Let’s start at the beginning… What exactly is the economy?

Adam Keily: [00:00:52] Hello and welcome to Episode one, the very first one of comedian versus economist, it's everything you've ever wanted to know about the economy, but we're too broad to ask invest with a handle on the bigger picture. My name's Adam and as always, I'm joined by my brother Thomas, The Economist. And I say, as always, this is the very first episode. So we'll see how this pans out before I commit to being joined by Thomas every week. So maybe hit me up with a showreel if you're interested, and I'll compare the end anyway. Welcome, Thomas. Straight into the already fishing for another compare. It's great. I'm just I'm hedging. Isn't that what we do in this podcast? We're going to talk all things money and the economy. Thomas is going to try and Bors with all the details. And I'm going to try and keep it interesting enough that you, the listener, can get a handle on the bigger picture. As we say, you can learn more about macroeconomics and why it matters, especially if you're investing or maybe you've got a ton of super or home loans, whatever it is. Thomas is here to help us understand and make sense of the world of money. So to get us started, we really want to go back to basics or forward to basics in my case. So these first few episodes, we're really going to be just giving you a bit of a primer in episodes down the track. We're going to look at more current events and what's shaping the economy. And I guess we really just for now want to give you something you can come back to help you get the basics under control and help on your journey, whether that's investing or whatever it is. [00:02:27][94.7]

Thomas Keily: [00:02:27] So it's true about the economy. One of the things that we noticed is that there's a lot of jargon that comes up. I'm going to try and avoid that as much as possible. But I think we're going to do a bit of a season with this and say, like, if we're talking about GDP and you don't know what that means, jump back to these early episodes. [00:02:43][16.5]

Adam Keily: [00:02:44] I raise my hand there. Yeah, I don't know what GDP means. Right. [00:02:47][3.4]

Thomas Keily: [00:02:48] You should check out the third [00:02:49][0.8]

Adam Keily: [00:02:49] episode of Comedian versus Economist right now. All right. All right. Let's break it down. What, Thomas, what is the economy? [00:02:58][8.9]

Thomas Keily: [00:03:00] Yeah, it's good it's a good first question. And the funny thing about the economy is it doesn't have a clear definition. [00:03:05][5.2]

Adam Keily: [00:03:07] That's not it, that's not funny as a comedian, I like to think that I know of these that are boring, bordering on annoying. We think it's hilarious in the economic condition that we have these signs that we don't [00:03:21][14.3]

Thomas Keily: [00:03:21] really know what we're talking about. I mean, is it's an amorphous thing and the definition shifts depending on [00:03:28][7.0]

Adam Keily: [00:03:29] You cant use words like amorphous. What are you like three minutes in? [00:03:33][3.4]

Adam Keily: [00:03:34] This is for the people. Amorphous means we're going to have to break it. We're off to a bad start use another word than amorphous. [00:03:43][9.1]

Thomas Keily: [00:03:46] shapeshifting be like a comic book-like shapeshifter from X-Men. [00:03:46][0.0]

Adam Keily: [00:03:53] Got it right. Yeah, got it. [00:03:54][1.8]

Thomas Keily: [00:03:55] Yeah. So it depends on what you're wanting to talk about. So it's sort of an analytical tool, but it kind of shifts depending on what you're talking about. And if you and is it is a good place to start because if you, if you're turning on the seven o'clock news or whatever and they, 're talking about the economy, there's an assumption there about what the economy is and who cares. So, yeah. [00:04:19][23.9]

Adam Keily: [00:04:20] so you think you should also ask yourself why in 2020 you sitting down to watch the seven o'clock news like that in seventy three? I don't know that there's a big audience of podcast listeners, millennials, tech savvy crew, just like I've got my podcast, I've got the latest iPhone and I sit down and watch the ABC regularly at seven o'clock. Maybe I'm living in the past so carry on. Yeah, I guess so. Yeah. [00:04:53][33.1]

Thomas Keily: [00:04:53] So it depends, it depends on what you're talking about and why you're interested. So you know, for, for the general population you might think about the economy is all the stuff that we produce in a given year. It's how much stuff we create, how much services we create and bring into the to the market system like and, you know, as a consumer, it's everything that's available to buy in any given year you could think about. And that's I me that way. [00:05:17][23.9]

Adam Keily: [00:05:18] That's GDP like gross domestic product. Is that what we're talking about there. Yeah. Is that too much it. [00:05:24][5.6]

Thomas Keily: [00:05:24] But yeah that's right. That's right. I mean that's, that's, that's what GDP seeks to measure. Right. But it's not. But it's also a specific measure like GDP only captures what happens within the market economy. So if it's only if there's an exchange of money for the thing, then it gets counted in GDP. If there's no exchange like I go and volunteer and ammo alone for my neighbor or something like that's not counted in GDP. [00:05:49][25.4]

Adam Keily: [00:05:53] But if I go to my neighbor and say they might have counted in GDP, but it's pretty high in my book time. Yeah, but if [00:06:02][9.4]

Thomas Keily: [00:06:02] I, if I go to my neighbor and say, give me 20 bucks and I'm all alone, then it's counted in GDP [00:06:07][4.2]

Adam Keily: [00:06:07] nightshifts. That is cash transactions. Right? Well, not now with covid. There's no cash. So. [00:06:17][9.6]

Thomas Keily: [00:06:18] Yeah. Oh yeah. I've got a I've got a EFTPOS thing I'll take with me one of my little [00:06:22][4.5]

Adam Keily: [00:06:24] square raita for you. When volunteering gets to Stonebreaker that square squared away these mowing lawns for know the local community. [00:06:33][9.1]

Thomas Keily: [00:06:33] Yeah. And that's it. That's another, that's the other thing. The cash economy isn't counted in GDP, so. Yeah. So you can talk about GDP being the economy and generally that's what they say when they say on the seven o'clock news. Again, if you happen to be nostalgic and going, they have to listen to the GDP. They say the economy grew four percent over the year. What they're talking about is GDP and GDP is a measure. It's a specific measure. It has particular definitions and might not be interesting to everyone. [00:07:04][30.3]

Adam Keily: [00:07:05] Now, if you're born already to be on. All right. But OK, so then so that's one thing that we're measuring. Like when we talk about the economy, we're saying it's the things that we make. That's one way of looking at it, right? Yeah. But you mentioned before something something something different perspectives, something about amorphous or something. So there are other perspectives rather than just what are we making? It's what else [00:07:29][24.8]

Thomas Keily: [00:07:30] I've lost you is what I'm hearing. Yeah, yeah, yeah. No, I mean it's what we produce, but it's also the stuff that does the producing. So you talk about the Australian economy. You might say the Australian economy has hollowed out its manufacturing sector, for example. So we don't have as much stuff that makes stuff as they used to be. [00:07:49][19.3]

Adam Keily: [00:07:51] Yeah, it's making my level. We don't have as much stuff that makes stuff also. Yeah, I'm fine. I'm good. I'm getting it. Yeah. It's better, much better than amorphous. Right. [00:08:07][16.3]

Thomas Keily: [00:08:08] You know, so so it's the economy in that in that in that sense is talking about the productive capacity of the Australian nation and that so that's a particular definition and that that has a particular meaning in a particular set of interests around it. [00:08:23][15.3]

Adam Keily: [00:08:24] But even those two things. So one is the things that were making the other ones the capacity to make stuff like why would I care if I'm making money, like through my work or whatever, not through comedy. Obviously, I wouldn't be doing this podcast, but, you know, I'm making money. Why would I care what the economy is doing? [00:08:50][26.1]

Thomas Keily: [00:08:50] So it probably does a few. And this is where it gets interesting, perhaps wary about using that word. [00:08:57][7.0]

Adam Keily: [00:08:58] Now, I think he said funny before. So you've toned it down. Interesting. So that's good. [00:09:03][5.1]

Thomas Keily: [00:09:03] I don't know if you were to claim to be the arbiter of interesting as well. [00:09:06][2.5]

Adam Keily: [00:09:07] Oh, I think I do in this in this relationship, although I would have thought what's interesting [00:09:11][4.5]

Thomas Keily: [00:09:13] or what I think is interesting. Yeah. It's about where it touches you, what your touchpoint is with the economy. So, you know, if you have a job, you're interested in the economy because you need the economy to create jobs because like the market's happening. And so if the economy's growing and jobs are getting created, you might think, that's great, I've got a job. My job security is good. My chances of getting a wage increase next year. Good. That's awesome. But if the economy's tanking, unemployment's rising, you might be like, oh, I'm a bit worried about my job prospects for the next year. So that's sort of one point that it touches you. The other is that as an investor, depending on what you've invested in and where your money is generally pretty, pretty much most investments grow with the economy. So, you know, the Australian stock market or the companies on the ASX, the asset, that's a productive economy, that's the stuff that's producing stuff. So if that's growing and they're creating revenue, they're creating profits, then their share prices are going up. And if you were invested in the stock market, then your stock, then your share values are going up. [00:10:24][71.7]

Adam Keily: [00:10:25] Well, maybe depending on what you're invested in. I've seen some of my investments go pretty fast despite and despite an overall Ryze economy that we've had for the last 30 years. But I guess if you were invested in, like an ASX, ETF or whatever it is, then it's going to go up with the economy. [00:10:47][21.2]

Thomas Keily: [00:10:47] Yeah, that's right. And you might or you might also develop sectoral themes, you know, so you might be like, well, I think I think online retail is growing. I think the Australian economy is pivoting towards online retail bricks and mortar retailers dying. That gives me an investment theme that I'm going to seek out online retailers or companies that have a strong online presence. So knowing that about the economy in the way that the economy is shifting gives you an investment theme that you can work with and that you might use to pick stocks. Yeah, right. [00:11:17][29.9]

Adam Keily: [00:11:18] So that's like you always hear like politicians, whether it's Scott Morrison or Josh Zoidberg or whoever it is always talking about having a strong economy there. That's like seems like that's the most important thing. They want to have a strong economy. So that basically means more jobs, more all the good things that come [00:11:36][18.2]

Thomas Keily: [00:11:37] jobs and growth, jobs and growth is the mantra. But it's also pretty meaningless at that level. [00:11:41][4.2]

Adam Keily: [00:11:42] Like just on that slow growth. Some people might be like, what do you mean growth? What's what's growing? [00:11:46][4.6]

Thomas Keily: [00:11:47] The economy. The economy, right. Yeah. And GDP, typically we talk about growth being synonymous with GDP growth. Right. But again, again, like there's no particular value in GDP growth. It's what that. Hang on. [00:12:03][15.6]

Adam Keily: [00:12:06] Like, GDP can't just keep growing and growing and growing again, like it's got a contract or whatever, at some point you can't just. Like as a nation, can we just continue growing infinitely? [00:12:17][11.5]

Thomas Keily: [00:12:19] I mean, that's a very interesting question. [00:12:21][1.7]

Adam Keily: [00:12:23] Know, now it's interesting. Well, maybe or maybe I'm falling to the dark side. You're coming around to see how interesting it is that go with, you know. [00:12:40][17.0]

Thomas Keily: [00:12:43] Yeah. I mean, it's an interesting feeling, like a theoretical question, like, what are the limits to growth? And, you know, there's there's a school of economic thought that says that you can't keep growing the economy indefinitely. At some point you're going to bump up against the physical constraints of living on a single planet. [00:13:00][16.7]

Adam Keily: [00:13:01] And like if we shrink down Australia into the size of, I don't know, Darwin. Right. So this was still an island. Like that nation then of Australia, the size of Darwin can only have like it can't just keep growing. It's got nowhere to put the factories and stuff. [00:13:25][24.0]

Thomas Keily: [00:13:26] You know, we're not actually talking about physically growing the Australian continent [00:13:29][3.6]

Adam Keily: [00:13:30] now, but, you know, I know it is I started the basics. I didn't think we were a bit above that. But now if we keep fertilizing the ground, the continent will grow. I think. No, I guess what I'm trying to say is like if we constrained, if we if we shrunk it down and constrain that just into a very small thing that has much clearer limitations on the amount of, you know, whether it is what it's farming land for, for growing crops and livestock or if it's factories for producing things like you just can't produce more than X in that amount of space. I mean, you know, maybe this new nation or shift online and really explode. Maybe that's something [00:14:24][53.8]

Thomas Keily: [00:14:24] that I mean, this is sort of where this is an interesting question. Maybe we touched this in the GDP issue, but growth can come from different places like it can come from the resources. You expand the resource base that feeds into the economy, that can grow the economy. You can get more productive with what you do with your existing resources that can grow the economy. You can sort of weird stuff like cool things from outside the market economy into the market economy. So, you know, like I was my neighbor's lawn and then suddenly I get paid to do it. That's now counted in GDP. The economy's grown, but the actual activity underlying that hasn't shifted at all. So there's a few places that growth can come from, but as a general point, it's true. Yeah, like one of the big critiques of sort of modern capitalism, if we're going to go there in the first episode, [00:15:13][49.1]

Adam Keily: [00:15:14] is why not? [00:15:15][0.7]

Thomas Keily: [00:15:16] Why is that? You can't have infinite growth on a finite planet. At some point you've got to bump up against the physical limits of your economy, of the natural world, your economy lives within. And that. Yeah, that because there's a crunch point there. [00:15:31][15.5]

Adam Keily: [00:15:32] So, okay. So I think that gives us an idea of what the economies, economies if I can if I dare to recap, the economy is essentially GDP and out and the things that we make, the things that we produce. And then it's also our capacity to do. And it's and there's a lot of different ways. There's a lot of different ways that people are looking at it and defining the economy. And actually so here's the thing. Does the economy matter? Like, do we have to have shouldn't we be focused on, you know, making a new business that will create jobs? [00:16:06][34.6]

Thomas Keily: [00:16:07] I think I think it's it's true that what the economy is is sort of like a definitional question. And that definitely, no question isn't particularly interesting. Yeah. What we need to do is think about what is actually interesting. So, like, am I interested in what's going to affect the outlook for company profits and therefore share prices? Am I interested in what's going to affect the outlook for the jobs market and my job prospects? Am I interested in the Australian nation's ability to produce the things that I like to consume all these? These are sort of the questions until you have an answer to that question. The economy is uninteresting because an economy is just an analytical window into answering each of those questions. And so, like, if you hear on the seven o'clock news, again, that hit of nostalgia, you know, talk about good data or bad data like GDP came out of this. No, that's good. Or your unemployment rate was this number that was that's bad. That good or bad is relative. There's an assumption there about what we're actually talking about and what we're actually interested in. And you sort of need to get clear on that first before you sort of launch into the rest of it. [00:17:13][66.4]

Adam Keily: [00:17:14] Yeah, I mean, I'm just relieved. I'm relieved that I've only wasted ten minutes learning about the economy, whereas you wasted five years. [00:17:22][8.1]

Thomas Keily: [00:17:28] I mean, you just heard what I just said went right. Go don't get. [00:17:31][3.1]

Adam Keily: [00:17:32] No, I mean, I've got a distinct advantage in that I can just ring you as my brother and just go, hey, this is this some bad stuff happening in the economy? Do I need to be worried about it? But hopefully, this is what we can do with this podcast is maybe we give people the understanding that you've got in maybe a way that that. Yeah, that is interesting and it is fun. [00:17:52][19.9]

Thomas Keily: [00:17:53] I can be the big brother that people always wanted. [00:17:54][1.8]

Adam Keily: [00:17:58] That's good. I was kind of sick of you being the big brother that I never wanted to be on service, so it worked out well. All right. Well, I reckon that's a wrap for this week. So thank you for listening to episode one of comedian versus economist. My name's Adam and that was Thomas. And hopefully, you'll stick around for next week and we'll see you again soon. All right. Take it easy. [00:17:58][0.0]

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