• P D Jonson

Pete Jonson originals - EconArt

Check out Pete's 2018 exhibition of EcoArt here.

Geoffrey Blainey

Oil paint on canvas

550 cm X 750 cm

Signed bottom left, 2019

Geoffrey is the artist's great friend, in my view one of the great historians of Australia with a wonderful feel for matters economic. As well as his Australian history he has written an acclaimed book about the causes of war and another, called The Great Seesaw about the swings of optimism and pessimism in the world economy. This provided great help to this writer's work on the measurement and role of Animal Spirits on major economies.

Economist's Quickstep

Image, using parts of other EconArt paintings to represent the Dance of Time. Prepared for the 2018 Savage Club art show.

This work illustrates one economist's life in a time that has (largely) passed all too quickly.

As a baby I was said to ask 'Why?' too often for comfort. As a teenager I tried to become a professional footballer, and played in two grand finals for Nunawading (one winner) when I wasn't training at Carlton. Geoffrey Blainey, known to me as a great economist as well as a wonderful historian and a much loved President of the Savage Club, provided great inspiration. Milton Friedman, Maynard Keynes, Hyman Minsky and Geoffrey all sparked what became my life-long interest in monetary economics. The forth panel shows the economist as a tiny figure contemplating a theorem - constructing the painting helped me think about an issue not yet resolved by economists. This is the source and effect of 'Animal Spirits'.

The rabid dog at the end of the story shows part of the answer to the unresolved issue of 'asset inflation'. The rabid dog represents pessimistic Animal Spirits, and in the painting this beast is compared with happy sheep climbing a mountain cheerfully celebrating optimistic Animal Spirits. My concern is that I may see the rabid dog on my death bed. Before that I hope (with my co-author Dr Clifford Wymer) to become known as the economist who first measured Animal Spirits and helped define the sources of Asset inflation and deflation.

Time is ticking by and the dance of life is moving on. We all interpret and reinterpret the past with the benefit of greater experience and increased knowledge. This work uses a number of my past artistic endeavours to create and display this layering of understanding and interpretation.

Parable for Floating the Aussie Dollar

Oil on canvas

Large size (actual data missing)

On 12 December 1983 the new Labor government floated the Australian dollar in what turned out to be the most important reform of Australia's financial system, In my view this change was well overdue. This parable shows Prime minister Bob Hawke going over the fence - actually an image of Australia's rabbit proof fence - with ease, accompanied by his chief adviser, Professor Ross Garnaut. The RBA chief, RA (Bob) Johnston went over, also on a willing steed and accompanied by two of his main advisors, John Phillips and the artist.

Treasury, represented by the black horse, for some reason was reluctant, meaning that the Treasurer, the nicely besuited Paul Keating sailed over the fence unhorsed. Later exchange of articles in Quadrant revealed that Treasury's boss, the legendary John Stone, agreed the dollar should be floated but the time was not right and a more gradual process would have been safer.

Political and Economic leaders

Good Morning America

Donald Trump became President of the USA on Friday 20 January, 2017.There were many questions. Which promises will he keep, which will be delayed or ditched? Economists are expecting new spending by government - the Great Fence, replacing some of America's aging infrastructure and perhaps increased military spending. Will foreign policy follow the Donald's pre-election promises? Make friends with Russia, confront China in the South China Sea (and perhaps by putting tariffs on Chinese imports) and withdrawing from NATO. Making allies commit more to the new American military regime?

Whatever happens there will be change, or at least firm questioning of many past verities. If spending by government is increased, and/or taxes reduced, this may turn a modest recovery into an inflationary boom, and rising debt levels, and wouldn't that be fun? Or not if the US Fed raised interest rates faster than now expected.

Headwinds (G7 + China)

'In recent years, further downward pressure on the growth rate has emerged from the four headwinds that are slowly strangling the American growth engine. Rising inequality has diverted a substantial share of income growth to the top 1 percent, leaving a smaller share of income growth to the bottom 99 percent. Educational attainment is no longer increasing as rapidly as it did during most of the twentieth century, which reduces productivity growth. Hours worked per person are decreasing with the retirement of the baby-boom generation. A rising share of the population in retirement , a shrinking share of working age, and longer life expectancy are coming together to place the Federal debt/GDP ratio after the year 2020 on an unsustainable trajectory. These four headwinds are sufficiently strong to leave virtually no room for growth over the next 25 years in median disposable real income per person'.

Robert J. Gordon, The Rise and Fall of American Growth, 2016, which should be read by every serious economist in the world. And in Australia, especially Treasury and Reserve Bank economists, and perhaps Treasurer Scottie.

Arguably, the arrival of President Trump, the lead penguin in the image above - check the largest animal's hairpiece - with erratic foreign policy, a tendency to trade protectionism and adding to uncertainty about the global attempt to slow global warming - will make things worse. The next two penguins are Mrs May from the UK and Angel Merkel from Germany. The rest of the G7 nations - Canada, France, Italy and Japan - are represented by resting or dead penguins and the compassionate (or merely hungry) upright one at the back represents China.

If American growth languishes, can global growth prosper? Australian inequality is not so bad as America's, and our demography may not be so inhibiting. Yet we share America's federal debt and deficit problem, and household debt is far worse. The US Fed is raising cash rates and Australian rates must eventually follow. When this happens our East Coast housing bubble will end - indeed this may be underway in any case - and many overcommitted households will be in dire trouble.

Spend less and save more, if you can.

America's central bank.

Janet and the mob

Janet Yellen, Chair of the Federal Reserve Board (Central Bank) of the United States, is the world's most powerful woman, close to the top of the gender-free overall list. Her task is to return global monetary policy to normal, meaning returning US cash interest rates to normal, ie approximately normal real growth plus target inflation. (WARNING: that is a controversial idea.)

Hers is a tough gig, and the global market volatility after her first tiny move toward higher interest rate shows just how hard her job is. This perhaps explains her slightly puzzled expression and the question mark of her crook. The sheep, representing the burghers of Wall Street, are generally unheeding, just (as usual) prepared for the best.

Sadly, Ms Yellen is to be replaced by President Trumps choice in February of 2018. He will be lucky to achieve what the lady sheep herder did.

Bene's Great Moderation

Ben (Bene to friends) Bernanke, was Janet Yellen's immediate predecessor. He pronounced that the 1990s was the time of 'The great moderation'. Economy running like a Swiss clock, inflation under control share prices (represented by the upward slope of the first mountain) rising strongly and smoothly. Bene’s study of history should have told him that the great share boom of the 1990s would be followed by a great bust. This was the Global Financial Crisis, represented by the storm clouds. Many sheep enticed onto the mountain died.

By ignoring imprudent asset inflation - in America both share prices and house prices - comment from on high about 'the great moderation' fooled many people into riding unsustainable booms, until the inevitable crashes.

The Bubble Meister

Alan Greenspan, Bene's predecessor, famously said it was impossible to tell if a healthy boom in asset prices was a dangerous bubble. He opined, wrongly in my view, that it was better to let the boom go on and if it was a bubble clean up after it burst. Lots of damage was done with this approach, including Main street anger when Wall street was bailed out. Of course, the Wall Streeters, represented here by the sheep, paid a price. Not a big enough price, as in the painting, when sheep and the grass died, and the bailouts created what economists call 'moral hazard'. (This is when naughty or merely profligate sheep get rebooted to try again to become rich.)

Mr Greenspan was also famous for telling a congressman that if he thought he understood something Mr Greenspan had said 'I must have misspoken'. As well as a Bubble Meister, Mr Greenspan was the last of the 'Alchemist' central bankers. Now, as Lord King, previously governor of the Bank of England, points out in a recent book, central bankers are required to be transparent and excellent communicators.'

Paul Volcker Smashes Inflation

In the 1960s, US President Lyndon Johnson prosecuted a war against communism in Vietnam and a war on poverty in the USA. Gradually this excessive striving created inflation, until by the late 1960s inflation was becoming a global issue. Then the 1970s saw two rounds of oil inflation fostered by opportunistic oil producers that greatly exacerbated the problem of global inflation

The painting shows the history of American inflation from 1960 to its peak in 1980, when many people were deeply concerned at what looked like global inflation out of control. The appointment of Paul Volcker as head of the US Fed was a turning point. Mr Volcker bravely announced new operating procedures for monetary policy and greatly lifted cash interest rates. Tight money indeed caused recession (in fact two in quick succession, represented by the vertical lines) but also smashed inflation, as the painting shows.

Unemployment peaked at around 10 % but fell quickly after the end of the second recession.

The ghostly figures include the shade of Mr Volcker, reviewing his work. Inflation was caused by economic policy and made worse by opportunistic behaviour by oil producers. It was ended by Paul Volcker’s bold action. Macroeconomics as currently practiced is in trouble. But the image here, inspired by Paul Romer’s Figure 1, illustrates a story that shows great clarity in cause and effect. The subject is only in trouble because practitioners fail to take the data seriously.


The first big political economy shock in 2016 was the decision by the non-elite British voters to opt in a referendum to depart from the European Economic Community. The 'leave' case was lead by Boris Johnson who is shown here sending his best wishes to the continental members of the EEC as a friendly farewell.

The second big shock was Mr Trump's surprise victory over Mrs Clinton in the American presidential election. We shall deal with this shortly.

Banana Republic - as it could have been

And may still be

In 1986 Australia's international debt was growing far too quickly for comfort. After prodding by the Artist, and a fiery interchange in the presence of top teams from Treasury and the Reserve Bank, Treasurer Paul Keating resolved to follow official (RBA) recommendations. These were to convert the budget deficit to a surplus, convince the ACTU to cop a cut in real wages due to a falling exchange rate and to approve the Reserve Bank to raise interest rates.

These policies were all implemented and (after a substantial fall in the value of the floating dollar) the economy moved to a better configuration. Soon however, as the dollar began to recover, the RBA top leadership resolved that this was equivalent to a tightening of monetary policy. While the board was advised of the need to tighten monetary policy by raising cash interest rates, and seemed to agree with this advice, the opposite happened month after month.

The economy began to overheat and by (possible) coincidence a new management was installed at the RBA. In quick time cash interest rates were raised dramatically almost to 20 %, creating the worst recession since the Great Depression of the 1930s. This recession was not as dramatic as depicted in the painting, but the next Great Recession might well be. Again government debt is growing rapidly and interest rates are very low. Additional factors are that household debt is unsustainably high, wages and productivity growth is very low and the global boom (also built on borrowing) is likely to end soon.

Economists in Action

The Invisible Hand

The father of economics is widely known as Adam Smith, visible here as a putti. (Another father in my view is David Hume, a Scottish philosopher who greatly influenced his good friend Adam Smith.)

One of Adam Smith's great notions is that the economy is governed by an 'Invisible Hand'. It is difficult to represent an invisible hand in oil paint, so I have resorted to my daughter's glitter. The hand is almost invisible from 20 paces and only becomes visible as one approaches the painting. Anyway, this is my first attempt, in which The Hand is directing some people up the hill, representing rich rewards, and the majority to the poor, swampy lowlands.

The burning bush introduced itself for technical reasons, but I think provides a nice biblical touch to the scene.

Economists in Uncharted Waters

The crisis of 2007-08 emphasised differences among economists. This image represents the world's economists as religious fanatics on a desert island with a half-sunken row-boat and with their larger sail-boat drifted away as no one secured it properly. The large shark cruising by illustrates risks of the location, but the greater risk is because violence has succeeded the usually more polite modes of discord among the high priests of global economics.

A decade after the Global Financial Crisis (GFC) the world's more acclaimed economists have still not reached agreement on what needs to be done differently to prevent a recurrence. Good thinkers believe the next crisis may be far worse. This in my view is almost certain unless major nations have restored fiscal and

monetary policy to something like 'normality'. This is important so there is 'dry powder' that makes it possible to repeat the expansion of these policies to boost economic activity.

Animal Spirits

'Animal Spirits' is a phrase used by economists to describe the optimism or pessimism of 'economic agents' (ie 'people'). This is a concept used by the best theoretical economists such as Keynes, Minsky, Akerlof and Shiller but since it is arguably imprecise and (most economists believe) unable to be quantified or included in formal models this presents a barrier. This barrier means the concept is largely ignored in formal models. This means the models or theories are lacking what at times of boom or bust is perhaps the most important influence.

In June of 2016 I presented a paper at a conference in Rome (jointly with Clifford Wymer) in which we provide a measure of Animal Spirits based on a long period of reading, reflection and debate followed by empirical testing of the relevant ideas. Preliminary measures of its impact in determining movements in share prices and decisions about output and investment have been tested in simple models and now are being incorporated in a model of the UK economy from 1855 to 2014, with assistance from the Bank of England.

Here is a link to the paper. (NB, quite technical but ignore the mathematics.)

The painting represents optimistic and pessimistic sheep. Those ascending the share price mountain - climbing from left to right - are optimistic while those being crushed by falling share prices are pessimistic - walking right to left at the bottom of the mountain. Two have succumbed to the Black Dog of Despair and one is dangling with a rope around his neck. One enterprising sheep seems at the far left to have discovered a way to get on the upward part of the mountain.

Self portrait with theorems

This image was devised as I struggled to invent a narrative of how expansionary monetary policy influences asset prices. The short red bar shows expansion of the money supply (horizontal axis), which simultaneously reduces interest rates (vertical axis). In the middle distance is the goods market, which in current conditions is not much influenced by monetary policy. Thus the effect of monetary expansion is largely on asset prices, represented in the blue structure on the (imagined) vertical axis The blue supply curve for assets is steep as asset creation is slow, so asset prices rise rapidly when asset demand is pushed up by expansion of the money supply.

The artist is also the author of learned articles on this exposition, a tiny figure as he contemplates the theorems of economics, 'gathering seashells by the shores' of his subject.

Famous Equation Modified

So called 'monetarists' such as Milton Friedman use this equation as the basis of explanation of how money (M) influences prices (P). V is 'velocity of circulation' about which not much can be said except that its fluctuations modify the beauty of the link between M and P. The other variable is product (y). It is agreed that when M expands, y is initially boosted, so clearly Mv does not always equal Py. This opens the subject for attempts to articulate the links in some detail, which has been a large part of my professional life as an economist.

Julia in Wonderland

No understanding of economic policy is complete without some ideas about fiscal policy, symbolised here by the scary floating bright red bars stretching as far as the eye can see. (With a magnifying glass you will spot the last of the Howard-Costello surpluses, represented by blue bars,)

A similar picture applies to most nations

The great economist John Maynard Keynes saw bright red budget deficit bars part of the solution to economic depression. But his followers overdid his ideas until budget deficits created massive debts that ruined national economies. In this painting the three figures are Julia (with the red hair), Kevin (with the top hat) and Wayne - the one with the furry ears.

Will Australia, and other western nations, ever tame the dragon of debt, or will failure to do so creates the next Great Depression?

Floating Aussie dollar

In 1983 the Hawke government floated the Aussie dollar. This was the most important policy adjustment since the steady reduction of tariffs started by Prime minister Whitlam. This meant giving Aussie monetary policy the chance to work effectively to fulfill its main objective to improve economic stability by keeping domestic inflation low and moderately stable by adjusting cash rates of interest.

At the time it was not realized that such a policy would allow asset inflation to soar and the currency to be too strong. A revised prudential authority (APRA) began to restrain house prices in 2017 but the exchange rates remains uncomfortably high, having made the Aussie economy uncompetitive for some of the time since the float, at great cost to manufacturing industry. My proposed policy is to provide a tax on capital inflow, a suggestion that makes the nellies in government highly nervous.

The floating dollar is placed in a portrait of Lake Pedder, itself a highly controversial landscape.

Four Economists

This is an image of the artist's four favourite economists. Milton Friedman, Geoffrey Blainey, John Maynard Keynes and Hymen Minsky.

Milton Friedman taught him monetary economics (by his books and articles, we met only once, in Paris). Friedman's book with Anna J Swartz, A Monetary History of The United States, is a masterpiece. Geoffrey Blainey is a brilliant historian whose books almost always have an economic flavour. His The Great SeeSaw and The Causes of War successfully address major economic themes ignored by just about everyone else. His analysis in the SeeSaw book was important input to the artist's formal economic research on the subject of 'Animal Spirits'


John Maynard Keynes's The General Theory of Employment, Interest and Money is another masterpiece, and his The Economic Consequences of the Peace rang a bell that European politicians ignored at great cost in the 1920s and 1930s. Hyman Minsky's views on causes of major economic fluctuations contain brilliant insights not yet absorbed by the economics profession.

For this image I have focussed on the images of these brilliant men, all of whom I feel I know well from their writing, and in Blainey's case from a lifelong friendship. The setting is an imaginary meeting , imaginary as differing ages and formal fields of interest meant that any actual meeting was impossible. The composition is the style of the Dutch masters.

Central banking idyll

This image features one of the world's most distinguished (now retired) central bankers - Australia's Glenn Stevens. Glenn is shortly to retire but is shown throwing money into the air, an alternative to Milton Friedman's helicopter. The money is being followed by asset prices, symbolised by a house image and a share price image. The dark blue ball at upper left indicates a remote blue moon, representative of an unresponsive 'real economy' of factories, milk bars and so on.

The conditions under which monetary expansion stimulate asset prices rather than ordinary economic activity (y in the Famous Equation image above) or ordinary goods and services inflation (P ditto) are uncertain and will win someone a Nobel Prize in economics.

Lest We Forget

It has been revealed that RBA forecasts for wages growth for the past 7 years have been (ahem!) consistently far higher than the outcome. In this image I have represented the line of the actual wages growth by the downward fall of the fishing line. Forecasts for each year are shown by the upward attachment for each year, marked by the date, from 2011 to 2017. In the original painting this is clearer, of course, but readers will I hope get the general idea.

Over-predicting wages means over-predicting income tax collections and over-predicting income taxes means over-optimism about the budget deficit - ceterus paribus, of course, the economist's great general caveat. This may not be the whole story. Perhaps other revenues were also over-predicted, and just possibly the 'independent' RBA was leaned on by colleagues in Treasury or even (gasp!) an over-optimistic Treasurer.

One can excuse two or three years of forecasting error. In my day when responsible for such forecasts, such consistent errors would have forced me to find a hole in the ground and shoot myself. Kissinger once said that three errors in a row required some change of approach. This painting is called 'Lest we forget'. This is in the hope that the mighty RBA will never again produce such a consistently biased set of forecasts.

Technical notes

Exhibition scheduled for 10 April. Contact artist here if you would like an invitation.

All paintings are oil on canvas and painted with Rembrandt paints. Each canvas is either 3 foot by 3 foot or 1 metre by one metre. (Supplier went metric.) or in the case of the Parable of the Floating of the $A 36 X 48".

All paintings are, or soon will be, framed in identical blond-wood.

Within 12 months I should have 20 of these paintings. Galleries who might be interested can contact me on 0403 048 105.

#PDJonson #ALL


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This is a new HenryThornton site. The first Henry Thornton website is available at the National Library's Trove.  http://pandora.nla.gov.au/tep/33415