I have an article at Quadrant Online where you don’t get to choose the heading and which is called, The bill comes due for Rudd’s quack cure but does truly get to the heart of the matter. Every so often, I’m sure, a government will actually spend money in a sensible way and legitimately take credit for some positive outcome that hastened things a bit if left to the private sector. Governments are still dining out on their achievement with the Snowy River in the 1950s as if that is the typical outcome to be expected from public expenditure. But in the sixty or so years since it is hard to come up with great expenditure achievements by governments. I’m sure there are some outside the roads and airports variety but I just can’t think of any offhand. The Pink Batts, School Halls and NBN expenditures are more typical of what you get from government.
But let me draw your attention to the conclusion of this article which discusses the actual reasons for Australia’s soft landing which followed the same recession found everywhere else on the globe. Such nonsense to argue that we avoided recession but that’s the myth. My own take on what made things better list the following:
As for the reasons that the downturn here was not as bad as it has been elsewhere, there are four parts to the explanation that I can see.
There is firstly the extraordinary fiscal situation the government inherited. We not only had no deficit, we actually had no debt. Australia was the only country in the world not to have any public debt whatsoever, a situation that it is almost impossible to imagine returning any time soon.
There was then the mining boom built on the back of the Chinese stimulus. That has gone, in large part because the Chinese must now themselves deal with the problems that their own stimulus created in their own economy. But we have added to our own slowdown in mining through a series of policies that have made miners more reluctant to invest in Australia.
Third, our banking system was almost entirely untouched by the financial crisis which spread internationally due to the ownership of various toxic assets generated in the US financial system. Our banks were fine, so Australia had no problems of this kind to overcome.
And lastly – but this will make little sense to most people – the RBA kept interest rates up rather than pulling them down. No quantitative easing in these parts with the result that the national savings we generated were used more productively than elsewhere. You can’t stop governments from squandering what they squander, but at least the private sector was kept on the straight and narrow.
Interestingly, there is an article in The Australian today which touches on this same question. David Crowe has an article titled, The stimulus we didn’t really need which lets Rudd off easy. The title should be “The Stimulus that Made Australia Far Worse Off than if Nothing had been done at All” or something along those lines. Interesting, there is a four point discussion of the same thoughts I wrote up at QoL in which Warwick McKibbin mentions China and our banking system’s strengths, but then mentions the fall in the dollar which I have my doubts about and then this one extra.
Because where we differ is over interest rates. Sure they were brought down during the GFC although only late in the day but then they were raised again and then again and then kept relatively high. Those low interest rate Keynesian types will be the ruin of us all. Thankfully our RBA governor didn’t buy into any of it.