Tuesday, May 06, 2014

The proposition: glass being half empty means it is not half full

I see that Sinclair Davidson has been graphing again, this time showing Commonwealth spending and revenue as a percentage of GDP.

I would have thought most people looking at the graph would say that it shows revenue and spending over the last 40 years bounces around between a pretty narrow range of about 22 to 27%.  Periods under both Labor and Liberal governments have seen revenues below spending, and spending below revenues (when measured this way).

The period post the GFC, shows the government spending increasing, and the dramatic drop below the decade of high revenue enjoyed by the Howard government.   It seems a pretty fair guess that if Rudd did not make the GFC stimulus spending (as widely supported by most economists and supported up to a point by the Coalition), and if Howard era revenues had continued (or even decreased more moderately) there would have not have been any budgetary problem at all.

Yet Davidson insists that the only way to interpret this is that spending is the problem.   His attitude seems to be "no, if I say a glass is half empty, it is impossible to assert that it is half full."   The large drop in revenue to far below a decade long average is supposed to be something to be ignored, presumably.  

He also gives the impression that he thinks turning government spending on or off is a simple thing, like turning on or off a tap - ignoring that people and companies make plans around government spending programs, and suffer disruption if they are too abruptly changed.  It further seems a feature of Right wing criticisms of Labor that they (and Treasury) are supposed to foresee sudden international financial crises and have a good idea of how much they may abruptly affect revenue.

On a related matter, Koukoulus has been running an interesting argument that if you add both government spending and revenue, it gives you a reasonable metric by which to judge "size of government":
one way is to look at the sum of Commonwealth revenue and spending as a share of GDP. This means that the more the government raises in tax and then recycles into the economy via spending, the bigger the footprint of government on the economy, and vice versa.

Makes sense?

A quick look at the size of government, on this measure, reveals some startling facts. I repeat facts based on data in Mr Hockey's Mid Year Economic and Fiscal Outlook document.

Under the Rudd and Gillard governments, the average size of government was 47.4% of GDP.

The Howard government size of government was 49.2% of GDP.
Seems a not unreasonable way of looking at it.

But let's face it, if your libertarian inspired ideological approach is that government should be small, and increased taxes are always bad, and that Keynesian policies are mistaken, you're never going to have anything much new to say about Australian government policy other than "spending is the problem."

Update:  I see that Greg Jericho tweeted today a graph that shows in a clearer way the drop in revenue:

Embedded image permalink

All the more to show the ludicrousness of insisting that spending is the only problem. 


nottrampis said...

Great minds think alike. I commented on this today showing Davidson simply cannot read graphs nor understands assumptions made.

I think we can now call Catallaxy the blog doe people with Aspergers!

nottrampis said...

even for Aspergers. How did that occur?