. the first is growth in real non - farm gdp. i use non - farm gdp simply because farm gdp can be highly volatile due to droughts and floods. that, as rural producers know only too well, has been a constant feature of the australian experience. on average, growth in the economy in the two periods under review was very similar, at about 3. 4 per cent ( graph 3 ). but there was a marked change in the middle of the 1970s. after a number of years of very rapid growth, the economy encountered much more adverse circumstances from 1974 onwards. that was true for most countries, though australia ’ s relative performance on some metrics deteriorated. from 1975 to 1979, the average growth rate was a full percentage point lower than in the period from 1971 to 1974. the period was also noteworthy for the close proximity of two episodes of cyclical weakness, in 1974 / 75 and 1977. there was also a recession in the early 1980s. graph 3 real non - farm gdp growth * then and now ; year - ended % % 4. 0 % 2. 9 % - 2 % - 2 % 3. 4 % - 2 - 2 * average annual growth based on hp - filtered trend. sources : abs ; rba the current decade so far has seen average growth of 3. 4 per cent, though the next couple of years will probably see growth noticeably lower than that. what is quite noticeable from the chart is the relative stability of growth in recent years, something that was a feature of the second half of the 1990s as well. this pattern was observed in many economies over the same period. of course, the 1970s makes for a flattering benchmark in that it was the most unstable period in macroeconomic terms in the entire post - war period, so even average performance will look better than that. but, in fact, the period since the mid 1990s has been very stable by any standard. those who have looked into this in detail have posited several possible contributing factors, including better macroeconomic policy frameworks, a wide range of microeconomic reforms in labour and product markets, and luck. the weak growth of the latter 1970s was associated with an upward trend in unemployment ( graph 4 ). from a low of 2 per cent in the early 1970s, it rose to about 5 per cent in the mid1970s recession, and then drifted higher over the remaining part of the decade. similar trends were observed abroad. the big rise in real wages in the

of rule be employed? the 1970s and early 1980s provided important real data and experience in the resolution of these questions. friedman and phelps had already long argued that there was no long - run trade - off and that attempts to reduce unemployment below some structural level by accepting higher inflation would simply result in accelerating inflation and no lasting gain on unemployment. the 1970s seemed to demonstrate that this was right. more strident derivatives of the chicago tradition, however, which insisted that there was not even any short - term trade - off, were found to be wide of the mark. money did seem to matter, since the big rise in inflation in the 1970s had been preceded by a large increase in money growth. a lot of people not only accepted that monetary quantities were the key thing to look at, but concluded that central banks had failed to control them, so that some sort of step away from unconstrained discretion towards monetary rules was advisable. as a result, targets for those quantities were adopted, including in australia. that was the language of discussion when i was a student and when i first started work at the reserve bank in 1980. 1 these days, we have inflation targeting, an arrangement that provides a measure of constrained discretion to the central bank within a medium - term framework. it emphasises the control of inflation over time, but does not seek to fine - tune inflation over short periods. that allows a reasonable accommodation for trends in economic activity and employment over periods of a year or two, about which the reserve bank is required to have concern by its charter as well as by common sense, but preserves the value of the currency over the long run. in the language of trade - offs, this system accepts there is a short - term growth / inflation trade - off, but also accepts there is no long - term one. inflation targeting does not ignore financial quantities, but does not elevate them to the status of an intermediate target and does not see them as an instrument. inflation targeting is not perfect and, on occasion, still leaves policy - makers with some quite difficult decisions to make. it is, however, the best system that has been devised as yet. the fiscal debate of the 1970s was dominated by the budget deficits of the period, and the need to reduce them. on contemporary figuring, the commonwealth ’ s budget deficit reached about 4 - 5 per cent of gdp in the middle years of the decade. using figures comparable to those in use today, which measure the underlying cash