No you don't live here any more and that begs the question; Which planet do you live on?

1. You agree with Brad Delong's quote which means you admit that an inflation targeting central bank will engage in full monetary offset. That means that the fiscal multiplier is zero.

2. In terms of "saving Australia from recession", inflation and unemployment are the only outcomes that matter. If you agree with the Brad Delong quote, I can't see how you can still claim that fiscal stimulus boosted aggregate demand and saved the economy.

Greetings,

@Shadow Minister, re: “You have only chosen the indicators that make Labor look good.”

No. Have looked at them all. Not all make Labor look good, but most do. The key indicators are impressive indeed, given the worst economic downturn since the 1930s.

Happy to discuss further.

@Grim23:

No, I’m not agreeing entirely with DeLong’s argument. But not rejecting it completely either. Could be his laws are like Newton’s on physics – they don’t always apply at the extremes.

I’m not sure about this, however, so would appreciate your further input.

Because here’s the thing:

The world faced extreme events in 2009. Most Western government were urged – in the words of Australia’s Ken Henry – to “go early, go hard and go households” with Keynesian stimulus.

Only one nation gave more than 3% of GDP directly to families, then followed that with rapid infrastructure spending, all the while keeping tax rates pretty much level. Poland came close, but was slower and allocated a smaller % of GDP.

Most other Western economies took the easy option of cutting taxes. And what funds they did hand out were allocated more slowly.

We know the outcomes. Australia and Poland alone in the OECD avoided two negative quarters. Australia and Poland recovered better than other nations, with Australia well ahead of Poland.

Countries which undertook more moderate stimulus – such as the USA, Canada and Mexico – still went into a technical recession, but are recovering better than those whose stimulus was weak and slow or non-existent.

No other variable explains Australia’s phenomenal success, does it?

Trade with China didn’t help the EU, Japan, Taiwan or South Korea.

Having surpluses and low debt didn’t help Spain, Finland, Iceland and Chile. Moreover, some countries which survived the GFC reasonably well went in with huge debts at the outset, including Israel, Switzerland and Singapore.

Having strong iron ore prices didn’t help Brazil or any other ore exporter.

Grim23, have you read anything Brad DeLong has written about Australia’s success? I’ve tried. No luck. Please provide links if you know of anything.

Thanks, Grim23.

Cheers,

I would say that most of the countries hit are in the Eurozone, so big fiscal stimulus in one country would work, because each country doesn't have its own monetary policy. Also, most central banks weren't brave enough to do unconventional stimulus when interest rates hit zero, so fiscal stimulus would have had some effect, as central banks were no longer really "aiming" to hit a target. Thats why there was some correlation

If you want some links, then the best blog for this is The Money Illusion.

Here's a post on monetary offset. Read point 6 in particular. Fiscal austerity is deeper in the US than the Eurozone, but monetary policy is easier. US is growing faster. Money wins. http://www.themoneyillusion.com/?p=21008

Here's a couple of posts about Australia, talking about the stable growth rate of NGDP. Australia has a much higher trend growth rate than other countries, which put us in a better position to start with.
http://www.themoneyillusion.com/?p=12985
http://www.themoneyillusion.com/?p=20684

Ultimately tight monetary policy causes slow NGDP growth, not financial crises or fiscal austerity, and only easy money can support faster NGDP growth, not fiscal stimulus.
Yes, fiscal stimulus can "work", but only because the central bank allowd it to. Do you really think the RBA would let Australia fall into recession? Particularly when they started off from a much better position than other central banks, with interest rates not even close to zero here. Monetary stimulus would have done the job anyway, without any waste or extra debt. That's why fiscal policy never "saved" us.
Here's some more posts discussing fiscal stimulus and monetary policy in general:
http://www.themoneyillusion.com/?p=874
http://www.themoneyillusion.com/?p=2512
http://www.themoneyillusion.com/?p=5776

Fiscal stimulus in unnecessary. Money always wins

Hi again Grim23,

Thanks for those links. Have now read them all.

Still believe the evidence is sufficient that fiscal stimulus was critical in saving those few economies – Australia most notably among them – from the devastations of the GFC.

I accept the points in those articles that monetary policy is significant, as are having a sound private banking system and other economic bulwarks. But the verifiable outcomes through the GFC really do not sustain the claim that fiscal intervention was neutral, or harmful, do they?

Would you agree, Grim23, that the ultimate test will come if, as now looks likely, there is a change of government in Australia?

Will the Coalition Government continue the program of targetted spending using low-cost borrowings and modest deficits which has made Australia’s economy the envy of the world? Or will it revert to selling off productive assets to overseas buyers as previously?

It will be intriguing to observe!

Cheers

Your argument simply isn't consistant with standard macro theory; the fiscal multiplier is zero under inflation targeting. Even keyensians like paul krugman, brad delong, michael woodford, ben bernanke, greg mankiw, frederik mischkin and christie romer will attest to that if interest rates are positive.
In Australia interest rates never got close to zero.

You argument does not support recent events, with no correlation between "austerity" and economic growth. Nor have you refuted any of the arguments made in the links.

While Australia recovered quite quickly, other nations have done better since. Germany is one example, where the fiscal stimulus was average but growth has been faster than Australia's since 2010.

There is still not sufficient evidence that Australia would not be in the same position were it not for the fiscal stimulus. I find it hard to believe that the RBA would have let Australia fall into recession without fiscal stimulus, nor do i doubt that it had the means to stabilise nominal GDP growth, especially with the fortunate position of positive interest rates.
I think the fact that we were the only country with interest rates which never went below zero is just as persuasive as your argument about the relative size of the stimulus. I think it is more persuasive given the wider context and evidence. I think your mistake is assuming that correlation implies causation.