The Stimulus Fudge – Rudd, Swann or Henry Responsible?

There is a graph in Budget Paper 1 that purports to show the very positive effect of the Rudd Labor Government’s stimulus package on the GDP growth of Australia in 2009. The graph is intended to show the positive correlation between stimulus spending and the subsequent delivery of GDP growth. The graph from Treasury is shown below:

Budget Graph

At least one blog, Pollytics, picked this up and quite innocently it would appear, used it to run the line Treasury, Rudd and Swann wanted played out. The blog’s commentator Possum Comitatus ran with lines such as:

According to IMF data and the consistency and significance of the stimulus/forecast error relationship, a stimulus package in Australia around the 2.2% of GDP would have given us zero growth – anything less than that would have delivered us negative growth.

When the Coalition says the stimulus package should have been smaller – they need to be asked how much smaller. Every drop in GDP causes an increase in size of unemployment. How many more people would they have been willing to throw on the scrap heap of unemployment in their pursuit of a smaller package?

and

The size of stimulus packages mattered – the international evidence is in.

and

The Coalition needs to be questioned about its economic viewpoints – viewpoints which are far from mainstream economics, existing on the very fringes of economic debate and which are completely at odds, completely and utterly at odds, with the international empirical evidence.

You know what an argument without evidence is called?

Making shit up.

You can check the Pollytics link above to see the glee that ensued from those that wanted to bash the Conservative line that too much stimulus had been rushed out and largely wasted.

However, over at Catallaxy Files  Prof. Sinclair Davidson had been playing around at IPA with a slightly different set of numbers. Instead of simply cherry picking G20 countries he applied his analysis to the full list of G20 nations (see Below):

Budgte Should have used

The end result is quite interesting:

Budget graph should have been

Suddenly, by using the full G20 dataset the correlation between stimulus and GDP growth becomes statistically insignificant.

The question has to be asked; who was it that decided which countries should be included in the graph Treasury used in the Budget papers? On what basis were countries selected? Why a subset of G20 nations and not the full list? Is there an agenda being played out here that seeks to hide the real facts in preference to supporting the Governments line that the stimulus was highly successful?

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