The economic crisis has, as we’ve been discussing, raised a lot of interest in Keynesian economics, but so far it’s been based more on the obvious bankruptcy of alternatives than on successful examples of Keynesian fiscal stimulus. Although there were some big financial bailouts late last year, few countries engaged in large-scale fiscal stimulus before the first few months of this year (Obama’s package was passed in February, and is only now being implemented, so we can’t expect to see evidence of impacts on GDP until late this year).
Australia went early and hard with a substantial cash handout to households in December 2008, followed by another round of cash stimulus delivered a month or two ago, and then a large-scale infrastructure program. The national accounts for the March quarter (which should include the effects of the first round of stimulus) have just come out, and show growth of 0.4 per cent, compared to a 0.6 per cent contraction in the December 2008 quarter[1]
On the face of it, this is a big success for Keynesian fiscal policy. And, there’s pretty general agreement that, despite some qualifications and plenty of concerns about the future, the prima facie interpretation is the correct one.
