Australia's Government Debt

Below is a graph of the blow-out in Australian Government Debt.

I don’t know why everyone is blaming Rudd. Growing the State is what tax-and-spend-spend liberals do.

The idea that the budget should be in deficit for the next four or five years when the economy is at near-full employment, should be laughable. But Rudd and Abbott would prefer to test the electorate’s mendacity than complete our rise as a world-beating economy by paying our own way in recovery.

But the article makes an interesting observation related to Hauser’s Law.

In a speech last year, Treasury secretary Ken Henry identified a little known fact. Government spending exploded under Gough Whitlam, from 18.9 per cent of GDP in 1971-2 to 24.8 per cent in 1975-6. And it has stayed at about that level ever since, through Fraser-Howard, Hawke-Keating and Howard-Costello.

“In the 3 1/2 decades since, while there have been significant annual fluctuations, the average level of spending by the Australian government has changed little, to be around 25.25 per cent of GDP.”

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0 thoughts on “Australia's Government Debt

  1. Hi David, that graph looks terribly unfair to be honest. I have seen few serious economic commentators disagree that the $42 billion stimulus package really did save the country from recession, and that moreover $42 billion was pretty much just the right amount. Now this doesn’t justify the bungling and rorting of the scheme (e.g. the insulation and BER debacles) or make up for what are the obviously very real flaws in Rudd’s character that have emerged but I really don’t think that graph is terribly helpful.

    I would admit that right now, with Rudd having completely dropped the ball, it would be good if Howard & Costello could return.

    That’s not going to happen, though.

    Do you think we’d be in safe hands with Tony Abbott and Joe Hockey running the country? I saw Joe Hockey and Lindsay Tanner debating on Q&A the other evening and it appeared to me that Joe Hockey has no more clue about economics than Barnaby Joyce did.

    At least when George W. Bush was the president, he was Dick Cheney’s puppet.

    Who on earth would pull Tony Abbott’s strings? I think we’d be doomed.

    • You might want to check out Sinclair Davidson and this series of posts http://catallaxyfiles.com/2010/06/12/heritage-foundation-on-fiscal-stimulus/. No correlation between size of stimulus and change in GDP for OECD countries, means government has no effect (and should have no role) in this. Numeric support for the stimulus being ‘just right’ please?

      The link to the article by George Megalogenis makes your point, Rudd and Abbot are both tax-and-spend liberals. I hope for a person to emerge that can articulate a conservative message that the government is not and should not be the solution to everything.

      • I can’t provide any numeric support but I haven’t seen many (any?) commentators assert that the stimulus package didn’t help us. I recall Joseph Stiglitz singled out the Australian response as one of the only correct responses in the developed world to the crisis, and paid tribute to Rudd and Swan for averting the crisis. And I have seen a number of right-wing commentators, e.g. Paul Kelly the other week and articles in the Financial Review, suggesting that their response was probably about right. My view is that, really, economics is just black magic, and the fact remains, we avoided the recession. Would you be willing to go back in history and remove it and see if we were better off had it not been there? Also, have you seen this George Soros piece: http://www.smh.com.au/business/we-have-just-entered-act-ii-of-the-drama-20100611-y1rs.html ?

      • The GFC was primarily a banking crisis, and if the loss of financial services industry in the US was too bad to contemplate, then backing them up was rational. Stimulus is for another problem.

        I did see it and expect the other shoe to drop myself. I am not a fan of Soros and have read a number of his books. He is a trader and you cant trust their pronouncements.

        Did you see Rudds latest pretention? “This is a reformist government,” he said. “Reformist governments hold their nerve….” Does he really think he holds a flame to Keating or even Whitlam? He’s delusional.

      • Yep, Alex, the graph is the graph, whether it is unfair or not. Of course, policy economists have many subtle ways to vary and put caveats on seemingly simple data, so an argument is not an uncommon outcome between economic modellers of different poilitical bents.

        Does anyone have hard evidence that the stimulus measure did more than delay the inevitable onset of higher unemployment at rising national degt? I doubt it. It goes against the grain of common sense. If you have scarce funds, the golden rule is to allocate them to the causes most likey to have a high return.

        I do not include builing windmill-powered desalination plants in this category. The shock of that type of decision is just starting as energy prives here are moving up and taking many commodity prices with them. They will move up several fold in the coming decade if this country persists in attempting to draw large scale concentrated energy from diffuse sources.

      • Would you prefer to have economic policy during a financial crisis dictated by common sense or economic theory? Common sense was telling us all — economists from any side of politics — that we were headed for an unavoidable recession. No one predicted this recovery just as no one saw the financial crisis coming in the first place. After the fact, try typing “how australia avoided recession” into google right now and see what you can find. It is pretty hard to find anyone dismissing the Rudd/Swan response, and there are a number of commentators frankly marvelling at it. This cuts across both sides of politics.

        And what did the Liberals do during the crisis? Instead of putting aside politics in the face of what could have been, for all we knew at the time, the worst recession since the Great Depression, they were busy aiming for cheap political points. Malcolm Turnbull, I recall, asserted that yes, he wanted a stimulus package too, but he refused to disclose the amount. It was quite big, I think, but not $42 billion. That’s wonderful advice isn’t it. There was even a moment, if I recall, when they threatened to block passage of the bill in the Senate, but it was vividly clear to all of us that they didn’t have a clue what to do themselves and certainly didn’t believe in their own nonsense — and they still don’t. As far as I can tell, that must have been one of the most irresponsibly reckless responses to a crisis in Australia’s history. Can you imagine Kim Beazley behaving like that as opposition leader if Howard and Costello had been managing the crisis? Perhaps it’s just that unemployment could have actually destroyed my life at that time and for those of us whose jobs were at risk it was nice to have at least one side of Parliament governing the country.

        So let’s be reasonable here: in the face of overwhelming opinion to the contrary does anyone else have evidence that the stimulus was _bad_ policy?

      • Alex, How about addressing the data in Sinker’s link and not arguing from authority? That most economists in Australia are Keynesian and think Government can solve all our problems just means you are hearing one side of the story.

      • David, you are making exactly the same appeal to the prosecutor’s fallacy as the climate change alarmists who plot temperature increases against CO2 and forget to mention that no one really knows why these things should be correlated? You have size of stimulus spending on one axis and GDP growth on the other and allow this to suggestively establish a relationship where none is proven. And as one of the commenters pointed out, Australia is the outlier in that plot. Why? You tell me, then, if not the stimulus + interest rates + mining boom why Australia avoided recession? And I note also that you didn’t answer the question I asked: Would you be willing to go back and remove that stimulus and see what happens, given that we ended up in such an unexpectedly good position?

      • Alex, You have it around the wrong way. You are arguing that the
        stimulus improved GDP. The graph shows no such relationship exists
        when you take a fair sample of countries, thus contradicting your
        argument. See http://catallaxyfiles.com/2010/06/16/economic-shambles-afr-op-ed/
        for an update.

        And yes I would. Rudd panicked undid 10 years of Howard surpluses in
        one month and the younger generation are going to have to pay it back.

        There is no need to be frightened by recessions. They are part of the
        business cycle and necessary for correcting malinvestments that build
        up during an expansion. A bit like climate change.

      • Yes Alex, the stimulus was a bad move because scarce funds were spent without deep thought and wisdom.

        Before then, economists had failed to predict the approximate date of the global economic meltdown, which it could be further argued is a CONSEQUENCE of economists being wrong as opposed to leaving the economy alone. The economists then failed to spend accumulated Government funds wisely, but found reason to shake hands with other and say “It was a good war, fought well, and we prevailed”.

        Unfortunately, that was the “phony war”: The real war is just starting to move. Again, it is a war driven by economist idealogues. I won’t develop this hypothesis here, further than to say that one prominent architect of the mining profits superetax is Chairman of a gold mining company – which just happens to be under the jurisdiction of Papua New Guinea and therefore exempt.

  2. Alex, It is important to include quality of activity in assessments of economic activity and factors like employment. In short, it’s the old “digging holes and filling them in again”. Is the effort to inspect and replace defective pink batts properly counted as relief of unemployment, does it generate a true rise in GDP? The stimulus spending, if that’s what wise economists insist is the best medicine, should have been directed to productive jobs like road making and repair, extending train and tram tracks, building dams, nuclear power stations and infrastructure gennerally. But this is but a short introductory suggestion for a more complex problem.

    • Geoff, in most things AGW, I would agree with you, but saying this: “The stimulus spending, if that’s what wise economists insist is the best medicine, should have been directed to productive jobs like road making and repair, extending train and tram tracks, building dams, nuclear power stations and infrastructure gennerally.” Has not proven to be effective in the US.

      That back loads the affects of the stimulus, as it takes months and even years to get that cash flowing well. We had that discussion in the US’s 2001 recession. Bush chose to go another way. His stimulus package was front loaded, tax cuts and business investment incentives.

      Today, the Obama administration has used that back loaded infrastructure uber alles approach, and we are showing almost no gain in employment that can be related directly to the stimulus package.

      Two years after the start of this deep recession we still have to spend all of the stimulus funding. Some was due to political considerations (this is an election year), but much was due to the slow roll out of spending due to contracting overhead.

  3. Hi David, that graph looks terribly unfair to be honest. I have seen few serious economic commentators disagree that the $42 billion stimulus package really did save the country from recession, and that moreover $42 billion was pretty much just the right amount. Now this doesn't justify the bungling and rorting of the scheme (e.g. the insulation and BER debacles) or make up for what are the obviously very real flaws in Rudd's character that have emerged but I really don't think that graph is terribly helpful.I would admit that right now, with Rudd having completely dropped the ball, it would be good if Howard & Costello could return. That's not going to happen, though.Do you think we'd be in safe hands with Tony Abbott and Joe Hockey running the country? I saw Joe Hockey and Lindsay Tanner debating on Q&A the other evening and it appeared to me that Joe Hockey has no more clue about economics than Barnaby Joyce did.At least when George W. Bush was the president, he was Dick Cheney's puppet.Who on earth would pull Tony Abbott's strings? I think we'd be doomed.

  4. Geoff,

    I don’t think that the federal government is actually able to spend money on the things you suggest without negotiations with the states and I don’t think there was time for that. The money had to be spent quickly, and there, I think, was the problem; the Rudd government suffered from the inexperience that comes from being 11 years in opposition. The bungling and rorting we’ve seen I would attribute to inexperience.

    But the question we should be asking now is, who is the more likely to learn from his mistakes: Kevin Rudd or Tony Abbott?

    Tony Abbott had nearly 10 years of being a minister in Howard’s government and he was still bungling his way through the 2007 election campaign. He made more gaffes during the 2007 election campaign than Peter Garrett. Since becoming opposition leader, he’s managed to take on Rudd in a national debate and beyond all expectations lose; he’s managed to get lost in the outback; he’s managed to get photographed in speedos competing in an iron man competition; he’s taken acting lessons to improve his parliamentary performances; he’s said to a bewildered Kerry O’Brien, “[t]he statements that need to be taken absolutely as gospel truth are those carefully prepared scripted remarks”; he’s cooked up a crazy parental leave tax that has been savaged by his party; he’s been dismissed by Malcolm Fraser, John Hewson, and Peter Costello. Clearly, he was installed as the leader because the Liberals didn’t actually believe they could win the election. The guy is, in short, an idiot.

    Do you really believe that at this stage of his career Tony Abbott could possibly make a good prime minister? And who else in the coalition is going to guide us through a possible double-dip global finanical crisis? You may feel that the RSPT is bad policy, but if so, the damage is already done. I don’t think installing Tony Abbott as prime minister is going to restore the confidence of international investors. Add to this the likelihood that the Greens will have the balance of power in the Senate. I think that’s a very scary scenario. I don’t think stable government would be possible.

    Am I wrong?

  5. Alex, It is important to include quality of activity in assessments of economic activity and factors like employment. In short, it's the old “digging holes and filling them in again”. Is the effort to inspect and replace defective pink batts properly counted as relief of unemployment, does it generate a true rise in GDP? The stimulus spending, if that's what wise economists insist is the best medicine, should have been directed to productive jobs like road making and repair, extending train and tram tracks, building dams, nuclear power stations and infrastructure gennerally. But this is but a short introductory suggestion for a more complex problem.

  6. You might want to check out Sinclair Davidson and this series of posts http://catallaxyfiles.com/2010/06/12/heritage-f…. No correlation between size of stimulus and change in GDP for OECD countries, means government has no effect (and should have no role) in this. Numeric support for the stimulus being 'just right' please?The link to the article by George Megalogenis makes your point, Rudd and Abbot are both tax-and-spend liberals. I hope for a person to emerge that can articulate a conservative message that the government is not and should not be the solution to everything.

  7. Geoff,I don't think that the federal government is actually able to spend money on the things you suggest without negotiations with the states and I don't think there was time for that. The money had to be spent quickly, and there, I think, was the problem; the Rudd government suffered from the inexperience that comes from being 11 years in opposition. The bungling and rorting we've seen I would attribute to inexperience.But the question we should be asking now is, who is the more likely to learn from his mistakes: Kevin Rudd or Tony Abbott?Tony Abbott had nearly 10 years of being a minister in Howard's government and he was still bungling his way through the 2007 election campaign. He made more gaffes during the 2007 election campaign than Peter Garrett. Since becoming opposition leader, he's managed to take on Rudd in a national debate and beyond all expectations lose; he's managed to get lost in the outback; he's managed to get photographed in speedos competing in an iron man competition; he's taken acting lessons to improve his parliamentary performances; he's said to a bewildered Kerry O'Brien, “[t]he statements that need to be taken absolutely as gospel truth are those carefully prepared scripted remarks”; he's cooked up a crazy parental leave tax that has been savaged by his party; he's been dismissed by Malcolm Fraser, John Hewson, and Peter Costello. Clearly, he was installed as the leader because the Liberals didn't actually believe they could win the election. The guy is, in short, an idiot.Do you really believe that at this stage of his career Tony Abbott could possibly make a good prime minister? And who else in the coalition is going to guide us through a possible double-dip global finanical crisis? You may feel that the RSPT is bad policy, but if so, the damage is already done. I don't think installing Tony Abbott as prime minister is going to restore the confidence of international investors. Add to this the likelihood that the Greens will have the balance of power in the Senate. I think that's a very scary scenario. I don't think stable government would be possible.Am I wrong?

  8. Geoff, in most things AGW, I would agree with you, but saying this: “The stimulus spending, if that's what wise economists insist is the best medicine, should have been directed to productive jobs like road making and repair, extending train and tram tracks, building dams, nuclear power stations and infrastructure gennerally.” Has not proven to be effective in the US.That back loads the affects of the stimulus, as it takes months and even years to get that cash flowing well. We had that discussion in the US's 2001 recession. Bush chose to go another way. His stimulus package was front loaded, tax cuts and business investment incentives.Today, the Obama administration has used that back loaded infrastructure uber alles approach, and we are showing almost no gain in employment that can be related directly to the stimulus package. Two years after the start of this deep recession we still have to spend all of the stimulus funding. Some was due to political considerations (this is an election year), but much was due to the slow roll out of spending due to contracting overhead.

  9. I can't provide any numeric support but I haven't seen many (any?) commentators assert that the stimulus package didn't help us. I recall Joseph Stiglitz singled out the Australian response as one of the only correct responses in the developed world to the crisis, and paid tribute to Rudd and Swan for averting the crisis. And I have seen a number of right-wing commentators, e.g. Paul Kelly the other week and articles in the Financial Review, suggesting that their response was probably about right. My view is that, really, economics is just black magic, and the fact remains, we avoided the recession. Would you be willing to go back in history and remove it and see if we were better off had it not been there? Also, have you seen this George Soros piece: http://www.smh.com.au/business/we-have-just-ent… ?

  10. The GFC was primarily a banking crisis, and if the loss of financial services industry in the US was too bad to contemplate, then backing them up was rational. Stimulus is for another problem. I did see it and expect the other shoe to drop myself. I am not a fan of Soros and have read a number of his books. He is a trader and you cant trust their pronouncements. Did you see Rudds latest pretention? “This is a reformist government,” he said. “Reformist governments hold their nerve….” Does he really think he holds a flame to Keating or even Whitlam? He's delusional.

  11. Yep, Alex, the graph is the graph, whether it is unfair or not. Of course, policy economists have many subtle ways to vary and put caveats on seemingly simple data, so an argument is not an uncommon outcome between economic modellers of different poilitical bents.Does anyone have hard evidence that the stimulus measure did more than delay the inevitable onset of higher unemployment at rising national degt? I doubt it. It goes against the grain of common sense. If you have scarce funds, the golden rule is to allocate them to the causes most likey to have a high return.I do not include builing windmill-powered desalination plants in this category. The shock of that type of decision is just starting as energy prives here are moving up and taking many commodity prices with them. They will move up several fold in the coming decade if this country persists in attempting to draw large scale concentrated energy from diffuse sources.

  12. Would you prefer to have economic policy during a financial crisis dictated by common sense or economic theory? Common sense was telling us all — economists from any side of politics — that we were headed for an unavoidable recession. No one predicted this recovery just as no one saw the financial crisis coming in the first place. After the fact, try typing “how australia avoided recession” into google right now and see what you can find. It is pretty hard to find anyone dismissing the Rudd/Swan response, and there are a number of commentators frankly marvelling at it. This cuts across both sides of politics.And what did the Liberals do during the crisis? Instead of putting aside politics in the face of what could have been, for all we knew at the time, the worst recession since the Great Depression, they were busy aiming for cheap political points. Malcolm Turnbull, I recall, asserted that yes, he wanted a stimulus package too, but he refused to disclose the amount. It was quite big, I think, but not $42 billion. That's wonderful advice isn't it. There was even a moment, if I recall, when they threatened to block passage of the bill in the Senate, but it was vividly clear to all of us that they didn't have a clue what to do themselves and certainly didn't believe in their own nonsense — and they still don't. As far as I can tell, that must have been one of the most irresponsibly reckless responses to a crisis in Australia's history. Can you imagine Kim Beazley behaving like that as opposition leader if Howard and Costello had been managing the crisis? Perhaps it's just that unemployment could have actually destroyed my life at that time and for those of us whose jobs were at risk it was nice to have at least one side of Parliament governing the country.So let's be reasonable here: in the face of overwhelming opinion to the contrary does anyone else have evidence that the stimulus was _bad_ policy?

  13. Alex, How about addressing the data in Sinker's link and not arguing from authority? That most economists in Australia are Keynesian and think Government can solve all our problems just means you are hearing one side of the story.

  14. David,

    Replying from below.

    I don’t have it backwards, although I could have been clearer. I want to say that ‘correlation doesn’t imply causation’ and you would also agree that ‘no correlation doesn’t imply no causation’ either. I want to say that the graph, on its own, doesn’t say anything at all. It looks like a random scatter of points that someone’s fitted a trend line through. Now it may show, on its own, that only two countries grew their GDP after spending stimulus money, and that we are one of those countries, but it says nothing at all about why, or what would have happened had all countries not adopted stimulus measures.

    This is the same problem with CO2 and I think you know what I’m saying: we have no idea what the temperature charts would have looked like absent our CO2 increases, and no way of testing an hypothesis either, so we, really, have no business plotting the two quantities on the same chart in the first place.

    You seem to be asserting your position as dogma. I am admittedly just appealing to a consensus. Neither of us are economists (right?). So who is really to know? Paul Keating, who rarely compliments anyone, attributes our good position to the Rudd government. Peter Costello’s utterances are cryptic, since he sat on the back bench during the crisis. I can’t find him on record as saying the stimulus shouldn’t have been there, so I am inclined to believe that he’d have issued a similarly large package had he been there. As I said, Malcolm Turnbull refused to actually have a position at the time.

    Anyhow, you’re willing to assert that your stimulus package would have been zero. Are you willing to assert that Costello’s would have been zero too?

    • Alex, Economists of the modelling/policy type run out of employment when all runs well. They, like stockbrokers, like to see movement so they can sell forward on market rises and sell short on falls.

      I can see no reason for a stimulus package for Australia. It was not the stimulus that affected the economy in a positive way, it was the strength of mining exports, a strength in which I can say proudly that I played a significant part before retirement.

      When you find a big new mine, you create fundamental, new wealth, Some countries like Singapore, Hong Kong of old and Holland have no land big enough or of the right type to host big mines. So the pirates of the Malaccas, the Mandarins of Hong Kong, the Burghers of Holland, had to invent ways to create wealth. That way was to essentially take it from others. Wealth from inland China was passed through Hong Kong , where a big transaction cost was applied. Such arrangements are marriages of convenience or opportunities of geography or even enforced with threat and harm. In the end, they benefit nobody except those on the top of the money pyramid.

      I repeat, it still remains a principle of good economics that such scarce funds as are available for use are put to the effort of yielding the best return, or an modified in the present context, given the best chance to create new fundamental wealth.

      That is why the supertax on profits is so bad. Not only is it needed to pay for the debt of the stimulus overspend, it has the effect of deterring the search for fundamental wealth.

      My bet is that those who did best from the stimulus package were the best carpetbaggers. Economists long ago rejected free riders as undesirable, yet they composed a stimulus package to benefit them. Silly.

      • Geoff, it’s fine to criticise the modellers; that’s easy. I would likewise have about as much faith in the modellers as I would in fortune tellers. The big question is can you actually prove what you are saying? You confidently assert, “[i]t was not the stimulus that affected the economy in a positive way, it was the strength of mining exports, a strength in which I can say proudly that I played a significant part before retirement.” Can you actually prove that or is it your opinion?

      • Alex, you asked about my comment –

        “[i]t was not the stimulus that affected the economy in a positive way, it was the strength of mining exports….”

        The proof is unravelling now, though it is not a hard math proof but a softer logical indication.

        The Feds clearly need more money now to cover the excesses of the stimulus. If they have unlimited choice as to taxing this sector or that, why do they pick on the mining sector? Perhaps it’s the only one that has some hope of continuing under a massive burden.

        The mining sector was producing funds before the stimulus. Maybe it was generating at a rate that made the stimulus no more than political point scoring (in the sense, “we’re on the ball, ready to do what other countries are doing, and just as fast”).

        Rio has had full page ads that it has reinvested in Australia more than it has earned in the last decade. I’d expect BHP-Billiton to be similar. We used to work on a job multiplier that each mining job supported 5-7 jobs elsewhere in the economy.

        I am looking at evidence from the other direction. Would Australia have been badly impacted during the stimulus spending period if we had spent no stimulus at all? The country graphs from Prof Sinclair seem to say “Probably not”.

    • Alex, you asserted the stimulus averted recession, I provided some contrary evidence, you provide some expert opinion, and now I’m not an economist? I think tax cuts are the best way to stimulate the economy, not dropping money from helicopters.

      • David, if you actually have an economics background and I didn’t know then my apologies; I’m always like this. But would you not agree that the graph you’ve shown is rather two dimensional in plotting size of stimulus versus growth of GDP for 20 completely unrelated countries? Does it have any meaning at all to compare X (size of stimulus) and Y (change in GDP) for China and the US and allow for the fact that we have a global financial crisis which even itself is not fully understood? Economists like to say “all other things being equal” and it frankly looks like a game to me but we know that all other things aren’t equal at all. We have literally millions of variables. The graph has fixed two of them, and made a conclusion. Should I buy that? The question is, surely, can anyone say what it would have looked like without the stimulus? And if not, then isn’t it correct to say that it tells us nothing at all about the stimulus itself?

      • Alex, I am not an economist. The world economic crisis is obvious. The most productive countries have been deficit spending for decades at a rather high rate. It was going to break sometime. Stimulus packages are BORROWED making the deficits even larger. Guaranteed dead cat bounce. Tighten your seat belt because no one is doing the hard cuts and reorganisation of the economies that are necessary to correct this idiocy. Socialism doesn’t work for humans and we are going to get that lesson shoved up our harumphs one more time. Grasp all the straws you want.

  15. Yes Alex, the stimulus was a bad move because scarce funds were spent without deep thought and wisdom. Before then, economists had failed to predict the approximate date of the global economic meltdown, which it could be further argued is a CONSEQUENCE of economists being wrong as opposed to leaving the economy alone. The economists then failed to spend accumulated Government funds wisely, but found reason to shake hands with other and say “It was a good war, fought well, and we prevailed”.Unfortunately, that was the “phony war”: The real war is just starting to move. Again, it is a war driven by economist idealogues. I won't develop this hypothesis here, further than to say that one prominent architect of the mining profits superetax is Chairman of a gold mining company – which just happens to be under the jurisdiction of Papua New Guinea and therefore exempt.

  16. David, you are making exactly the same appeal to the prosecutor's fallacy as the climate change alarmists who plot temperature increases against CO2 and forget to mention that no one really knows why these things should be correlated? You have size of stimulus spending on one axis and GDP growth on the other and allow this to suggestively establish a relationship where none is proven. And as one of the commenters pointed out, Australia is the outlier in that plot. Why? You tell me, then, if not the stimulus + interest rates + mining boom why Australia avoided recession? And I note also that you didn't answer the question I asked: Would you be willing to go back and remove that stimulus and see what happens, given that we ended up in such an unexpectedly good position?

  17. Alex, You have it around the wrong way. You are arguing that thestimulus improved GDP. The graph shows no such relationship existswhen you take a fair sample of countries, thus contradicting yourargument. See http://catallaxyfiles.com/2010/06/16/economic-s…for an update.And yes I would. Rudd panicked undid 10 years of Howard surpluses inone month and the younger generation are going to have to pay it back.There is no need to be frightened by recessions. They are part of thebusiness cycle and necessary for correcting malinvestments that buildup during an expansion. A bit like climate change.

  18. David,Replying from below.I don't have it backwards, although I could have been clearer. I want to say that 'correlation doesn't imply causation' and you would also agree that 'no correlation doesn't imply no causation' either. I want to say that the graph, on its own, doesn't say anything at all. It looks like a random scatter of points that someone's fitted a trend line through. Now it may show, on its own, that only two countries grew their GDP after spending stimulus money, and that we are one of those countries, but it says nothing at all about why, or what would have happened had all countries not adopted stimulus measures.This is the same problem with CO2 and I think you know what I'm saying: we have no idea what the temperature charts would have looked like absent our CO2 increases, and no way of testing an hypothesis either, so we, really, have no business plotting the two quantities on the same chart in the first place.You seem to be asserting your position as dogma. I am admittedly just appealing to a consensus. Neither of us are economists (right?). So who is really to know? Paul Keating, who rarely compliments anyone, attributes our good position to the Rudd government. Peter Costello's utterances are cryptic, since he sat on the back bench during the crisis. I can't find him on record as saying the stimulus shouldn't have been there, so I am inclined to believe that he'd have issued a similarly large package had he been there. As I said, Malcolm Turnbull refused to actually have a position at the time.Anyhow, you're willing to assert that your stimulus package would have been zero. Are you willing to assert that Costello's would have been zero too?

  19. Alex, Economists of the modelling/policy type run out of employment when all runs well. They, like stockbrokers, like to see movement so they can sell forward on market rises and sell short on falls. I can see no reason for a stimulus package for Australia. It was not the stimulus that affected the economy in a positive way, it was the strength of mining exports, a strength in which I can say proudly that I played a significant part before retirement.When you find a big new mine, you create fundamental, new wealth, Some countries like Singapore, Hong Kong of old and Holland have no land big enough or of the right type to host big mines. So the pirates of the Malaccas, the Mandarins of Hong Kong, the Burghers of Holland, had to invent ways to create wealth. That way was to essentially take it from others. Wealth from inland China was passed through Hong Kong , where a big transaction cost was applied. Such arrangements are marriages of convenience or opportunities of geography or even enforced with threat and harm. In the end, they benefit nobody except those on the top of the money pyramid.I repeat, it still remains a principle of good economics that such scarce funds as are available for use are put to the effort of yielding the best return, or an modified in the present context, given the best chance to create new fundamental wealth.That is why the supertax on profits is so bad. Not only is it needed to pay for the debt of the stimulus overspend, it has the effect of deterring the search for fundamental wealth.My bet is that those who did best from the stimulus package were the best carpetbaggers. Economists long ago rejected free riders as undesirable, yet they composed a stimulus package to benefit them. Silly.

  20. Geoff, it's fine to criticise the modellers; that's easy. I would likewise have about as much faith in the modellers as I would in fortune tellers. The big question is can you actually prove what you are saying? You confidently assert, “[i]t was not the stimulus that affected the economy in a positive way, it was the strength of mining exports, a strength in which I can say proudly that I played a significant part before retirement.” Can you actually prove that or is it your opinion?

  21. Alex, you asserted the stimulus averted recession, I provided some contrary evidence, you provide some expert opinion, and now I'm not an economist? I think tax cuts are the best way to stimulate the economy, not dropping money from helicopters.

  22. David, if you actually have an economics background and I didn't know then my apologies; I'm always like this. But would you not agree that the graph you've shown is rather two dimensional in plotting size of stimulus versus growth of GDP for 20 completely unrelated countries? Does it have any meaning at all to compare X (size of stimulus) and Y (change in GDP) for China and the US and allow for the fact that we have a global financial crisis which even itself is not fully understood? Economists like to say “all other things being equal” and it frankly looks like a game to me but we know that all other things aren't equal at all. We have literally millions of variables. The graph has fixed two of them, and made a conclusion. Should I buy that? The question is, surely, can anyone say what it would have looked like without the stimulus? And if not, then isn't it correct to say that it tells us nothing at all about the stimulus itself?

  23. Alex, I am not an economist. The world economic crisis is obvious. The most productive countries have been deficit spending for decades at a rather high rate. It was going to break sometime. Stimulus packages are BORROWED making the deficits even larger. Guaranteed dead cat bounce. Tighten your seat belt because no one is doing the hard cuts and reorganisation of the economies that are necessary to correct this idiocy. Socialism doesn't work for humans and we are going to get that lesson shoved up our harumphs one more time. Grasp all the straws you want.

  24. Alex, you asked about my comment -“[i]t was not the stimulus that affected the economy in a positive way, it was the strength of mining exports….”The proof is unravelling now, though it is not a hard math proof but a softer logical indication.The Feds clearly need more money now to cover the excesses of the stimulus. If they have unlimited choice as to taxing this sector or that, why do they pick on the mining sector? Perhaps it's the only one that has some hope of continuing under a massive burden.The mining sector was producing funds before the stimulus. Maybe it was generating at a rate that made the stimulus no more than political point scoring (in the sense, “we're on the ball, ready to do what other countries are doing, and just as fast”). Rio has had full page ads that it has reinvested in Australia more than it has earned in the last decade. I'd expect BHP-Billiton to be similar. We used to work on a job multiplier that each mining job supported 5-7 jobs elsewhere in the economy. I am looking at evidence from the other direction. Would Australia have been badly impacted during the stimulus spending period if we had spent no stimulus at all? The country graphs from Prof Sinclair seem to say “Probably not”.

  25. Here’s some support for my line of thinking from a Reserve bank (temporary) member:From “The Age” 23 June 2010.

    A PROMINENT university economist and member of the Reserve Bank board has delivered a scathing critique of Kevin Rudd’s response to the global financial crisis, saying his government ”panicked” and ”rammed through” decisions fraught with risk.

    Warwick McKibbin, of the Australian National University, accused the government of overspending on its stimulus package, and then coming up with ”a really badly designed resource tax” to try to compensate.

    And he described the government’s planned $43 billion national broadband network as ”a gigantic white elephant waiting to happen”.

    Professor McKibbin also took aim at fellow Reserve Bank board member and Treasury secretary Ken Henry, accusing him of not only failing to consult experts on economic issues.

    Professor McKibbin, director of ANU’s Research School of Economics, has told The Age he was stunned by Dr Henry’s call this week for academics to ”put down their weapons” and stop nitpicking over government proposals such at the emissions trading scheme.

    ”The ETS was a flawed scheme. Had the government got it through it would be dead by now because of the financial crisis,” Professor McKibbin said. ”I have enormous respect for Ken Henry, but he can’t believe that you should have consensus because it is better to have bad policy that everyone agrees with than eventually get good policy that will work.”

    And in a damning assessment of the government’s stimulus package, he said: ”It wasn’t evidence-based policy, they panicked. They put the money into school buildings, they put it in insulation, they put it in stuff they could never reverse.

    ”The government rammed those decisions through the economy even though they were fraught with risk,” Professor McKibbin said. ”No one was consulted about an alternative view, and if you did say anything you were attacked by the Treasurer and the Prime Minister in public.”

    He also accused the government of overspending on the stimulus package and then deciding that ”because of politics they had to get their spending back so they could claim they had fiscal surplus – for which there is no economic basis, by the way.

    ”So they come up with a really badly designed resource tax to try and get the position to look good three years from now and, in the middle of a sovereign risk crisis, exposed the economy to a reassessment of sovereign risk.”

    He said the recently released review of the tax system should have been independent of the Treasury and then critiqued by it and other economic agencies.

    ”Treasury, as far as I can tell, has become an arm of political policy,” Professor McKibbin said. ”Historically they have always been the ones who have said ‘wait a minute, this policy of subsidising green cars to try and save the constituents of a particular electorate is not a very sensible way to spend eight billion dollars’. You just don’t see that now.

    ”You see Treasury officials producing what I consider to be fairly politically based evidence in support of a particular political policy, not economic policy.”

    (Shortened by GHS)

    • I saw that. I have another reference for Alex that I will put up. Rudd could be cleaning out his drawers, according to Sky.

  26. Here's some support for my line of thinking from a Reserve bank (temporary) member:From “The Age” 23 June 2010.A PROMINENT university economist and member of the Reserve Bank board has delivered a scathing critique of Kevin Rudd's response to the global financial crisis, saying his government ''panicked'' and ''rammed through'' decisions fraught with risk.Warwick McKibbin, of the Australian National University, accused the government of overspending on its stimulus package, and then coming up with ''a really badly designed resource tax'' to try to compensate.And he described the government's planned $43 billion national broadband network as ''a gigantic white elephant waiting to happen''.Professor McKibbin also took aim at fellow Reserve Bank board member and Treasury secretary Ken Henry, accusing him of not only failing to consult experts on economic issues.Professor McKibbin, director of ANU's Research School of Economics, has told The Age he was stunned by Dr Henry's call this week for academics to ''put down their weapons'' and stop nitpicking over government proposals such at the emissions trading scheme.''The ETS was a flawed scheme. Had the government got it through it would be dead by now because of the financial crisis,'' Professor McKibbin said. ''I have enormous respect for Ken Henry, but he can't believe that you should have consensus because it is better to have bad policy that everyone agrees with than eventually get good policy that will work.''And in a damning assessment of the government's stimulus package, he said: ''It wasn't evidence-based policy, they panicked. They put the money into school buildings, they put it in insulation, they put it in stuff they could never reverse.''The government rammed those decisions through the economy even though they were fraught with risk,'' Professor McKibbin said. ''No one was consulted about an alternative view, and if you did say anything you were attacked by the Treasurer and the Prime Minister in public.''He also accused the government of overspending on the stimulus package and then deciding that ''because of politics they had to get their spending back so they could claim they had fiscal surplus – for which there is no economic basis, by the way.''So they come up with a really badly designed resource tax to try and get the position to look good three years from now and, in the middle of a sovereign risk crisis, exposed the economy to a reassessment of sovereign risk.''He said the recently released review of the tax system should have been independent of the Treasury and then critiqued by it and other economic agencies.''Treasury, as far as I can tell, has become an arm of political policy,'' Professor McKibbin said. ''Historically they have always been the ones who have said 'wait a minute, this policy of subsidising green cars to try and save the constituents of a particular electorate is not a very sensible way to spend eight billion dollars'. You just don't see that now.''You see Treasury officials producing what I consider to be fairly politically based evidence in support of a particular political policy, not economic policy.''(Shortened by GHS)

  27. I saw that. I have another reference for Alex that I will put up. Rudd could be cleaning out his drawers, according to Sky.

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