Sunday, October 17, 2010

Unemployment and the Global Recession: Australian Exceptionalism

Australia's employment/unemployment outcomes during the global crisis has been truly outstanding. This is made incredibly clear from some excellent graphs in Treasurer Wayne Swan's regular Economic Note.

Wayne Swan's Economic Note surprisingly provides (seeing as he is a politician!) a good summary of key economic developments. Obviously Swan is biased towards selling his own book, but I often get some useful information from it (suitably filtered for bias). This week's note is no exception.

Swan shows two graphs explaining why "the worst economic downturn since the Great Depression" has had not been felt strongly in Australia and why talking about concepts of economic vulnerability are so difficult!

Now the debate really is over why this occurred and what the major factor in this amazing outcome actually was: luck, good policy or China. While the right of the political spectrum argues that China is most important and that the GFC ands the global recession were really a North Atlantic phenomenon, the Left argues that government played the major role.

To downplay the real dangers to the Australian economy in 2007-08 is silly. Government in Australia played a major role not just in spending initiatives but by providing government guarantees to the financial sector. Equally it would be silly to argue that China hasn't play a major role since 2009.

What is definitely true is that a lot of things have gone right for Australia over the past 18-20 years, just as a lot of things went poorly for the previous 18-20 years . Government policy since 1983 has been important, especially in making the Australian economy more adaptable to external shocks. But it now needs to play a bigger role in distributing Australia's luck across society and extending it into the future.

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