Now we again call on the Government to pull back on its massive spending program, otherwise interest rates are going to go up much higher than they need to be.It is an interesting point of reference, than they need to be.
Notwithstanding the dissonance with opposition policy on climate change ("climate change is crap") establishing an imaginary point from which to formulate policy can be an interesting and challenging exercise.
Max Corden, University of Melbourne, says that the logic is all wrong;
The central issue here is that success of fiscal stimulus cannot be seen clearly. A fiscal stimulus is successful to the extent that something doesn’t happen, that is, if there is an absence of severe economic turmoil. When judging the success of the fiscal stimulus, one must compare the current situation with the correct counterfactual situation.I doubt if our Opposition are quite up to that one.
Max Corden cites studies on the Japanese economy as evidence;
Japan's "Great Recession" lasted from approximately 1992 - 2007 and finally provided the economics profession with the necessary background to understand what actually happened during the US recession of the 1930s. The discoveries made, however, are so far-reaching that a large portion of economics literature will have to be modified to accommodate another half to the macro economic spectrum of possibilities that conventional theorists have overlooked.
...The theoretical implications are also immense in the sense that the economics profession will no longer have to rely so much on various rigidities to explain recessions that have become the standard practice within the so-called New Keynesian economics of the last twenty years.
