The Lucky Country?

Paul Krugman has a soft spot for Gordon Brown. Basically he thinks that Gordon Brown should get more credit for managing the economic crisis. But the moment that becomes being mystified at Gordon’s lack of electoral bounce, it gets rather puzzling.  A couple of months ago

It’s not far-fetched to imagine that Britain will soon be experiencing at least a modest recovery, even as its neighbors languish.  Yet that possibility doesn’t seem to factor into any of the political discussion.

And he followed up yesterday noting the recent signs of turnaround (the phrase “green shoots” already seems to have been laughed out of contention):

Definitely an easing crisis, though probably not enough to save Gordon Brown.

But why should it?  There are better examples of economic management out there.  Like Australia.  Australia had no GDP decline in the 1st quarter of 2009, jobs were actually added in July, and there’s been no housing crash.

And although Australia’s fiscal stimulus got a lot of negative attention from Kevin Rudd’s conservative critics, it wasn’t that large by global standards.   Take a look at page 27 in this IMF paper comparing the size of stimulus in G20 countries.  Australian deficits for 2009 and 2010 are large, but nowhere near as big as the UK, and that includes some discretionary stimulus in 2010 by contrast to the UK which has none.  Essentially because Alistair Darling knows that they can’t afford it.

Finally, Australia has achieved all this without much help from the exchange rate.  Like many currencies, the Australiian dollar depreciated against USD late last year, but has been steady or rising since then.  So its growth success is a case of well managed but moderate stimulus achieving a lot.

So what’s the point?  It’s an obvious one.  Gordon Brown didn’t just find himself in a situation of someone else’s making in September 2007.  He was present at the creation.  Better macroeconomic management before the crisis made its impact less severe and left room to design some careful interventions to mitigate what impact there was.  Instead of trying to make the case for Gordon Brown, shouldn’t we be getting a tip of the cap to Kevin Rudd and, yes, John Howard?

6 thoughts on “The Lucky Country?

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  2. Australia is a raw material exporter, all which did great the last years because of China. UK is an Offshore tax haven/Banking center. Banking is not a business you want to be in at the moment.

  3. Given the different sectoral emphases of Australia and Britain, it would seem that the nascent recovery in the UK is much better evidence of wise stewardship than in Canberra.

  4. “And although Australia’s fiscal stimulus got a lot of negative attention from Kevin Rudd’s conservative critics, it wasn’t that large by global standards. Take a look at page 27 in this IMF paper comparing the size of stimulus in G20 countries. Australian deficits for 2009 and 2010 are large, but nowhere near as big as the UK, and that includes some discretionary stimulus in 2010 by contrast to the UK which has none. Essentially because Alistair Darling knows that they can’t afford it.”

    Politically yes. But economically more stimulus is affordable. You have to remember that the original stimulus was somewhere in the region of £20-25 billion (that figure might’ve been US dollars though so correct me if I’m wrong), with something like 73% of it being a VAT tax cut. Obviously that money could’ve been better spent on actual spending rather than a temporary tax cut which will be over by the end of the year.

    Compare that to the size of the deficit, and you’ll see that the size of the stimulus was nothing in relation to it. So why the large deficit?

    1. The bank bailout. You have to remember that some of the world’s largest banks were UK banks. So the amount needed for that was massive compared to the size of the country.

    2. Automatic stabilizers like unemployment benefits, lower tax revenue etc. I could be wrong, but I think that Australia’s social safety is less extensive than the UK’s. And obviously, Australia hasn’t gone into recession, and unemployment is a lot lower, so these all mean the UK is getting less in tax revenue, and having to pay out more to the unemployed etc.

    Really, Brown’s stimulus was too small. I would’ve preferred to have seen it be around £50-60 billion, with not so much on tax cuts, and most of it on government spending, particularly on green technologies. The UK needs to export more (part of the housing bubble was caused by the global imbalances, like UK, US etc importing too much and being net debtors compared to China, Germany and Japan: where did China’s savings go, except funding borrowing for the West’s real estate?), and that’s only going to happen if we have something to export e.g. the tech to stop climate change.

    Looking back, Brown could’ve got such a stimulus if he’d gone for that size initially. As it is, he can’t possibly spend more. He missed his chance first time around.

    So we look like we’re coming out faster than most other countries. But I worry that we’ll drop back into recession (especially when Cameron comes in) because we’ve done enough for this year, but not later on in this crisis. Compare to the US, where Obama’s stimulus has still 95% to go.

    Brown did good in the banking rescue, which the RoW did then follow, instead of the Paulson plan, but I do think it was a little too hands off (a quango is in charge of the banks), and Labour seem like they want a quick sale. Perhaps not enough Sweden-esque?

    And of course, he continued the Thatcherist policies of his predecessors as Chancellor, and may not be doing enough to regulate the city now that the crisis has happened. SO he takes a lot of the blame for taking the the City’s tax receipts and not seeing the coming crisis instead.

    And I would say that economically, Krugman’s right that Brown’s done better than the average world leader during this crisis, but Krugman does not know of allof Labour’s political failings which mean he won’t win. Not that anything will be any better under the Tories. Bunch of fiscal conservative morons.

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