Discussion of Australia's Prosperous 2000s: Housing and the Mining Boom

The immediate – indeed striking – observation on reading the valuable conference paper by Kearns and Lowe is just how remarkable a decade Australia had in the 2000s compared with our rich world peers. If this were a paper reviewing the experience of the past decade in almost any other western nation, it could be rapidly summarised as 'bad stuff happens'. Yet the point driven home by Kearns and Lowe is that, although we had our share of challenges to climb, by and large the 2000s were a decade in which 'bad stuff didn't happen' in Australia. Or, as the authors put it (at p 78), '[o]n many levels the 2000s were a successful decade for Australia'. That means a key task for Kearns and Lowe – and the Conference as a whole – is to discern how and why the Lucky Country got lucky again, and the implications that may have for the coming decade. The authors tackle that task by telling us: • what happened: increases in housing and commodity prices, as well as wealth and business investment, falls in unemployment, productivity growth and saving rates; no wage breakout; the financial crisis; the Australian dollar's surge, the ups and downs of the cash rate, and the 'two speed economy'; • why it happened: the impact of China and other emerging economies on the terms of trade; shifts in interest rates and the degree of competition in financial markets; as well as reforms (and, in some cases, the lack of reforms); and • some possible implications for monetary, fiscal and structural policies. Their analysis makes sense at each of these steps. The authors (at p 74) identify what they see as 'the two driving forces for the two halves of the decade: the changes to household balance sheets and the impact on Australia of rapid development in Asia'. Although that's true in terms of the chronology, I would divide the last decade differently. While it makes sense to place Asia's rapid development at the heart of Australia's performance last decade, I'd see the global financial crisis (or, as the Reserve Bank sometimes calls it, the North Atlantic financial crisis) as the other key development of recent times. Indeed, I think the surge in the terms of trade in the second half of the decade was an important reason why the housing price hike in the first half of the …