The Depression in Australia

Julie Novak today at Catallaxy ( sorry I do not link bad posts) tries to show having a balanced budget was what got Australia on the road to recovery.

Let us look at what actually happened.

Angus Maddison’s Estimates of Australian Real GDP from Butlin (millions of 1990 international Geary-Khamis dollars)
Year | GDP | Growth Rate
1927 | $34,716
1928 | $34,164 | -1.59%
1929 | $33,834 | -0.96%
1930 | $32,181 | -4.88%
1931 | $32,720 | 1.67%
1932 | $31,878 | -2.57%
1933 | $33,696 | 5.70%
1934 | $34,991 | 3.84%
1935 | $36,424 | 4.09%
1936 | $38,160 | 4.76%
1937 | $40,336 | 5.70%
1938 | $40,639 | 0.75%
Maddison 2006: 452).

(thanks Lord Keynes)


Now what was the Premier's plan

The key architect and publicist for the plan, Copland, transposed it into a conceptual framework. It consisted of

• a depreciation of the currency sufficient to restore real income in export industries to 90 per cent of its former level
• a reduction in real wages of 10 per cent
• a general reduction in real government salaries and wages expenditure of 10 per cent
• a super tax of 10 per cent on income from property
• an expansionist monetary policy based on the purchase of government securities by the Commonwealth Bank with a view to maintaining the general level of prices
• a proportionate reduction in rentier income derived from securities (Copland 1934:66–7).

(thanks Alex Millmow)

So after the austere budget of 1931 growth actually contracted ( as it did in the UK).

Why did growth start in 1933?

The large scale devaluation ( an academic by the name of Bernanke called it massive. He co-wrote a paper with a Martin Parkinson.)

As Ralph Hawtrey said a large devaluation would cause inflation.

This gave the authorities two advantages

1) The liquidity trap was no more and thus monetary policy now worked ( this was why he thought the General Theory not necessary unfortunately the UK experience proved him wrong.)

2) real wages fell quite a bit. This helped reduce unemployment

Let us remember the best the unemployment rate got to between 1933 and 1939 was 8%!

So the balanced budget had nought to do with any recovery tepid that it was.

As usual what is written on Catallaxy is entirely incorrect

The polls

Yesterday we had three polls out. See the pollbludger for all the details.

Two, Newspoll and Neilsen, had essentially the same result after you take into account the margin of error.
The other Essential was completely different.
John Stirton from Neilsen tells us this and more.

From these results it is reasonable to conclude that the Essential poll is the rogue. Indeed it seems to be rogueish recently.

Why has this change occurred. Again  John Stirton seems to be correct. Whilst people were scared to death about the ETS BEFORE it occurred. This has almost dissipated since July when it came in.

This would mean having an electoral strategy about getting rid of the ETS whilst brilliant before it occurred is quite another thing  once it is in and the forecasted disaster never eventuates. This of course happened with the GST.

If this changes attitudes in other areas will be interesting. One essential poll ( not rogueish) showed only 35% of people realised interest rates were lower now than when the ALP won government.
If this perception eventually meets reality the Government might actually be in a position to win the next election.

However this Government is not very good ( read very bad) at selling anything.

Muslims

Why is it that some Muslims wish to protest against the US Government against a film made by a private person.

It would be akin to Christians protesting against the Canadian Government ( I think) against the Last Temptation of Christ.

If the Government has nowt to do with the film then the protest is simply stupid. Involving children with signs calling on people involved with the film to be beheaded is simply bad parenting at its most euphemistic.

It reinforces stereotypes that Muslims are unthinking and violent people.

Ignore the film and deny it oxygen would have been the best strategy.

It still is.

Tony Abbott

Does it matter what happened when Tony Abbott was at University?

No not really.

He was 19-20 so what!

what is strange is his reaction.

He was given a load of time by David Marr to deny the allegation when Marr was backgrounding his essay with Abbott.
Abbott could have denied it after the essay was released but all he said was he didn't recall the incident.
Something highly implausible.

Unfortunately for Abbott his media friends 'beat up' the issue ( pun intended). Greg Sheridan was over the top in defence of his friend. Gerry Henderson was more sober but he too fanned the flames making the 'issue' larger than it should have ever been.

Both then looked incredibly foolish when various people came forward to say the incident did indeed take place.

Abbott then looked very 'nixonlike' in saying the incident never happened and this was in accord with him saying he could not recall it.

He also looked poor when claiming this was coming from an ALP 'dirt unit' and then had to admit it wasn't. He also looked quite shifty when he couldn't deny his own staff had 'offered dirt' on ALP Mhrs.

All in all I think the only interesting aspect to come out of this is how bad Abbott is in defensively responding to questions about him etc.

This has election repercussions as in the next campaign Abbott will not get the gentle ride he got on the 2010 election campaign. He will have to act quickly on on his feet.

If this issue shows anything Abbott will not shine at all.

Whether this will matter or not is another subject.

AFR 'quality'

In today's AFR  John Roskam has a somewhat rambling tome and  attempts to do a number of things.

He asserts Obama has had a policy of higher spending and higher taxes. Unfortunately for the reader he provides no evidence for his assertion.
(see here and here for a different line.)
He writes about the memo Romer and Bernstein wrote for the incoming president, indeed he quotes some of it. It is therefore somewhat surprising he doesn't say the final 'stimulus' package was made up of mainly tax cuts and fiscal relief to the States. Indeed 40% was made up of tax cuts.
He doesn't say the deficit that Obama inherited was $1.2t. Nor does he say the recommendation was for much larger stimulus.

At no stage does he say that public sector employment fell dramatically because state and local Governments cut their workforces. If only they had increased them like in the Reagan years unemployment could be falling to 6%!

Also at no stage does he state the economic contraction was greater than anyone had contemplated. The December quarter 2007 GDP statistics fell by about 9% in annualised terms whereas non-farm payrolls were contracting by around 900,000 when the President came to office.

He, of course, completely omits any reference to the IMF material that shows that austerity makes an economy worse if the economy is slowing.  ( here).( The time for austerity as Keynes said and the IMF proved, is in good times ).

He implies that the Romney team will cut spending, taxes and the deficit but again we do not know how. Given the Romney tean has not released enough detail to make such a suggestion we have no idea of how Roskam can be so certain of his implication.

Finally he compares the recovery under Obama with that under Reagan. He again doesn't tell anyone that the recession was the prescription Paul Volker used to bring down inflation. In other words high interest rates.
One would expect a recovery under these conditions to be faster than one where there was a financial crisis.
He also does not say interest rates did not get anywhere near the zero bound level under Reagan.
Finally he does not mention the deliberate deficit spending under Reagan which Roskam asserts does not work.

All in all we can conclude either Roskam does not understand his subject area which is highly likely given the IPA's history or he does and is being what somewhat euphemistically 'misleading.

Either way it isn't a good look.