10 June 2009
Davidson and de Silva: Tattoos and strippers throw Rudd’s budgeting skills into doubt
(Spectator.co.uk, 10 June 2009)
“Ashton de Silva and Sinclair Davidson are economists from the RMIT. As the PM was making his boasts about recession, they were finalising a paper that contradicts his claims. Their research is just about to be released. The abstract will read something like this: the federal government has dramatically increased spending since September 2008 to reduce the effects of the global financial crisis. Rather than cut taxes, the government chose to stimulate the demand side of the economy. There has been some debate as to whether that approach has worked or even could work. The major question is whether individuals would quickly spend the stimulus money or whether they would save it. Unfortunately, the Australian Bureau of Statistics has stopped calculating its Retail Sales Trend figures apparently due to fears that the increase in federal government spending would distort the actual calculation. The RMIT paper calculates alternate measures of Retail Sales Trends. It shows that the recent (apparent) increase in retail sales is not very different from estimates of trend. This suggests that the government stimulus package has not worked as planned.
“De Silva and Davidson have read the Cairns Post, but do not make any judgments of a moral kind. ‘Some individuals told reporters that they intended to get tattoos,’ their paper says. ‘That type of spending does not undermine the policy objective. The policy objective is to stimulate increased spending in the economy irrespective of what the spending actually entails. The question of interest is whether there is more retail spending than otherwise would have been the case.’
“De Silva and Davidson have calculated two measures of trend to make up for the discontinued ABS series. They conclude ‘there is nothing unusual about the recent increases in retail sales’. As a control, they also compare the household income and household expenditure data that is readily available from the ABS. These show an increase in gross disposable income that can be attributed to the government’s stimulus package, but there is no notable increase in household consumption expenditure. As De Silva and Davidson say, this suggests that there should be no unusual changes in retail sales within the economy.”