What has the GFC done to our savings?
I find this a hard article to write, as I feel this is one instance where I will have to choose between two men I love; Ken Henry and Ross Garnuat. On a normal day, if you asked me to choose between the two, I couldn’t. But today, debating the real effect the GFC has had on our savings, I feel I must take sides.
Let’s start with a caveat- a lot of economists didn’t see the GFC coming. The ones that did were thought of as doomsday prophets. That tends to make me a little skeptical of implicitly believing any further projections. In researching this article, I found several references to the idea that the GFC had passed Australia by, and many others to how the aftershocks might be felt for a decade. In short, we don’t know yet what the full extent of the effect of the GFC might be. We’ve got some facts and figures, and experts do their best to make head or tail of them but, just like meteorology, sometimes it rains without any warning.
It seems to me that consideration of the GFC’s effect on savings has a lot to do with what numbers you choose to look at. I do not mean to bring the exalted and excellent field of economics into disrepute, but I’m fairly sure numbers can be moved around to suit an argument just like any other fact. As summarized in Tim Colebatch’s sensational article, Ken Henry tends to focus on the good news- how we avoided a serious recession, how the resources boom has continued, how we need more investment. Ross Garnuat tends to focus on the bad news- where the money came from to pay for all those things. Unfortunately for us (and for my desire to agree with Ken Henry on all things), that money didn’t come from Australia’s savings, but from foreign loans. Why? Because we don’t really have savings.
Australian Savings
If Australia is the good kid in class who sits up the front and almost dislocates a shoulder to answer a question in terms of growth, in terms of savings we are the kid who walks in late and sticks his gum on the bottom of the desk. Metaphors aside, at savings, we suck. We like to borrow. Maybe it’s because we feel more connected with the world, more included. But Garnaut’s argument is that in this economic crisis, being connected to the world to the tune of $1227 billion isn’t such a great idea. As Tim Colebatch says, the alternative of exporting more, borrowing less and saving the fat might be the sensible decision.
So, while I remain Ken Henry’s number one fan, I am left with one question. If we’ve had the resources boom we’ve apparently had and if we’ve sidestepped the GFC like nimble athletes, then where exactly is the money?
How exactly did we rack up that kind of debt? I’m not for a second suggesting that the government should stop investing, by all means I encourage it. But I suspect that a comparison of our wealth compared to our investment might make our economic policy look shabby. Because if we’re number one in the world in terms of growth, we certainly shouldn’t be in the bottom half of the developed world in terms of savings and still be saddled with a health system that doesn’t really work. So I’m Team Garnaut for today.
What are your thoughts in terms of the GFC and Australia’s economy?
Have we weathered the storm, or should we now be adjusting our economic policy?
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