2023 Year in Review
Vindication of sorts
In last year’s annual review, I said that ‘One prediction we can make for 2023 fairly confidently is that the RBA will be a different institution by this time next year.’ And so it was. The highlight of 2023 was the final report of the RBA Review, which validated much of what we have been saying in this space in real time since at least 2019 and in other places going back more than 15 years. All the more remarkable was the fact that the independent review panel members began their work with very different priors, but changed their mind on key issues because of the weight of evidence presented to them.
We spent much of the year hashing over the Review’s final report and associated papers. I took issue with the Review on matters of detail, but the overall direction was correct. More than that, the Review served up a much-needed dose of public accountability. The Review was careful to stay above personalities. Its terms of reference precluded it from examining other institutions. But it didn’t take much to read between the lines. Having put his hand up for reappointment after presiding over an inflation rate that was in the target range just 11% of the time he was in office, Governor Lowe did not get a second term.
As I argued in my reflection on the Review process, the final report points to wider systemic issues. And yet sometimes the system works, however imperfectly. The government introduced an RBA amendment bill this month, as well as a new Statement on the Conduct of Monetary Policy. By 1 July 2024, the new monetary policy framework will be fully operational. John Kehoe wrote this week that ‘The new regime will also test the quality of our media,’ but there is every chance it results in the more mature public discussion of monetary policy that other countries seem able to have without too much difficultly.
Public policy is downstream of ideas and the RBA Review is a good case study in support of that proposition. There really is a posting-to-policy pipeline and you have all been part of it. There is a great dissertation in it for someone.
The year of the bond
2023 was meant to be the year of the bond. Investors went long bonds in expectation of a US recession that never came.
This was The Economist in November 2022:
We sounded a skeptical note on recession sentiment in February. As usual, many market participants misjudged the stance of monetary policy, assuming it to be tight when nominal income growth and bond yields implied that it was too easy. Most macro pundits hang their year-ahead outlooks on expectations for monetary policy, but don’t know how to evaluate the effective stance of policy. We did get a bond rally into the end of the year, with US CPI inflation ex-shelter now consistent with the Fed’s PCE target rate.
The house price bust that wasn’t
House price doomerism has been one of our favourite targets over the years. Doomerism follows fairly naturally from conditioning the macro outlook on misperceptions about the stance of monetary policy. But in the case of housing, it is mostly a function of over-weighting demand-side influences relative to supply. The supply of new housing in Australia is largely determined by regulation. Many commentators began the year with predictions of a major house price bust, but the market bottomed at the turn of the year and house prices proceeded to post new record highs in 2023. Our favourite contrarian indicator, The Economist magazine, perfectly timed the low in Australian housing with this November 2022 story:
The year of YIMBY
To be clear, we take no pleasure in rising house prices from a normative perspective and the record highs in house prices only serve to underscore the need for supply-side liberalisation. Fortunately, 2023 was also the year the YIMBY movement took off in Australia (I am a member of Sydney YIMBY). There is a growing non-partisan coalition in support of housing abundance that is pushing back against the planning establishment. Housing affordability is easily Australia’s biggest economic and social problem, one that is entirely a function of regulation. The median dwelling price in Sydney is over a million dollars. Needless to say, you shouldn’t have to be a millionaire to put a roof over your head.
The YIMBY movement had some big wins, including a comprehensive upzoning in my home state of New South Wales. It will take a while for the upzoning to translate into new approvals and even longer to show up in dwelling completions, but new supply is coming and not before time. Hopefully, this will moderate the long-run growth in dwelling prices, which have yielded equity-like returns in Australia.
As with the RBA Review, Sydney YIMBY and its counterparts in other capitals has shown what a small group of people can achieve when they set out to reform public policy. A big shout out to Justin Simon for leading the Sydney YIMBY push and chief poaster Peter Tulip for his tireless efforts on social media.
Books I did not read this year
It is hard to believe that it has been 20 years since Kieran Healy’s hilarious Books I Did not Read this Year:
3. The House of Rothschild: Money’s Prophets, 1798-1848 by Niall Ferguson. I have been not reading Ferguson since before he was a celebrity academic. This book has been on my “Must Not Read” list for several years now, and looks to set stay there for some time.
Niall is also on my ‘must not read list,’ along with Michael Lewis, who by all accounts managed to write a new book this year that was even worse than all the others.
As for books I did read this year, I recommend Jennifer Burns’s biography of Milton Friedman, which I will review here at a later date. Burns had the advantage of drawing on Ed Nelson’s epic multi-volume intellectual biography, as well as George Tavlas’s The Monetarists (also published this year) and manages to synthesize many of the key insights from those works.
This year, I ran a book club on Scott Sumner’s Alternative Approaches to Monetary Policy. Along with his Midas Paradox and The Money Illusion, the Sumner trilogy remains the best introduction to monetary economics.
The year in social media
It was a tumultuous year in social media. One thing I found working in think tanks is that social media is mostly ineffective in promoting engagement with long form content. That problem has only gotten worse, with traffic to other websites from social media platforms falling dramatically as those platforms penalise external links. Most organisations are over-invested in social media. Email and RSS, by contrast, are hugely underrated (I bet you are reading this via one of these media). I am mostly a passive user of social media and rarely post the newsletter to platforms other than Substack. You can find my short form content, such as it is, on Substack Notes. Here is my Substack Notes primer from earlier in the year.
The newsletter in 2023: millennium goals
Total subscriber numbers passed the 1,000 mark this year. The newsletter went freemium in February. I have tried to balance free and paid content and put in place substantial discounts for educational and not-for-profit readers to maintain the newsletter’s accessibility.
I am very grateful to those who took out a paid subscription. I have tried to return the favour by linking back to the newsletters and other work of paid subscribers where relevant to this readership, including in the ICYMI section. I am happy to exchange recommendations with other newsletters using Substack’s powerful recommendations feature. Also open to making complimentary paid subscriptions available on a reciprocal basis to other newsletter writers.
In various former roles, I was effectively a free content provider on behalf of for-profit media outlets. Think tanks in particular trade content for exposure. It is not necessarily an unfair trade, but it limits what you can write about, especially if it goes against established narratives and interests. There was a time when it was almost impossible to get an op-ed placed on the RBA making the points I have made here, which is obviously a big deterrent to writing them in the first place. The paid newsletter is a much better model for me as a writer and for you as reader. Private benefits aside, I hope the discussion above demonstrates that there is larger public mission that is also being served through these pages.
If you like what you read here and want to see more of it, please take the opportunity to become a paid subscriber. ‘Tis the season, so there is a 20% discount for 12 montths on offer until 1 January. A reminder that there are also gift subscriptions available (imagine their surprise!)
I will be taking a short break, back early in the New Year. Wishing you all the best for 2024.
ICYMI
Grant Robertson is to blame for the end of the Productivity Commission.
‘A legacy of shame that will haunt them and their cause for decades.’
Matt Nolan’s newsletter (some of you may recall his TVHE blog).