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Why the stimulus was bad policy

January 19, 2010 Comments off

There is a general perception that the economic stimulus package was good public policy and saved the Australian economy from recession. It wasn’t, and it didn’t.

Most of the economic commentary in Australia has been fairly simplistic. The standard story goes that the economy was heading for recession, so the government spent lots of money, and that made the economy stronger so we avoided recession. This is the line repeated by the Rudd government and some of the media.

But this story is wrong on several levels.

First, in any meaningful sense Australia did go into recession, and by some accounts we still are in recession. The government is quite right to claim that total GDP growth has remained mostly positive: for the last five quarters it has been +0.1%, -0.9%, +0.5%, +0.6%, +0.2%, with a total of +0.5%. However, the more useful measure of wellbeing is GDP per person, and that measures has been mostly negative: for the last five quarters it has been -0.4%, -1.4%, 0%, 0%, -0.4% with a total of -2.2%.

In short, since the GFC started Australians have become on average 2.2% poorer.

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