national psyche. two years on, i think we better appreciate the uniqueness of the earlier episode and there has been some realignment in expectations. but i suspect that this realignment is not yet over and it is one of the things that continues to weigh on the national economic mood. also weighing on this mood is the prospect of the so - called “ end ” of the mining boom. as a result, i sense a degree of nervousness about our future among some commentators who sometimes ask : what happens to australia after this boom is over? how can australian businesses compete internationally given our high costs? and, where will the jobs come from in the future? these are all good questions. but if i return to another theme from two years ago, it is that uncertainty is also normal. given this, it is important that we guard against the possibility that this uncertainty mutates into chronic pessimism – that is, for it to become normal for us to see lowe p ( 2012 ), “ what is normal? ” address to the australian business economists annual dinner, sydney, 5 december. bis central bankers ’ speeches think that our prospects are limited. if this were to become our normal mindset, then we would be well on the way to finding ourselves in the very world that we feared. so this evening, i would like to turn my eyes to the future and talk a little about how the economy might look someway down the track. my central thesis tonight is twofold. first, the australian economy does have the foundations for a successful and prosperous future. and second, how well we take advantage of those foundations depends increasingly on investment not in physical capital, but in human capital. an aspiration so looking forward, what type of economy should we be aspiring to? one could answer this in many different ways. but i think a reasonable answer would be a highly productive, globally competitive economy that is operating close to, or at, full employment. such an economy would be characterised by : a national currency with sustainably high purchasing power ; sustainably high real wages ; and sustainably high real returns on capital. high purchasing power and high wages mean that for each hour that we work we are able to buy more goods and services. and high returns mean that savers get rewarded when they take a risk or defer their spending and save for the future. if we are to meet this aspiration then we need to be an economy where value added is high. we need to be

and with a trend decline in the unemployment rate. they have also been associated with a fairly low share of wages in national income. while we need to pay close attention to overall labour costs, these observations point to the conclusion that concerns about the overall level of wages in australia are, to some extent, really concerns about the exchange rate, with the high exchange rate leading to high wages expressed in foreign currency terms. a lower exchange rate would obviously make a difference to these comparisons. in terms of the return to saving, it is currently very low. as i spoke about last month, this largely reflects global factors. 2 a lack of investment around the world, relative to people ’ s desire to save, means that savers everywhere are being offered low returns on their savings in bank accounts. this is causing them to look elsewhere, which, in turn, is pushing up the price of existing assets. so from a cyclical perspective – and largely as a result of global factors – our exchange rate is unusually high and, at the same time, savers are being offered unusually low returns. of course, australia is not unique in being in this position. and this particular configuration is causing complications for macroeconomic management here as well as in a number of other countries. but as we deal with these complications we should not lose sight of the longer - term challenge of building a highly productive, globally competitive economy. we should have some confidence that we are able to do this. we certainly have a number of strong foundations that provide the basis for this optimism. the question is how well we can use those foundations over the years ahead. some strong foundations rather than go through all of these strong foundations, i would like to draw your attention to just three. the first is our linkages with the fastest growing part of the world economy – namely asia. i am sure you all know the facts about the trade relationship. exports to asia are up by around 30 per cent over the past five years. our three largest export destinations – china, japan and south korea – are all in the asian region and free trade agreements have been concluded with each of them recently. but the aspect of the relationship that i would like to focus on is the people - to - people relationship. currently, around 8 per cent of the australian population was born in east and south - east asia or india ( graph 1 ). this is up from less than 1 per cent of the population around the time that i was born. in comparison, in