Informative Speech Jonathan Luke Do you feel confident about your job prospects after graduation? I don’t. The financial collapse of 2008 was the worst economic crisis the Western world has seen since the Great Depression. In fact, many economists refer to the lasting effects of the collapse as the “Great Recession”, the “Lesser Depression”, or the “Long Recession”, and it is long. We are still far from full production or full employment, which is why our generation’s job prospects aren’t so bright. But was there anything that could be done to prevent this long recession we’re still hurting from? I’m going to build up to a graph that makes it look like it was unavoidable for the entire Western world, and then I’m going to show you a graph that proves otherwise. But first, we’re going to warm-­‐up with a simpler figure. This is a graph of the change in the Canadian Gross Domestic Product from year to year for the last 26 years. Gross Domestic Product, or GDP, is essentially a measurement of how big or productive a country’s economy is. The larger it is, the more successful the economy. And because a modern country’s population is always increasing, we need GDP to grow each year. So we need this line to stay around 2% just to maintain the economy as it is. [Gesturing] This dip is the oil crisis in the 1980s, and this one is the oil crisis in the 1990s. This dip here is the financial collapse. As you can see, our economy shrank very quickly. Now, let’s add in 11 of the most modern Western nations. Each line represents a different nation, and this list at the right shows all 12 color-­‐coded labels. Focus again just on the spike that is the financial collapse. None of these nations avoided the collapse, and they were all impacted to the same degree. In fact, there’s only one other year on this graph where the growth rates for all 12 nations are this close together. Neither of the oil shocks in the ‘80s or ‘90s had this effect. No one escaped in 2008. It really does look like there was nothing we could do to avoid the collapse—until you add in one more nation: Australia. Suddenly, there’s an exception to the collapse. This one line remains positive during the entire crisis; Australia continued to grow when everyone else was shrinking rapidly. Macroeconomists don’t get to run experiments. They can only observe real world events, and this one exception has to be explained. So, maybe Australia is an exception just because of where it is geographically? All these other countries are in North America and Europe. Let’s add in New Zealand, a Westernized nation that is Australia’s neighbor. We see New Zealand doesn’t shrink to the same degree as most of the other nations, but it still shrinks. If region were the only factor accounting for Australia’s prosperity, New Zealand should continue to grow as well. The real explanation is public policy. Australia implemented a fiscal policy that acknowledged the affect that government spending, taxation, and government-­‐set interest rates have on the national economy. It isn’t a revolutionary thought; in fact, it’s literally a textbook move. [Holding up an economics textbook] Australia has based their policy decisions on the same principles you’ll find in this introductory macroeconomics textbook, the same principles my dad teaches in his economics courses. I picked up this book at Weldon Library. Anyone and everyone has access to this knowledge, but for some reason only Australia’s government was clever enough to use it. And this monetary policy continues to provide stability for them. An article published at Bloomberg.com, a respected financial news source, outlines a number of ways the lasting global depression should be hurting Australia: the weakening US dollar means less tourism, China’s lack of growth means less trade, and a slumping housing market means less equity.2 But the governor of the Reserve Bank of Australia isn’t worried at all. In a speech in July he said, “Even if the pessimists turn out to be right on one or more counts, it doesn’t follow that we would be unable to cope. Acting sensibly, with a long-­‐term focus, has as good a chance as ever of seeing us through whatever comes our way.”3 The point I’m making is that there was an appropriate way for our governments to respond to the financial crisis. And more importantly, the appropriate response should have been clear with only the most basic level of economic understanding. It’s still not too late to make the right decisions, to alleviate our economic woes, and to ensure future stability. But, our politicians must be smarter. They can’t be obsessed with balancing a national budget when inflation is still low and unemployment is still sky high. We need them to open their textbooks, but they won’t do it on their own. We must expect more from our elected officials, demand that they understand and apply simple and fundamental economic principles. We all have different career prospects. None of us knows what the economy will be like when we graduate and enter the workforce. But as citizens we will all have a job: to hold our leaders to a higher standard. 1 All graphs made using Google Public Data and data from World Bank: http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&ctype=l&met_y=n
y_gdp_mktp_kd_zg 2 Bloomberg.com article: http://www.bloomberg.com/news/2012-­‐07-­‐24/stevens-­‐
seeks-­‐to-­‐ease-­‐concerns-­‐on-­‐china-­‐housing-­‐bubble-­‐risks.html 3 http://www.rba.gov.au/speeches/2012/sp-­‐gov-­‐240712.html