Glenn Stevens suggests we think about managing the boom

RBA governor Glenn Stevens always goes to the big issues. His latest speech notes that we are becoming more dependent on China and India buying our resources, and adds that these countries will probably have their ups and downs over the next quarter-century. So then he asks: how might Australia best respond if our terms of trade become more variable?

One answer, he suggests, is a sovereign wealth fund.

The speech is here. No point paraphrasing, as he puts the argument with such (cautious) precision:

We could simply accept higher variability, if that comes, as the price of higher average income growth  … Another approach would be to reflect the higher income variability in our saving and portfolio behaviour rather than our spending behaviour. We could seek to smooth our consumption – responding less to rises or falls in income with changes in spending and allowing the effects to be reflected in fluctuations in saving. In the most ambitious version of this approach, we could seek to hold those savings in assets that provided some sort of natural hedge against the variability of trading partners, or whose returns were at least were uncorrelated with them. Of course, such assets might be hard to find – the international choice of quality assets with reasonable returns these days is a good deal more limited than it used to be.

It is possible that this behaviour might be managed through the decisions of private savers. There might also be a case for some of it occurring through the public finances. That would mean accepting considerably larger cyclical variation in the budget position, and especially considerably larger surpluses in the upswings of future cycles, than those to which we have been accustomed in the past. There would also be issues of governance and management of any net asset positions accumulated by the government as part of such an approach, including whether it should be, as some have suggested, in a stabilisation fund of some sort.

Reading between the lines, Stevens is well aware just how challenging it would be for politicians to implement this symmetrical Keynesianism.

Great last line too:

It is sometimes said that Australia manages adversity well but prosperity badly. There will never be a better opportunity than now to show otherwise.

About David Walker

David Walker runs editorial consultancy Shorewalker DMS (, editing and advising business and government on reports and other editorial content. Newsletter: . Among other roles, David has edited the award-winning Acuity and INTHEBLACK magazines, been chief operating officer of online publisher WorkDay Media, held senior policy and communications roles at the Committee for Economic Development of Australia and the Business Council of Australia and run the website for online finance start-up eChoice. He is a former economics writer for The Age and News Ltd. He has qualifications in law and corporate finance.
This entry was posted in Economics and public policy, Uncategorized. Bookmark the permalink.
Notify of

Inline Feedbacks
View all comments