Monday, December 21, 2009

Wind back the stimulus? Where's the love?

"Now we once again call on the government to pull back on its massive spending program, otherwise interest rates are going to go up much higher than they need to be."

Gee I wish I was as confident as that man that it was safe to start withdrawing the stimulus - which by the way is happening automatically anyway.

This graph plots Treasury estimates of the effect:

But there's something else wrong with the Hockey-Abbott line, dealt with in this (somewhat wonkish) paper from Melbourne University's Max Corden entitled Why the world needs fiscal stimulus.

It begins:
"The first argument is that the economy is already recovering so we no longer need a fiscal stimulus. Perhaps the economy would have recovered without the stimulus. Nonetheless, we should stop the stimulus now.

The central issue here is that success of fiscal stimulus cannot be seen clearly. A fiscal stimulus is successful to the extent that something doesn’t happen, that is, if there is an absence of severe economic turmoil."

Here's what happened to retail spending before and after the stimulus:

Would Joe Hockey really want to withdraw stimulus any faster than is already scheduled?

Come on Joe, where is the love?

Showing somewhat less love on this topic, Bill Mitchell takes apart what he thinks is the worst OpEd of all time - in The Australian

Related Posts

. Prepare to return to normal. We've done it.

. A third interest rate hike. Let's be honest about why.

. Ken Henry's devastating question to Senators