The most revealing statement in this Budget came on page 29 of the Overview, where the Treasury explained, not how the recession it didn’t anticipate came about, but how it imagined the future will be after it.
A downturn that the Budget papers describe ad nauseam as “the most severe since the Great Depression” is expected to be over faster than “the recession we had to have”, to be shallower than it was, and to be followed by a period of above trend growth. The Treasury normally assumes that the economy will grow at 3 percent a year, but it is assuming a 4.5% per annum growth rate in 2011-13.
If this really is “the most severe since the Great Depression”, then the experience of the last 20 years will provide no guide as to how soon it will end, or what conditions will be like after it — whenever “After It” might be. Yet it’s the early 1990s that the Treasury is using as its guide: “The approach is also in line with that taken in budgets in the early 1990s when above-trend rates of growth were assumed as the economy recovered from recession”.
Which is it guys: something you didn’t expect that’s only on a par with the 1930s, or something that recent experience can help us understand?
You don’t have to be a bear to expect that, just as Treasury was wildly off-beam about near term economic conditions in May 2008, it is likely to be wildly wrong in its expectations about future economic conditions today.
Expect as major a rewrite of the Treasury’s forecasts in May 2010 as we got tonight — maybe even as dramatic as this year’s rewrite.
The downturn is likely to be far steeper than the mere 10.5% fall in GDP that the Treasury has forecast for 2009-10, it’s likely to go on far longer.
Growth, when it returns, may well involve a dramatic spurt, but it won’t be here in just another two years’ time.
Steve Keen is Associate Professor at the School of Economics & Finance, University of Western Sydney
Steve’s views are always entertaining and disturbing. It’s good to get a more sober reflection, especially as people are getting excited about green sprouts appearing. Not that i’d wish it upon him, but perhaps the ultimate vindication of his doomsday views would be if the Uni sacked him?
I think we should take Steve very seriously. We have been experiencing what Nassim Taleb described as a ‘Black Swan’ eventuality. The idea is that if for the whole of your lifetime you have only seen or heard of white swans, you will assume that black swans do not exist, which is what everyone in the history of the world assumed until Australia was discovered.
This is the problem with comparing the current situation with the previous recessions we have lived through. They were all white swans and we are now dealing with a black one – so many of our normal expectations may prove to be ill-founded.
Steve Keen, another ‘glass half-empty’ exponent.
As a person who, by writing this article obviously takes a pessimistic view of the current global crisis, I might suggest that you fail to take in to account the notion of ‘sentiment’ in economic confidence.
If everyone was like you, saying how bad it is and that it could/probably will get worse, what do you think is the likely outcome?
Seriously Steve, it doesn’t take an Associate Professor in Economics and Finance to work that one out.
The article by Associate Professor Steve Keen, School of Economics & Finance, University of Western Sydney, is so much crap. Whate ever generation this person perports to be sponed from, he is full of shit.
If the initial cause of this GFC is accepted to be the (continuing) over-issuance of credit by the US Federal Reserve, then, yeah, the Treasury’s positive outlook is definitely a false vision.
Sentiment or no sentiment, Pedro, only a stupid maniac or a criminal would try to spend his or her way out of bankruptcy…..