Another Monday Message Board. Post comments on any topic. As usual, civilised discussion and no coarse language. Lengthy side discussions to the sandpits, please.
-
Follow
Following
Already have a WordPress.com account? Log in now.
John Quiggin 
@Jim Rose
We’ve been through this before.
1. While wage control didn’t harm Australia’s recovery from the GD, it is necessary to note that the nominal fall in wages was not a real fall in wages owing to deflation.
2. Australia’s recovery from the GD was export-driven. Australia enjoyed a major trade surplus from 1933 until WWII. Britain favoured Australian wool and wheat over all non-Empire sources. Australian producers enjoyed a 30% advantage after 1931 due to a massive devaluation of the Australian pound.
3. Australian governments retired high-interest foreign government debt by means of an unprecedented series of loan raisings among Australian lenders. While these new loans paid lower interest than the old loans, still the yield was between 6% and 7%, which in an era of deflation and financial stringency was very high. The propertied classes in Australia were lavishly congratulated, and they congratulated themselves, on how “patriotic” they were in accepting this “sacrifice” in the national interest.
However, it is important to notice that these lenders had discovered themselves trapped with much devalued Australian pounds, which without prior warning overnight bought 30% less in foreign terms. Thus they turned a necessity into a virtue and accepted their new status of preferred creditors in a much diminished national home.
Thus devaluation by stealth stimulated the economy and stabilised public financing.
Katz,
right in some areas ,wrong n others.
Jim might be imitating the old left intelligentsia ! Irony on irony
@nottrampis The point of a debate is a large fiscal contraction did not plunge unemployment into a deeper recession. Unemployment peaked at 29.0% in 1932.
To ask again, what was the sign and size of fiscal multiplier of the premiers’ plan? What was its persistence: when would its effects die down?
The June 1931 Premiers’ Plan of fiscal consolidation had time by late 1932 to become credible and take hold given the usual leads and lag on fiscal policy.
MacLaurin (1936) dated the Australian economic recovery from the last months of 1932. It was to take another three years before unemployment rates fell below 10 per cent — the rate it had been during the 1920s.
Most countries had abandoned the gold standard by 1931 and 1932 and devalued by about 10% including the UK.
These competitive devaluations were called currency wars. Many accounts have these early 1930s devaluations and trade wars worsening the Depression.
In mundell-fleming models, fiscal contractions result in exchange rate crowding-in.
What did Australia do to recover faster than everyone bar NZ? Fiscal consolidations that were pleasant monetarist arithmetic!
Jim,
I address all this in my article.
We see the consequences of fiscal contraction in 1932. The economy went south after rising in 1931!
By 1933 we had a massive devaluation plus everything else I cover.
the devaluation did tow main things as Ralph Hawtrey always said any devaluation should.
It produced inflation.
this meant no more liquidity trap
it led to real wages falling.
Really you are like those old communists of the 50s.
Do not matter with facts just stick to ideology.
every country had a poor record of getting out of the great depression bar Germany and Japan.
@nottrampis To ask again, what was the sign and size of fiscal multiplier of the premiers’ plan? What was its persistence: when would its effects die down?
How long did it take for the 1932 competitive devaluation to have effect on employment and output?
The early 1930s variations in annual GDP growth are much smaller than either the spikes in unemployment or their subsequent falls. Where did the output go when 10-15% of workers lost their jobs and then found them again all within two or three years?
The fastest recovery from the depression was in NZ. Australia was close behind.
The effects of fiscal policy were more than offset by the MASSIVE not competitive devaluation.
This not only got rid of deflation and introduced inflation but had two large consequences. real wages fell and there was NO liquidity trap.
When did real wages rise significantly and then do the opposite Jim?
The budget had buggerall to do with it.
Ironic you are displaying the same characteristics as those communists of the 1950s you criticised!
@nottrampis • In the 1930s, one country after another pushed down its exchange rate in a desperate effort to export its way out of depression.
• each country’s depreciation only aggravated the problems of its trading partners, who saw their own depressions deepen.
• Eventually even countries that valued currency stability were forced to respond in kind.
• In the end competitive devaluation benefited no one, it is said, since all countries can’t devalue their exchange rates against each another. The only effects were to fan political tensions, heighten exchange rate uncertainty, and upend the global trading system.
• And no country succeeded in exporting its way out of the depression, since there was no one to sell additional exports to.
• But this was not what mattered. What mattered was that one country after another moved to loosen monetary policy because it no longer had to worry about defending its exchange rate.
From Barry eichengreen http://www.guardian.co.uk/commentisfree/2009/mar/17/g20-globalrecession he has written on Australia in the 1930s.
The UK and the sterling bloc abandoned gold and largely avoided more trade barriers.
Strict fiscal policies made sure that fiscal sentiment was positive. The tight budgets in Oz and NZ ensured that there was no expectation of an imminent switch to a higher tax regime.
People usually suspect that the tax structure that will be implemented to address large fiscal imbalances will be far from optimal
nottrampis
• In the 1930s, one country after another pushed down its exchange rate in a desperate effort to export its way out of depression.
• each country’s depreciation only aggravated the problems of its trading partners, who saw their own depressions deepen.
• Eventually even countries that valued currency stability were forced to respond in kind.
• In the end competitive devaluation benefited no one, it is said, since all countries can’t devalue their exchange rates against each another. The only effects were to fan political tensions, heighten exchange rate uncertainty, and upend the global trading system.
• And no country succeeded in exporting its way out of the depression, since there was no one to sell additional exports to.
• But this was not what mattered. What mattered was that one country after another moved to loosen monetary policy because it no longer had to worry about defending its exchange rate.
From Barry eichengreen http://www.guardian.co.uk/commentisfree/2009/mar/17/g20-globalrecession he has written on Australia in the 1930s.
The UK and the sterling bloc abandoned gold and largely avoided more trade barriers.
Strict fiscal policies made sure that fiscal sentiment was positive. The tight budgets in Oz and NZ ensured that there was no expectation of an imminent switch to a higher tax regime.
People usually suspect that the tax structure that will be implemented to address large fiscal imbalances will be far from optimal