Australia's Economic Miracle - 28 Years Without a Recession!
IN THIS ISSUE:
1. Australia’s Economic Miracle – Good Policy & Good Luck
2. Boring Economic Policy & Avoiding the Global Financial Crisis
3. Despite 28 Years of Success, Australians Remain Cautious
4. Conclusions – There’s A Lot We Could Learn From Australia
Australia’s Economic Miracle – Good Policy & Good Luck
If the US economy remains in positive territory this month and next, as looks increasingly likely, this will be the longest economic recovery in America’s history. Expect a lot of celebrations just ahead. While that will be a true milestone, consider that Australia has not had a recession in almost 28 years! That’s what we’ll talk about today.
Ask Australian economists about this golden run, and almost all will say it has been driven partly by good policy and partly by good luck. The luck part can’t be minimized. Beneath the ground of large stretches of Australia are huge iron ore and coal deposits that have been the raw materials which have fueled China’s long economic boom.
Above ground lies the wheat and cattle that have helped feed China’s rapidly growing middle-class population. As Australia’s top trading partner, China’s meteoric economic growth has driven the Australian economy higher and higher.
China’s growth, in other words, has created a tailwind that has boosted Australia’s economy for much of the last three decades. And if the Chinese economy ever truly tanks, even the most skilled policymakers in Australia will have a hard time preventing a recession.
But China’s gravitational pull can explain only so much. For one thing, other countries nearby have had recessions, some severe, in recent decades. There is a long list of policy choices that enabled the long Australian boom even as otherwise similar economies had recessions.
One episode is particularly telling. In 1997, an East Asian financial crisis tanked the economies of countries like South Korea, Thailand and Indonesia. These nations were major buyers of Australian exports. The value of the Australian dollar started to fall on global currency markets, putting the expansion at risk only six years in.
On the other side of the Tasman Sea, New Zealand’s central bank responded to its falling currency by raising interest rates. Officials concluded that a falling New Zealand dollar indicated a lack of confidence in the currency and implied that inflation would soon rise.