Here is ALP MP Andrew Leigh terrorising the voters about austerity. Okay – it’s all good fun. But this line from the opening paragraph caught my eye (emphasis added):
DURING the Global Financial Crisis every developed country put in place fiscal stimulus designed to save jobs and keep businesses from going bust. On average, more stimulus meant more growth.
That argument first appeared in the 2010 budget (Box 4).
Long-time readers will recall that we covered the scandal at the time. It turns out Treasury had fudged the data – and got caught out in a matter of days. Mind you it did take Treasury a few weeks to admit to the error. I wrote up the whole incident here.
ricardian ambivalence also weighed into the debate:
Two years ago, Treasury published in the budget papers an analysis of the impacts of fiscal stimulus. The graph purported to show that there was a positive relationship between the size of stimulus and the subsequent revisions or changes in economic growth forecasts.
Now, however, we have enough data to use the latest IMF World Economic Outlook to update the graph with the actual data from 2009 and 2010 (some of the data in Treasury’s analysis used forecasts). There basically remains no relationship between stimulus and growth according to Treasury’s test.
So it’s a bit disappointing to see Andrew Leigh raising that old discredited notion.
As always – this is not an invitation to launch gratuitous attacks on Andrew.