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2010-08-12

What saved Australia from a recession?

There are different claims of what has or have saved Australia from a recession in 2009. The government has been saying it was its stimulus packages that did the work, while some others argue the government's packages played a minor role. There is also the fact there have been some wastes in the government's programs as a part of those packages.

The government has been supported by Treasury and some big names including Joseph Stiglitz, a Nobel Prize winner in economics professor and former World Bank chief economist.

On the other hand, there are also well known and respected economists and people who have argued against the government's claim, including economics Professor Warwick Mckibbin - a board member of the Reserve Bank of Australia since 2001, and history Professor Niall Ferguson of Harvard University.

The following is a link to Professor Niall Ferguson's article on the Australian (online): "ALP's knight is a thief in rusty armour", 12/08/2010,

http://www.theaustralian.com.au/news/opinion/alps-knight-is-a-thief-in-rusty-armour/story-e6frg6zo-1225904126639

Of course it is debatable and involves judgment.

I personally, however, tend to agree with the nay side.

PS: the first few paragraphs of Niall Ferguson's article are as follows:
TO a visitor's ears, there's something very Australian about using the acronym "GFC" to refer to the biggest global financial crisis since the Depression.

In the US GFC brings to mind the recipe for deep-fried chicken devised by Colonel Sanders. KFC stands for Kentucky Fried Chicken. Here, GFC should stand for Gillard's Fraudulent Claim.
The claim in question is that it was the fiscal stimulus injected by the Labor government that saved Australia from much more serious recession. According to one recent election ad, "Labor did what it had to do to avoid recession and protect jobs." The ABC's Kerry O'Brien unthinkingly recycles this line when asking Tony Abbott how he would have saved the 200,000 jobs Labor "created". It must have been music to Julia Gillard's ears when Nobel Prize-winning economist Joseph Stiglitz gave her his seal of approval recently. He praised the government's debt splurge as "one of the best-designed Keynesian stimulus packages of any country".
Now, I like Stiglitz. Unlike some Nobel prize winners, he hasn't allowed the Swedish central bank's gong to super-size his self-esteem. But this is not the best argument I have heard him make, for three reasons.

First, he is appraising his own handiwork, since he was involved in the package's design. Second, he falls into the "post hoc ergo propter hoc" trap. Just because event B, an economic recovery, happens after event A, fiscal stimulus, doesn't mean that A caused B.

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