Today Wayne Swan appears at the AFR to waste precious column inches lambasting “doomsday predictions” from the “usual quarters”. I’m not sure why he bothers, given it only alienates households that are themselves working hard on conservative financial management. But let that pass, the point I really want to make is captured in the following:
It’s understandable that parts of the community feel uneasy about some of the economic adjustments under way…Firstly, we have come through some big transitions over the past five years in very good shape, in a way that virtually no economist predicted…Unlike past terms of trade booms, we’ve also managed to convert high commodity into permanently higher export capacity, which continues to rise…Secondly, our economy is in many ways more resilient than it was before the GFC. Consumer balance sheets are stronger. After rising by around 100 per cent in the decade to 2007, the household debt-to-income ratio has recently started to decline…Thirdly, we’ve got the right policy settings to support the transition in our economy going forward. In the lead-up to the budget, the government made the choice to pursue a more gradual fiscal consolidation that didn’t threaten jobs and growth, and one that continued to give the RBA scope to maintain historically low interest rates. Lower interest rates are undoubtedly starting to support an underlying improvement in parts of the economy…
Let’s examine this a moment. Swan frames his argument as an attack on a bearish boogie man before asserting that we’re special owing to:
- the commodities boom
- consumer balance sheet repair
- reduced fiscal drag
- and low interest rates
Let’s accept the first point. But the last three are the result of what? Consumers have returned to more traditional savings patterns despite the Treasurer, who has caned them ceaselessly for doing so. Households have made a sensible assessment of the risks and altered course accordingly. This endeavour was encouraged throughout by those that also made sensible assessments of risk (read boogie men). The same folks that the Treasurer now blames for the crime of doom mongering while claiming to own the results.
Ditto reduced fiscal drag, which was not forecast nor argued for by the Treasurer or his Treasury, but by those that made a sensible assessment of economic risks.
Ditto low interest rates, which neither the RBA, nor its legions of bullish supporters, forecast or argued for. Those that did get interest rates right were making sensible assessment of economic risk.
Risk-assessment is not doom-mongering. It is the lifeblood of strategic planning whether you’re investing money, running a household or managing a country. Ironically, the failure to do it makes a doomsday scenario far more likely.
Like, for instance , the generational wipe out confronting the Treasurer and his Government.
