Garnaut takes us behind the smoke and mirrors

On Tuesday night, Professor Ross Garnaut delivered a speech to Victoria University’s 2013 Vice-Chancellor’s Lecture and dinner, titled “Ending the great Australian complacency of the early twenty first century.”

It is a well-researched and candid view of Australia’s current economic position and the significant challenges we now face. The age has republished the full speech here, while the time poor can read a more concise version here.

Garnaut remarked “Between the recession of 1990-91 and now, mid-2013, Australians have enjoyed the longest period of economic expansion unbroken by recession of any developed country ever. The first decade’s expansion in the 1990s was built on solid foundations: rapid increases in productivity that had their origins in far-reaching productivity-raising reform from 1983. The second decade’s expansion was built on sand that was bound eventually to shift: at first a housing and consumption boom funded by bank borrowing from international wholesale debt markets; and then an unprecedented lift in the “terms of trade” (prices for Australia’s exports relative to imports), leading eventually to an increase in investment in resources to a share of the economy that has no precedent.”

Garnaut believes our resources boom was caused by a “unique period of economic growth in China: the strongest, longest episode in ‘catch-up’ growth the world has ever seen” and that China completed this investment-led period of economic growth around 2011.

He now believes Australians must choose between two different future paths – ‘business as usual’ and ‘public interest.’

“If we continue with ‘business as usual’, we continue to live behind the veil of ignorance that has descended around our public life. But, sooner or later, we will experience deep economic recession with high unemployment,” Garnaut said.

Public Interest will be a “much harder choice”, but with “wholesome consequences”. It requires Australians to support changes for the greater good, rather than their personal interests. We must snap out of “entrenched expectations that living standards will rise inexorably over time.” Public Interest will require substantial reform to business and personal income tax. “Political leaders will have to introduce changes that disappoint their strongest supporters.”

“Quality of leadership is partly about capacity to explain to citizens the nature of the choices that must be made on their behalf. Public education is an essential element in any reform programme.”

“The economic challenge to Australia is relatively straightforward. The challenge to our polity and society is more demanding.”

Please read his full speech here. Audio and slides can be downloaded from Victoria University.

» Ending the great Australian complacency of the early twenty first century – Ross Garnaut (The Age), 29th May 2013.
» Nation must take its economic medicine – Ross Garnaut (SMH), 29th May 2013.
» Ending the great Australian complacency – Victoria University, 29th May 2013.




8 Comments

  1. The Victoria University has some quotes from Garnaut (And a rather good concise summary not present in his speech):

    “Australians are still enjoying the longest economic expansion unbroken by recession of any developed country at any time. This Australian long boom has taken average incomes converted into international currency to well above the United States, the European Union and Japan, from well below the average of the developed world,”

    “For the first few years of the new century, poor policy kept growth going at a rapid rate by stimulating an unsustainable housing and consumption boom funded by the commercial banks’ borrowings in overseas wholesale debt markets,” he said.

    “We were saved from unhappy consequences of the housing and consumption boom by the China resources boom, with huge increases in export prices adding to average incomes and employment from 2003 and unprecedented levels of resources investment augmenting the bounty from about 2005.”

    “But with the end of the China resources boom, Australians face a sharp deterioration in all dimensions of their material living standards unless we can move swiftly to rapid expansion of investment in and exports from the non-resources trade-exposed industries— services, rural products, manufactures. Investment and exports in all of the non-resources trade-exposed industries are in decline, on the back of the strong real exchange rate.”

    “It will not be an easy task to secure the timely economic adjustment that is necessary to avoid deep recession,”

  2. This wouldn’t happen to be from a fellow who invests heavily in poorer nations?

    Like a true investor, he knew the game was up years ago.

    But that aside, the economy is doing great…..

    Isn’t it?…..

    Confidence here is SA is at it’s lowest since 1997. Ouch.

  3. I haven’t read the main speech, but I wonder if the professor referred to energy resources, especially oil, and the effects of the coming price rises of this vital commodity.

    Did he also mention the economic and social effects of the increasing pollution and destruction of our soils, water, sea and air, plus the effects of climate change.

    These “details” can hardly be missed out in any sort of estimation of the future.

    I’ll have a look at the whole speech, but these were my first thoughts.

  4. It’s much easier to wait for a bust.

    Then everyone will ask “Who crashed the economy?”

  5. Not many people believe much will change in regards to the Australian economy in the near future, my cousin just announced they will rent out their unit with 240K debt on it and they will buy a bigger house in the same area, which will cost another 400K at least. In their mind there in no fear this move could cause problems for their family down the road, at this point in time they believe they will be able to service both debts, they do not worry much about trends in the economy. There is many people like that around, I think they will all be unpleasantly surprised in the future.

  6. In Perth there is a big and noticeable slowdown in Engineering which started late last year so this will flow into construction soon. From my perspective, things are not looking very good for the Australian economy now and almost all signs are pointing south. Hang on tight for the rough ride ahead late 2013 and beyond.

  7. Hi All,

    I have just watched a 59 minute presentation by Stefan Molyneux, about the state of the USA’s out of control economic problems. I know we are living in a different Country but because we are now part of a global economy, what this man says relates to any western civilization who’s banking system is based on the fractional reserve fiat money supply. Australia is on that list!

    So many people have their heads in the clouds and have no real concept of the coming downturn. I am so fearful and at the same time outraged that the governing bodies have allowed the economic disaster that is currently unfolding, to have occurred in the first place.

    If any of you have the time and want to have a look a this link, it will undoubtedly give you an understanding about the severity of the varied issues and many consequences the world is going to face into the future.

    http://www.youtube.com/watch?v=bYkl3XlEneA

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