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The Forum > Article Comments > The power of the Murdoch media to manipulate > Comments

The power of the Murdoch media to manipulate : Comments

By Alan Austin, published 30/8/2013

Murdoch's economists are more numerous, better writers and by virtue of their broader reach have greater influence.

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Rhian,

I think the surge in the stock market and the bullish sentiment coming from the business community shows that the economy is well rid of the Labor shackles.
Posted by Shadow Minister, Tuesday, 10 September 2013 12:30:38 PM
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Hi Rhian,

Re: “A temporary, cyclical, deficit is an appropriate response to a recession. A persistent structural deficit is not.”

Correct.

Henry Ergas is only wrong in asserting Labor’s failings led to the structural deficit. The Parliamentary Budget Office points also to taxation blunders during the Howard years, including freezing the indexation of petrol excise and cutting tobacco excise receipts.

Some add cutting income taxes to the rich.

Re: “Your article attacks the proposition that the China factor helped Australia escape recession.”

It helped, Rhian. Have always said that. But there’s no evidence it was critical in restoring growth and jobs after the 2008 Q4 crash.

The analysis of Stiglitz, Krugman, the IMF and others – that the initial shock stimulus in 2008–09 was vital – still seems most plausible.

Re: “The overwhelming weight of evidence, and authoritative commentaries, disagree with you.”

Not at all. Mainstream media in Australia asserts trade with China was critical. But where is their theoretical framework and empirical evidence? It’s an assertion. You are a rare analyst, Rhian, in that you’ve actually checked other nations for evidence.

Who else has done this?

Re, “The effects depend on what they export and where they export to. Why on earth do you expect these to be uniform across commodity exporters?”

No expectation of uniformity, Rhian. Simply an expectation of correlation – if the theory is valid that this saved Australia.

There is no observable correlation. Some nations with strong exports to China did well. Others fared poorly.

Re: “You are trying to reduce a complex multifaceted story … to a single, shared, explanatory variable.”

Not at all. Just recognising that the weight of empirical evidence actually does validate the theoretical model of Stiglitz, Krugman, Treasury and Finance.

Re: “The data I have laid out – on Australia’s export growth, terms of trade growth, and mining investment growth – prove conclusively that the Chinese/resource factor was very significant in helping Australia to escape recession ...”

Pretty sure I understand your case, Rhian. But the overall evidence still seems far stronger for the early hefty stimulus argument.

Cheers,

Alan
Posted by Alan Austin, Tuesday, 10 September 2013 5:15:41 PM
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Where have Stiglitz, Krugman or Treasury said China was not significant in Australia’s economic performance during/after the GFC?

Of course Labor is responsible for its structural deficit. The whole point of a structural budget balance is that it abstracts from the economic cycle. One can argue Howard should have maintained larger surpluses, but you cannot hold him responsible for Labor’s deficits.

You say there’s no empirical evidence that China helped to sustain growth once the worst of the GFC is over. That is nonsense. Between December 2008 and June 2013:

- Quarterly exports to China rose from $8.3 billion to $23 billion
- Quarterly business investment in the mining sector rose from $10.1b to $24.1b

This paper shows that Chinese demand saved Australia from recession:
http://epress.anu.edu.au/wp-content/uploads/2011/08/ch035.pdf

Try running a regression on the IMF and CEIC data on export growth to China and GDP growth in the past 5 years. There is a significant positive correlation.

The parts of Australia most exposed to the China resources boom have performed far better than the national average. By far the most mining-reliant State is WA. In the past five years WA has experienced:
- the highest wage levels
- the fastest wages growth,
- the fastest economic growth (so it has overtaken NSW and the ACT to have Australia’s highest per capita Gross State Product),
- the largest export growth,
- the largest business investment growth,
- the lowest unemployment rate,
- the highest growth in retail sales, and
- the second fastest employment growth (after the NT).

WA contributed $47b of Australia’s $66b growth in exports between 2007-08 and 2012-13 (71%). Of that $66b national growth, $51b (77%) was to China; and of this, $37b (72%) came from WA. WA contributed $37b (72%) of the growth in Australia’s exports to China between 2007-08 and 2012-13. WA. In 2012-13 WA’s total exports were $116 billion, or 47% of Australia’s total exports of $247 billion – more than NSW, Qld and Vic combined.

If China and resources are unimportant, how do you explain WA’s extraordinary economic performance compared to the rest of Australia?
Posted by Rhian, Tuesday, 10 September 2013 8:10:09 PM
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Hi again Rhian,

No-one says “trade with China was not significant in Australia’s economic performance during/after the GFC.”

Definitely a positive. It aided Australia’s growth from 2001 onwards. But it wasn’t critical in getting Australia back into growth and stemming the rise in the jobless – alone in the OECD with Poland – after the 2008 negative Q4.

Stiglitz says this:

“Kevin Rudd, who was prime minister when the crisis struck, put in place one of the best-designed Keynesian stimulus packages of any country in the world. He realized that it was important to act early, with money that would be spent quickly … Rudd’s stimulus worked: Australia had the shortest and shallowest of recessions of the advanced industrial countries.”

Re: “One can argue Howard should have maintained larger surpluses, but you cannot hold him responsible for Labor’s deficits.”

Howard should have left net cash in the bank between 45% and 60% of GDP – instead of the miserable 7.29% [IMF data]. Then Australia would never have been in structural or cyclical deficit.

Re: “You say there’s no empirical evidence that China helped to sustain growth once the worst of the GFC is over.”

No, we don’t. It helped sustain continual growth from before 2001 to the present. But it was not the vital factor in saving Australia from deep recession in 2008.

Remember, Rhian, Australia was not the sole beneficiary of China’s largesse. Other exporters to China include Hong Kong (54.1%), Taiwan (27.1%), Japan (18%) and South Korea (24.4%) – all of which suffered between two and five negative quarters when the GFC hit.

Not sure Creina Day’s paper proves much, Rhian. How is it possible to argue with a straight face that the Keynesian stimulus was so fantastic in China that it even saved its trading partners – yet the direct Keynesian stimulus in Australia didn’t?

Happy to unpack the flaws in that research further, if you wish, Rhian.

It confirms the point on which you and I agree – that China trade is positive. But doesn’t show it was more significant than Australia’s direct stimulus.

Cheers,

AA
Posted by Alan Austin, Wednesday, 11 September 2013 9:16:01 PM
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Hi Alan

Glad to see you finally admit trade with China was significant in Australia’s recent economic performance. You have consistently denied this in recent articles and posts.

Day’s paper says nothing about the Australian stimulus package. Its only purpose is to examine the effect of China’s demand, which it concludes was sufficient to prevent Australia falling into recession. I doubt Day maintains it is the only thing that helped us avoid recession. I certainly don’t.

Whether Howards should have left office with a higher net structural surplus is debatable, but unless you can argue that this caused Labor’s deficits, which of course you can’t, then it is irrelevant to our discussion
Posted by Rhian, Thursday, 12 September 2013 11:35:17 AM
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Alan,

You really are out of touch with reality. Your comment "Howard should have left net cash in the bank between 45% and 60% of GDP – instead of the miserable 7.29% [IMF data]." forgets that federal tax revenue was about 22-25% of GDP, and so a savings of 60% would be nearly 3 year total tax revenue.

+7.29% over 11 years is one hell of a lot better than the -14% left by Labor.

Secondly, Australia was never in danger of a deep recession. With zero stimulus the recession would still have been far slighter than anything experienced in the EU, and with a fraction of the stimulus the economy would still have avoided recession, and the huge debt we have now. One of the reasons that Labor was thrashed at the election was that the stimulus that was spent was spent badly giving far less stimulus per $ than expected, delivering almost no value in infrastructure, and continuing long after the need for stimulus had disappeared.

Labor's legacy is inter generational debt, a bloated bureaucracy, and a collection of costly, ill considered and partially completed monuments to ideology.
Posted by Shadow Minister, Thursday, 12 September 2013 1:42:34 PM
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