Giv­ing the Bird to the Stim­u­lus?

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Peter Mar­tin reports in The Age today that Pro­fes­sor Ron Bird of UTS has weighed into the debate over the Rudd stim­u­lus pack­age. Pro­fes­sor Bird claimed that the stim­u­lus was far less impor­tant than our strong econ­omy prior to the cri­sis, and the sec­ondary effect on our exports of stim­u­lus pack­ages under­taken else­where.

”The posi­tion we find our­selves in today is more due to our strong eco­nomic posi­tion going into the cri­sis and the mas­sive stim­u­lus pack­ages under­taken by our trad­ing part­ners,” Pro­fes­sor Bird says. ”The gov­ern­ment can take lit­tle or no credit for either of these, a point it (and our learned aca­d­e­mics) con­ve­niently for­get.” (Peter Mar­tin, “Reserve Bank back­ing for stim­u­lus”, The Age August 18 2010)

Ron is in effect mak­ing an appeal to the facts over sim­ple asser­tion, but a care­ful look at the data shows that the facts sup­port the let­ter sig­na­to­ries, and not Bird’s rejoin­der.

His first point, that Aus­tralia had a “strong econ­omy going into the cri­sis”, is just waf­fle: every­one appeared to have a strong econ­omy going into the crisis—that’s why most econ­o­mists were com­pletely blind­sided when the cri­sis actu­ally occurred.

Remem­ber that the OECD con­cluded that things were rosy across the globe in June 2007, just before the cri­sis hit?:

the cur­rent eco­nomic sit­u­a­tion is in many ways bet­ter than what we have expe­ri­enced in years. Against that back­ground, we have stuck to the rebal­anc­ing sce­nario. Our cen­tral fore­cast remains indeed quite benign…” (OECD Eco­nomic Out­look June 2007).

His sec­ond point is sim­ply wrong on the data. If it were true that the rest of the world had saved us rather than our­selves, then West­ern Aus­tralia and Queens­land would have dragged us out of the slump, and our trade­able prod­uct indus­tries would have risen most while non-trade­ables would have lagged.

That is the exact oppo­site of what you find when you look at the data—something Ron clearly didn’t do before he wrote his rejoin­der. The State that dragged Aus­tralia out of the slump was Vic­to­ria, and the indus­tries that did it were the non-trade­ables that were the most direct ben­e­fi­cia­ries of the Rudd Stim­u­lus.

Aus­tralia began to lose jobs in Jan­u­ary 2009, and the cri­sis was at its most severe in March, when employ­ment was falling at a rate of 80,000 jobs a year. We got back to zero job losses in August—a stun­ningly fast turnaround—and at that point the only State with ris­ing employ­ment was Vic­to­ria. WA and Queens­land were still shed­ding jobs at a rate of 9,000 jobs a year at that point.

Drilling down into Victoria’s num­ber shows that most of the indus­tries that led the charge out of reces­sion had very lit­tle to do with trade, and a lot to do with the stim­u­lus: the biggest boomer was Pro­fes­sional employ­ment (24 thou­sand jobs), where either trade or the stim­u­lus could be the cause, but the next four biggest movers are all clearly non-trade­ables: Retail (23000), Finance (21000), Edu­ca­tion (15000), and Health (14000).

Vic­to­rian Employ­ment Growth by Indus­try March-Decem­ber 2009


Growth Per­cent



















Accom­mo­da­tion & Food






Infor­ma­tion Tech­nol­ogy






Real Estate


















Other Ser­vices



Total Vic­to­ria



Total Aus­tralia



Only once employ­ment was ris­ing again did the resource states and export indus­tries really kick in—but even then, the main dri­vers of employ­ment growth across the coun­try were the non-trade­able indus­tries that ben­e­fited most from the stim­u­lus. The largest sin­gle numer­i­cal increase was still in Pro­fes­sional employ­ment (79000), but the next five (Accom­mo­da­tion and Food Ser­vices 49,000; Health 47,000; Con­struc­tion 30,000; Edu­ca­tion 29,000; Real Estate 23,000) are clearly dri­ven by the gov­ern­ment stim­u­lus package–including part of the pack­age that I am crit­i­cal of, which I pre­fer to call the First Home Ven­dors Boost. The export-ori­ented Min­ing and Agri­cul­ture sec­tors share effec­tive sev­enth place in the expan­sion at 20,500 each.



Growth Per­cent



















Accom­mo­da­tion & Food






Infor­ma­tion Tech­nol­ogy






Real Estate


















Other Ser­vices



Total Vic­to­ria



Total Aus­tralia



So the facts sup­port the let­ter sig­na­to­ries and not Pro­fes­sor Bird. It isn’t the case that we con­ve­niently for­got some impor­tant facts—since they were clearly on our side—but that those mak­ing the case against the stim­u­lus have sim­ply failed to check the facts.

Finally, let’s get real here: this whole debate is being dri­ven by the pseudo-con­flict between Labor and Lib­eral over the econ­omy. Frankly, if the Lib­er­als had been in power, they would have reacted in much the same way that the Labor Party did, and fol­lowed the same advice from Ken Henry: “Go early, go hard, and go house­holds”.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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  • TruthIs­ThereIs­NoTruth

    just read the link posted by AK,

    BIB — you waste a lot of effort in form­ing argu­ments based on a sen­sa­tion­al­ist bias and selec­tive and unin­formed inter­pre­ta­tion of the facts avail­able to you. I gave you an oppor­tu­nity to under­stand this issue in more detail but it is under­stable that you would ignore it as it is a niche audi­ence not the objec­tive truth which you are seek­ing.


    Hi ak,

    Ok. You do not wish to offer any sug­gested eco­nomic solu­tions to the con­cerns dis­cussed here, specif­i­cally, pri­vate debt lev­els and the hous­ing bub­ble. That much is clear.

    > What if the answer about the spin is very sim­ple – YOU stop writ­ing irre­spon­si­ble pieces and we will see what hap­pens…

    If I’m under­stand­ing you cor­rectly, then:

    (a) Stop­ping the spin on eco­nom­ics is the cir­cuit-breaker — it would auto­mat­i­cally fix every­thing.

    (b) Your only sug­gested solu­tion so far to stop­ping the spin, is for one blog­ger (me) to stop blog­ging.

    Do you have a real­is­tic solu­tion to stop­ping all the other eco­nomic (mis)information that you don’t agree with, from a “whole indus­try man­u­fac­tur­ing con­ser­v­a­tive, lib­eral and “new labour” lies, often based on the “sci­ence” of neo­clas­si­cal eco­nom­ics”?

    I am gen­uinely inter­ested in hear­ing prag­matic, real­is­tic sug­gested solu­tions to these var­i­ous prob­lems, from those with far greater knowl­edge than I on the top­ics.

    To date, I’m not hear­ing any from reg­u­lar blog­gers here… only from Steve.

    Instead, all I’m hear­ing is bleat­ing and moan­ing, and the­o­ret­i­cally / ide­o­log­i­cally-dri­ven crit­i­cism of oth­ers.. with no prac­ti­cal solu­tions pro­ferred for dis­cus­sion and con­sid­er­a­tion.

    hi TITINT,

    re #149

    >I am inter­ested to read what a per­son liv­ing in one the wealth­i­est coun­tries in the world con­sid­ers to be grave eco­nomic con­cerns.

    Finan­cial sys­temic col­lapse. Sky rock­et­ing unem­ploy­ment. Civil unrest. Star­va­tion and home­less­ness.

    Sim­ply, all those spec­tres that ak and oth­ers have raised, and that we see going on abroad right now, as real­is­tic poten­tial con­se­quences of the sit­u­a­tion in which we find our­selves.

    re #151,

    >…it is a niche audi­ence not the objec­tive truth which you are seek­ing.

    Objec­tive truth”? 

    You’ll for­give me for con­sid­er­ing that a bit rich, com­ing from some­one boast­ing the screen name, “TruthIs­ThereIs­NoTruth”.

  • Hey guys,

    I think tem­pers are get­ting a bit over­heated here. I know you all (per­son­ally, as it hap­pens with this exchange), and you’re all very decent peo­ple. You all are seek­ing objec­tive truth–it’s just your start­ing points, def­i­n­i­tions and logic that dif­fer.

    I think it’s time you three took a bit of a break from the key­board, took some deep breaths, and relaxed a bit.

  • TruthIs­ThereIs­NoTruth

    Sorry Steve my com­ments are not ill tem­pered, and I think Barn­aby is a good sport.

    in reply:

    Finan­cial sys­temic col­lapse. Sky rock­et­ing unem­ploy­ment. Civil unrest. Star­va­tion and home­less­ness.” — sen­sa­tion­al­ist or not if it hap­pens in Aus­tralia you’ll be made a prophet.

    Objec­tive truth”? 

    You’ll for­give me for con­sid­er­ing that a bit rich, com­ing from some­one boast­ing the screen name, “TruthIs­ThereIs­NoTruth”.

    Love a good para­dox, one must seek the truth that doesn’t exist, it is the approach not the des­ti­na­tion which is impor­tant.

  • johnyh

    gday steve
    i can under­stand the benifits of gov­ern­ment tak­ing on pri­vate debt by way of stim­u­las or nation build­ing or more beau­ro­c­racy.
    and i agree with com­ments that it will reduce the symp­toms of over extended soci­ety
    but what effect will that have on the pri­vate sec­tors phi­los­o­phy toward debt?
    surely it would encour­age the same men­tal­ity that has dri­ven up the bub­ble and threaten a free and sover­iegn soci­ety?
    what in your mind would bring about a long a sus­tain­able period of pros­per­ity for all, not sim­ply wealth trans­fer or boom for some?

  • johnyh

    i should say that i like the idea of nation build­ing just not stim­u­las or more beau­ro­c­racy…


    Hi Steve,

    I fully con­cur with TITINT’s com­ment — no feel­ings of ill-tem­per on my part either. I apol­o­gise to any who may have received that impres­sion from my posts. I have no rea­son to doubt that all par­tic­i­pants here have gen­uine con­cerns, and good and well-mean­ing inten­tions.

    Hi TITINT,

    Thanks for the “good sport” com­ment.. like­wise.

    Just fwiw, I’m hon­estly a bit bemused that you con­sider my com­ments quoted above to be “sen­sa­tion­al­ist”. The first is widely con­sid­ered to have very nearly occurred in late 2008. The sec­ond and third are hap­pen­ing in other devel­oped nations. And the forth is hap­pen­ing every­where. Even here, in Aus­tralia. I see noth­ing “sen­sa­tion­al­ist” or prophetic about point­ing out these real­i­ties abroad, and ask­ing if oth­ers have solu­tions to avoid the same occur­ring again / here.

    And in good-natured riposte to your last para­graph, I can’t help but be reminded of that Talk­ing Heads lyric, “We’re on a road to nowhere”.

    Cheers mate 😉

  • BrightSpark1

    On the issue of sky­rock­et­ing unem­ploy­ment if it where hap­pen­ing here how would you know? the ABS def­i­n­i­tion is a joke. It prob­a­bly is worse that the aver­age for the great depres­sion but social secu­rity is much bet­ter now so it would not seem as bad. 

    My father told me of his expe­ri­ence of the GD but admit­ted he knew no one who had absolutely no work, while most of the peo­ple he knew only had two or three days per week of employ­ment. In other words he knew no one who would have been unem­ployed by the ABS def­i­n­i­tion. I know sev­eral peo­ple who are unem­ployed right now, even by the ABS def­i­n­i­tion.

  • ak


    The abysmal level of the pub­lic debate in the most of the West­ern democ­ra­cies is in my opin­ion a result of the so-called “post­mod­ernism” that is the rejec­tion of the idea of the objec­tive truth. 

    Con­vinc­ing any­body is a waste of time, peo­ple should only be manip­u­lated.

    Seems to me that some of our ultra-con­ser­v­a­tives have been very flex­i­ble in regards to assim­i­lat­ing this idea. 

    Maybe because of that:

    Only when the real­ity bites hard peo­ple may realise that mar­ket­ing does not replace the real­ity.

    I have been inoc­cu­lated to the mod­ern “mar­ket­ing” by being exposed to com­mu­nist pro­pa­ganda but a lot of peo­ple born and raised in Aus­tralia don’t even under­stand what I am talk­ing about. 

    Mar­ket­ing is an essen­tial part of mod­ern life, the truth has been com­modi­tised as every­thing else. This is the foun­da­tion of the mod­ern cap­i­tal­ism which is based on over­con­sump­tion. With­out the debt-fuelled over­con­sump­tion the sys­tem may col­lapse. (Unfor­tu­nately the envi­ron­ment is an objec­tive con­straint to over­con­sump­tion so the sys­tem WILL col­lapse regard­less of what Mr. Abbott and the oth­ers think about the gree­nies UNLESS we change our colec­tive behav­iour).

    I know that peo­ple often claim that we actu­ally don’t know any­thing so they can say every­thing they want and it really doesn’t mat­ter.

    I dis­agree.

    Cer­tain state­ments made by our politi­cians espe­cially in regards to the state of pub­lic finances were plain lies not rel­a­tive inter­pre­ta­tions.

    Neo­clas­si­cal eco­nom­ics is a very use­ful tool in manip­u­lat­ing peo­ple.

    I have given sev­eral exam­ples already — for exam­ple what’s the dif­fer­ence between “wast­ing” $1bln by the Gov­ern­ment on the Key­ne­sian stim­u­lus and wast­ing the same amount of money by the pri­vate sec­tor on buy­ing use­less stuff? 

    Crowd­ing out? Costs of bor­row­ing? Higher taxes? 

    What if that stim­u­lus saved jobs? Again we may argue whether this could have been imple­mented in a bet­ter way, maybe money should have been spent on reduc­ing our envi­ron­men­tal foot­print. But we should not dis­pute the obvi­ous things men­tioned in the let­ter signed by Steve.

    Will we be “free” if we purge our brains from all this post­mod­ern rub­bish? Prob­a­bly not. Peo­ple in the 1950-ties were not free. We will always be tainted because we are humans. I am tainted as well. 

    But I would keep try­ing. We may see our real prob­lems a bit ear­lier when we are a bit less brain­washed. We will be able to com­mu­ni­cate and argue again about real issues not about who is a bet­ter game.


    Hi ak,

    re #159, I agree with pretty much every­thing you’ve said here.

    And fwiw, my sin­cere apolo­gies to you if my ear­lier ques­tions and chal­lenges came across as con­fronting or unfriendly — cer­tainly not intended.

    Cheers mate.

  • ak


    I need to apol­o­gise to you as well because I mis­read your inten­tions and I responded to your ques­tions as if they were per­sonal attacks.



    Re #158 and dodgy unem­ploy­ment fig­ures, this might inter­est you:

  • ak


    what in your mind would bring about a long a sus­tain­able period of pros­per­ity for all, not sim­ply wealth trans­fer or boom for some?”

    This is the key ques­tion which has not been answered yet. 

    Steve has put for­ward some ideas which are worth con­sid­er­ing — lim­it­ing the size of mort­gage loans and redefin­ing com­pany shares so they are more like bonds redeemed after cer­tain period of time at a nom­i­nal price.

    I agree that just com­pen­sat­ing for (S-I) gyra­tions by increas­ing (G-T) may be a short-term strat­egy. It may be bet­ter than allow­ing for an unchecked defla­tion but even­tu­ally some neg­a­tive con­se­quences would be inevitable.

    Let me be clear. Mon­e­tarists and neo­clas­si­cals claim that we can’t increase (G-T) or that it will not be ben­e­fi­cial to the level of the real GDP. MMT the­o­rists have shown that we can do that. In this regards I fully agree with the MMT.

    But the root cause of the insta­bil­ity seems to be replac­ing the M-C-M+ cycle by gen­er­at­ing income just by the stock of M (M-M+ cycle) either on inter­ests or by spec­u­la­tion. MMT has not offered a direct solu­tion to this prob­lem.

    This must be analysed at a dis­ag­gre­gated level because some groups of peo­ple save while other groups either invest or con­sume more by bor­row­ing (and the over­all stock of debt is grow­ing).

    The Aus­tri­ans have sort-of cor­rectly iden­ti­fied the prob­lem (as related to the boom not bust phase) but their solu­tion is unwork­able as they want only the mar­kets to deter­mine the price of money — with­out any dis­tor­tions from the state. This means that other ele­ments of the social pol­icy imple­mented by the state would have to as well. I don’t want even to imag­ine liv­ing in an Aus­trian soci­ety.
    It has not been proven that this sys­tem is sta­ble or that would not very effi­ciently destroy the envi­ron­ment.

    Mar­ket social­ism is based on manip­u­lat­ing (S-I) using direct and indi­rect meth­ods by the state while pri­vate prop­erty rights exist but are more lim­ited than in West­ern cap­i­tal­ism. They also use (G-T) lever. So far this sys­tem has shown cer­tain ben­e­fits in China but it may be dif­fi­cult to imple­ment it in the West­ern soci­eties.

    I ordered a book which may help me under­stand this process. For now this is pretty much all I know.

  • BrightSpark1


    Thanks for that.


    You all seem to be ignor­ing what I con­sider to be the ele­phant in the room and under the car­pet the trade and cur­rent account debt and imbal­ance. It seems that on this forum this is only of con­cern to myself and out­back ora­cle.

    This imbal­ance is forc­ing for­eign credit onto the banks and it doesn’t mat­ter if it is writ­ten in AUD or a for­eign cur­rency it can only really be repaid in the for­eign cur­rency. Remem­ber we have needed not only to con­tin­u­ally roll over this debt but we have needed to bor­row more for 50 years. With all but min­ing of our real wealth cre­at­ing capa­bil­i­ties destroyed our abil­ity to pay our way is con­tin­u­ally dimin­ish­ing (now almost gone).

    Maybe some­body on this forum can explain how the pro­por­tion of the Aus­tralian cur­rency which is accepted by the banks for cur­rency con­ver­sion but, is unwanted by for­eign banks (because we have noth­ing more that the for­eign coun­try wants to buy) is han­dled by the Aus­tralian banks (a sum equal to the CAD). As I see it the banks can (and need to) treat this as deposits and use it for local lend­ing, for lever­aged Ponzi style invest­ments by local “investors”, that is if they can bor­row the required amount of for­eign cur­rency from the for­eign banks. 

    But are the banks now forced to buy Aus­tralian trea­sury bonds to pass on to the for­eign banks. The stim­u­lus leg­is­la­tion autho­rised the issu­ing of 300 bil­lion AUD of trea­sury bonds, a fact which was ignored by all. It seems that gov­ern­ment trea­suries may be more accept­able to the for­eign banks than the local banks’ Bills? Surely this would be shift­ing the banks risk onto the Aus­tralian gov­ern­ment mak­ing them Gov­ern­ment spon­sored pri­vate enter­prise. If this is hap­pen­ing it is wrong the banks should be per­mit­ted to fail, but if we as tax pay­ers are under­writ­ing the banks in some way should these “free enter­prise” banks not be pay­ing in a big way for our sup­port? Should they be nation­alised? Who is now car­ry­ing the risk?

    Mean­while the banks have mostly passed the inter­est bur­den for this for­eign bor­row­ing on to home buy­ers and oth­ers for Ponzi financ­ing and their costs of ser­vic­ing this debt must be ris­ing above the cash rate to the extent that they will need to raise inter­est rates even if the RBA does not raise the cash rate.

    We should be dis­cussing our fifty years of oper­at­ing a suc­cess­ful cargo cult and start con­sid­er­ing the con­se­quences.

  • ak


    I agree with some of your obser­va­tions espe­cially in regards to de-indus­tri­al­i­sa­tion how­ever some aspects of the Cur­rent Account Deficit are less dan­ger­ous if the coun­try has a polit­i­cal sys­tem min­imis­ing for­eign influ­ence (and the influ­ence of the inter­est groups) on the deci­sion-mak­ing process. 

    I am not sure whether this is the case look­ing at the way both Mal­colm Turn­bull and Kevin Rudd were polit­i­cally assas­si­nated prob­a­bly by the same lobby.

    Can you read between the lines?

    Dis­claimer: I am not a sup­porter of the ETS.

    I may com­ment more later as you have high­lighted a few very inter­est­ing points.

  • sj

    Gloves are off Tony Abbott is the great­est oppo­si­tion leader even seen in Aus­tralian his­tory Abbotts tak­ing on the Trea­sury Depart­ment the greedy clowns who push for the first home buyer grant to keep the econ­omy going.
    Steve Keen him­self warn the Hous­ing Min­is­ter against putting young naive Aus­tralians into big debt.
    Trea­sury Depart­ment must be held account­able.
    Julia Gul­liard only believes in one thing POWER and Mr Abbott really has some steel believes in a chris­t­ian civil­i­sa­tion
    Blood,sweat,toil and tears.
    Bring on defla­tion.

  • justme

    hi all,
    have been read­ing here for a cou­ple of years now — every time I think I have my head around it i find I don’t!
    based on the idea that we are a few months behind the US (and pos­si­bly the UK/europe?) wouldn’t we expect inter­est rates to start going down over the next year or so?
    If not, can some­one tell me why our debt prob­lems are sim­i­lar to US/UK and our prop­erty mar­ket appears to be fol­low­ing their lead (demise, albeit very slowly, and our offi­cial inter­est rate is going … up? (or is it down?)

  • ak


    Gloves are off Tony Abbott is the great­est oppo­si­tion leader even seen in Aus­tralian his­tory Abbotts tak­ing on the Trea­sury Depart­ment the greedy clowns who push for the first home buyer grant to keep the econ­omy going.”

    are you refer­ring to this?

    HOME own­ers and renters strug­gling to pay bills would be handed vouch­ers under the Coalition’s hous­ing pol­icy, poten­tially mark­ing a rad­i­cal shift away from state-pro­vided accom­mo­da­tion to direct sub­si­dies of pri­vate home own­er­ship.”

  • sir­ius

    I am post­ing this sim­ply because it men­tions “the bird” (what­ever that means)…

    I’m 54 years old and am fore­clos­ing. I’ll de dead and gone before my home returns to it’s orig­i­nal sales price. I see Fan­nie Mae/Mack as crim­i­nal in that they knew exactly how their fraud­u­lent loans would effect the nation. I have no guilt or embar­rass­ment. I am sim­ply happy that my attor­ney pro­tected me from future harass­ment by those very men in Fan­nie Mae/Mac who took $90 mil­lion in bonus money. I also laugh out loud when I think of the look on their faces when Amer­i­can home own­ers shot them the bird!!!

    Com­ment from…

  • sj

    Hi Ak
    Thanks for the link.
    Inter­est­ing that the Trea­sury Depart­ment can­not do a bud­get cost­ing of this voucher idea?
    Trea­sury Depart­ment likes a big bang for their buck giv­ing large first home buyer grants increases the debt and thus keeps the ponzi scheme econ­omy going.
    The voucher idea maybe bet­ter stops suck­ers get­ting into big debt.
    Tony Abbott does not want to be in power under a weak gree­nie agenda bring on a new elec­tion as soon as pos­si­ble.
    If Tony Abbott does get in power he may go after the Trea­sury Depart­ment with a base­ball bat for putting many naive Aus­tralians into unsus­tain­able debt.