are still debating whether it was deep enough to be added to the list of its three predecessors. in the 1970s, 80s and 90s, australia also experienced recessions roughly co - incident with the international ones. on each occasion our unemployment rate rose sharply – to 6. 5 per cent in the 1970s, to 10. 3 per cent in the 1980s and to 10. 8 per cent in the 1990s. while we were able to reduce the unemployment rate during the later expansionary phases, each recession pushed it up again to a new peak ( see table 1 ). the real story behind the upward trend in unemployment was the shakeouts that occurred during the recessions, not the insufficiency of the growth rate during the expansions. table 1 unemployment rate in recessions rise in unemployment ( percentage points ) peak level ( per cent ) 1970s 4. 9 6. 5 1980s 4. 8 10. 3 1990s 4. 8 10. 8 during the international downturn / recession of 2001, australia was able to avoid a recession so our expansion is still proceeding. nevertheless, there was some slowing in the pace of economic growth and the unemployment rate rose by about 1 percentage point. although i am always wary of counting chickens before they hatch, it now appears that over the past six months the unemployment rate may have peaked at, or a little above, 7 per cent. if this is the outcome, it will be the first time for three decades that we have been through an international downturn that has resulted in the peak unemployment rate in australia being lower than its predecessor. i hope that i am not premature in making this assessment, and am aware that it could all be unwound if we encountered a recession in the near future. but that is not likely in my view, at least not in the forecasting horizon. if my assessment is correct it will reinforce the view that the principal contribution that macroeconomic policy can make to reducing unemployment is to have the longest expansion possible ( but not the fastest ), and to have the mildest slowdown. it also suggests that the reduction in unemployment to an acceptable rate is a task that was always going to take longer than the timeframe encompassed by a typical economic expansion. the future as you can see from the foregoing, i think australians have tended to be quite hard on themselves when making judgements about the economy. this has its good side of course, because it has meant we have been more prepared to take tough decisions than many other countries, particularly

to look back favourably on the economic peace and certainty of the past and contrast it with the perception of insecurity and instability that surrounds the present economy. why is this so? ( a ) those who know a little bit of history are aware of the fact that in about 1900 we were probably the richest country in the world in terms of income per head. now we are in the middle of the pack of developed oecd economies. so this gives the impression of a country in long run decline, but from a somewhat artificial starting point. we were the ‘ kuwait of 1900 ’ : a country with a very small population and a large resource endowment producing commodities which were very highly priced at the time. but like any prosperity based on scarcity prices it could not last, as the decline in our terms of trade during the century showed. i will return to this theme when i discuss the future. there are three surveys which ask respondents to report their confidence in ( a ) their own personal economic situation and ( b ) the state of the economy ; these are the westpac - melbourne institute consumer sentiment index, the acci survey of investor confidence, and the yellow pages business index. all three surveys show that nearly always the majority of respondents show less confidence in the economy than in their own personal economic position. in 97 per cent of occasions this is true for the westpac - melbourne institute and yellow pages surveys, and on 94 per cent of occasions it is true for the acci survey. an extreme example of changing economic fortunes as a result of changing terms of trade comes from 18th century french history, and the contrasting attitude of france to defending its two main american colonial possessions – canada and haiti. canada was given up with relatively little resistance, but two costly wars were fought in a vain effort to retain haiti. the ranking of haiti as more valuable than canada was purely an economic one based on the high price of sugar two hundred years ago. a similar story involves the english and the dutch in the 17th century. under the treaty of breda of 1667, the dutch gave up their claims on manhattan to the english in order to retain the island of run ( in what is now indonesia ). the superior value they placed on run was due to it being the principal source of nutmeg. ( b ) for others, the nostalgia is directed at the 1950s and 60s. there is no doubt that around the world this period of post - war reconstruction was a ‘ golden era ’ for economic growth