1. Parkinson said:

    …discretionary fiscal policy should only be used for supporting demand during extreme circumstances, such as when: the effectiveness of monetary policy is impeded; and/or a shock is sufficiently large and sufficiently sudden that monetary and fiscal policy should work together to support activity, such as during the global financial crisis.

    Obviously a bit self-serving. I hope by monetary policy being ‘impeded’, he doesn’t mean the zero bound. QE has shown that monetary policy can work at the lower bound and Japan has shown that fiscal stimulus without accommodating monetary policy takes you nowhere. In any case, the major second-phase of the GFC fiscal stimulus (BER) only started in late Q2/09 when the risk of major recession had receded. I would like to see a lot more scepticism of discretionary fiscal policy from our Treasury head.

  2. Actually Posen has proven your statement on Japan is very badly wrong.

    Stimulus should avoid a recession which means strong increase to start with, support a little later to ensure the private sector can then take up their role as the government withdraws ( as has happened here since 2010).

    Parkinson is merely giving a modern version of Keynesianism.

    We should always thank our lucky stars Rudd and Swan eventually succumbed to Advice from Henry and Stevens.

    1. With an inflation targeting central bank, the fiscal multiplier is zero, simple as that. Looks like both our former and new Treasury heads don’t understand that.

      1. Yes, if the central bank is doing its job properly. If inflation is at target, any further government spending will oblige the central bank to tighten policy relative to the base case and vice versa.

        1. Makes sense. But it is hard to do in real time. I suspect that there is generally some short run impact. This is really similar to the argument that all resources are fully employed, so fiscal policy just creates inflation?

          Sent from my iPad

      2. Hard to do in real time, yes. But my point was that the BER spending only commenced in May-June 2009, well after the RBA finished cutting rates – ie after the RBA thought there was enough stimulus in the system. All the BER did was to hasten rate rises in late 2009, thereby leaving us with over-priced COLAs instead of private housing, which was what got crowded out.

  3. and the COLAs were not over-priced.

    somebody has read the Asutralian and not the BER taskforce report.

    the RBA tightened because they thought mining would put Demand up too much too quickly.

    By 2010 fiscal policy was contractionary.

    you do realise you have to ensure recovery ensues.

    Banks were lending bigtime to first home owners. guess why.

    1. To be fair, this is now a levels v growth rate argument. Fiscal policy aded to the level of demand but no longer its growth rate. You cannot hold that fiscal policy increased AD and deny that it added to inflation pressures – it is the same thing!

      Sent from my iPad

    2. Unfortunately, the Oz is the only newspaper in this country that does significant and well-researched investigative journalism – consider its recent work on the Qld floods inquiry. The Orgill report on value for money was based on complaint rates – only 3% apparently. Yet as the Oz says, the home insulation program only had a complaint rate of 0.7% immediately prior to being wound up. Surveys by the NSW Auditor-General and others found that only 40-60% of school principals thought they got value for money.The Oz found that NSW government schools paid 24% more for work than Catholic schools and 60% more than private schools; with slightly lower numbers in Victoria and higher numbers in Qld. And that’s before you consider whether the types of buildings schools got were what they most needed or whether schools needed new buildings at all.

  4. It greatly reduced the disinflationary forces of the GFC. That is a little bit more nuanced than what you are stating.

    It is true that you would expect and hope inflation rises as Aggregate demand rises.

  5. EXCEPT Rajat you are comparing apples with oranges as you would know if you had read the report.

    Also the average costs were below those stated in another OZ article quoting Rawlinsons.

    the OZ doesn’t believe in truth nor accuracy

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