This week’s newsletter comes to you from Zvolen, Slovakia, where I’ve been on holiday for the last week. Central Slovakia is a hidden treasure. Awesome people, forests, hiking, bike-riding, food, and history. Put it on the itinerary for your next Euro summer.

Another great question - this time from Skye.

Imagine you run an investment company and own shares in lots of different companies. When you start your day and check the stock market, you’re hit with a flood of information: some shares have gone up, some have dropped, and others haven’t moved much. It’s hard to make sense of it all. How is your portfolio really doing overall? And more broadly, how is the market doing?

This is the exact problem two American journalists - Charles Dow and Edward Jones - set out to solve back in the late 1800s. In 1882, they founded Dow Jones & Company, a financial news company (What do we think of Seidler Koslowski & Company for a name change?)

To help people cut through the information overload, Dow created a summary: he picked 12 major companies, added their stock prices together, and divided by 12 to get an average price. That single number became an easy way to track the overall performance of the stock market. If the average went up, it meant, on balance, most companies were doing well. If it went down, losses were outweighing the gains. Suddenly, instead of tracking dozens of stock prices, investors could check just one number. That number was the Dow Jones Industrial Average - what we now call “the Dow” or “the Dow Jones.”

Today, the Dow includes 30 large, influential companies across different industries (e.g., Amazon, Nike, Goldman Sachs). The calculation is a bit more complex than a simple average, but the core idea is the same:

You might hear the Dow described as an index. That just means someone has taken a group of stocks and applied a formula (like an average) to turn them into a single, standardised number.

You might also hear that the Dow has gone up or down by a certain number of points. In this context, a “point” just means one unit of the index. For example, if the Dow rises by 200 points, it means the 30 stock prices it tracks have increased enough to push the index up by 200 units.

So there you have it, Skye, next time you hear about the Dow, you’ll know exactly what they’re referring to!

If you’ve made it this far, you deserve a treat. 

We get it, tax can be A LOT. But here’s one way you can save money right now: EatClub. It’s a free app that gives you up to 50% off at thousands of restaurants and bars across Australia.

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Plus, in June, every time you redeem an EatClub deal after your first, you’ll unlock extra savings on your bill. That means the more you dine, the more you save.

Make this financial year taste better by downloading EatClub today. 

Productivity has been in the news recently. Australian Treasurer Jim Chalmers has announced that productivity is his priority this term, and Prime Minister Anthony Albanese has announced a roundtable to plan the road ahead.

Imagine you run a bakery that only sells bread. You employ 10 bakers, and you own 5 ovens. You want to increase the number of loaves you sell each day. What would you do? (Have a think before reading on.)

You could:

Economists use the term “productivity” to refer to that third option. It’s about how efficiently we turn inputs - labour (bakers) and capital (ovens) - into goods and services (bread). So when the Treasurer and the PM talk about improving Australia’s productivity, they’re talking about increasing the amount of value each worker and business can generate - not simply hiring more people or investing in more capital - but by working smarter.

Not great. Let’s have a look at Australia’s productivity growth.

It’s been declining since the 1990s, and has been negative since the 2020s. Negativeness is not a good sign. It means that with the same amount of inputs, we are now producing less stuff than we were five years ago. 

Let’s go back to the bakery. And let’s say you choose to increase the number of loaves you produce through options 1 and 2: hiring more bakers and buying more ovens. Eventually, you’ll hit limits. Your bakery is too small for more ovens, and there are no more bakers to hire. So, how do you increase your output? Your only option is improving productivity.

The same logic holds true for the entire economy. There are natural limits on how much we can grow the labour force or increase capital investment. That’s why productivity - getting more output for the same inputs - is the most important engine of growth. When we get more efficient at using our existing resources, incomes and profits go up, and governments can put more money into schools and hospitals without raising taxes. Living standards go up, and the world becomes a better place.

There are three main ways businesses can boost productivity:

Of course, there are also big-picture factors that affect productivity but are outside a business’s control. These include things like trade policy, an ageing population, the shift to a greener economy, and major disruptions like pandemics.

There are a few irons in the fire:

You can see how some of the topics from the inquiries map directly onto the drivers of productivity we mentioned earlier (e.g., boost innovation, improving skills helps with diffusion, etc.). This is promising!

Of course, there are other things going on, too. But these are the big ones. We’ll be sure to keep you updated on the state of Australia’s productivity as these events happen!

Last week, Jenny Wilkinson was appointed Secretary to the Treasury. She joins Michelle Bullock (Governor of the Reserve Bank of Australia) and Danielle Wood (Chair of the Productivity Commission) as a leader of one of Australia’s most important economic institutions.

For the first time ever, women now lead Australia’s three most important economic institutions. That’s a big deal!