GETTING OUT OF LOCKDOWN – ECONOMIC OUTLOOKS AFTER THE PANDEMIC

Adam Creighton is Economics editor at The Australian. He is also an award-winning journalist with a special interest in tax and financial policy. In 2019, he was a Journalist in Residence at the University of Chicago’s Booth School of Business. Adam Creighton has written for The Economist and The Wall Street Journal from London and Washington DC, and authored book chapters on superannuation for Oxford University Press. In a Youtube broadcast, filmed for The Sydney Institute on 20 May 2020, Adam Creighton discussed the economic outlook that might be expected from the 2020 COVID-19 global lockdowns.

GETTING OUT OF LOCKDOWN – ECONOMIC OUTLOOKS AFTER THE PANDEMIC

ADAM CREIGHTON

I have been asked to talk about how we might or should emerge economically from this unprecedented period of lockdown, which formally started to unwind in NSW last week.

But I can’t resist first giving a few more general remarks about where we find ourselves now.

About a month ago, I wrote a column that caused a minor furore with the words “the response to the virus is starting to appear to be a damaging over-reaction”. I think it’s no longer starting to appear that way.

In the month since then it’s becoming clearer, that it was a significant over-reaction.

In March, extreme responses were understandable given the fog of uncertainty. But the fog soon cleared and, as we approach June, such responses are not understandable, especially in Australia.

It’s almost June now and the Queensland premier is even considering banning her own people from crossing into NSW until September.

When historians come to evaluate this year in a decade’s time, I doubt they will spend much time looking at the virus itself. I do think, certainly, it’s more likely to be seen as the Great Panic of 2020, as much as the Great Pandemic of 2020.

Since we went into lockdown in late March, about 21,000 Australians have died of various causes, yet only the 100 who’ve passed away from Coronavirus have received any public attention.

For the first time ever, deaths in nursing homes have become gripping national stories. All this has only pushed politicians into extreme measures for fear of being blamed for any deaths.

Globally, the coronavirus has killed around 320,000 people. If it ends up killing twice that number it will have been far less lethal than the flu pandemics of the late 1950s and 1960s, which each killed around 1 million people globally. And, of course, that’s when the world had a population less than half its level today.

In neither of those pandemics did the world deliberately inflict such profound economic damage on itself.

The modelling that has underpinned the response in 2020, both here and in Australia, was grossly pessimistic. Sweden, for instance, was told if it didn’t lock down like the UK did, it would have 40,000 Covid deaths by 1 May and almost 100,000 by June. In fact, about 3,500 in Sweden have died. So, those models, which played such a critical part in guiding public policy, were clearly rubbish.

The Victorian government told us 36,000 people would die without lockdown in that state alone, far more even than in the Spanish flu, which was a far more lethal disease. US states that have opened up early against advice, Georgia, Florida etc, haven’t experienced the surges in Covid deaths that were predicted by models.

Another aspect of the over-reaction was the blanket shutdown by age and across all locations. We could have targeted restrictions in a much better way. Around 5 per cent of deaths in Sweden were aged under 60. The median age of death in Europe is the low 80s, which exceeds life expectancy in most countries.

Consider this: out of 29,692 total Covid-19 deaths in Italy just 332 were aged under 50. Italy is a large country and, tragically, many people under 50 die every year without the slightest public interest.

Quite aside from the unprecedented restrictions on freedoms, now coming up to 8 weeks, the financial cost is huge. Kevin Rudd was criticised for his $42bn stimulus package. The government and RBA combined have embarked on a $330bn stimulus package this time.

The debate about the efficacy of lockdowns will continue for years. There was little if any empirical evidence for them beforehand, except a few academic studies looking at the Spanish flu a century ago.

If you look across the world, it’s very hard to see much of a relationship. Yes, Australia and New Zealand have done well with lockdowns, but so have Japan Korea and Taiwan without mandatory lockdowns. It may well be other factors that matter far more, such as climate, or being an island, or perhaps we ended up with a less virulent strain.

It seems logical that mandatory lockdowns helped reduce cases and deaths. The question is how much, given the massive economic and social costs.

I doubt future historians will ascribe our success to the unique genius of our state governments. Indeed, the first study to do so using data from this crisis comparing the different US states, found mandatory shutdown on the number of future cases reduced the number of cases by around 44 per cent or about 2150 cases for the typical US state, which doesn’t translate into many deaths.

I wanted to make all those points by way of important background; so you know where I’m coming from.

But we are where we are; what’s done is done. How bad is the economic outlook?

Internationally, the IMF is expecting the biggest decline since the 1930s. Some 200 million out work globally says the ILO. Here, as the Reserve Bank says, this is the deepest and most rapid contraction in the 60 year history of the national accounts.

In Australia, 7.6m people are on JobKeeper or Seeker. If you add in public servants across the three levels of government you end up with some 9.6 million of us either fully or partly dependent on government for a wage.

The official jobless rate rose to 6.2 per cent but, in reality, some 72 per cent of the labour force are now dependent on government.

Population growth is set to collapse; the government had about an 800,000 increase pencilled in for the last budget. It might end up a net negative.

Federal and state budgets will come under huge pressure, with some expecting combined debts to reach $1.5 trillion next year, according to UBS.

Of course, the economic cost of the downturn in poor nations like India and Brazil, Indonesia, will be much greater given the poverty that already exists there. Certainly, they have less of the luxury of being able to shut-down their workforce for extended periods.

Will we emerge from this quickly? This is key question.

I want to try to be optimistic.

There is no historical precedent for this type of recession, and this is our ray of hope. If you look at other recessions, in the early 1980s, early 1990s for instance, it took years to recover economically, with debilitating social consequences to boot.

What is unusual about this downturn is that it’s caused by the government, at least as much as the virus.

Normally unemployment is divided into three types. Frictional, is people moving between jobs. Structural, when whole industries become obsolete and their workers can’t find work. Then there’s cyclical, the wax and waning of economic activity, the animal spirits as Keynes might have said, that ratchets employment up and down.

The type of unemployment we have now we haven’t really seen before. It’s a kind of induced unemployment. The sort that is caused by regulation. So, it’s possible that sort of unemployment could vanish as quickly as it emerged.

It took years for the jobless rate to reach its peak of around 30 per cent in the Depression, not a few months as in this case. The restrictions are starting to end and we have already seen this week the decline in jobs has bottomed out at least in the ATO payroll data.

Various policies on tenancy agreements – although they have caused huge problems themselves – and options to defer loan repayments, will help businesses last during this period. If they can last, there’s a good chance a large share of the jobs will still be there on the other side.

Another reason to be more optimistic is that we are a lot richer than we were in the 1930s. We have vast welfare programs to cushion the blow of joblessness.

And China is still hoovering up our resources. In the early 1930s, the price of our exports — then mainly wool, wheat, butter and meat — collapsed by almost half in two years. This time, iron ore is even higher than forecast.

Some of this optimism is borne out in the stock market. Locally, the blue chip stocks have increased about 21 per cent since the bottom in March. New York is up 27 per cent. And house prices haven’t crashed yet despite ominous predictions.

There could even be some plus sides for productivity. While I’m no fan of long shutdowns, it’s an experiment that never would have been conducted at any other time.

For 8 weeks or so now my newspaper has been produced remotely. It’s even more of a daily miracle now! Businesses, especially those without much need for customer facing, will realise they don’t need so much floor space. They might also not need to spend so much on IT, if their staff are happy to use their own.

There is, of course, the slim possibility we won’t actually have a technical recession, if the first quarter ends up being positive. If so, we might thank the great toilet paper stampede, which saw the biggest monthly increase in retail sales ever in March.

So, finally, what are my policy suggestions? Talk of reform has dominated news media in recent weeks. The usual suspects have been trotted out: tax, IR, deregulation.

There’s nothing wrong with any of these suggestions, but they have been around for a long time, and little has changed. I think the idea of a new era of co-operative politics is fanciful. The government hasn’t shown itself to be very interested in bold reform, and given its slim majority you can probably understand why.

Most urgent, there must be reform of JobKeeper. Fund managers, along with surgeons and barristers on huge incomes, whose incomes dipped in March, are receiving JobKeeper, and on current rules will continue to until September.

Meanwhile, many thousands of poor workers, with temporary visas, many of them effectively stuck in Australia, can’t even apply. This situation will sap confidence in the integrity of the welfare system.

The government could impose an income tax surcharge on any sole traders or partnerships who declare JobKeeper income in their tax

Our success against Covid opens up other economic opportunities too, assuming that we have indeed permanently “defeated” the virus, as many in Australia say is our aspiration.

I half joked in a recent column that we could become a giant nursing home for the world’s baby boomers. In the same way we sell visas to business people with around $1.5m to invest, we could sell them to wealthy older Europeans and North Americans, who want to live out their retirement without the threat of Covid.

Perhaps we might also have better luck attracting regional offices of multinationals. Highly paid, skilled staff might not want to live in countries where Covid-19 is common.

It’s worth pointing out, as an aside, there are costs of being Covid-free before a vaccine is found: forcing all Australians into two weeks quarantine every time they return from a stint abroad effectively imprisons the entire country.

And, certainly, we will have almost no tourists or business people visit the country under these circumstances. Forming a tourism bubble with NZ won’t be enough to compensate.

The Prime Minster has talked about a new industrial relations compact. It’s certainly true, as Gerard knows far more than me, that our industrial relations system works against the public interest, entrenching the power of unions and lawyers, over workers and productivity.

Greater simplicity of industrial awards, which are governing the pay and conditions of more and more workers, seems worthwhile, especially in hospitality and retail, where the need to encourage jobs is greatest.

As far as tax reform goes, I think personal income tax should be accelerated as Costello and Fraser have recommended. If we need more revenue, look at scrapping compulsory super, which costs the federal govt more than $30bn a year in foregone receipts.

NSW and Victoria are seemingly determined to push ahead with stamp duty and land tax reform. This is laudable, and the NSW Treasurer Dominic Perrottet deserves a lot of credit for driving this.

My final point. Perhaps the most important reform is learning how to deal with a virus like this in a more targeted way. It’s been a failing of our leaders that we have seemed so ad hoc.

A pandemic is not a “black swan”; that is, it’s not an event we could not have reasonably foreseen. Yet it seems preparation, including ventilators and plans to quickly expand hospital capacity, were not in place.

Certainly, we will see more medical supply stockpiling and potentially even more local manufacture. On this topic there’s been speculation we’re seeing the end of globalisation in some way. This won’t happen unless tariffs and regulations are re-introduced, and I can’t see that happening sufficiently. The desire for Australian and indeed all firms to shift their manufacturing to the cheapest location will remain.

Let’s hope we don’t face a pandemic threat like this for half a century or more, given we have just spent a lot of resources fighting this one. But given flu pandemics occurred in the late 1950s, the late 1960s, and then we had MERS, SARS, Swine flu, Ebola and now Covid, unfortunately, it’s likely it will be much sooner than that.

GETTING OUT OF LOCKDOWN – POLITICS AFTER THE PANDEMIC – DISCUSSION – ADAM CREIGHTON, PARNELL McGUINNESS & GERARD HENDERSON

Gerard Henderson: Thanks to you both for such wide-ranging assessments.

Adam, the question is will there be some jobs that won’t return? As I recall, a year or so ago you wrote a piece in The Australian saying a lot of people had nothing jobs. These jobs they thought they were doing didn’t really exist because they were essentially talking to one another or writing papers to one another. Those jobs that you targeted will they return? If you’re in a big company and you’re really not doing much that’s productive, will you retain such positions or will those jobs disappear?

Adam Creighton: I think the phrase was actually “bullshit” jobs Gerard. I don’t know if I’m allowed to say that.

Gerard Henderson: Bullshit jobs?

Adam Creighton: It’s a technical term. The anthropologist David Graeber has made it so. Look, it’s a really profound question. One of the ironies of this, at least in the short term, is that you’ve seen a lot of jobs lost that are actually useful jobs, stuff that has to be done. In restaurants and hospitality, in tourism, in retail sectors. It’s the corporate jobs, the office jobs, which more readily fit that description. So far at least, these have survived because they can be done at home. What actually “done” means is another issue. A lot of large firms, as I mentioned in my speech, as the months and weeks go on, will have to look at who is worth their salary in these organisations. If you are to make cuts surely it is going to be these jobs that will go first. In the short term, those jobs are safe but in the long term this will be a real jolt to the economy that could see many of them phased out. Ironically, this work from home period highlights who is producing what. Short of all of the Facetime in the office, what matters for the organisation? And that’s going to become very stark.

Gerard Henderson: So to some extent these are back office jobs in big companies?

Adam Creighton: Yes, or social responsibility jobs, PowerPoint production jobs, you know, these sorts of jobs.

Gerard Henderson: But these jobs pay quite well.

Adam Creighton: That’s one of the great ironies of those jobs, which I wrote in that column – they do pay well.

Gerard Henderson: Taking them out of the economy will have an impact, although it might be good for individual companies.

Parnell McGuinness: May I just weigh in on that question because I do have a little bit of insight here. It doesn’t look like those jobs are going anywhere. They all have a word like strategy in their titles and nobody gets rid of a strategist in a crisis.

Adam Creighton: Good point.

Parnell McGuinness: So those jobs are looking, from where I’m sitting from dealing with big businesses, quite safe.

Adam Creighton: What about the thought leaders? Are they okay?

Parnell McGuinness: Well with thought leadership you still have an output that you can produce from home, right. So, these kind of communication materials are still very visibly being delivered. It is some of the other jobs, the frontline jobs, which are disappearing because you can’t perform them easily under lockdown.

Gerard Henderson: So, you reckon that the wellness departments are safer are they?

Parnell McGuinness: The wellness departments are going to be working overtime making sure that people’s home offices are HR compliant.

Gerard Henderson: I see.

Adam Creighton: I think there’s some truth in what Parnell is saying. But it’s just too early to know yet. It depends on how bad the downturn is. I was being a bit optimistic in my speech. That’s kind of useful at the moment, actually. But if it’s a really severe downturn I don’t know. There’s going to have to be big cuts.

Gerard Henderson: Going back to Parnell, one of our members asked the question what if there is no way out? If there is no vaccine, which is a possibility. Within a year or two years it’s a possibility there’s no vaccine, is there no way out? Do we just continue with a partial lockdown? If so, what’s the impact of that? Won’t people start finding their own way out?

Parnell McGuinness: At every stage, the population has actually been ahead of the government in this. The population started locking itself down before there was a formal ruling on that. And it started, at least observationally from what I can see – around the streets and around the CBD and major suburban centres like that – unlocking itself before the government had made the announcement that it was time to come out of our shells again. People will start moving back into the economy in ways that they can find to operate. There will be some things, however, that won’t be able to be done in the same way and of course there’ll be different fear levels. Some people are just going to be a lot more nervous for a lot longer and that will change how some services are delivered and what people want.

Gerard Henderson: So, the impact, going back to you Adam. As you said you were optimistic and there’s good reason to be optimistic for psychological reasons. But, as you know well, there is another side to this. And the question is will we get back to anything near normal? If you take for example a restaurant which will be limited. Or, to some extent it would seem, about how many people can be there or travel, which is going to be a huge problem. Or people trying to get into lifts in offices if there’s only one or two people allowed in the lift. The economic decline here could well continue, depending not so much on the Commonwealth government, which as you know is trying to get things working as well as it can, but resistance from nervous state governments who with their leaders and people and their health departments are worried that someone’s going to die and they’re going to get blamed for it.

Adam Creighton: It’s partly a function of just how long people are willing to put up with these measures. It’s very clear at the moment there’s an enthusiasm for lockdown generally and for the various measures. That’s what polling shows, not just in Australia but around the world. But it’s a question of how long that’s going to last and if people are frustrated with restrictions in lifts, or if they can only go to restaurants where there’s ten people allowed. Last night I went to my first restaurant in about nine weeks. I had to go to four different ones before there was a vacancy. It is a great frustration.

The fear of this virus was obviously very extreme back in March and that’s why everyone enthusiastically embraced all of these measures. But, more and more, people will come to see that it’s not so dangerous, at least for certain segments of the population. Therefore, they’ll be less tolerant of these arbitrary restrictions, which would be good for the economy.

Gerard Henderson: So, what does that do to modelling, such as in relation to climate change? A lot of what people say governments should be doing is based on modelling. It’s a long way off to determine the accuracy of that modelling. But in relation to this virus, the modelling in places like Australia and New Zealand, has been way off. All may be, as you have pointed out, due to isolation and stopping international travel. But in both countries the number of cases, number of deaths, have been low. But even in places like Britain and the United States it seems that the estimates of the death toll from the virus seemed to have been higher than the modelling suggested. How is this going to affect modelling and how we regard modelling, that is those of us who are aware of the concept of modelling?

Adam Creighton: It has been a public relations disaster for modelling. I imagine climate change advocates will be very frustrated by this experience because in the eyes of the general public, modelling has been shown to be ridiculous. They’ll just transfer that over to climate change.

Parnell McGuinness: That is part of that of the political conflict that will be building in all of this. As you say, people who had been talking a lot about climate change modelling, and resting their arguments on similar modelling to what we’ve seen in this pandemic, are saying it’s wonderful that we’re relying on experts. If that flips the other way and it turns out the experts here did not know what they were talking about and have lead us into poverty then the whole discussion about experts and modelling is going to be pushed on its head and the climate change modellers are going to find themselves having to explain themselves.

Adam Creighton: A lot of politicians stopped using the word modelling. It could become so embarrassing. I mean it’s too early to say. But certainly, it’s going to sink in that these models were hopeless.

Gerard Henderson: One of you mentioned, that some of the modellers looked back on the Spanish flu of a century ago. And as you know, in Australia the official figure I think of deaths is 12,000, that’s estimated. It’s regarded that that’s a bit low and it was probably was probably 15,000, which in contemporary Australia with an added population would be something like 75,000 dead. At the moment, we’re at a hundred and it may go higher. Of course, modelling has assumed a second wave which may or may not occur. So those who were proclaiming the models – and of course Norman Swan and the ABC was one of the lead figures going public with these kind of projections – do you think that will translate across to climate?

Adam Creighton: It will a little bit. It’s obviously much harder with climate because the results are so far away, many decades or even centuries away. Whereas with a pandemic you find out within months basically. That’s what makes modelling so fraught with these viruses. I think the media generally has not served us well throughout this crisis, with these models of disease likely spread being grossly exaggerated. You’ve got to ask why the media wasn’t questioning Neil Ferguson at Imperial back in March. Ferguson has a track record of gross exaggeration over more than ten years. Yet his modelling formed the justification of British government.

Gerard Henderson: It came in Britain in relation to one of these animal outbreaks.

Parnell McGuiness: Mad Cow disease.

Gerard Henderson: They had to slaughter six million animals. But he’s still going. He’s still an expert although he’s got certain problems.

Adam Creighton: Of course, he didn’t abide by his own rules.

Gerard Henderson: So let’s go back to the issue of the pandemic and the difference between the public sector and the private sector. Parnell, you were talking about this in a certain sense. As you know, you’ve got a situation where decisions have essentially been made by elected politicians but very much advised by non-elected health experts. This is a situation where the public service is advising politicians, implementing rules and regulations which are then enforced by police or local council rangers. Essentially the public sector is telling the private sector that they can’t go out whilst people in the public service are going out to tell people they must stay in. Is this going to exasperate the kind of differences you referred to?

Parnell McGuinness: There are a lot of public private sector differences which have been highlighted by this. Yes, there are the strange images of police standing not far away from people whom they were telling to social distance. People whose jobs are absolutely not at risk by lockdown regulations are making decisions without fully appreciating how they were going to be felt across the economy, perhaps not even appreciating the web that is the economy. If one person loses their job that has a ripple effect across the entire economic web that’s around them. It’s not only that we’re not going into the office anymore. The dry cleaner is not getting dry cleaning anymore. The coffee shop isn’t selling coffees anymore. There are a lot of real jobs which have depended on our existing way of doing things and with a stroke of a pen – which from a public service perspective can be done from home – they’ve eradicated all of these jobs. There will be a huge amount of resentment about that, apart from anything else. I have talked elsewhere of hearing a lot of anger against public servants talking from on high about how people should behave in all of this while not understanding the economic impact that they were having on people.

Adam Creighton: It’s really highlighted the value of tenure in a job. In a lot of public service jobs you’re not readily sacked. In theory you can be but it very rarely happens. There’s been this argument for decades that we have to pay the top public sector leaders the same as people in the private sector and that’s happened. Indeed, you could argue it’s actually gone further in some cases. But that completely ignores that when there’s a crisis the person in the public sector is going to keep their income and that is extraordinarily valuable. Whereas the person in the private sector may not. And that would explain the old distinction of why you might earn a lot more in the private sector because there is some more risk entailed.

It shows the wrongheadedness that we’re paying our department heads $900,000 a year which is increasingly the standard. It certainly never used to be. There are valid questions to be asked about that now. But, more broadly, Parnell is exactly right. You’ve had people making decisions who don’t face any personal cost. Indeed, if you want to be cynical they actually benefit from the shutdown because by keeping their big salary they’ve moved higher up in the social pecking order, as other people lose their jobs. And if asset prices fall, as they probably still will, you can pick up assets more cheaply. That’s very cynical but that’s the reality.

Gerard Henderson: Parnell’s suggestion is people will become more conscious of this. Going back to the Great Depression, I wasn’t around then, believe it or not. But I’ve read a bit about it. We had a more regulated industrial relations system then, although it’s still pretty regulated now. There was across the board cuts of ten per cent and then there was another 10 percent due to automatic increases not being delivered. And there was of course some deflation as well. There was some sense that everyone in this society made some kind of contribution, although if you were in the public services, losing 20 per cent or 10 per cent wasn’t a great deal if you were coming back. If you were in the private sector it was different. But there was some degree of sharing. What we’ve got now, as far as I can see, is that those in the public sector don’t appear to have had any problems with employment or wage reductions and those in the private sector have been, many of them, decimated, particularly entrepreneurial people working in restaurants or setting them up or dry cleaners and these sort of small business or franchise businesses. So, is there an argument for a perception that there is a greater sharing of the burden?

Adam Creighton: There should be. New Zealand’s Prime Minister did a good job. She cut her salary and her ministers by 20 per cent for the duration of the lockdown. That’s very good politics. It’s also a fair and reasonable thing to do. I’ve been very disappointed by the federal government for ignoring this question. All they’ve done is defer a two per cent pay rise as the big “sharing the burden”. That’s laughable. But if you’re on $500,000 or $800,000 you wouldn’t even notice two per cent anyway. It’s hardly sharing the burden.

Gerard Henderson: Well, I’ll just correct you for a second. The people on $500,000 or $800,000 are actually the public servants.

Adam Creighton: Agree, basic politicians are on around $250,000. Which is still a big salary in the big scheme of things. A lot of MPs forget they’re actually very well paid. Because they’re constantly associating withcorporate elites who earn more than them.

Gerard Henderson: Well that’s true but some of them don’t have secure jobs because they could lose their seat.

Adam Creighton: Yes that is true.

Gerard Henderson: Whereas the public servants, these days have jobs that are pretty secure for the most part.

Adam Creighton: They are and I hope the Coalition will use this as an opportunity to reform some of these disparities between salaries.

Parnell McGuinness: I can’t comment on the disparities in pay. I would say that it might have been nice to see a bit more skin in the game through taking a bit more of a hit for the duration of the lockdown while forcing Australians onto the dole queues. Note that the Singapore government actually did this really early. At the end of February, as soon as it realised that it was going to require sacrifices of its people, the Singapore government partly cut their salaries for a couple of months at the time. I’m not sure if they’ve done it since then. And the Singapore Airlines CEO immediately took a pay cut for the time being. There was a sort of symbolic upfront that “we are in this with you” message they were sending out that I thought was quite important to how Singaporeans responded at that point

Gerard Henderson: A couple more questions. People are looking at or interested in what we might do with reviving our manufacturing industry. As you were saying Adam that would be pretty difficult with the current regulations, including industrial relations regulations.

Adam Creighton: It is very difficult. The only thing that might help it is our exchange rate has fallen a great deal recently, which is below the long-term average. Certainly, it has fallen a lot over the last 12 months. That will make us a cheaper place to shift manufacturing. But if you’re a big multinational you make these decisions over a five or ten-year time frame. It could go up, they don’t know. Therefore, you wouldn’t shift production based on that. You’d only shift if governments were going to introduce tariffs in a somewhat permanent fashion. I just don’t see them doing that. Therefore, the incentive to shift to the cheapest location isn’t going anywhere. It’s a romantic ideal. I would love more manufacturing in Australia, absolutely love it. Stable, well paid jobs. But I just don’t see in practice how you get it back.

Parnell McGuinness: To be fair, they have been talking about advanced manufacturing and high-value goods. Where the gap seems to be is that we actually don’t have enough skilled people to be delivering on those jobs at the moment. One of the things that big businesses have been doing is bringing in people from overseas to do jobs at a level which is normally the apprentice entry level. This sees them learning the jobs to do the advanced manufacturing or highly skilled sort of work. Australia does have an opportunity to improve on that. But it will need to be through business understanding that there is a new way and that it has to relate to the Australian population. In a new way, that it needs to invest in Australian people as well as land and have the profits of sales here.

Gerard Henderson: One of our members who’s a farmer sent a note saying that at a technical college in one of the major states, she could sign up to do diplomas, or whatever, in certain beauty treatments but she can’t sign up to do plumbing. This obviously is a problem for state governments. They run the TAFE system. But how do we move back to a situation where we’re doing more of what used to be TAFE courses within TAFE courses rather than what has developed as TAFE courses in many states in recent years.

Adam Creighton: It’s a hard question. I’m not a huge expert in the higher education area but I do see that vocational education has been a disaster in Australia on the policy front for a decade or more. Something has to change. And it’s been rorted by private operators taking advantage of federal government subsidies. This has all been well reported. Maybe this huge shock to the higher education sector, in terms of losing lots of foreign students, will in the long run be a good thing. Certainly, in a short run it is not a good thing for those institutions but it may force them to focus more on domestic students, which, you know, given their origin in government, is or should be a high priority. Right now, it’s about charging as much money as possible to as many foreign students as possible to ensure we can have pro-vice-chancellors on $400,000 a year. That’s basically a model. Slightly facetious.

Gerard Henderson: But it’s not untrue.

Parnell McGuinness: Also, there is going to be a high rate of youth unemployment over the next year or two. We can already see that coming through. One of the opportunities that lies ahead of us is the opportunity to look at systems around the world that have dealt well with that. One of those is the Swiss model which starts apprenticeships during school but sees them as part of a career path. You start a vocational trade, and about half of these students go to university straight out of school, the rest go on to learn a trade and then might go on to university or technical college later on. As a result, the Swiss unemployment rate is around three point four per cent and youth unemployment is half a per cent higher.

Gerard Henderson: As you both know, this has been a country of high immigration, some would say very high immigration, in recent decades going back really to the end of the Second World War. It looks like, as you both mentioned, there’s going to be an artificially endorsed decline in immigration. What kind of impact is that going to have on the economy? There is an argument that immigrants were taking jobs. Well that will be tested now.

Adam Creighton: That’s true. It’s going to be a very interesting experiment. One that we wouldn’t have chosen. Some people will be very happy about this, I might add. And I kind of respect their arguments. We have had very high immigration. The highest in the Western world. At 1.5 per cent a year and the vast bulk of it of course is net overseas migration. It’s going to have a huge effect on headline GDP and it’s going to mean that we have a lot more recessions, if you like , because the main reason that we had that 28 years we kept hearing about was because of high immigration. If you look at per capita terms we’ve had three or four recessions, if you like, in that period. Those per capita recessions will become actual recessions which will be very embarrassing for the political class because they can’t rely on immigration anymore. It’s going to have a huge impact on the property sector. Dwelling prices will fall. Rents will collapse. All this is just starting to play out.

You could argue that after the lockdown measures themselves, this is the biggest change our economy is going to endure. I’m a bit on the fence as to whether it’s a good or bad thing. I used to be pro huge population but I’m starting to see that there are problems with that.

Parnell McGuinness: Let’s not forget that Australia has always had one of the best managed immigration systems. I see a big positive in being able to bring immigrants in with the sort of caveats that Australians have had in the past. But this is possibly the opportunity to look at where companies have brought them in for those lower paid roles that I was mentioning before. Companies that then take the opportunity from an Australian kid to get on the first rung of the employment ladder or an apprenticeship career. We have said that we have always focused on high-skilled immigrants. The truth of the matter is, however, they’re about a third of the program and the rest is made up through university visas being allocated, becoming paths to citizenship and so on. And not always in high quality university education. It’s not like we’re training up the best people who then become Australian citizens. We need to look at some of those areas. But a lot of our prosperity does come from immigration. And we do need to look at how we can fix the immigration program to ensure we are still benefiting from that. And that people who want to come here and contribute to our society are still benefiting as well.

Gerard Henderson: I’m going to ask you a final question in a minute which only requires a one-word answer. Before we do one of our members has asked about the concept of resources. I noticed that on Q&A the other night there were voices from the audience, the virtual audience, that any kind of recovery from any government involvement should involve most of its money going into alternative energy resources. We have spoken about the climate change debate and modelling but what about the current debate about energy? How does that fit in in a post pandemic environment.

Adam Creighton: My first observation is that if we’re poor or if there’s a recession high energy costs are going to be felt more keenly. So there’ll be more frustration at high cost electricity in this country, which as we know is now amongst the most expensive in the world from amongst the cheapest 20 years ago. That’s been a colossal policy failure. Rightly or wrongly, people do associate that extraordinary increase with a lot of this renewable energy push. The debate about it is incredibly vicious as you know. The notion that Australia can have 100 per cent solar and wind power, even in 20-50 years, based on reasonable assessments is ludicrous. There’s no country in the world that’s getting anywhere near that. Even Germany, which is furthest ahead in this. And as far as I know it’s becoming increasingly considered a failure.

Parnell McGuinness: Germany has been transitioning away from nuclear for a while – since Fukushima. McKinsey wrote a report at the end of last year which assessed the progress of the transition to renewable energy. Basically, after 30 years, Germany has about 30 per cent of its energy coming from renewable energy, and the withdrawal from nuclear is going to cause them a huge problem. It’s causing greater reliance on coal now, despite all the rosy projections of the renewable energy advocates. Realists looking at this don’t see how the renewable energy sector is going to make up for the energy taken out by the nuclear sector. A lot of the renewable energy that is being provided is coming from biomass which is considered reasonably un-environmentally friendly.

Gerard Henderson: Biomass is burning wood?

Parnell McGuinness: Yes.

Adam Creighton: Chopping down trees.

Parnell McGuinness: That’s right. Chopping down trees and this sort of thing. Essentially it doesn’t look like there is a technology at this stage that we could simply say, “Great alright we’re going to put a lot of investment into this and it’ll be fine. We’ll have enough of it by 2050 as long as we invest enough. So that we don’t need any other kinds of energy.” It does not look like that at this stage. A much greater opportunity at this point would probably be to say, okay since we’re in a moment of reviewing all the regulations and subsidies and seeing what needs to be there or not, let’s take them away from energy and see which of these energy sources people genuinely want to invest their private sector money in without the subsidies from government. Perhaps at the same time we could look at economic grants on other types of energy.

Gerard Henderson: So, in conclusion, our topic was coming out of lockdown or getting towards the end of the pandemic. You’re experienced in the economics business. Optimistic or pessimistic?

Adam Creighton: I was optimistic in my speech and so I’m going to stick to that theme. I just want to say it’s not going to be a 1930s type experience. It’s going to be better than that.

Gerard Henderson: Parnell?

Parnell McGuiness: I don’t think it’s going to be as bad as the 1930s. As Adam was saying, we’re healthier, and we’re wealthier to begin with. We’ve got a number of things going for us. In a way, it’s up to us from here. It’s up to us whether we get this right or we completely stuff it up.

Gerard Henderson: Thanks to our members for sending in questions. Thanks to you both for great talks and discussion. Well done, thank you.