Donald Trump gave the elites a scare. They’re not going to let it happen twice.
So on Monday I introduced you to the Jackson Agenda – a secret agreement between the world’s financial elite to run the economy red hot.
I’ll get to that in a sec, but just to recap, on Monday I showed you how globalisation had left working-class America behind. Deaths of despair (alcohol, drugs and suicide) were soaring, and working class life expectancy was going backwards.
No one was talking about it, but anger was bubbling beneath the surface.
And then came Trump.
Trump started talking about it.
He recognised that huge parts of the country were really angry, and he sought to catalyse that anger into a political movement.
He, quite successfully, portrayed himself as a ‘working class President’.
He actually said, “In many ways, I see myself as a working-class President.”
Sure. Totally. This is totally a portrait of a working-class family:
But whatever. It didn’t matter. Finally someone was talking about the plight of working-class America. Finally someone was listening.
Historians can debate whether Trump actually helped the cause of working-class Americans or just took them for a ride.
But it is definitely true that in the chaos that defined the Trump presidency, everything changed. It literally ended with a wild coalition of disaffected people storming the Capital.
The elite were scared. The traditional anchor points of power realised that something had to change. They had to make the economy work better for ordinary people, or they would be destroyed.
This has a few manifestations across the different halls of power. But when it comes to managing the economy, it has given us the Jackson Agenda.
The Jackson Agenda is actually pretty simple. It goes something like this:
“To counter Trumpism, we must run the economy hot to get unemployment down and wages up.”
That is, we’ve got to make the economy work for working people.
(I know, what a radical idea! But Trump shows us that this wasn’t front and centre for the world’s financial elite, so we can thank Trump for putting that idea back on the table.)
But this idea is coming to dominate discussions at central banks around the world.
The key players here are Janet Yellen (who was the notoriously dovish Chair of the Fed, and is now heading up the Treasury in the Biden Administration, Jerome Powell, the current chair of the Fed, and our own Phil Lowe, Governor of the RBA.
It’s an idea that been driven by the world’s central banks, and is steadily making its way into fiscal policy thinking at the world’s treasuries.
It’s why I call it the Jackson Agenda. It’s an idea that emerged to prominence at the Kansas Fed’s Jackson Hole Economic Symposium – it’s like Woodstock for Central Bankers.
But as I said, the idea is that to get unemployment down and wages up, you need to run the economy much hotter. And for central banks, that means being much less scared of inflation.
You can see the shift in thinking and the shift in tone in Phil Lowe’s most recent speech on March 10.
I’ve pulled out the key parts.
“I also want to emphasise that the monetary stimulus is not just about achieving an inflation rate of 2 point something.
It is just as much about achieving the maximum possible sustainable level of employment in Australia.
Unemployment is a major economic and social problem and the Board places a high priority on a return to full employment.”
That’s the steely-eyed resolve we’ve come to expect from Australia’s number one money man.
But there’s something new here– the focus on full employment. That’s been a peripheral goal forever, but Lowe is moving to front and centre.
He’s making the argument that without a booming jobs market, we’re not going to see wages growth pick up, which is what needs to happen before inflation can get itself out of the gutter.
For inflation to be sustainably within the 2 to 3 per cent range, it is likely that wages growth will need to be sustainably above 3 per cent…
Currently, wages growth is running at just 1.4 per cent, the lowest rate on record. Even before the pandemic, wages were increasing at a rate that was not consistent with the inflation target being achieved. Then the pandemic resulted in a further step-down. This step-down means that we are a long way from a world in which wages growth is running at 3 per cent plus.
A long way indeed. Check out the graph:
We haven’t seen wage growth in the 3s and 4s for like ten years. I don’t see that happening any time soon… and neither does the RBA apparently.
And it’s definitely not happening until we eat up a lot of slack that’s currently in the labour market.
How much slack?
Well, Phil Lowe reckons we probably need to get unemployment down to something with a four in front of it before that’s going to give wages a wiggle on.
Over the past decade, the estimates of the unemployment rate associated with full employment have been repeatedly lowered both here and overseas. So there is uncertainty. But based on this experience, it is certainly possible that Australia can achieve and sustain an unemployment rate in the low 4s, although only time will tell. As we progress towards full employment, we will be relying on the wages and prices data to provide a signal as to how close we are. The current signal is that we are still a long way away from full employment.
Yup. We’re miles off.
And that’s even before we get to all the structural headwinds for wages growth – like a massive pandemic and global labour pool deflation.
So this is the Governors way of signalling to the markets that unemployment is the new game in town.
Until the RBA gets the unemployment rate it wants, and the wages growth it wants, it’s going to keep running the economy super hot.
The global elite are not going to get Trumped again.
From here on, it’s all about jobs.
And that’s not some empty political slogan this time. They’re really committed to it.
This is the new reality. This is the Jackson Agenda in action – using super cheap money to create jobs for everyone who was left behind.
And if asset prices boom along the way, well so be it.
DB.