Niall Ferguson is in Australia, sponsored by a right-wing think tank, spruiking the anti-stimulus party line. He has an op-ed in today’s Australian in which he declaims the insignificance of the stimulus, castigates the mining tax, doffs his hat to his broadsheet hosts by taking a swipe at the Fairfax press, and even has a little dig at Krugman without even mentioning his name (Stiglitz, “unlike some Nobel prize winners… hasn’t allowed the Swedish central bank’s gong to super-size his self-esteem”).
Stripped of the thick veneer of partisan rhetoric, Ferguson’s main point appears to be that Labor cannot claim the credit for all of the jobs created in the period since the enactment of the stimulus packages. He doesn’t quite claim that Labor can claim none of the credit, though he comes close.
Ferguson instead attributes Australia’s relatively strong economic performance to:
“1. Lady Luck 2. The Howard government 3. The RBA 4. China 5. The mining industry.”
By “the Howard Government”, he presumably is alluding to the budget surplus it bequeathed the Rudd Government, notwithstanding the structural deficit that was hidden by the boom. To which I say: yes, of course, that didn’t hurt. If our national fiscal balance had already been in some parlous situation, going into further deficit to stimulate the economy would have been less politically possible and more economically risky. So, reasonable observers can agree that it didn’t hurt that we entered the crisis with plenty of fiscal room to move. Still… does that mean that without the stimulus, the mere fact of the Howard Government’s budget surplus would have somehow managed to sustain output and employment?
Regarding the RBA, no reasonable observer disputes that monetary policy had a big role to play in stimulating the economy, so here Ferguson deftly establishes a nice little straw man that he can blow down with his anti-Keynesian rhetoric.
China: again, no dispute. No one argues that all economic activity in Australia over the past 18 months or so has been solely sustained by the fiscal stimulus. Still, it’s interesting to ask this question: without our domestic stimulus, would China’s demand for our resources have been enough to sustain the levels of output and employment that we’ve enjoyed over the past 18 months? Brazil exports a lot of mineral resources, and its economy shrank last year. It’s also interesting to ponder the role of China’s own domestic stimulus in contributing to our resilience; we derived great benefit from that. Perhaps that very interdependence is why the noted luddite Keynesians of the IMF urged nations to adopt a stimulus package of 2% of GDP back in the thick of the crisis. Ferguson’s anti-stimulus narrative makes no mention of the benefit that we derived from our neighbours’ stimulus.
On the mining industry, yes, we’re lucky to have all that coveted metal under the ground. Still, was mining really responsible for sustaining output and employment? Let’s have a look at the facts. Mining industry employment peaked in November 2008 at 179 600. A mere six months later, it was down to 152 300. In those six months, the height of the crisis, the mining industry shed 27 300 workers, 15% of its workforce. As Ken Henry said, “had every industry behaved that way our unemployment rate would have climbed to 19 per cent.” Does that really sound like an industry that single handedly got us through the crisis?
Regarding lady luck, I am unaware of any robust econometric analyses that indicate that luck is the primary determinant of national economic growth. Luck is, of course, important, but if economies can rise and fall purely on the basis of luck then macroeconomics is the most pointless of disciplines. Then again, perhaps I have a different standard for being “graduate seminar sure” of the cause of our position, as Ferguson puts it.
We need our own Krugman to take arguments like these head on. (I nominate John Quiggin for the job, incidentally).