every gold mining town from 1850 would be open if we, yeah. Correct. Oh, that's it. Exactly. I made that point on Twitter during the week. It's exactly right. So, you know, all those towns that grow up around that sort of stuff, you know, imagine how big Ballarat would be now if we kept it at gold rush levels, right? Yeah. Kept the gold mines running even though you couldn't find any more gold. Just keep people down there. We're printing out paper and giving it to people to dig holes in the ground which nothing comes out of.

53:41Correct, correct.

53:45He's got a mortgage. What about Steve? But so the only I will say is that it's not just the company or just the workers from the Manoes and Mine in this case, or Whaler, Steelworks. There is a broader community impact. I just don't think you justify it, but you're kind of – I just want to add that to the context of the conversation, which is not just because it's a big business per se. It's a big business in the sense that it employs a decent chunk of the region's workforce. and even when it does shut down, it will have ramifications that ripple out more than just the company and those workers.

54:19It'll be everything else they buy, the pubs they go to, the hairdressers. Those ripples will continue for a period of time. And that's, again, I wouldn't do it on that basis, but there is an argument for, the argument is made, why the big business won every small business that loses workers? Because if the Motley Fool's, my nails are office closers and we fire the part-time secretary up there, that's not going to hit the economy. If they do lose hundreds of workers from a single place, that does kind of – it radiates out. So that's a reason. It's given as a justification. I think it's insufficient, but I think it's fair to at least highlight that because some of our listeners will be thinking it right now.

54:57Yeah. And I would just bring it back to you've got to remember – or you've got to ask yourself, why is it going out of business? That's the more interesting question, isn't it? Now, I would say it's because they're not competitive. They're not, they're just, again, there's not a conspiracy. People out there in the wider marketplace just, you can't deliver it to me at the quality and price that I can get elsewhere. So I'm not going to do it. I've got no ill will towards you. It's just facts. You're uneconomic. You're not, and it's just like, and it's got all of those implications, but that there is, we've always got to remember that prices are a signal.

55:36It's how we coordinate at scale. It's the greatest invention that we ever had that allows us to have civilization. We don't have civilization without money. And it's really, it's a signaling mechanism as much as anything. And the signal is no one wants your stuff. And we're going, yeah, but we're going to make it anyway. That's the bottom line. They won't pay as much as you want to charge for it. Yes. Or can charge for it. Yeah. You just can't do it. Yeah. So there's all of that. Here's the other problem with it as well, is that the more that you do this, and this silly nonsense has been going on for a while, is that you create an implicit moral hazard.

56:16When there's always an implicit bailout, you know, what do you do as a business? I'll tell you what you do. You draw out every last red cent that you can get your hand on. You put it in your pocket, right? You don't need a strong balance sheet. In fact, take it another step further. Why don't leverage up, right? That's going to give us a lot more. We can pay ourselves a lot more, right? We can sweat the assets a lot harder. It's brilliant. Someone there, some old fuddy-duddy from 100 years ago might go, yeah, but the business is really like delicate. Like it's extraordinarily fragile. Like you hit one tiny speed bump, this whole operation goes kaput.

56:53Yeah, but that'll never happen. And frankly, it just doesn't have to happen in the next three years. I'll get my bonus and I'm off into the sunset. So you have these conditions. We've talked before about that, I forget the name of it, but that Japanese class of businesses that have existed for more than 500 years. Yeah, yeah. And diminishingly small. And it's like that's a real, it's such an odd phenomenon in the modern context. Anyway, we digged into it at the time. It's like the long and short of it is not because they're continually innovating and on the cutting edge. A lot of these looks like make seaweed wrappers for sushi rolls or edamame or something.

57:29Really not that sophisticated. What's the difference? The difference is that these businesses have fortress balance sheet because when the time, it's like any good farmer, right? Sometimes it rains, sometimes it doesn't. When we have a good bumper crop, we make a fortune, but we know it's not going to be like that every year. So we put some aside for a rainy day. So when the drought comes, we can weather the storm. When I need to make investment in a new tracker, I've got all of that kind of stuff. But the downstream effect of the way that we engineer things and the way these implicit guarantees that we put there.

57:59All it just says to businesses, all of that is doing is yes, it might make you more resilient, but it means that you're less profitable in the short term. And if you're less profitable in the short term, that's a bad thing. And so we build an incredibly precarious, fragile economy because we always have, well, these are the banks, right? The banks are sitting there going, don't look at me. They're like of all, it's just sort of like, why wouldn't you do that right and that's that's why manga always said you know like capitalism without failure is like heaven without hell like it just you can't have one without the other and as soon as you try and pretend that like it's only upside and there's no downside everything unravels bad incentives go into play and honestly at the end of the day the little guy gets hurt that's that's really the bottom line here let's uh let's finish off mate with you keep your ranting pants on.

58:52They never come off. I sleep in these things. Let's not think too much anymore about that. A shower with them on. I'm a never nude.

59:08All right. Let's move on. The productivity summit talk fest, which is going to happen in Canberra the next couple of weeks. I tweeted about this. I'm going to read my tweet only because I want to read the response which I love from Lee Gant who maybe is listening I said not only is the productivity summit likely to just be a series of PR set pieces and a waste of time because these things could be discussed or communicated without a talk fest but every group is now pushing their own barrow and it came there's been articles for weeks now New South Wales business wants this Ryan Stokes wants that, unions want this so it's all these great for column inches, great for newspapers anyway so Lee Gant who follows me on Twitter a nice bloke replied oh the irony of having a productivity summit nothing more productive than sitting around talking about taking action rather than efficiently acting well done Lee I was accused of being too negative on the government of being too negative as you mentioned earlier oh you always complain Scott well yeah maybe fair but kind of that's part of what commentary is because you know the stuff you wear all the furious agreement on about you don't talk about that often right just doesn't say oh i think i think yeah i think that too okay we're done then you know it's the disagreement that is that's what's to the spices in any in any organization any interaction um but i just i you know so firstly no one needs to be told to be more productive you've made the point a million times and you're absolutely right but to to presume that the only way to fix the best way to fix if you and i were tasked with if you're you're going to sit this on twitter if you and i ran were given a responsibility mate can you guys go away and just make us some recommendations to fix productivity.

1:00:47You wouldn't start with, oh, look, I could email people or I could put an announcement up on a website or I could, yeah, the government could. Or what I could do is have a big talk fest for two or three days in Canberra, bring everybody in, sit around a room, shake some hands, get some whiteboards and butcher's paper out, make some... I mean, these people have, again, firstly, as you said, businesses will do their own thing. To the extent there is some value in a national interest, hey, we could change the structure or implementation of government activity to be helpful here? I'm pretty sure you can ask those guys.

1:01:19They could email you something at the end of the week, right? There is no need for a talk fest. Why are they doing it? Because they want the news. They want the photos in the paper. The pictures of the news of captains of industry walking into these meetings, the heads of unions walking into these meetings with the prime minister and treasurer smiling. So they look like they're doing a thing. And that's, you know, that's all there is. And again, to Lee's point, nothing more productive than some people sit around and chat for a while. I just find the whole thing really, really inferiority. I am a million percent sure that productivity is one of the biggest challenges that any government and our current government has to face.

1:01:51Sure. Because, frankly, you and I talked about it before, the only thing over time that advances economic prosperity is productivity. That's the only way you can do it. On a per-person level, yes, you can grow the size of the economy by importing people. You can borrow some money in the short term to juice some stuff. Over time, why are we much, much, much, much better off now than we were 200 years ago? because we are phenomenally more productive. Thanks primarily to use of technology. And so, yes, it is going to be, it is the key to unlock prosperity, absolutely. Most of that will come to businesses doing their thing.

1:02:22Some of it will come from governments doing their thing. And if governments want to help, great, I love it. Ask Treasury, ask some economists, invite people to email you, read them and then decide what you want to do. The idea of this summit, that's how everyone has to physically attend. Not only are we in the Zoom generation, it's just stupid in any case. Send a letter, send a carrier pigeon. Just don't pretend this is actually going to make any difference. I hate these talk fests, mate. Can you imagine if we launched rockets in the same way? So NASA goes, we're sending man back to the moon. We're going to invite a whole bunch of interested stakeholders in and we're going to talk about jet propulsion.

1:02:54Like, no. The astronauts union and the - You don't have any special insight here. Leave it to the engineers. We got this, bro. It's cool. Treasury's full of people. It's not like they've got no new ideas. They are full and increasingly full of people who are full of it. But anyway, that's all of it. But it's also like saying, hey, we've seen an increase in foxes getting into the hen house. Let's invite some foxes into a round table to see how we can sort of discuss. We'll get the chickens as well. Obviously, the farmer can be invited. Maybe the horses and the geese as well because they're, you know, related parties.

1:03:34but don't invite the bloody foxes like you know you got big business there and do you think that they're they are going to be advocating for the broader prosperity of the nation or their own self-interest of course they're gonna go and i'm not even having a go at them of course like that that's their job that's their job like they're gonna they're gonna talk about their own self interest and just like you're gonna get a bunch of ill-informed opinions that are all self-interested None of it is going to be coherent. It can't be coherent. You've got too many people in different situations with different sets of incentives for anything coherent to come out of it.

1:04:08So it's impossible. So you're going to walk away and go - I'm not trying to. None of them are there to say, here's what's best for the country. None of them. No, absolutely not. Not a single person. No. And again, the union's entitled to fight their corner. Employers can fight their corner. But no one's there to help the national - As much as we criticise economists pretty regularly, invite some disinterested economists. Yep. Invite some people from Treasury. invite some people from the bureaucracy who actually do have decent expertise and know their stuff ask them hey guys you've got some ideas I'm sure you've been lobbied yourselves you've already heard these ideas everything going to the productivity summit is not new right it's been lobbied for before everyone knows what they're going to ask for and then start there and say right well what do we think we know is there anything we can do to help does it improve national productivity does it improve national living standards and well being if it does let's do it if it's not get rid of it but ask people to come along and shout their corners that's the other thing it's like you know it's like like pulling a group of protesters together.

1:05:00Hey, everyone, we've got an issue. Come and protest out the front. It's like, no, we know what they're going to protest about. We can consider that. Thanks for letting us know. It's all the PR. It drives me nuts. Oh, it really does drive me nuts. I mean, at one point in time, you didn't have to agree with it. You probably wouldn't, really. But there was like every political party sort of had its own ideology, right? Like we think this. These are the set of ideas we represent. and if you agree, enough people agree with us, we'll get into power and we'll enact these ideas. Now, everyone's scared of their own shadow.

1:05:34And I was like, I think we think this. What do you guys think? No, no, no. What do you bloody think? I'll let you know if I agree by voting for you or not, right? Don't just sort of like, I just, you've got to, at a point in time, you have to have your own set of values and thoughts, ideally in a perfect world. This, if I'm really being wishful thinking, that might be framed on logic raising and inductive thinking but but you know at least just start with having a set of coherent ideas that you want to sort of bring to the table because you feel as though it is going to be uh in aggregate the best for the most people possible but but also too matt i think that's you're 100 right by the way have some the bloody coalition work from home policy that was policy about three days during the election campaign until they realize people didn't like it was exactly an example of that um but regardless of whether they liked it or not the idea of her being introduced and pull away.

1:06:24Well, do you think it's best for the country? Don't you? If you do, that's fine. If you don't, that's fine. But even though, even that, you're right about the ideology. But even then, that should be informed, yes, by some degree of kind of just finger in the air ideology. But should be informed by some sort of evidence, some sort of thinking, some sort of theory or approach that you can get from other people. You know, no man is an island. I don't know all the things. You don't know all the things. But we're pretty good. But, you know, hang on, I read this thing by someone. That makes sense to me.

1:06:52Yeah. Okay, maybe I've changed my mind. Maybe I haven't. Maybe they're worth giving a go. Maybe it's not. That's the other thing. But the refusing to trial stuff. I'm a fan of trialing a universal basic income. I won't get into that. But why? We should do an episode on that one day. We should. We should. But why? Because it might work. Okay? And people say, no, it won't work. Yeah, maybe it won't. No, we'll trial. No, you can't trial it because it'd be bad. But if we trial it and we find out you're right, then great. We don't ever do it again. If you're wrong, maybe you'll learn something else too.

1:07:21Yeah, don't do it. Or don't bother trying, just do it. But maybe it's terrible and wrecks the economy. I don't care, just do it. So that refusal to, and that's my only issue, putting ideology, you're right about the politics having their own kind of slant on or view on life. And that's absolutely valid. Growing the pie, sharing the pie, that debate is a really, really valuable one, right? But the broader stuff of, you know, be informed by evidence, be open to changing your mind. Ask some smart people who have some experience to have some ideas what you think might be worth trying and if it works do maybe more of it it's just it's not difficult but to have this talk fest where you just have the it's all for the papers it's all for the TV I don't suggest the government doesn't care about productivity at all I'm sure they do I'm sure Jim Chalmers in these more serious moments like we really got to try and do something to help out here but don't do it like this it's just silly and it'll be held up by the usual suspects as either a terrible idea because I don't like labour or a wonderful idea because I love labour as opposed to what are we getting out of this You know, it's like the inquiries I have.

1:08:22They say, we're going to review tax, but don't mention the GST. It's not a tax review, is it? It's a political exercise. It's exactly the same thing. And the irony is whatever they do come up with will probably be another set of regulatory guidelines that need to be monitored, measured, enforced. In other words, for the poor schmuck on the ground who's trying to run a business like, what license do I need now? Sorry, what's this? And I say irony because it's just like, because now I'm filling out form 18 slash BC instead of trying to find a better supplier or improving my goods or training my staff or doing everything I can do to compete in the arena of capitalism to get the best product or service out there.

1:09:08so I can make people happier and get a reward for doing so. That's what's going to be, I 100 % guarantee you that's what's going to happen. And it's just going to make things worse. Almost guaranteed. And it's so... It is my frustration. The road to hell is paved with good intentions is the way to say it, right? I think that's right. I think, you know, I really struggle. I've said this before, mate, but the financial advice stuff was a perfect example where absolute gutlessness from politicians combined with... I really don't want to be negative about bureaucrats. There's a whole lot of really hardworking public servants who really care deeply and try to do their best.

1:09:47Don't hate the player, hate the game. Yeah, but it's also just too easy to bag them all. Say, oh, they're all this or they're all that or it's terrible, it's whatever. They're under a brutally oppressive, soul-crushing system is their problem, not them themselves. So the financial advice thing was, we have a problem. Okay, what's the problem? The problem is that financial advice is being tainted by the flow of money, incentives, kickbacks, whatever, to these places. Okay, well, we need to fix that. Yeah, we do. So what do you do? Well, you just stop the kickbacks, incentives, right? No, no, no, you don't do that.

1:10:17What you do is, because I don't annoy people and upset people. Don't do that. So what we're going to do is we're going to create some of those people might or might not be big donors to your political party, but let's put that aside. And or make some noise and complain about you if you do the wrong thing. So we can't do that. You can still pay the money. What we're going to do is just create a 60-page statement of advice that everyone's got to create and complete, which is largely just boilerplate with a couple of boxes ticked in. Right? And we're going to give you a best interest duty and we're going to check on this and you're going to have to write all this stuff up.

1:10:45It's going to cost a fortune for people who want to get financial advice to get it. And some of the industry aren't going to want to do it anymore because they don't want the burden and the hassle and the cost. Shysters are still going to be shysters and bad things are still going to happen. There was height behind 60 pages of so-called statement of advice with a best interest duty and care and obligations. And that last one's not, That's actually what we did. That's not parody. That's literally what we did. Instead of saying, just stop. It was one line of legislation. The only revenue received by a financial planner slash financial planning firm slash agent slash group comes directly from the client.

1:11:21Full stop. That's it. That's the only line you need. And everything else goes away. They couldn't bring themselves to do that. This is not the public service. It's the police. But the bureaucracy that goes with it is like, let's design a system that does this and this and this and this. As you said, mate, all the box ticking, all the checking, all the rigmarole, all the carry-on. Yeah. It just, it's maddening, absolutely maddening. And again, that's bad. That is not a good picture you just painted, but I'll make it a little bit worse. Oh, good, thanks. But what it does is it stifles competition.

1:11:49I've whinged to you endlessly about this in the space, but if you, anyone out there listening who's thinking, I wouldn't mind starting a business in this space, don't do it. Don't do it, right? Because it's a nightmare. It's a bit of a competition.

1:12:04I know I talk about it a lot, but it's called regulatory capture. It's a thing. It's a well-documented thing. And this is exactly what it is. So in trying to protect everyone, what you really do is limit competition for the bad actors. Hey, you've been really bad. Yes, we have. Tell you what, one way to fix that is to make sure no one can come and effectively compete with you. Great. Because I tell you what, if you're AMP, I shouldn't mention names. If you're BNQ, is that a thing as well? Maybe. BOQ is BNQ. If you're BNQ with like a glass tower in the city and$400 billion in revenue, you can hire a whole team of lawyers and people to like scrutinize that.

1:12:46If you're like Scott Phillips in his like home office, you can't do it. You can't do it. So you don't do it. And so there's less competition. and so we concentrate everything into a handful of a small number of bad actors who are – and then you can't upset them because they're such a powerful donor and they're a big employer and they become political – like Teflon, right? Like you just – you can't – that, I mean, again, when you sort of really scratch at it, that's the great irony of all of this kind of stuff where it's like – it's not laissez-faire. I think it's wrong to sort of paint it as that, but it is about sort of saying, listen, you just, there's actually, can I recommend it?

1:13:25Here's a book recommendation for anyone who wants it. It's got nothing to do with politics. It's got everything to do with politics and it's got everything to do with investing. It's got everything to do with life in general, but not ostensibly so it's called the systems Bible. I want to say it's by Gant or anyway, it's called the systems Bible. It's a classic. It was written in the seventies or something. And it just, it has all these axioms in it. Like any large enough complicated system will fail, you know? and then it goes on to sort of elaborate on it. It's kind of, I'm smiling to myself because it's sort of, it's humorously written and there are people out there going, and I was like, you and I have a very different sense of humor, Andrew.

1:14:01And maybe that's that. But it is like, if you want, it's really wry. It's really dry. And it just like, but it's also brilliant. And it's a bit of a cult classic. And I was late to reading it. And, but it is a really fun read. And it just talks about systems in general. and one of the things that just reminded me to talk about it is like really what you want in any system that you're trying to design and this is god bless them politicians and bureaucrats what they try and do and again with the best of intentions i really do stress there's no they are they are trying to improve things but the more complicated you make something the more prone it is to failure it's a rube goldberg machine at a point the best the engineer will tell you this any the The best systems and the most robust systems are super simple, super, super, super simple.

1:14:50And unfortunately, when we try to address these problems systemically through systems engineering, we ignore that really valuable lesson and we make it insanely complicated, impossibly opaque, impossible to sort of come at from the outside without hiring 14 different lawyers and accountants and experts to sort of tease it apart. And even then they will argue in terms of what it really means and how you get it across and all the rest. And at the end of the day, it's actually, it results in huge amounts of effort from individual people for not only no benefit, but for a negative benefit. And it's just, all you can do is weep.

1:15:33So I guess I'll end on that joyous tone. I want to try and lift us up before we finish the podcast. We're about out of time and out of topics. and crying into our respected beers or coffees. I don't know what to do. Just call BS when you see it, or at least not call BS, but at least don't be. I think a lot of people in these positions get away with it because all of us are too afraid to go, that doesn't make sense. You need to explain that to me like I'm 12. Because we're desperately afraid of being dumb. It's the emperor's new clothes. Everyone is talking about how wonderful this robe is. It's brilliant.

1:16:08Everyone's applauding. some of the best and brightest the most you know the people that we've elevated to the highest echelons of society are telling me it's great i don't make it doesn't make any sense to me but i'm certainly not going to put my hand up and go i don't get that and i feel as though it's not an unreasonable thing at all to say and this is this is why modern journalism is just talk about crying into your breakfast cereal you know it's just like there's just there's no follow-up questions like what about this here's a bunch of jargon and techno babble they go okay great next question I'm like, well, no, no, I know you didn't understand that.

1:16:39I didn't understand it. I'm pretty sure most people didn't understand that. Maybe this is just me trying to feel better about not understanding anything, but I'm pretty sure that I'm not the only one. And I feel as though, again, not to cynically assume everything is wrong and everything is against me. And people very much land in that bucket, and it's a very attractive and appealing bucket to sort of land into. But there's nothing wrong with just sort of saying, no, you're going to have to tease that apart for me. this isn't we're not talking about physics here and where the cannonball is going to land if i if it leaves the muzzle at this velocity and this angle with this wind resistance no no we're talking about a very soft science of economic very soft science of economics here which is very much up for debate and scrutiny and you need to make if we're talking about something that impacts four people somewhere okay fine if we're talking about something that impacts 25 million people their children and their descendants like it's like i i deserve an explanation and i deserve it to be simply explained.

1:17:34And if you can't explain it simply, what does that say, right? Anyway, I'll die on this hill, mate. I will die on this hill. You will. And we've got to, yes, I think it's holding our politicians accountable as well, mate, making sure that they are doing the right things and in the right ways. And I know you do that, but vote, people. Vote. All right. I reckon we're done here, mate. That's a pretty good hit out for our first meeting back, as I know we've had episodes right through. By the way, thank you to those who listened to them. Thanks to those that gave us some positive feedback or some really nice feedback about some of the articles we did, particularly the, of course, some of the recordings we did, particularly the advice for our younger selves, which was pretty well received.

1:18:09So thank you to those who took the time to give me that feedback. But yes, mate, will you come back on Sunday? Mate, I've got a lot of pent-up rage. You've been away for five weeks. All you've actually done now is you've poked a hole in the damn wall. There's a lot more pressure behind that hole, let me tell you. Oh, there you go. If that's not a reason to listen on Sunday, I don't know what is. Enjoy the first half of your weekend until we speak then. Fool on. Cheers.

From the publisher

– Inflation falls… and a rate cut coming?

– Higher tariffs ahead

– More money… for Mt Isa

– Productivity summit

See omnystudio.com/listener for privacy information.

Ask about this episode

In short

Transcript

More from Motley Fool Money