Date created:12 February 2001 Last modified: 12 February 2001 Maintained by: John Quiggin John Quiggin
18 January 2001
The Internet is a double-edged sword for opinion columnists. On the one hand, whereas deathless prose and devastating critiques alike used to end up wrapping garbage, they are now preserved in digital form, seemingly forever. On the other hand, this makes it much easier to for inaccurate predictions and inconsistent arguments to come back to haunt their authors. So, I have decided to beat potential critics to the punch by making my own assessment of my predictive record during the year 2000.
The year started well. My estimate (12 October 1999) that the number of Y2K bugs emerging during 2000 would be about twice the number reported during 1999 (that is, zero) was spot on, as was my prediction (30 December 1999) that ' the absence of any problems will be hailed by the Y2K industry as evidence that our $10 billion was money well spent'. The NASDAQ crash that commenced in April 2000 confirmed the concerns I had expressed a year earlier, though the market has so far only returned to the levels I criticised as already overvalued (8 April 1999).
My suggestion that the renationalisation of Telstra should be financed through the selloff of its Internet assets 'while the 'new economy' bubble lasts' (30 March 2000) was clearly right in retrospect, but the bubble survived for only a couple of weeks after the column was published. Similarly, my prediction (11 May 2000) that 'In the absence of a radical change in market sentiment, the [G3 spectrum] licenses are likely to fetch between $5 billion and $10 billion' was rendered irrelevant when market sentiment did indeed change radically as the successful bidders in the UK and German auctions were severely punished by the stockmarkets. Even the official estimate of $2.6 billion now looks optimistic.
The Californian electricity crisis confirmed my concerns about a cavalier approach to deregulation and, in particular, the observation that 'The emphasis should not be on keeping prices down so much as on getting prices right' (17 May 1999). Similarly my prediction (29 January 1998) that union-busting on the waterfront would do little or nothing for exporters has now been accepted by bodies like the National Farmers Federation.
In one area, I am pleased to say, my predictions appear to have been proved wrong. I have long argued that Australia is naturally a two-airline country, and that the entrenched position of the (largely foreign-owned) incumbents would prevent the rise of a domestic competitor, though not the entry of one of the major foreign airlines. The decision by Virgin to hit its UK competitor, BA-Qantas, in the Australian market was not surprising in the light of this analysis.
On the other hand, the conversion of Impulse from regional carrier to full-fledged competitor was a surprise, in view of my judgement that 'unless a new entrant has the backing of a major international carrier, the chances of success look slim' (25 March 1999). Of course, it is early days, but Australian air travellers can only wish Impulse well.
Given a fair batting average in 2000, it seems reasonable to venture a prediction on the big question of 2001 - the outlook for the US economy. The debate is divided between those who expect a 'soft landing' interpreted as a GDP growth rate of around 3 per cent, and those who expect a 'hard landing', interpreted as two quarters of negative growth in a year with GDP growth around 1 per cent.
Given the length and overheated nature of the US boom and the magnitude of imbalances in asset prices, the current account, national saving and suppressed inflation, a two-quarter recession would in fact be a very soft landing. Restoration of balance requires a substantial reduction in consumption, an offsetting increase in exports and lower share prices, and the bankruptcy of many more spurious dotcomes
Aggressive cuts in interest rates and big tax cuts for the rich may defer the necessary adjustment, but they will not prevent it. A soft landing for the US economy will involve at least a year of zero or negative growth. The hard landing scenario for a deflating asset bubble may be seen in Japan's decade-long economic stagnation.
PS: John Fahey used the letters page for a detailed response to my lighthearted column of 4 January. But he did not respond to the serious question I posed - why is he backing the use of Australian taxpayers funds to establish a corporation in a Caribbean tax haven?Professor John Quiggin is a Senior Research Fellow of the Australian Research Council, based at the Australian National University and Queensland University of Technology.
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