How To Say Recovery In Australian: Keynes?

Was the Australian stimulus plan and subsequent recovery a victory for Keynesian economics?

Australia has been one of the most fiscally responsible nations throughout both the credit crunch and the nascent recovery.  Their comeback is partly due to their well-planned Keynesian stimulus program according to economist Joseph Stiglitz

Keynesian policies do work. Countries, like Australia, that implemented large, well-designed stimulus programs early emerged from the crisis faster. Other countries succumbed to the old orthodoxy pushed by the financial wizards who got us into this mess in the first place.

Whenever an economy goes into recession, deficits appear, as tax revenues fall faster than expenditures. The old orthodoxy held that one had to cut the deficit – raise taxes or cut expenditures – to “restore confidence.” But those policies almost always reduced aggregate demand, pushed the economy into a deeper slump, and further undermined confidence.

One conclusion that you could draw to explain Australia’s speedy recovery and above-average economic health would be that PM Kevin Rudd had acted responsibly by running a deficit ($14 bil USD for ’08 and ’09) to get people spending and working again.  The package he implemented was fairly simple, but effective nonetheless.

2008’s stimulus plan cost A$10.4 billion ($7.4 billion USD), authorized late in the year:

  • Households received A$1,000 per child
  • Retired people living alone got A$1,400
  • Retired couples got A$2,100
  • First-time home buyers got between A$14,000 and A$21,000 to buy a house
  • $187 million toward job skills programs

2009’s plan was worth roughly A$42 billion ($26.5 billion USD) and was announced in February:

  • 2.7 million homes get new insulation (cuts utility bills and takes the carbon equivalent of a million cars off the roads)
  • Local infrastructure projects get funding
  • low and middle income households get another check for A$1000 ($650 USD)

Now, Australia was not quite as harmed by the crisis as the US and Europe due to lower amounts of real estate speculation and mortgage bond exposure.  They are also a smaller and structurally simpler economy.

Australia is also a close trading partner with China and other fast-growth Asian nations – the commodities it produces and exports are some of the most in-demand in the world.

Because of these factors, it may be a bit disingenuous to give the Keynesian spending policies of Rudd’s administration full credit for Australia’s comeback.


Harsh Lessons We May Need To Learn Again (China Daily)

Australia Unveils $7.4 Billion Stimulus Plan (MarketWatch)

Australia Approves $26.5 billion Stimulus Plan (CNN)

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