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What Are Australia's Economic Prospects?
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As an Australian graduate student in economics (at UCLA) and as a sometime central banker, I feel I have to add a couple of caveats to your note.
1) Of course, given low household savings, Australia needs to finance its domestic investment by running a CAD. In fact, it has run a CAD for all but two or three years since 1945 and every year since 1970.
2) The point about foreign-currency denominated debt is well taken. Since the late 1960s, an unusually large fraction of our debt has been $A denominated. I really have never formed an opinion about how big a role the denomination of our debt has played in insulating us from the crises that have hit other open economies with persistently large CADs; some of my colleagues seem to think it's helped a lot. In any case, we've been playing this game for 30 years now. In fact, most of the micro reform in Australia in the 1980s was motivated (politically speaking) by a "need" to reduce the CAD and to start paying down the stock of foreign debt.
3) Have you ever noticed that the $A is about the most undervalued (relative to PPP) currency in the OECD? It currently trades at around 0.57 US per $A when PPP is about 0.95 US per $A (cf. the Economist's Big Mac index!) How much of this (persistent) undervaluation do you think is due to our (persistent) CADs?
PS. I hope you enjoyed the Coombs centre -- or the scenery anyway -- if that's where they put you up.
Contributed by Chris Edmond (email@example.com) on September 1, 2000.
>Re: Australia seems to be what the United States might have been had the west been as harsh as the outback, and thus had the idea of the lone self-sufficient independent pioneer never taken root as a cultural archetype.<
We spent a month in Australia two years ago and puzzled over the differences between the US and Australia. Eventually we learned the reason for them. Although England started off colonizing Australia with convicts, that policy quickly changed and the English actually recruited skilled people to emigrate to Australia, provided for long vacations to return home to see family, and generally made it worth people's while to move. Such policies were never applied to the American colonies, or even if they were considered, they never had time to take effect, eventually leading to the conditions that spawned the American Revolution.
To this day Australia feels kindly towards Britain, to the point where they even voted down a proposal to remove the Queen as the nominal head of state.
Contributed by Adam C. Engst (firstname.lastname@example.org) on September 1, 2000.
I don't think Australia is as unique among English speaking nations. It is the United States which is the outlier, in terms of having a relatively high GDP per capita, high income inequality, and a lack of progressive social transfers (i.e. no universal health insurance, unequal funding of school districts, a regressive tax code which allows mortgage interest deductions, lack of public funding for election campaigns).
What sets the US apart from the others is the lack of a British-style parliamentary system, in which special interests have relatively less power to halt popular legislation than in the US system of checks and balances. This has retarded the growth of social democracy in the US.
To its credit, the US system has also achieved higher levels of economic and scientific success (mostly using foreign-born scientists), which also reflects its laissez faire system of government.
GDP per capita on PPP basis: (OECD estimates for 1997) USA: $24,849
Canada: $21,375 Australia: $19,647 Britain: $18,650 New Zealand: $13,975
Contributed by Peter von Maydell (email@example.com) on September 1, 2000.
Professor of Economics J. Bradford DeLong, 601 Evans Hall, #3880
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