Derek Thompson: Is a recession coming?
“Will good policy always win? Clearly, the answer is no,” says Stephen Grenville, a nonresident fellow at the Sydney-based Lowy Institute and a former official at the Reserve Bank of Australia. “We can’t rely on another 27 years of growth, and we can’t say that because we’ve gone 27 years without a recession we know how to grow without a business cycle. But what the 27 years do show is that if you get policy right, you can be hit by quite a number of shocks, good and bad, and still maintain steady growth.”
What does “getting policy right” look like? Lesson one: Fight recessions right. Australian policy makers combated the 2008 global financial crisis more adeptly than ones in the United States or in Europe, implementing fiscal stimulus quickly and not turning to budget austerity as the economy recovered. As a result, Australia’s growth rate dropped without the economy actually shrinking, let alone contracting and then stagnating, or contracting for years on end, or contracting over and over again.
Just months out from the recession, congressional Republicans started pushing budget cuts. European governments started slashing spending too, requiring strict austerity in the continent’s debt-laden peripheral economies. Australia, however, showered helicopter money on lower-income households, spent heavily on infrastructure, and debated balancing the budget without ever really moving to do so.
Read: The U.S. isn’t prepared for the next recession
Addendum to lesson one: Don’t get into the mess to begin with. Australia had an easier recession to combat because the country had avoided the subprime-lending boom, meaning that its households were not as overextended with debt and its financial institutions were not as heavily invested in exotica as those in the United States. “The financial sector in Australia is quite different,” said John Romalis, an economist at the University of Sydney. “It’s boring. It’s mostly involved in bread-and-butter banking issues—that removes one source of trouble, as not being excessively exposed to risk is a helpful thing.”
Lesson two: Welcome immigrants. More than a quarter of Australians were born abroad, double the rate in the United States or France. In recent years, the country’s population has grown twice as fast as the U.S. population has. Given that Australia’s immigrants tend to be younger than its native-born population, those numbers have helped improve the country’s fiscal outlook, bolstered its government coffers, expanded its working-age population, and lowered its median age. They have also helped power it out of soft patches, recession-free. (The economic math is not complicated: More people means more investment and consumption means less chance of a downturn.)
Lesson three: Open up to the world. Australia has benefited from being in a rapidly developing neighborhood, close to Vietnam, Indonesia, the Philippines, and especially China. Their growth has fueled Australia’s growth, with the higher-income economy exporting commodities, as well as other goods and services, to those lower-income countries. Trade between China and Australia alone increased tenfold in the 2000s, with Australian exports to China booming and China investing heavily in Australia, too.