These days much of our historical understanding is informed by American popular culture. So it is quite understandable that many Australians would think that the American experience of the Great Depression is the Australian experience. We might even believe that FDR and John Maynard Keynes saved the world from economic stagnation.
In his latest essay Prime Minister Kevin Rudd certainly gives that impression. He claims that "Australia has sought to learn some lessons of recessions past" and describes the actions his government has taken to stave off recession.
Just as many would argue that the Great Depression was a hang-over from the roaring 20s, Rudd now argues that the current Great Recession is a hang-over from the growth of the last generation. As if economic growth itself is somehow bad. But I don't want to quibble with the prime minister's opinions -- I want to fact-check his statements.
His third paragraph is particularly troubling.
The alternatives [to the stimulus packages] were to do nothing or, worse, effectively replicate the Premiers' Plan of 1931 when governments cut expenditure, thereby compounding the problems created by a private sector already in retreat. The result, of course, was an economic rout, appalling unemployment and a decade of negligible growth through the 1930s.
It is here that Rudd shows his complete ignorance of Australian economic history -- as opposed to a populist understanding of American history. The Premiers' Plan certainly did not lead to an economic rout; it did lead to a political rout. The ALP government was subsequently flung out of office.
To demonstrate the point I have collected GDP per capita data from the authoritative OECD publication The World Economy: Historical Statistics by Angus Maddison. In the picture above I show index values for GDP per capita for the inter-war years 1919 to 1939 for Australia and the United States. As can be seen economic growth in Australia slows down after the return to the gold standard in 1925 -- the late 1920s were hardly roaring in Australia. The nadir of the Australian Great Depression occurs in 1931 -- overall Australia has a V-shaped Great Depression. The US has a long, hard U-shaped depression (almost W-shaped depression after FDR raised taxes).
Two things happened in 1931: Australia went off the gold standard and the Premiers' Plan was adopted. Contra Rudd, the economic consequences of these events did not result in an economic rout, appalling unemployment, or negligible growth. Rather the economy made a massive recovery and unemployment began falling.
The Australian economy was already fragile from inappropriate monetary policy when global conditions declined, and only began improving once monetary policy was changed and government maintained fiscal responsibility. In the current great recession, monetary policy was also a problem before the Reserve Bank of Australia quickly lowered rates. Yet rather than maintain prudent and conservative fiscal policy, the Rudd government has done the exact opposite, claiming to have learned lessons from past recessions.
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