Thought for Thursday
My column in today’s Fin (subscriprtion required) argues that the best explanation for our current good performance and low unemployment is the trivial one – we haven’t had a recession, and that microeconomic reform and productivity growth have nothing much to do with it. This is fortunate since the rapid growth in multifactor productivity experience in the mid-1990s has ground almost to a halt in the last four years.
I reject the idea that microeconomic reform ‘fireproofed’ us against going into recession during the Asian crisis. As I observe
To refute this claim, we need only look across the Tasman. New Zealand had much the same microeconomic reform as Australia; if anything the reforms were more radical. And the Asian crisis produced the same immediate outcome, a currency depreciation. But the NZ Reserve Bank raised interest rates to offset the depreciation, while the Australian Reserve Bank allowed our dollar to decline. The result was recession in New Zealand and a smooth adjustment here.
Interestingly, while wandering through the blogs this morning, I linked (via Stephen Kirchner) to this piece in the Oz by Alex Robson (formerly a colleague of mine when I was at ANU, and also a former econoblogger), who says
Taking low unemployment for granted is understandable, given that it has been consistently low for such a relatively long time. But it is a risky position for economic policy-makers to take. The primary factor behind the sustained growth in job creation is the stunning success of commonwealth-driven reforms during the past two decades – much derided as “economic rationalism” by the likes of economist John Quiggin, sociologist Michael Pusey and political scientist Robert Manne. It is these market-oriented policies that have led to substantial improvements in individual economic freedom for all Australians.
Robson is correct to nominate the past two decades as the period of substantial microeconomic reform. But there are a couple of problems with his claims about unemployment. The official unemployment rate now is only marginally below that of the previous cyclical minima in 1989 and 1979. When you take into account the growth in various forms of disguised unemployment (such as disability benefits) the rate is actually quite a bit higher. The proportion of men engaged in full-time employment has plummeted. So the growth in job creation has been anything but “stunning”.