Why the Australian Economy Is the Next Great Test for Macroeconomic Theory and Policy

[Recursion]

http://www.slate.com/blogs/moneybox/2013/09/05/australia_gdp_the_next_great_proving_ground_for_economic_theory.html

Another reminder that a trade deficit doesn't have to be bad news for an economy, and that manufacturing isn't some magical type of economic activity...

Australia's GDP growth numbers beat expectations this week. I do not have a forecasting model for the Australian economy, but I was expecting it to beat forecasts and I expect that whatever the consensus forecast is for the next quarter Australia will beat it to. But how confident am I? Not that confident. What I will be doing is watching it closely, because the Australian econoy over the next year or so should be the crucial test case for some important propositions about the economics of recessions.

You see, even though nobody seems to care about Australia it's a fascinating economy. What's fascinating about it is that they don't have recessions anymore—it's been over 20 years since an economic contraction. In fact it's been so long since an economic contraction that Kevin Rudd's Labor Party was able to defeat the incumbents back in 2007 despite the lack of a recession, and it now looks like Rudd will lose power in the next election despite the lack of a recession. The extreme lack of recessions, in other words, seems to have recalibrated voters' expectations for economic performance.

Since apart from the recession thing, Australia seems in many ways similar to the United States—a rich, low-density, high-population-growth, English-speaking federal state with a structural trade deficit—you'd think people would be eager to learn recession-fighting lessons from Australia. In particular, the lesson I think they should learn is that if you strategically allow inflation to overshoot as your response to shocks then you don't have to have recessions.

But whenever I bring this up, people immediately point to China's rapid economic growth and the related mining boom that Australia's experienced. My theory, in other words, is that Australia doesn't have recessions thanks to the good work of the Reserve Bank of Australia. But the conventional wisdom is that we should thank mineral exports. The three big problems with the mineral-centric view, it seems to me, are this. One is that though the 2008 global recession came at a time of high commodity prices, the 2000 global recession did not. The second is that if rapid Chinese economic growth automatically led to economic growth in China's trade partners, you'd expect to see this impact in Japan as well as Australia. The third is that Australia is not a net exporter and in fact has never been a net exporter so it's hard for me to understand how you could credit their export sector as the key to full employment. It has to be a story of domestic demand.

[Art_from_Ark]

1. More than 50% of Australia's GDP was based on mineral extraction last year

http://www.cbc.ca/news/business/story/2013/08/06/business-australia-resources.html

And the proceeds are shared with a relatively small population.

[Recursion]

3. That seems impossible since its GDP is 70% services, much like ours

http://www.habc.gr/australia_economic_outlook.asp

Are some of the mineral extractions classified as "services"?

[Art_from_Ark]

4. I would assume that the people who are selling the minerals,

the people who are transporting them, the people who load them onto freight cars and ships, the mining consultants involved with analyzing ores, and the office staff of the mining companies, among others, are all considered to be providing "services".

[jakeXT]

2. Falling private debt sounds like bad news

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http://www.businessspectator.com.au/article/2013/8/5/economy/whos-responsible-australias-debt-crisis

[TexasTowelie]

5. It's a lot easier to avoid economic downturns when the wealth of a country isn't concentrated into

the pockets of the elite. The fact that they have a higher minimum wage means that the people in the lower and middle economic classes are able to sustain consumer demand. There are so many people in America that live by the margins that they are unable to provide any economic stimulus when the economy falters.

[SoCalDem]

6. and don't they also have universal health care and subsidized education?

higher wages
lower costs for personal health care
lower costs for education

equals

purchasing power to the people (and less need to go into debt)

[Recursion]

20. Yeah, that's the domestic demand he talks about

Those are all policies that are counter cyclical and shore up domestic demand during global downturns

[FreakinDJ]

7. Drinking the Free Trade Kool Aid

Every country that has engaged in "Macroeconomics / Free Trade" Koolaid Drinking has suffered inmeasurable losses by their Working Class with the exception of a very small minority with sufficient Labor representation in their political processes to circumvent the WTO policies and protect their manufacturing sector.

[Recursion]

8. Every country except Australia

Why hasn't it hurt them?

[FreakinDJ]

9. Austrailia has been late into the Game of Rape the Working Class

You are really out to sell your Bullshit of Free Trade.

Your more then likely not from the United States as many of the "Pro Free Trade" types on the forum are. Love the way they come to a forum dealing with "AMERICAN Politics" and try to tell us how to run our country so they can benefit from it.

But as I said in the question at hand - name me the countries who have engaged in these lopsided Free Trade agreements and I can name you many more where the Working Class has suffered the loss of their standard of living for each country you claim the working class has benefited

United States
Briton
Argentina
Greece
Spain
Mexico
Japan


Free Trade is merely the transfer of Wealth to the Top 1%

< on edit>

Just like I said you live in India and want to tell us Americans how to run our country

from your profile sir

Gender: Male
Hometown: DC
Home country: USA
Current location: Mumbai, India
Member since: Fri Apr 28, 2006, 11:13

You are being very dishonest by not disclosing your true intentions

[Recursion]

16. I'm here on orders from the US government

But, hey, thanks for taking a dump on public service like you just did. We appreciate it

[FreakinDJ]

10. Great Post for some one who lives in India

only fair to mention the Op is posting this from India

No wonder he likes Free Trade so much

[pampango]

11. A poster in India should not post about Australia.

I don't get it. Are posters in the US not allowed to post about China or Syria?

[FreakinDJ]

12. Do you go to Chinese language sites in China telling them how to engage in chinese politics

just wondering

[pampango]

13. As I understand it, someone from India is commenting on Australia on an American site.

Are foreigners not welcome here? Or are they welcome as long as they only comment on their own country?

For the most part I welcome an international perspective on issues that we discuss here. I certainly do not discount opinions because they come from someone in a "wrong" country.

I would have no reservations about posting on a site in India, the UK, Australia or any other English-speaking country and giving an "outsider's" viewpoint on their politics. Some folks in those countries might be interested in a foreigner's perspective or some might not. Generally I have found foreigners open to opinions from other countries. Some don't care about foreigners' opinions, but they are usually older, more conservative and nationalistic folks. Younger folks see to before liberal and global in their perspective.

I would perfectly willing to do the same at a site in China or any other country where I knew the language.

[Recursion]

15. I'm not from India. I'm stationed in India (nt)

[pampango]

18. Good to know. Either way you are just as welcome here, IMHO. n/t

[Recursion]

14. I'm stationed here for the US Government, dude

Way to be xenophobic, though

[Dawson Leery]

17. Aussies are about to put a neo-con into power.

The gravy train may end.

[Recursion]

19. Unfortunately

I'm still not sure what about this article pissed people off, but the prosperity may not last.