Last month the governor of the Reserve Bank, Glenn Stevens, was invited back to his alma mater as an honoured guest, about three decades after he'd been there as a humble economics student. Thinking back to the late 1970s, he observed that "in the moment-by-moment focus on the economic data, and all the wiggles and ticks up and down of this indicator or that, we can often neglect to stand back and look at the big picture".
Too true. Tomorrow I will have been the Sydney Morning Herald's economics editor for 30 years. Thirty years of commenting on the wiggles and ticks of this economic indicator or that. So let me stand back and describe what I've seen in the big picture during that time.
In 1978, Malcolm Fraser and his treasurer, John Howard, were still grappling without much success with the local end of the seminal event in the economic history of the developed world during the second half of the 20th century: the advent of "stagflation".
Until the first OPEC oil price shock of late 1973, economists had believed you could have a problem with unemployment or a problem with inflation, but you couldn't have both problems at the same time. Like all the developed countries, we soon discovered that you could. Compounded by the gross economic mismanagement of the Whitlam government, our economy entered a period of extreme dysfunction from which it has fully emerged only in recent days.
Stagflation threw the economics profession into disarray and disillusion. Its standard remedies no longer worked. It took more than a decade of furious debate between Keynesians and monetarists before the profession had a good handle on what had gone wrong and what could be done about it.
The inflation rate reached a peak of 17.6 per cent under the Whitlam government and averaged more than 10 per cent throughout the '70s. It averaged 8 per cent during the '80s and only came back under control in 1992 with the Keating government, since when it's averaged about 2.5 per cent.
After averaging 2 per cent through the post-war Golden Age - the end of which economists date as 1974 - the unemployment rate shot up to 5 per cent after the Whitlam government's recession of the mid-1970s, reached 10 per cent after the Fraser government's recession of the early '80s and 11 per cent after the Hawke government's recession of the early '90s. It has taken all the time since then to get unemployment down to its present 4 per cent (and that's with a lot more under-employment than in the old days).
My second major development of the past 30 years is the Hawke-Keating government's decision in the mid-1980s to deregulate much of the domestic economy and open it up to a rapidly globalising world.
The list of "micro-economic reforms" from that era is long and remarkable: floating the dollar, deregulating the banks, removing import protection, introducing capital gains tax and fringe benefits tax, extending the Trade Practices Act, shifting from centralised wage-fixing to enterprise bargaining, reforming government utilities, privatising government-owned businesses and deregulating many industries, from bread and eggs to aviation and telecommunications. Among the developed economies, only New Zealand could top such a list.
#What do we have to show for all that? An economy that's grown strongly for almost 17 years, where competition is more intense in many industries, where most shops are open seven days a week, where unions are in retreat, where work pressures have intensified and it's easier to lose your job. But also an economy where firms have less power to set prices as they choose and so an economy that's markedly less inflation-prone. It was this, I'm convinced, that gave us a lasting solution to stagflation. Now if we have high inflation we at least have low unemployment to go with it; if we have high unemployment we have low inflation.
My third major development of the past 30 years - a further manifestation of globalisation - is the economic emergence of Asia: first Hong Kong, South Korea, Taiwan and Singapore, then other members of the Association of South-East Asian Nations, and now the heavy hitters, China and India.
China is transforming the global economy. Why are the world prices of cars and various other manufactures falling? Why are the world prices of oil, foodstuffs, steel, minerals and energy shooting up? Why are the prices we're getting for our exports compared with the prices we're paying for our imports the best we've seen in more than 50 years? Why are we in the midst of the biggest resources boom since the gold rush - one that shows no sign of ending?
China is the main answer to all those questions. Thirty years ago Japan, Europe and the United States accounted for more than 60 per cent of our combined exports and imports. Today it's 40 per cent. Then, China and emerging Asia accounted for less than 10 per cent of our trade; today it's 44 per cent.
That's one respect in which the economy has changed. Another is that a lot more of what we buy is imported and a lot more of what we produce is exported. Foreigners own more of Australian business, but Australians own more foreign businesses.
Thirty years ago manufacturing accounted for 16 per cent of the economy; today it's 10 per cent. Then, financial and business services accounted for 12 per cent; today it's 20 per cent.
In that time our standard of living has risen by 80 per cent. If you find that hard to believe - or hard to imagine - think of all the expensive gadgets we have now that we didn't have then: personal computers, laptops, email and the internet; mobile phones, personal organisers, CDs, DVDs, pay TV, movie cameras, digital cameras, home entertainment systems and plasma screens, not to mention dishwashers, driers and microwave ovens.
Our computerised cars are far more reliable and less rust-prone. Our homes are much bigger, with more bedrooms, bathrooms and living space.
Has all this material success made us any happier? I doubt it. That's one thing I've learnt in the past 30 years.
Source: Business Day smh.com.au