Wednesday, 6 February 2013

Know your Subject

This is the last time for some time I write anything concerning Catallaxy, promise
In this piece Sinclair Davidson accuses Andrew Leigh and Craig Emerson of economic exaggeration. Unfortunately we get another example of him being completely unable to discern what is in national accounts or budget papers.
His first assertion is this "if the private economy was as strong now as it was during the Howard era the government would be collecting a lot more tax revenue. If the private economy was as weak then as it is now, the Howard government would’ve collected less tax revenue. But there’s the thing – it is not by accident that the private economy is weak now. It is almost entirely due the the mismanagement of the current government"

Err no. Firstly according to the last accounts Real GDP is at trend after being ABOVE trend for some time.
Nominal GDP has been below trend after the terms of trade took a hit. This a a recent development however. 
Nominal GDP for the quarter was lower than the Real GDP estimate because of deflation in the quarter. No sign of that stagflation as of yet!

The Government has had weak tax revenues ever since we got hit with the GFC. Let us be very generous with Mr Davidson and simply say he hasn't read what budget papers say about revenue.
Such events never occurred under the previous government hence Mr Davidson is talking through his hat about tax  revenues and the state of the economy.
He also attributes this to the Government. Well yes the budget is quite contractionary ( Mr Davidson doesn't quite understand that concept yet and get this he advocates much tighter fiscal policy) but the main reason why Nominal GDP is so weak is because of the large decline in the TOT. Wow, the Government  are to blame for that eh!.

He then goes on to the IMF paper which looked at fiscal profligacy and debt. I actually linked that paper when it came out.
He then quotes Henry Ergas
'Indeed, that test gives many bizarre results. For example, it not only finds Italian governments to be consistent models of fiscal rectitude, but also singles out 2002-05 as years of fiscal prudence in Britain, even though that was when the Labour government’s budget deficit blew out of control.'

Anyone who has actually read the paper knows it does NOT talk about fiscal rectitude so we can only surmise either Henry hasn't or he is making it up! As for the UK Henry appears to be wrong

He then quotes the Kouk.
"In the past year, electricity prices have risen 17.7 per cent of which about 10 per cent was due to carbon. This is a big rise. That said, the household expenditure weights used by the Australian Bureau of Statistics show that electricity accounts for just 2.5 per cent of the average household expenditure on the basket of goods and services that make up the CPI.
Electricity is, therefore, a small part of the average household budget.
In terms of some comparisons for where an average household spends its money, purchases of tobacco make up 2.5 per cent of average household consumption, the same as electricity. Spending on meals out and take away foods accounts for 5.5 per cent; alcohol 4.8 per cent; rent 6.9 per cent; petrol 3.5 per cent and holidays and accommodation 4.9 per cent.
So quit yer belly-aching. Just to make sure he doubles down: ( this is Davidson editorialising.)
Think about it. The average household spends as much on tobacco as electricity and spends more than twice that amount on takeaway food and restaurant meals."

Notice dear sole reader he doesn't criticise the analysis at all. That is because he cannot.

Finally we get this gem.
So the ALP (and their advisers) are not serious about the economy. They make dodgy claims, misrepresent IMF studies, and dismiss concerns about the cost of living and especially electricity as the grumblings of malcontents (who probably smoke too much)."

Well irony on irony. He has made dodgy claims indeed quite false claims. He clearly hasn't read the IMF study and it seems he cannot even comprehend what the Kouk has written.

Given Davidson keeps on comparing current price rises in electricity with Treasury forecasts which are based on constant prices  the last sentence is indeed a gem.

We can then confidently assert both of them make BALD assertions. ( This is pun is for JC).