A friend asked me to comment on this article by Sinclair Davidson.
Although it is only in a power-point presentation I thought I would address some of the problems Sinclair has when he talks about an area outside his level of expertise.
Although the talk is about Australia and the GFC it is more about the Great Depression.
This is an area I know Sinclair knows little about so I approached this presentation believing it would be full of inaccurate data and misleading assertions. I was not disappointed however these are can be easily picked up by a graduate.
First of all he relies to two people to look at the Depression and the USA. Mises who proclaims the discredited liquidationist school approach and Amity Shlaes. Shlaes wrote a book about Calvin Coolidge. She, like Katesy is a big fan of his. She neglects to mention 38% of his term in office the US economy was in recession. Great record during the 'roaring twenties'!.
We find that her 'examination of FDR was not of a high order. Indeed her facts were 'ahem' 'doctored'. She counted as unemployed people who actually had a job!
When he examines FDR he merely looks at Expenditure as a % of GDP? Any self respecting economist would look at the CHANGE in the structural part of the budget. As it is Brad De Long has had a go at this and the largest change was in 1936 from deficit to surplus!
He next tries to say the economic contraction in 1936/37 was due to monetary policy as Friedman and Schwartz state in their tome.However Romer and Romer demolished that sometime ago, If it stopped the economy dead in its tracks in 1937 why did it have NO impact in 1941?
He tries to say that going off the gold standard had no effect. However he was told by me many moons ago countries did not devalue and leave the gold standard at the same time. Some like the UK and Australia took some time about it. Germany for instance never devalued. Therefore he knows this is deliberately
misleading.
Next we come to Australia and the Great Depression. Even here Sinclair doesn't know all the facts.
He then goes on to misunderstand the difference between the credit crunch which started in 2007 and the GFC which occurred in 2008. Read this to understand the difference and the subject! This gives you the whole kitten and caboodle!
He also implies if a central bank raises the monetary base then it will feed through to the economy. EXCEPT during the depression when the fed increased the monetary base substantially M3 actually fell! whoopsy.
He can't help himself by asserting Paul Krugman wanted a housing bubble when he knows Krugman was being ironic at the time.He knew this as well. afterall if Arnold Kling can admit he got it wrong surely Davidson does not have to be so petty and do it in such an inaccurate and misleading way!
He puts a lot of the blame of the GFC on the US government via CRA lending. I find it striking he didn't even know CRA loans were voluntary ( see my article and Krosner's speech). See here for example.I have actually written about this before here and here. On Wallison's bizarre notion of what is a sub-prime loan see Mike Konzal's demolition. Under Wallison the median loan issued was sub-prime. This is how ridiculous it was.Ii brought this to Davidson's attention when he first attempted this rot. So he must know of this.So again he has put forth delibrately inaccurate information.
He asserts that the Australian stimulus was far to large. However if this was the case then the output gap would have been closed very quickly and thus cash rates would have risen commensurately. This is easy to to see whether this occurred or not. Observing the official cash rate we see no such thing did!
He also believes there is little chance of fiscal policy working in an open economy. The theory behind this has one economy expanding whilst all others do not. This did not occur during the GFC as Ken Henry told a Senate estimates committee ( or during the Great Depression).Two guesses why?
Furthermore we know this does not occur anyway.
He also says if the project isn't shovel ready then it shouldn't go ahead. This is an argument for simply going ahead and having a recession. Nice for a public sector employee ( how ironic )to urge but not for those in the private sector. If projects aren't available then you look for projects that can be done. Canada and NZ are firm examples of this! They waited too long and hey presto they got their recession!
Sinclair next time you are going to do a presentation I will do a review of of free of charge so you do not make so many errors and make a such a large fool of yourself!
Stick to something you know and understand.
Oh and on the 364 economists and Margaret Thatcher. Not surprisingly Davidson and Samuel J are BADLY wrong.
Have you people at Catallaxy ever heard of research at all?
Update
I have also been asked to comment on Davidson's latest article concerning the stimulus.Suffice to say Treasury via David Gruen issued a mea culpa. Davidson never has for his numerous errors ( too many Davidsongates maybe perhaps even Davidsonfences!) Indeed in the article he claims Ricardian Ambivalence supported him. In fact it was DR Page on that blogsite. oops!
Say no more.
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