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The Forum > Article Comments > So what really did save Australia's economy? > Comments

So what really did save Australia's economy? : Comments

By Alan Austin, published 22/8/2013

Ockham's razor says that it is Kevin Rudd who saved Australia's economy, because none of the other factors compute.

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<< A wiser plan would be borrowing more now while interest rates are low, keeping people employed and building much-needed infrastructure. >>

Alan, I can’t see it. A wiser plan would surely be to reduce immigration right down so that we wouldn’t need to constantly create so many jobs or build so much infrastructure!

We could then concentrate on measures to keep the employment rate of the established population high, and to actually improve infrastructure for the established population instead of having to build an enormous amount of new stuff for ever-more people.

And… we'd have a much better chance of doing it without going further into debt! Or if we did choose to go further into debt in order to fund this, we would get a much better result at the end of it.

The immigration rate / population growth rate is absolutely integral to this stuff!

For as long as we maintain high immigration, any further expenditure that we put into keeping people employed and building much-needed infrastructure is not likely to get us ahead. What it will do is just create more of the same for ever-more people… and consequently there will always be the demand for us to spend more on keeping people employed and building much-needed infrastructure! And thus there will always be pressure on us to borrow more… and thus it will be extremely hard for us to ever pay off our debt!

The continuously increasing demand for everything has got everything to do with this debate about financial / economic / debt issues!

Now, if we were to head towards a stable population and a sustainable society, then I’d be all for us going further into debt to fund it and make it happen more quickly, if it was deemed appropriate.

But with the continuous growth mindset absolutely entrenched, I think that going further into debt would be extremely dangerous and likely to lead to us having permanently rapidly increasing debt in order to just struggle to uphold the same employment rate and standard of services and infrastructure!

continued
Posted by Ludwig, Sunday, 25 August 2013 2:01:01 PM
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Alan, can I ask you just exactly what debt means in the sense that we are talking about it here.

I guess it means ongoing interest payments of some millions of dollars annually. Does it also mean that we are beholden to the donor countries or the IMF in an increasing manner, and are thus pressured to do what they want regardless of what might be good for our economy, environment, quality of life or future?

Are we losing some control over our own destiny by going further into debt?
Posted by Ludwig, Sunday, 25 August 2013 2:02:09 PM
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Greetings all,

@Ludwig: immigration will probably be determined on moral and political arguments about good global citizenship.

On the economics, however, evidence suggests net migration is okay.

Which are the world’s richest countries? They include Australia, Canada, the USA, Luxembourg, Liechtenstein, United Arab Emirates, Qatar, Singapore and Hong Kong.

These are in the top 25 nations by net intake. So positive migration correlates with wealth rather than poverty.

@Yabby, re: “Why should Australia emulate any of those countries [USA, UK, France, Belgium and Japan]?”

You shouldn’t. They are emulating Australia.

Re: “It is exactly because we had so little debt, that we came through the GFC so well.”

No, the evidence shows exactly the opposite. Low debt countries fared badly through the GFC. High debt countries fared well.

There was one exception – Australia. But Australia’s success had nothing whatsoever to do with debt.

Refer links embedded here:

http://www.independentaustralia.net/2013/politics/we-really-must-talk-about-this-debt-nonsense/

Re: “most of the rest of the economy is built on ever more expensive houses being built for ever more migrants. Hardly sustainable in the longer term.”

Of course it’s sustainable. The USA, Canada and Australia have accepted migrants for more than 220 years. Will prosper by doing so for another 220 years. Or are you looking longer term than that?

@Imajulianutter, re: “With hindsight, many economists recognize that John Howard's economic management was world class, and that Labor's management of the economy was less than competent.”

No, they don’t. The Howard years are universally regarded outside Australia’s Murdoch media as dismally disappointing. Opportunities squandered. Profitable enterprises flogged off for a pittance. Gold reserves sold at rock bottom prices – just before the price almost trebled. And $4.5 billion lost gambling on foreign exchange markets.

In 2007 Australia’s cash in the bank was only 7.2% of GDP. Pathetically low given the rivers of revenue from asset sales, the mining boom and a flourishing economy generally.

Finland had 72.5% of GDP in the bank. Norway had 138.8%. Australia’s miserable 7.2% was one reason economists rate Australia’s economic management then as among the worst in the world.

Try this quiz:

https://newmatilda.com/2013/03/15/could-you-be-treasurer-take-our-quiz

Cheers,

AA
Posted by Alan Austin, Sunday, 25 August 2013 7:04:42 PM
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The reason Alan Austin & others think our government saved us
from the GFC is because they do not understand what caused it.

Most economists and commentators did not predict the GFC.
They were looking in the wrong direction.
It was predicted, quite accurately, some 10 years earlier, indeed
a few predicted it 50 years earlier.
Posted by Bazz, Sunday, 25 August 2013 9:24:35 PM
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How can you write a piece about macroeconomics without even mentioning monetary policy? Macro is 90% about money, with the fundamental relationship between money output and prices being given by the equation of exchange MV=PY (maybe you ought to look it up). Nominal GDP is ultimately determined by whoever controls the printing press.
The case for fiscal stimulus can only be made when interest rates are zero. That is 100% consistant with modern Keyensian economics. But evidence now shows that even at the zero bound monetary policy is highly potent.

In the end the question boils down to this: Do you really believe that in absense of the fiscal stimulus the RBA would have let Australia fall into recession, even after nearly 2 decades of stable aggregate demand growth? Even when the RBA started in a much better position than other central banks (nominal GDP growing at an annual rate of more than 10% by mid 2008 compared to about 4% in the US) and we were far less exposed to the crisis than most other countries?
Posted by Grim23, Sunday, 25 August 2013 11:56:34 PM
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Hello again.

@Bazz, re “The reason Alan Austin & others think our government saved us from the GFC is they don’t understand what caused it.”

Perhaps, Bazz. Causes could be a fascinating discussion.

Nevertheless, Australia was whacked in the last 2008 quarter with GDP growth negative 0.7%, the worst since “the recession we had to have”.

Jobless exploded from 4.1% in September 2008 to 5.8% in nine months.

What happened next is the topic here. All other developed countries continued down the S-bend.

Australia alone avoided deep recession and returned to positive growth in GDP and jobs – with Poland second.

It's certainly worth understanding why Australia and Poland performed better than everywhere else.

The rest of the world understands that the stimulus intervention was critical. It's entirely appropriate Australians understand this also.

@Grimm23, re: “How can you write a piece about macroeconomics without even mentioning monetary policy?”

Because monetary policy has not been the subject of suppression of information, distorted analysis and outright lies, as has fiscal policy.

These articles simply seek to provide information readily available abroad which Australia's mainstream media have sought – successfully – to conceal.

Re: “Do you really believe that in absence of fiscal stimulus the RBA would have let Australia fall into recession, even after nearly 2 decades of stable aggregate demand growth?”

No government wants recession, Grimm. But every developed nation except Australia and Poland copped one.

The data shows the fiscal policy in these two nations was different from everywhere else – specifically, rapid cash handouts to households and vast infrastructure spending.

Re: “the RBA started in a much better position than other central banks (nominal GDP growing at an annual rate of more than 10% by mid 2008 …”

Not true, Grimm. The World Bank database shows pre-GFC growth rates (2007) were:

Australia 3.787990603
Germany 3.269045323
Ireland 5.445086556
Israel 5.496800779
New Zealand 3.562548069
Sweden 3.314245356
The UK 3.632672257

Australia was about average then. It is top of the pile now.

Reasons for this surge ought not be suppressed or denied for the political advantage of the wealthy few.

Cheers,

AA
Posted by Alan Austin, Monday, 26 August 2013 1:23:20 AM
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