Statewide's CIO says the government needs to do more to help the economy.

Con Michalakis, head of investments for the $9.4 billion Statewide Super, said a focus on tax and fiscal policies should be central to Canberra’s response to the coronavirus crisis.

While the central bank has cut rates to near zero and is buying government bonds to boost liquidity and support fragile economic conditions, Michalakis said much more needs to be done.

“Australia’s support safety support package of $340 billion is not enough stimulus if we want to stop businesses going bankrupt and people getting into further debt or withdrawing their savings,” the investment chief said in an interview. “You need the government to step in and set a job guarantee.”

Michalakis believes that there will be a sharp and deep recession for Australia over the current quarter, the first in nearly 30 years, after being hit by a global pandemic that has wreaked economic and social havoc. 

He also predicts a long U-shaped economic recovery and has warned that without a vaccine or further government action, Australia could slide into an even deeper recession. In his view, modern monetary theory (MMT) will help overcome the worst of the crisis since the Reserve Bank of Australia is almost out of options.

While Michalakis became a convert to MMT a few years ago, the economic theory has generated massive interest since the outbreak of the coronavirus forced businesses into hibernation. 

 “We’ve had an amazing market failure because of a health crisis,” he said. “You have to take the lesser of two evils and the lesser evil is severe recession bordering on a mini depression. There is only one actor left who can stop this and that is the government keeping people employed until the economy gets to the other side.”

Initially dismissive of MMT, the CIO now thinks it makes complete sense despite the theory’s detractors who highlight the soaring government debt because of giant stimulus packages.

“These people say this crisis has shown government debt was a problem but this crisis has shown that debt is the solution to a problem- that private debt is the problem,” he said.

From where he sits, a lack of demand is the big issue, not government debt.

Michalakis also rejected the notion that MMT will drive inflation and stunt growth. He said that as long as there are no supply-side constraints to the real economy, there will be no inflation issues. Further, he added, that any sign of inflation could be managed with tax policies.

 “Economics is a religion and people get entrenched in the way they think,” he said.

The CIO said MMT had a pretty good track record since the global financial crisis when it came to supporting the monetary system and the economy.

Bridgewater’s Bob Prince, co-chief investment officer of the world’s largest hedge fund said late last year that central banks were “just one downturn away” from being forced to deploy what he referred to as monetary policy three (MP3) where fiscal policy coordinates with accommodative monetary policy. At the time he said it was the “bazooka that you have to fire.”

Prince will discuss the management of both monetary and fiscal policies at this month’s Fiduciary Investors Digital Symposium.

Prince’s view comes as no surprise to Michalakis, who said Wall Street best understands the way money and the economy function. “It’s a way of looking at how the world works,” he said.

More public spending money and a high deficit is not the problem if countries issue their own currency, he added, before conceding that “the market can’t solve the three great market failures of our time – a downturn, climate charge and a health crisis.”

“Since 2008 we’ve had the GFC,  the European crisis and now we have COVID 19,” the CIO said. “We are now entering a period of new international economics.”

The conversation on MMT will be discussed at the Fiduciary Investors Digital Symposium which will be run as an interactive live-streamed event across two sessions on both May 19 and 20.

Register now to secure early bird tickets for $149 + GST per person (standard price $250 + GST from Thursday, May 7). Your registration includes unlimited access to our multimedia content hub, a dedicated podcast series, video recordings of each session, thought leadership and papers and exclusive editorial coverage. The program will be accredited with CE/CPD hours.

View the full program and speaker line-up at

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