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
Indus­try

Growth

Growth Per­cent

Agri­cul­ture

8,026

9.8%

Min­ing

978

9.4%

Elec­tric­i­ty

-5,953

-16.9%

Con­struc­tion

-8,366

-3.7%

Whole­sale

5,029

4.4%

Retail

22,724

7.8%

Accom­mo­da­tion & Food

996

0.6%

Trans­port

-6,782

-4.7%

Infor­ma­tion Tech­nol­o­gy

-1,236

-1.9%

Finance

21,275

22.4%

Real Estate

-1,631

-4.6%

Pro­fes­sion­al

24,157

12.2%

Admin­is­tra­tion

7,456

8.5%

Edu­ca­tion

14,673

7.4%

Health

13,718

4.8%

Arts

-2,276

-3.6%

Oth­er Ser­vices

-704

-0.7%

Total Vic­to­ria

70,005

2.6%

Total Aus­tralia

62,953

0.8%

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.

Indus­try

Growth

Growth Per­cent

Agri­cul­ture

20,503

5.7%

Min­ing

20,659

13.0%

Elec­tric­i­ty

-7,923

-5.5%

Con­struc­tion

29,935

3.0%

Whole­sale

11,759

3.0%

Retail

-32,859

-2.7%

Accom­mo­da­tion & Food

49,279

6.9%

Trans­port

-2,513

-0.4%

Infor­ma­tion Tech­nol­o­gy

-7,753

-3.5%

Finance

-1,982

-0.5%

Real Estate

23,287

13.4%

Pro­fes­sion­al

78,640

10.4%

Admin­is­tra­tion

15,609

4.4%

Edu­ca­tion

28,853

3.6%

Health

47,060

4.0%

Arts

-13,156

-6.2%

Oth­er Ser­vices

17,641

4.0%

Total Vic­to­ria

109,894

4.1%

Total Aus­tralia

158,710

2.1%

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”.

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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.