Greetings all,

@Grim23, re: “In your eyes the relative size of Australia's fiscal stimulus is good enough evidence in favour of fiscal policy.”

No. The evidence is not the size of the stimulus. That was an observed policy instrument. The evidence is in the outcomes - high and stable job participation, low unemployment, optimum interest rates, low taxes, strong economic growth, surging productivity, low inflation, increased services, increased pensions and benefits and low borrowings from abroad.

Re: “You think there is correlation between a country's fiscal stimulus and its growth. I dont.”

Correct. Nations with strong stimulus did better than all those with moderate stimulus and better still than those with weak or no stimulus. That’s an empirical observation.

Re: “You are ignoring the fact that only in Australia and very few other countries did interest rates not reach zero.”

Not at all. The original article refers to Australia’s “well-placed interest rates”. It asserted “They [Governments in free enterprise economies] can also vary the money supply, interest rates and tax rates.”

It was also observed in dialogue with David G, above, that “Only Australia and Poland have had interest rates in the optimum range between 2.75% and 5.0%. since 2009.”

Re: “You are ignoring the strong evidence since the crisis that monetary policy wins over fiscal, such as in the US”

No. Not ignoring it. Just giving greater weight to other factors based on observed outcomes.

Re: “But Poland and Australia are different. Poland was one of the few other countries where interest rates didn't hit zero. Sweden also performed fairly well, without interest rates hitting zero.”

Not true, Grim23.

Only Japan and Switzerland in the OECD had zero benchmark interest rates. This does not support your case.

Re: “And now you can see Germany's faster recovery:”

Again, just blatantly false. Your link shows no such recovery.

Here is where you will see Germany’s actual GDP growth - flagging disastrously:

http://www.tradingeconomics.com/germany/gdp-growth-annual

And here, in contrast, Australia’s strong growth:

http://www.tradingeconomics.com/australia/gdp-growth-annual

It is vital we use accurate and applicable data, Grim23. Perhaps this is why we have reached different conclusions.

Cheers,

As you should know, there is no meaningful difference between 0.5% and zero percent benchmark rate.
If famous nobel prize winning economists can talk about the federal reserve having a "zero rate policy", then that technical detail should not be important. that just shows how out of touch you are with the sophisticated macro debates going on at the moment.
The point is rates can go no further in countries other than poland and australia. I have provided you with plenty of reasons why your figures don't support your clsim of the effects of fiscal stimulus. In your reply you dont even mention the links, or reply to all of my criticism. Either you didn't read them, or you can't refute them. But they explain Australia's and Poland superior performance without reference to fiscal stimulus. I suggest if you want to learn a little macro, you should read them. What i am saying is not controversial, every single new keyensian economist and every market monetarist will tell you the same thing!
As for Germany, the world bank data said it grew faster in 2010 and 11. My links are sound.

Hi again Grim23,

Thanks for your persistence.

This is worth working through. Because Australia will showcase stimulus versus austerity if there is a change of government.

Anyway, here’s why you are not convincing. Take the first link in your penultimate post:

“...basically three reasons for the success of monetary policy in the three countries:

1) Interest rates were initially high so the central banks of Sweden, Poland and Australia could cut rates without hitting the zero lower bound.

2) The demand for the countries’ currencies collapsed in response to the crisis, which effectively led to “automatic” monetary easing. In the case of Sweden the Riksbank even seemed to welcome the collapse of the krona.

3) The central banks in the three countries chose to interpret their inflation targeting mandates in a “flexible” fashion and disregarded any short-term inflationary impact of weaker currencies.

[end of quote]

This is just nonsense, Grim23.

Point one:

Sweden’s interest rate was 4.0 in 2007 – same as Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Israel, Italy, Luxembourg, Netherlands, Portugal, Slovakia, Spain and the USA.

Poland’s was 5.25 – same ballpark as Estonia, South Korea, Mexico, Norway and the UK.

Australia’s was 6.74 – similar to Hungary and New Zealand.

Others higher still – Brazil [11.25], South Africa [11.5], Iceland [14.04] and Turkey [15.96].

So having “interest rates initially high” does not distinguish Sweden, Poland and Australia in any way, does it?

Point two:

Demand for all of those currencies collapsed during 2008. If you are measuring value of the currency against the US dollar, they all took a hit. None was spared.

Again, nothing special about Sweden, Poland and Australia, is there?

Point three:

In what way did Sweden, Poland and Australia “choose to interpret their inflation targeting mandates” differently from other nations?

Is there evidence they did? Nothing apparent.

So can you see, Grim23, how these arguments are not really persuasive?

The function of econometrics is to identify which countries succeeded. And then determine on the evidence what they – or in this case it – did differently from everybody else.

Cheers,

AA,

What rubbish, you left out net federal debt in your list which is a very key indicator. Also unemployment. You included irrelevant measures such as the current account, and your claim that these are better than under Howard is also a lie. GDP growth under Howard was mostly pushing 4%.

Australia is clearly managed far worse than any time since Whitlam.

A debate over numbers is not that important, besides showing Austin's bias and flawed personality in the way he shapes his ordinary economic opinion pieces. I hope he will be answerable come judgement day for his flaws.

What matters is whether anyone, lay person or expert, actually thinks Labor knows what it is doing or is doing a good job. After all, that is how it works in a democracy.

Austin's type of argument may be more suited in authoritarian China where they can bombard society through the media with an elitist version of the facts, often propoganda.

Answer, no, not many Australians think Labor is any good

Ok, I haven't made this point very clear because I was describing things from a keyensian perspective rather than market monetarist.
Monetary policy is about two things; the relative supply and demand for money and expectations about future money supply and demand. Changes in monetary policy can be as discrete as a statement from an official at the RBA that shifts expectations, thats why it can be hard to see the true stance of monetary policy without looking much deeper into the data.

The best way to assess whether money is easy or tight is NGDP growth, relative to trend. On that basis, I don't know of any country that was better managed than Australia and I find it unlikely that even if fiscal stimulus did work, it could hit that target as accurately as the RBA did.

Interest rates are an extremely unreliable indicator of monetary policy, especially during unconventional circumstances and when comparing vastly different countries. So you have to look beyond interest rates to get a true picture of monetary policy.

Hungary, for example, has significant supply side problems due to political instability. The central bank also faces political pressure not to ease monetary policy
http://www.cato.org/blog/slumping-money-supply-not-austerity-plunges-hungary-recession
http://marketmonetarist.com/2011/10/20/please-help-mr-simor/

You cannot compare interest rates in countries with free floating exchange rates to countries with fixed exchange rates. Brazil and mexico both peg their currencies to the USD. They effectively import US monetary policy. Also, countries within the Eurozone share the same monetary policy, so they are not comparable either
http://marketmonetarist.com/2013/01/18/the-feds-easing-is-working-in-mexico/

When looking at interest rates you have to take it with a grain of salt. Low interest rates can signify that money has been tight (as in the US), but lowering interest rates as the RBA just did can reflect the liquidity effect of easier money. And short and long term interest rates can behave differently, depending on how great the change in the stance of monetary policy is.