Australian Economy - Road to Prosperity Speech
RBA Governor Questions Whether Recent Downturn was a Recession
Speaking in Melbourne on Nov 5, Governor of the Reserve Bank of Australia, Glen Stevens, questioned whether the recent global economic events had actually caused a recession in Australia in his Road to Prosperity speech, but this was not the first time he had done so. Back in October, he was also quizzical about the extent of the downturn in the Australian economy. It is difficult to reconcile considering that only one year earlier the Australian public, its government and its economic gurus were miserable. Should Australians sigh with relief, count their blessings and just move on into a bright and optimistic future or should time be taken to deconstruct recent events and the reaction to them, which have taken people from the depths of despair to the road to prosperity?
Manias and Panics
While Governor Stevens recognised the loss of income, wealth and reputation for some, he said, "But on the best reading of all the available information, this appears to have been one of the mildest downturns we (Australians) have ever had."
Considering the mood on the Australian streets in late 2008 and early 2009, this is astonishing for those with even the shortest of short-term memories. While it was clear then by all economic indicators that nations such as the U.S. and Great Britain had fallen into recession, the assumption was that Australia would join them, even if not to the same extent. The gloom was pervasive and so was the fear. Measures were taken to guarantee bank deposits and interest rates were cut rapidly to accommodate a bleak future ahead.
The mood mattered and it still should because there seems to be a lesson in this. Decisions affecting economies are made by individuals, a lot of them. Governor Stevens indicated as much in his speech, The Road to Prosperity. "We are seemingly just made - 'hardwired', as some would put it - in a way that makes us prone to bouts of optimism and pessimism," he said.
Behavioural Economics and Irrationality
The field of behavioural economics indicates that humans are flighty creatures. Fear can permeate the herd with viral efficiency, as can optimism and therein lies the rub. If recent pessimism was unwarranted, what of the current optimism? On Nov. 7, the weekend edition of The Australian newspaper led with the headline, New Boom 'could last for years' subtitled with, "RBA'S BULLISH OUTLOOK". It's highly emotive stuff.
Do headlines such as this and speeches entitled, The Road to Prosperty, not only reflect a better economic climate, but also help create one? The commodity-driven Australian economy in recent years has experienced a protracted boom in resources, followed by a near-miss recession which in hind-sight is now seen by many as a hiccup and is onto a resumption of the before-mentioned boom. Behavioural economists have a reason for that. Humans are irrational and emotive creatures.
Bullish Optimism in the Australian Economy
In fact, the recent whiplash changes in the Australian public's perception of recent economic events may be the stuff of a behavioural economist's dream study. Its short duration is a blessing, but if a study is to occur perhaps it should happen soon before shoulders are shrugged and the benefit of hindsight kicks in.
Road to Prosperity
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