Giving the Bird to the Stimulus?

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Peter Mar­tin reports in The Age today that Pro­fes­sor Ron Bird of UTS has weighed into the debate over the Rudd stim­u­lus pack­age. Pro­fes­sor Bird claimed that the stim­u­lus was far less impor­tant than our strong econ­o­my pri­or to the cri­sis, and the sec­ondary effect on our exports of stim­u­lus pack­ages under­tak­en else­where.

”The posi­tion we find our­selves in today is more due to our strong eco­nom­ic posi­tion going into the cri­sis and the mas­sive stim­u­lus pack­ages under­tak­en by our trad­ing part­ners,” Pro­fes­sor Bird says. ”The gov­ern­ment can take lit­tle or no cred­it for either of these, a point it (and our learned aca­d­e­mics) con­ve­nient­ly for­get.” (Peter Mar­tin, “Reserve Bank back­ing for stim­u­lus”, The Age August 18 2010)

Ron is in effect mak­ing an appeal to the facts over sim­ple asser­tion, but a care­ful look at the data shows that the facts sup­port the let­ter sig­na­to­ries, and not Bird’s rejoin­der.

His first point, that Aus­tralia had a “strong econ­o­my going into the cri­sis”, is just waf­fle: every­one appeared to have a strong econ­o­my going into the crisis—that’s why most econ­o­mists were com­plete­ly blind­sided when the cri­sis actu­al­ly occurred.

Remem­ber that the OECD con­clud­ed that things were rosy across the globe in June 2007, just before the cri­sis hit?:

“the cur­rent eco­nom­ic sit­u­a­tion is in many ways bet­ter than what we have expe­ri­enced in years. Against that back­ground, we have stuck to the rebal­anc­ing sce­nario. Our cen­tral fore­cast remains indeed quite benign…” (OECD Eco­nom­ic Out­look June 2007).

His sec­ond point is sim­ply wrong on the data. If it were true that the rest of the world had saved us rather than our­selves, then West­ern Aus­tralia and Queens­land would have dragged us out of the slump, and our trade­able prod­uct indus­tries would have risen most while non-trade­ables would have lagged.

That is the exact oppo­site of what you find when you look at the data—something Ron clear­ly did­n’t do before he wrote his rejoin­der. The State that dragged Aus­tralia out of the slump was Vic­to­ria, and the indus­tries that did it were the non-trade­ables that were the most direct ben­e­fi­cia­ries of the Rudd Stim­u­lus.

Aus­tralia began to lose jobs in Jan­u­ary 2009, and the cri­sis was at its most severe in March, when employ­ment was falling at a rate of 80,000 jobs a year. We got back to zero job loss­es in August—a stun­ning­ly fast turnaround—and at that point the only State with ris­ing employ­ment was Vic­to­ria. WA and Queens­land were still shed­ding jobs at a rate of 9,000 jobs a year at that point.

Drilling down into Vic­to­ri­a’s num­ber shows that most of the indus­tries that led the charge out of reces­sion had very lit­tle to do with trade, and a lot to do with the stim­u­lus: the biggest boomer was Pro­fes­sion­al employ­ment (24 thou­sand jobs), where either trade or the stim­u­lus could be the cause, but the next four biggest movers are all clear­ly non-trade­ables: Retail (23000), Finance (21000), Edu­ca­tion (15000), and Health (14000).

Only once employ­ment was ris­ing again did the resource states and export indus­tries real­ly kick in—but even then, the main dri­vers of employ­ment growth across the coun­try were the non-trade­able indus­tries that ben­e­fit­ed most from the stim­u­lus. The largest sin­gle numer­i­cal increase was still in Pro­fes­sion­al employ­ment (79000), but the next five (Accom­mo­da­tion and Food Ser­vices 49,000; Health 47,000; Con­struc­tion 30,000; Edu­ca­tion 29,000; Real Estate 23,000) are clear­ly dri­ven by the gov­ern­ment stim­u­lus package–including part of the pack­age that I am crit­i­cal of, which I pre­fer to call the First Home Ven­dors Boost. The export-ori­ent­ed Min­ing and Agri­cul­ture sec­tors share effec­tive sev­enth place in the expan­sion at 20,500 each.

So the facts sup­port the let­ter sig­na­to­ries and not Pro­fes­sor Bird. It isn’t the case that we con­ve­nient­ly for­got some impor­tant facts—since they were clear­ly on our side—but that those mak­ing the case against the stim­u­lus have sim­ply failed to check the facts.

Final­ly, let’s get real here: this whole debate is being dri­ven by the pseu­do-con­flict between Labor and Lib­er­al over the econ­o­my. Frankly, if the Lib­er­als had been in pow­er, they would have react­ed in much the same way that the Labor Par­ty did, and fol­lowed the same advice from Ken Hen­ry: “Go ear­ly, go hard, and go house­holds”.