This time last year we were in China. The global economic storm broke while we were in Shanghai and continued in Beijing. There was something a little eery about it all.
Twelve months later and with the economic outlook apparently improving all the time, political debate in Australia has switched to the right time and way of ending current stimulus measures.
The Government argues that now is not the right time. The stimulus measures have a natural phase down, while economic risks remain. The opposition counters that Australia is building debt and that the stimulus measures are no longer necessary. Even the Greens in an unusual display of fiscal rectitude have argued that a stimulus phase down should at least be considered.
The debate will work itself out through the usual political processes. A far more interesting question to my mind is just what Australia might do to strengthen its position in future downturns.
Australia has been remarkably lucky. The country went into this global downturn with a budget surplus and no net Commonwealth Government debt. Our balance of trade in goods and services went surplus at just the right time, while a depreciated exchange rate totally removed from economic fundamentals provided a further cushion. Export volumes, too, held up better than expected because of continued Chinese buying.
All this provided a cushion that made it easier for Australian Governments to respond to the crisis. We may not be so lucky again.
To set a context for this I want to point to a few things.
The first is the Australian sense of optimism as exemplified by this discussion reported by Robert Gottliebsen. I will comment on the detail a little later. For the moment, I simply note that optimism can blind Australians to the problems the country faces.
The second is climate change.
I remain sceptical about some aspects of the argument, but I do have to accept two things. The first is that the majority of the scientific community accepts climate change. The second is that, regardless of the accuracy of the majority view, most officials and opinion leaders accept the majority view, as does a substantial proportion of the world's population. This means that things will happen
The third is timing.
The last major recession bottomed in the middle of 1991. That's a very long time ago, but major economic cycles take time. All the current official thinking appears to deal with ways of controlling/stopping crashes through additional regulation. It hasn't worked in the past. I see no reason why it should work in the future. Regardless of regulation, we will have another crash.
So we need to be thinking in a ten to fifteen year time horizon. And that is just the period during which policy responses to climate change will start to really bite.
We need to start planning now.