I am just giving you a sneak preview of my piece in the Inquirer section of The Australian today. You will all have to run up to the newsagency or go on-line to read it. No doubt, it will make me popular with parts of the blogosphere! Gosh, at least Alesina’s paper was published in a real journal. Gruen cites a working paper and some phone calls!
In theory, the impact of fiscal stimulus spending will in part depend on the type of economy we are considering. Small, open economies with flexible exchange rates – like Australia’s – are not ideal candidates, as the increased government spending leads to higher interest rates and currency appreciation, thereby choking off at least some of the increases to output.
In what looks like an attempt to split hairs, David Gruen, one of Treasury’s Executive Directors, has attempted to bolster the presumed benefits of the fiscal stimulus for Australia by saying that the Australian economy is not really very open and, in any case, the starting point for government debt was low. Citing one working paper and some personal correspondence from international organisations with strong Keynesian predispositions does not provide a compelling case that the massive increase in government spending that occurred inAustraliain 2008-09 was the boon he suggests. It is best to be wary of large multipliers.
departmental advice always follows the election returns.
many a high-flying public service career came asunder by misjudging the time to offer free and frank advice on the hazards and difficulties that may lay ahead and when to humour the minister in his inclinations
Jim Rose
11 Feb 12 at 2:56 pm
what was the working paper? must have been good to undo 60 years of macroeconomic learning.
Jim Rose
11 Feb 12 at 2:57 pm
At the same time as Rudd handed out his stimulus, my super lost 30%, ostensibly because of stock market losses. That money was borrowed because the American banks needed the interest, not because we needed the stimulation. Our so-called leaders are poodles, in top-dog clothing.
Steve
11 Feb 12 at 4:19 pm
If I recall correctly, David Gruen was also responsible for Treasury’s shonky modelling for the ETS.
Art Vandelay
11 Feb 12 at 4:49 pm
Judith,I find the assertion that Australia is not an open economy incredible.What you need is capital mobility.Is there any doubt that this requirement is satisfied?
Tom Valentine
11 Feb 12 at 5:09 pm
I see no reason to be polite.
This is bullshit.
.
11 Feb 12 at 5:16 pm
Does this guy think we still have fixed exchange rates currency controls?
I can’t believe that anyone could suggest we’re not an open economy.
JC
11 Feb 12 at 6:02 pm
Maybe I am naive about what standards are expected from senior public servants. But from this punter sits, that should be a sacking offence.
Peter Patton
11 Feb 12 at 6:23 pm
lol – Gruen.
Startling admission that the Australian economy is not very open… Is he going to propose fixing this clear economic policy failure, or does he have another “working paper” that disproves the gains from trade?
Gruen was a Henry-ite anyways.
Econocrat
11 Feb 12 at 6:24 pm
No serious economist believes that fiscal policy can be effective in any economy (not just a small open economy) if the central bank pursues inflation-targeting. This is because the central bank will simply offset any boost (or detraction) to nominal spending with a tightening (or loosening) of monetary policy relative to what they would have otherwise done. The only area where there is some controversy is under so-called ‘liquidity trap’ conditions, which we never experienced. Even then, the Fed, BoE, BoJ and most other central banks clearly believe they can influence nominal spending through QE-type policies. There is no room for activist fiscal policy in modern macroeconomic management.
As usual, Treasury’s economics are 40 years behind the times. I used to think that Treasury should be the one department to keep – others could be shut down as they are simply agents for various rent-seekers. Now I think keep Finance to count the numbers and ditch Treasury.
Sleetmute
12 Feb 12 at 7:30 am
The Gruen transfer. To where? It is the public service after all.
Oh come on
12 Feb 12 at 7:42 am
Good illustration of Labor’s mis-management of the economy from Peter Hartcher (supposedly close to Rudd) in the SMH – “If Peter Costello could produce a surplus when the commodity price index was at 40, why is it so hard for Wayne Swan to produce one when it’s at 140?” http://www.smh.com.au/opinion/politics/for-a-few-dollars-more-20120210-1sksf.html#ixzz1m8ENYIQz
Based on the commodity price index, Australia has not had poor economic conditions over the last four years but a one-in-a-hundred year boom time that the ALP have completely wasted.
gary
12 Feb 12 at 1:49 pm
“Men, cooperating under the system of the division of labor, have created all the wealth which the daydreamers consider as a free gift of nature.
— Ludwig von Mises”
Ludwig lived in a much more polite age.
dakingisdead
13 Feb 12 at 3:28 pm
Gary , like others here, does not want to read the tables in MYEFO because they show that tax is the lowest it has been since 1978/9.
Now that doesn’t sound like a once in a hundred year boom.
The fiscal consolidation, that is easily the quickest we have seen, is occurring because of reductions in expenditure not because of increased revenues.
On your Marx
13 Feb 12 at 3:47 pm
Marx, you idiot, the link goes to this thread. Pick up the game squire as we’re counting on you to read the footnotes.
JC
13 Feb 12 at 3:50 pm
the MYEFO tables are here.
They also show ONLY the ALP has ever cut spending in real terms. Indeed they did it quite recently.
sleetmute is another who denies the undeniable. in fact Japan in the 90s shows the potency of fiscal policy.
what happens is that no-one here ever looks at the fiscal contractions there which led to its major recessions.
the IMF has found fiscal policy works as well.
This is not the same as saying you should always use it.
On your Marx
13 Feb 12 at 4:57 pm
Sorry but the HTML is not working.
go to Treasury, then go to budget , then go to MEYFO and then look at the tables
On your Marx
13 Feb 12 at 4:58 pm
wow that should be MYEFO.
go to go now
On your Marx
13 Feb 12 at 4:59 pm
Marx.
You stupid link doesn’t work again. Get it right the first time or stop posting links, you fool.
It’s very easy. Please the arrow in the address bar, copy in, then go to the box here, tab on “link” and paste it there.
You have to be Homer as no one is possibly this dull when it comes to modern technology.
JC
13 Feb 12 at 5:01 pm
Marx.
You stupid link only goes back to 2009/10. We have no way of evaluating the claim that it’s the lowest it’s been since 78/79 from non-link you’ve provided.
You also have no taken into account , of budget items like the NBN and pushing expenditures forward into the new year.
In other words, your claims are basically fraudulent.
Here’s how to post the link by the way.
JC
13 Feb 12 at 5:08 pm
oops should have prooof read.
Off budget items..
JC
13 Feb 12 at 5:09 pm
Is that pushing forward or back into the new year….
I guess it is Back. Becuse to advance a payment would pull it forward whereas to delay a payment would push it back…
Or should it be that we push something forward and pull something back?
Damn Engrish.
I love (not) the way government can create off budget items to reduce their overall debt.
Funny how my bank manager doesn’t seem to think that I can do the same. Somehow he doesn’t believe me that my house really isn’t a debt and is an asset that will engender a return and so should not be considered as part of my total liabilities.
dakingisdead
13 Feb 12 at 6:01 pm