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The Forum > Article Comments > Debt and deficit Downunder – a view from Europe > Comments

Debt and deficit Downunder – a view from Europe : Comments

By Alan Austin, published 30/4/2013

Australia's Prime Minister has just delivered a speech similar to that of most of her counterparts across the globe. Though with notably brighter news.

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But sometimes it is useful to compare interest rates across countries, especially if the two countries are similar. This link shows that while interest rates in new zealand were not that low, Australian monetary policy was still far superior.
http://thefaintofheart.wordpress.com/2011/02/24/australia-does-it-better/

This link shows how significant Poland's currency depreciation really was (comment section)
http://thefaintofheart.wordpress.com/2011/02/27/poland-didn´t-miss-many-beats/

Sweden also implemted a negative interest rate on bank reserves, after which its NGDP started to recover strongly.

For these reasons, you also can't easily compare fiscal policy across countries. The monetary conditions are too different, and cannot be assessed by variables like short term interest rates alone. The effects of fiscal stimulus will be completely different in Australia, where we have our own currency and high NGDP growth compared to most countries, to a country like France, which is part of the Euro and doesn't have its own monetary policy, or the US where NGDP growth was much slower before the crisis and interest rates are now zero (ok, 0.25%).

If interest rates in Australia got to zero, you might have a point, especially if our RBA was as inept at the zero lower bound as other central banks. Without fiscal stimulus, rates might have had to go a bit lower, but I have no doubt that in its absense the RBA would have been able to keep nominal GDP growing steadily, especially considering our fortunate starting position of having a high and stable NGDP growth rate, compared to other countries with similar income levels to ours.
Posted by Grim23, Thursday, 9 May 2013 12:51:20 PM
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Andrew Bolt summarises the achievements of this woeful government:

http://blogs.news.com.au/heraldsun/andrewbolt/index.php/heraldsun/comments/how_kenny_excuses_the_worst_government_in_living_memory/

Bolt quotes John daly:

“(Growth is) at 2.5 per cent, unemployment’s at 5.5 per cent—you know, this is about as good as it gets. If we’re not running a surplus at this point in the cycle, exactly when is it that we are planning to run one?”
Posted by cohenite, Thursday, 9 May 2013 1:11:58 PM
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"Andrew Bolt" ! As a source of information !!
Posted by Kipp, Thursday, 9 May 2013 2:02:22 PM
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Here's the final bit. I had to wait 2 hours to post it.

Macro isn't simple and straight forward. That's why I don't buy the argument that countries with bigger stimulus packages grew faster. It's too simplistic. That may be true for some countries, but for a country in the position that Australia and a few others are in, when you look at monetary policy before, during and after the crisis, it becomes perfectly clear that it is monetary policy, not fiscal policy, that explains the differences in nominal outcomes.
So if you look at the data closely, and examine the monetary policies of each country in its proper context, some countries do stand out. Sweden rebounded after imposing negative interest rates, Poland had a massive depreciation (but mostly trades with the heavily depressed eurozone, which would limit the effectiveness) and this link shows the effectiveness of Australia's monetary policy with respect to commodity prices
http://marketmonetarist.com/2012/11/19/the-export-price-norm-saved-australia-from-the-great-recession/

And that takes me back to the main point. Maybe not in countries with a fixed exchange rate (Eurozone, mexico), or countries with central banks unwilling to try appropriate unconventional mobetary stimulus (US, UK), but in a country in Australia's position, fiscal stimulus and inflation targeting are mutually exclusive!
Posted by Grim23, Thursday, 9 May 2013 2:49:22 PM
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Greetings all,

@Grim23, thanks for continuing. It’s important.

Are you sure you understand what Krugman, Stiglitz, Quiggin and others are actually saying about Australia?

They observed the easily measurable outcomes through the global financial crisis: only one negative quarter – alone in the OECD except for Poland. Plus extraordinary outcomes across the variables.

As Shadow Minister and I have been discussing, Australia is now – during the worst downturn since the Great depression – as well-placed as or better-placed than in 2007 after the boom years on all these:

1. income – GDP/person
2. GNI income per person
3. income disparity
4. interest rates
5. inflation
6. people employed
7. job participation rate
8. personal tax rates
9. company tax rate
10. superannuation
11. health care
12. pension levels
13. personal savings
14. productivity
15. current account deficit
16. current account deficit as a % of GDP
17. international credit ratings
18. economic freedom
19. value of the Aussie dollar cf the US$
20. value of the Aussie dollar cf the euro
21. value of the Aussie dollar cf the UK pound
22. balance of trade
23. industrial production growth
24. foreign exchange reserves
25. overall quality of life

All measurable.

The Keynesians then point to the dollar value of the stimulus packages which did the trick: $10.4 billion in October 2008. Another $4.7 billion in December 2008. A further $41.5 billion to infrastructure and jobs in February 2009. Finally, the 2009 budget allocated $22.5 billion.

Their argument is quite transparent. Australia had the world’s biggest stimuli – and it gained the best outcomes. Simple and sound. No?

I have read our responses here, Grim23 and several of your links, but have found nothing there which either refutes the Keynesians’ argument, or which advances a more plausible alternative explanation.

When you say, “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,” what is the data on which this is based?

Thanks. Grim23. Cheers,
Posted by Alan Austin, Thursday, 9 May 2013 3:54:49 PM
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Kipp!? Stupid comment!

The point about Bolt was to point out to dear Alan about the deficit and to once again show that Bolt is a good journalist.

Anyway one has only to bypass the journalists and listen, if you can stomach it, to the conga line of government ministers breaking Gillard and Swan's promises pre-election.

Combet was the latest declaring the collapse of the carbon price in the European Zone, to which these idiots have tied Australia, was a good thing since it would mean compliance with carbon levels would be cheaper.

Wong was on the other night explaining away promised compensation because there was no revenue from the CO2 tax to fund it.

You couldn't make this stuff up.

What dear Alan can never undertsand is the simple fact that whatever good condition prevails in Australia now is DESPITE the incompetence of this gang.

And since Kipp doesn't like Bolt my final advice to those who read dear Alan's exhortations for the Gillard rabble is remind them of what Chico said:

"Who are you going to believe me or your own eyes?"
Posted by cohenite, Thursday, 9 May 2013 6:59:40 PM
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