It’s beginning to feel a lot like 2007. Or 2000. Or 1990. Or 1981.
Stock prices are limping along, housing sales have gone soft, and banks are pulling back from risky loans. The sugar rush from President Donald Trump’s extraordinary round of fiscal stimulus is about to wear off, as the Federal Reserve continues to tap up interest rates. At the same time, global growth is slowing thanks to the trade war, Brexit, and problems in a number of emerging-market economies. Two-thirds of business economists expect the next recession to occur by 2021, with half of corporate chief financial officers anticipating that a downturn will begin next year.
Recession feels inevitable and, using history as a guide, is inevitable. Tides come in and tides go out. The sun rises and the sun sets. The economy expands for a decade or so and then contracts. But using Australia as a guide, maybe not. The country’s current expansion is nearing its 30-year mark, and is now the longest in modern history, leading commentators to brand Australia a “miracle economy,” the “wonder down under,” and the “envy of the developed world.”
At least some of Australia’s seemingly endless spell of growth is due to happenstance, luck, and idiosyncrasy: where the country lies on the map, what its neighbors’ budgets have looked like, what mineral deposits happen to lie underneath it. But it is also due to sound and deliberate government policy—meaning that the Aussie miracle does hold lessons for other countries around the world, including the United States.
“Will good policy always win? Clearly, the answer is no,” says Stephen Grenville, a nonresident fellow at the Sydney-based Lowy Institute and a former official at the Reserve Bank of Australia. “We can’t rely on another 27 years of growth, and we can’t say that because we’ve gone 27 years without a recession we know how to grow without a business cycle. But what the 27 years do show is that if you get policy right, you can be hit by quite a number of shocks, good and bad, and still maintain steady growth.”
What does “getting policy right” look like? Lesson one: Fight recessions right. Australian policy makers combated the 2008 global financial crisis more adeptly than ones in the United States or in Europe, implementing fiscal stimulus quickly and not turning to budget austerity as the economy recovered. As a result, Australia’s growth rate dropped without the economy actually shrinking, let alone contracting and then stagnating, or contracting for years on end, or contracting over and over again.
Just months out from the recession, congressional Republicans started pushing budget cuts. European governments started slashing spending too, requiring strict austerity in the continent’s debt-laden peripheral economies. Australia, however, showered helicopter money on lower-income households, spent heavily on infrastructure, and debated balancing the budget without ever really moving to do so.
Addendum to lesson one: Don’t get into the mess to begin with. Australia had an easier recession to combat because the country had avoided the subprime-lending boom, meaning that its households were not as overextended with debt and its financial institutions were not as heavily invested in exotica as those in the United States. “The financial sector in Australia is quite different,” said John Romalis, an economist at the University of Sydney. “It’s boring. It’s mostly involved in bread-and-butter banking issues—that removes one source of trouble, as not being excessively exposed to risk is a helpful thing.”
Lesson two: Welcome immigrants. More than a quarter of Australians were born abroad, double the rate in the United States or France. In recent years, the country’s population has grown twice as fast as the U.S. population has. Given that Australia’s immigrants tend to be younger than its native-born population, those numbers have helped improve the country’s fiscal outlook, bolstered its government coffers, expanded its working-age population, and lowered its median age. They have also helped power it out of soft patches, recession-free. (The economic math is not complicated: More people means more investment and consumption means less chance of a downturn.)
Lesson three: Open up to the world. Australia has benefited from being in a rapidly developing neighborhood, close to Vietnam, Indonesia, the Philippines, and especially China. Their growth has fueled Australia’s growth, with the higher-income economy exporting commodities, as well as other goods and services, to those lower-income countries. Trade between China and Australia alone increased tenfold in the 2000s, with Australian exports to China booming and China investing heavily in Australia, too.
“Openness to trade and investment has been a huge part of our growth story,” says Jarrod Ball, the chief economist at the Committee for Economic Development of Australia. “As protectionism has made a bit of a comeback, we have continued to promote and negotiate free-trade agreements. In Australia, we simply can’t afford to do anything else—the economy that we are, the size that we are, where we’re positioned. We have to be open to trade and investment. We just can’t afford to lose that openness.”
None of this means that the country has somehow managed to vanquish the business cycle entirely; indeed, some forecasters anticipate a soft patch or even a recession ahead, due to a correction in the housing market. Nor does it mean that the Australian economy has been problem-free for three decades. Wages have stagnated, for instance. But it does demonstrate that recessions are always due to something—many times, something that policy makers can fight. And it does demonstrate that smart governance is largely, if not wholly, determinative of a country’s growth path, with recessions often a product of human frailty, not fate.
Whenever America’s next recession strikes—whether next year or three or 10 years from now—there likely would have been a way to lessen or prevent it, and there likely will be a best way to fight it. Here in Washington, perhaps borrowing some bureaucrats from Sydney would be a good start.
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