Everyone see Steve Keen on The 7.30 Report last night?

You can take your pick, Keen reckons, from either a recession more severe than the last one, or an Even Greater Depression lasting a decade with 20% unemployment.

With all due respect to Steve, he needs to get a grip — as do plenty of other doom and gloom merchants. Mike Steketee today was declaring that Kevin Rudd could face the same fate as Scullin, the only other one-term Prime Minister — undone by the Depression.

I’m still waiting for someone to produce some reasoning as to why the Australian economy is going to shrink, let alone fall off a cliff, because there’s no evidence for it. And the collective amnesia about the fact that six months ago we were all worried the economy was running too hot is particularly annoying.

The IMF doesn’t think we’re too badly placed. And unemployment figures for September came out this morning. Employment is a lagging indicator, so it presumably won’t tell us much about what’s happening now, but unemployment skyrocketed to an alarming … 4.3%, in seasonally adjusted terms.

In trend terms, employment rose slightly and unemployment fell slightly. Employers who are still struggling to get skilled staff might be able to breathe a sigh of relief sometime soon, but not right at the moment.

And then there’s commodities and China. Chinese growth is tipped to slow to a sluggardly 9%. It wasn’t too long ago that the main worry about the Chinese economy was overheating, as well. You’d have to tip that the long boom in commodities prices is over, but who seriously thinks that with Chinese demand still growing strongly, they’re going to fall back to the sort of levels we saw in the early part of the decade?

But China relies on exports, people will object, especially to Europe and America. Indeed. But it also has 1.2 plus billion people, in a region with another billion people in rapidly-developing economies (remember that enormous disaster, the Asian economic crisis?). So far this is whites-only crisis.

And then there’s our currency, which is currently plumbing irrational depths that must make exporters weep with joy. A damn sight better than parity with the US dollar, even if it means petrol stays expensive.

Yes, almost certainly, the drop in growth will undermine the Government’s tax take. The Mid-Year Economic Forecast in December now takes on a significance it hasn’t for some years, as it will provide a pointer to just how badly Treasury expects deteriorating economic conditions to affect revenues. However, the Government has showed some nous on that front.

Lindsay Tanner and Finance officials have been engaged all year in a line-by-line search for savings through the Commonwealth Budget, the sort of root-and-branch savings hunt that hasn’t been conducted since Peter Costello undertook a similar hunt back in 1996-97, which will free up spending to be redirected if necessary. The Government should therefore be well-placed to maintain targeted spending without spooking the markets by wiping out the surplus or going into deficit.

And a few commentators might want to understand that the equity markets do not equal the real economy — particularly when they are behaving as irrationally as they are currently. The US bailout is already being declared useless when barely a cent has been spent — all because stock markets have tanked since it was passed.

People might want to wait until it starts working before declaring it ain’t working. Particularly when they represent the sort of investment banks that stand to directly benefit from even more taxpayer largesse.

Between professional pessimists like Keen, a media anxious to play up the drama and self-interested representatives of the financial sector, you’d get the impression the only rational response to the crisis is unrestrained panic. That will probably ensure predictions of a depression become self-fulfilling. Just remember how we finally overcame the last depression — with a world war.

Peter Fray

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