Wednesday, 30 January 2013

Faux Facts

Harry Clarke refers to some commentators as the ratbag right. These people use a number of faux facts to support their positions.
I thought I might go through some of them given I have just examined one.
  • The Government is spending like crazy. I examined some of this a few days ago so I won't repeat myself here. This is easy to spot. They will never mention the reason for the large fiscal stimulus was the GFC ( where we successfully avoided recession).  They will join GFC spending with post GFC spending to make it look larger than it actually is. They imply a deficit is always expansionary. They will ignore where the Federal Government detracted from growth as well.
  • The Stimulus didn't work.  People usually assert one of three reasons why we avoided recession. Tony Makin thinks it is because net exports rose. However he didn't realise that the contribution to growth came about because exports simply fell less sharply than imports! Then there is China recovering and so boosting commodity prices. ( Please note the contradiction between China somehow having a successful fiscal stimulus but we do not). Only one problem China recovered AFTER we did. Lastly people assert it was all monetary policy. A few problems with this argument. Firstly they always avoid telling people when  monetary policy changed from being contractionary to neutral to expansionary. Secondly they assume away any lags. ( I did my post-graduate study on monetary policy and I can tell you the lags are long, something people at the RBA confirm is still occurring these days.) The transmission mechanism. How come it was only the first home buyers that reacted to lower interest rates. This was very unusual in a typical Australian recovery.  Banks even with a government guarantee couldn't get funding overseas for a long time. You cannot lend if you cannot borrow. Lastly credit figures simply do not bear out monetary policy working as usual.
  • Austerity worked in Australia during the great Depression. I wrote about that here. This is always easy to spot. They will use a graph that has a long time frame so you miss the fall in GDP in 1932. They will always talk about the fall in unemployment but never mention it only gets to 4% or less after WW2 occurs.
  • Austerity economics is expansionary. This is always about Alesina and Ardagna paper. I wrote a little about it here.. ( here is a bonus by former co-author with Alesina ). Please note when any person talks  on this they will allege it was Austerity that reaped the rewards. For example they will talk about one of the Irish episodes of austerity, the successful one, but leave out the two unsuccessful ones.They will neither explore any reasons for the unsuccessful ones nor explore why the only successful one succeeded. ( It was because the Irish devalued their currency quite a bit, interest rates fell quite a bit and their major trading partner was in the midst of the 'Lawson' boom). 
  • Obama increased the budget deficit 2,3.4 ( pick your figure) fold. They criticise Obama for vastly increasing the deficit but the CBO estimated the budget deficit on January 2008 at $1.2t. People overcome this by merely showing the deficits for the year.
  • Lastly there is no AGW.  The latest attempt at this is to say there has been no increase in temperature since 1998.John Quiggin shows the whole hog here. Why was 1998 chosen?