There will be further economic data next week, including the September quarter national accounts, but barring some extreme number for GDP growth, yesterday’s unemployment numbers allow us to pass judgement on 2009. There are still too many Australians without jobs but, given the depth of recessions and slowdowns being experienced in most developed countries, our economic policymakers have more than earned their keep.
If we’d handled the global financial crisis like we’d handled the early ’90s recession, we’d be waiting until 2010 for a stimulus package, and the Reserve Bank would be stolidly lowering interest rates 25 percentage points at a time into single figures, and in an information vacuum that left the public and business in ignorance as to what it was up to. Unemployment would have soared toward the sort of figures Treasury was initially predicting, above 8% and onwards toward 10%. That’s hundreds of thousands of lost jobs.
Instead, it looks like unemployment has peaked below 6% — a figure we never even reached until 2003. It may still bump up above 6% but the trend appears now flat to downward.
The beneficiaries of this achievement are unaware of it. They are men and women who kept their jobs, perhaps working fewer hours, or who found jobs quickly after losing them, instead of wasting months on unemployment benefits, losing their skills and savings. The saving in terms of human capital, not to mention misery, is enormous and economy-wide.
The response of policymakers might have looked easy — throwing money and lowering interest rates — but the timing of the action and the targeting of the stimulus was critical, and the right calls were made.
We’ve also learnt just how important consumer and business confidence is in the functioning of the real-world economy. In part, the GFC and the recession was a giant experiment not merely in macroeconomic policy but in economic psychology. And while some economists were happy to play the parlour game of debating whether tax cuts or bonuses would be more readily spent by consumers, institutions such as the Reserve Bank were keeping a close eye on consumer and business sentiment and expectations.
As Treasury’s David Gruen pointed out earlier this week, June 3 was the key date for Australia’s response to the recession. That was the day we learnt that, after a GDP contraction in the December 2008 quarter, the March 2009 quarter had seen a 0.4% rise in GDP. It was only one number, any number of commentators insisted, and some commentators argued it was wrong, but it was the colour of the number — black and not red — that was critical. The psychological effect across the economy was significant and powerful.
This year has given policymakers two additional tools in dealing with downturns. It has restored fiscal policy, under certain, limited circumstances, to the array of weapons to be deployed against a major slowdown. And it has established the importance of preventing a vicious circle of falling confidence leading to reducing spending and investment, leading to economic contraction and further falling confidence.
The economic challenge now switches back to the issues that bedevilled us before the GFC: skills shortages, inflation, housing supply, business costs, superannuation, taxation. The government is constrained on several fronts in dealing effectively with these: it has no money in the bank to spend on reform; many of the policy levers are in the hands of the states, it has an Opposition now engaged in blatant and destabilising economic populism, and it has shown itself very patchy in its approach to reform. The NBN and structural separation of Telstra were sound, courageous decisions, but a host of others, including ongoing handouts to the car industry, the maintenance of parallel import import restrictions, the Murray-Darling Basin cave-in to Victoria and the CPRS, show a lack of political courage that does not bode well for future reform decisions.
A decision by the federal ALP to intervene in the NSW Labor Party, strip key powerbrokers such as Obeid and Tripodi of their preselections and rebuild the party from the ground up would be a strong sign of a determination to fix one of the nation’s greatest economic impediments — the NSW government.
And yesterday’s acknowledgement by Wayne Swan that the foreign investment review process is too obscure was a step in the right direction, particularly given Barnaby Joyce’s disgusting Sinophobic investment policy. A much clearer policy, that gives foreign investors more confidence their applications are being objectively assessed rather than subject to political decision-making, will fix a long-standing sore point in Australia’s investment framework.
Returning to reform-as-usual will be hard. There’s no longer the sense of urgency and crisis that drove the big decisions of 2008 and early 2009. There’s just the dull, slow slog of negotiating reforms with often-cretinous state governments and pushing proposals past skittish, risk-averse ministers — and Prime Minister — in Cabinet. The key reforming ministers — Lindsay Tanner, Wayne Swan, Chris Bowen, Stephen Conroy — can have a few days off over Christmas and then get stuck into it.