The Hon. Paul Keating
Paul Keating served as Australia’s 24th Prime Minister, from 1991 to 1996, having been Treasurer between 1983 and 1991. His political legacy includes the deregulation of the financial, product and labour markets and the establishment of compulsory superannuation. Since leaving the Prime Ministership in 1996, Paul Keating has continued his interest in geo-political and economic affairs.
Paul Keating noted it was the largest group of fund managers he had ever spoken to, and they should be charging lower fees on the $2.3 trillion in his superannuation system.
He focussed on the global macro picture. The shattering of US prestige came in 2008 with the GFC. Before then, the world believed Americans had the black box on how to manage the world economy, but China is now bigger than the US if you include the unofficial economy.
Population and GDP will grow together due to technology and capital mobility. The Chinese have about 20% of US income per capita, and we should expect it to reach 50% over next 20 years. Four times as many people earning half as much will give China a GDP size of double the US. Demographics will drive future domination.
The Chinese are now building their own institutions and the IMF has no influence, and the renminbi will become a reserve currency. We are seeing a break from a world previously managed out of Washington.
It matters how the world is managed. Keating thought Trump was weak during his campaign, but he tapped into the “We will not take it anymore” of millions of Americans. Maybe he will be better than we expect, and he’s already said three encouraging things: we need a better relationship with Russia, we need to reach out to China (“Although Trump is slightly wild, the Chinese do not do wild well.”) and he wants to spend on infrastructure.
We are heading into a different world of great power rivalries, not multinationals. It might even work better than pretending we like each other.
The tools used for inflation do not work in a low growth, deflationary world. We used to think markets knew how to allocate funds, and we have lost the great dynamic growth engines of the past such as road building, railways, plastics, etc.
Main reason interest rates are low is because there is no use for savings in the west, not QE. Companies already have too much capacity and excess capital and central banks cannot stimulate activity in such a market. We have capital-light industries like Facebook which don’t need many staff or equipment, unlike the great car companies or manufacturers of the past. It has been a mistake to impose budget restrictions in US which has led to crumbling infrastructure.
But networks and the interconnected economy are the major changes in our lifetime. The entire world is connected, but information erodes value in many companies, and most information is now free. End result? The world’s population will become a big global factory and the price of goods and services will continue to fall.
Can capitalism cope with this change?
Intuitive technologies and artificial intelligence will be massive changes which can take us anywhere. They will change the way the world works. P2P relationships will grow in importance, and the distinction between leisure and work will become more blurred.
Keating left us with this question. Is the digital economy capitalism's great creator or its undertaker?