The speakers were taking questions, and a member of the audience asked whether mandatory superannuation contributions had helped to insulate Australia from the GFC, by promoting saving and reducing borrowing. The keynote speaker, one David Gruen from the Treasury, replied that he thought they did increase saving. Ross Gittins, who had been the second speaker, said ‘a bit, but not as much as you might think’. Prompted to elaborate, he explained that people tend to reduce their voluntary saving to offset the compulsory part.
Gruen then asked Gittins why, having made irrational decisions the central theme of his talk, he was suddenly assuming that people would base their intertemporal consumption choices on rational considerations. Gittins’ good-natured response to that question supplied the title of this post.
This all happened on Tuesday evening at the Riverside Theatre in Parramatta, in the first of three ‘public information forums’ entitled ‘Getting to Grips with the Australian Economy’, organised by the Whitlam Institute at the University of Western Sydney, in collaboration with the School of Economics and Finance. Aimed at the general public, the series is intended ‘to help increase understanding and debate about the state of the Australian economy, the implications for us all, and what Australias economic options are in the context of the continuing and dramatic global economic turmoil.’
The event lived up to expectations, attracting 200 or so people, including a number of school groups. Judging from the number of laughs, gasps, and grunts of agreement, the audience found the two-hour session absorbing and informative.
Unfortunately there wasn’t time to pursue the issue of superannuation and saving, an interesting question that has been investigated in one or two well known studies. But it’s not a crucial issue at the moment because, until we’re back to full employment, the saving rate doesn’t matter very much.
Apart from that spark of controversy, the two speakers were largely in agreement, their talks complementary rather than opposing. Gruen gave a useful overview of the long run chararcetrsitics of the Australian economy, summarised the causes of the financial crisis, outlined Treasury’s view on how events will unfold in Australia, and suggested that certain ‘lucky accidents’ had helped to prevent Australia’s financial system out of trouble.
Gittins outlined his own theory according to which business cycles are driven by two elements of human psychology — namely the herd instinct and the tendency to cycles of optimism and pessimism.
The next forum, on 18 June, will feature Clare Martin, the CEO of ACOSS and former NT Chief Minister, Raja Junankar and Bob Fagan, discussing the impact of the GFC on households and businesses at a more localised level. (Originally Patricia Apps and Bob Gregory were too take part in the program, but had to withdraw.)
In the last forum, on 23 July, the keynote speaker will be John Quiggin, with responses from Steve Keen, and Guy Debelle from the Reserve Bank. There are still tickets available for these sessions; see the Whitlam Institute link above for details.