Do recessions have to happen? Is it possible for a country to just not have economic downturns? Australia has gone nearly 30 years without a recession. So what can we learn from it?
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History is filled with economic cycles – boom and bust, the economy goes up then eventually slips down. But there’s no rule about how long an economic cycle can stay up. In Australia, the economy has grown and grown and grown without a recession for 27 years. How could that happen? Darian Woods and Cardiff Garcia from NPR’s Planet Money podcast asked.
DARIAN WOODS, BYLINE: To understand why Australia has gone so long without its economy’s shrinking, I spoke to Guy Debelle.
GUY DEBELLE: Well, I’m the deputy governor of the Reserve Bank of Australia, Australia’s central bank.
WOODS: And he gave basically three reasons – first, luck.
DEBELLE: I’d always start with luck. There’s a famous book in Australia, which is – the title’s ironic but called “The Lucky Country.”
WOODS: And as for the particular kind of like luck…
DEBELLE: Our location in this part of the world, in Asia, has been beneficial. China is building a lot of stuff. They need steel, and we have the two major imports to make steel. So we have iron ore. We have coal.
CARDIFF GARCIA, BYLINE: There’s gold, uranium. And China has been buying a lot of it.
WOODS: Australia is also selling to Asia things that you don’t really think of as exports – but they are exports, specifically education and tourism. Students from Asia love studying at Australian universities, and tourists love Bondi Beach in Sydney.
GARCIA: Been pronouncing Bondi Beach incorrectly my whole life, by the way.
GARCIA: But anyways, that is the luck side of things. Let’s go to the second part of the formula. What is that?
DEBELLE: There is something about the institutions which matter, too, I think.
WOODS: Institutions. So what he means is kind of the way that the government is set up works pretty well for balancing the economic cycle. For one, the government typically saves during the good years.
DEBELLE: You can win an election by saying, I am going to be more fiscally prudent than my opposition.
GARCIA: Saving during the good times – this is a big deal because if the government saves during the good times, then the public is more likely to be OK with the government spending money during the bad times. So for example, 2009, which was a horrible year for the global economy, Australian politicians were able to respond.
DEBELLE: So there was a fairly large cash handout to households. There was a sort of spending program on, you know, school halls and things like that. Some part of it was just cash to people. And then there were some tax incentives for businesses.
WOODS: And the third reason Guy Debelle gave for Australia avoiding a recession, especially during the last downturn, was about the banks. The big global economic downturn from 2008 started with a banking crisis, mostly in the U.S. But Australian banks actually started off in pretty good shape. They didn’t have much of the toxic assets that American and European banks held.
GARCIA: OK. So, Darian, I think we should close with a discussion of how the U.S. and Australia are different. First, I think the most obvious one is, the U.S. doesn’t quite have the same luck because the U.S. tends to buy things from China rather than selling things to China, even in a downturn. So that’s the first one. What’s another one?
WOODS: Well, the U.S. government typically does not save through the good times. It typically borrows through both good times and bad. And that makes it more politically controversial to spend a lot of money when time gets rough.
GARCIA: And I think that’s about it.
WOODS: I think so.
GARCIA: Cardiff Garcia.
WOODS: Darian Woods, NPR News.
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