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General Economics

May 12, 2010

The most important chart in the budget

Tucked away in Budget Paper Number 1 is a fascinating little chart that is arguably the most politically important piece of data in the entire budget, as it justifies not just the very

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Tucked away in Budget Paper Number 1 is a fascinating little chart that is arguably the most politically important piece of data in the entire budget, as it justifies not just the very existence of the stimulus program and the political baggage that is coming with it, but also shows the likely consequences of the alternative “what if the stimulus was smaller or didn’t exist” scenario.

You can see the Treasury version of the chart over in Statement 2 of Budget Paper No. 1 – “Box 4: Economic growth and fiscal stimulus”. However, that treasury graphic is a bit of a chartcrime, so we can reproduce it ourselves from the raw data cited in the budget papers.

Back in early 2009, the IMF made GDP forecasts for a number of countries based on what the prevailing economic outlook was for those countries at the time that the forecasts were made. Those early 2009 IMF forecasts came in like this:
forecastgrowth

During the period between when these forecasts were made and today, these nations deployed fiscal stimulus packages of varying sizes. You can see the size of the stimulus packages as a proportion of GDP in the table on page 36 of this IMF document – under the 2009 column “Crisis related discretionary measures”. This was the size of the stimulus packages for each of these nations as a proportion of GDP:

stimulussize

The third and final piece of data we need is the actual growth achieved by these nations in 2009, which the IMF also provides over here.

This is what they come in as (using last night’s Treasury data to substitute for the Australian entry):

actualgrowth

So what was the impact of the stimulus on GDP growth across nations? To find out, if we subtract the 2009 IMF forecast growth from the actual growth achieved in 2009, it tells us the forecast error – or the amount by which the original GDP forecast for each nation was out.

That then allows us to compare the size of the various stimulus packages to the size of those forecasts errors via a scatter plot and regression – if the stimulus packages explain the forecast errors (in that, the bigger the stimulus package, the better the economy performed over its original forecast), then we should see a tight linear relationship with nations starting in the bottom left hand corner (representing small stimulus and small errors) going roughly linear up until the top right corner (representing large stimulus creating large forecast errors).

So what does the chart look like?

stimuluseffect

This is a very statistically significant relationship (albeit with only 11 observations), with the budget papers stating that the T-stat on the stimulus package coefficient was 3.3. Using the raw data, my results confirm that – here’s the regression output:

stimpakeq

What this chart demonstrates is that the size of the stimulus packages mattered – seriously mattered. The larger the stimulus package, the better a country performed compared to what its original IMF growth forecasts suggested.

The stimulus packages made a clear difference to the size of GDP growth. The size of the packages made a clear difference to the size of the effect on GDP growth.

As the effect was consistent across nations – we can use this data to get an approximate estimate of what actual Australian GDP would have looked like in 2009 as a function of the size of a spectrum of stimulus package sizes.

If we treat the regression line in the above chart as an approximate estimate of the stimulus effect on GDP, we can slide Australia up and down that line according to hypothetical stimulus packages of different sizes, and recalculate the left hand vertical axis to represent Australian GDP rather than the forecast error.

ozgrowthestimates

According to IMF data and the consistency and significance of the stimulus/forecast error relationship, a stimulus package in Australia around the 2.2% of GDP would have given us zero growth – anything less than that would have delivered us negative growth.

When the Coalition says the stimulus package should have been smaller – they need to be asked how much smaller. Every drop in GDP causes an increase in size of unemployment. How many more people would they have been willing to throw on the scrap heap of unemployment in their pursuit of a smaller package?

Every time the Coalition complains about debt, they need to be asked how much smaller they believe the stimulus package should have been and how many more people would they have been willing to throw on the scrap heap of unemployment in their pursuit of a smaller debt load.

Debt was the cost of growth – growth was and always is the provider of jobs. Pretending that less debt could have provided the same jobs is fairy floss economics. A dollar is a dollar is a dollar.

The size of stimulus packages mattered – the international evidence is in.

The Coalition needs to be questioned about its economic viewpoints – viewpoints which are far from mainstream economics, existing on the very fringes of economic debate and which are completely at odds, completely and utterly at odds, with the international empirical evidence.

You know what an argument without evidence is called?

Making shit up.

UPDATE:

Sinclair Davidson (which some of you may remember from one of the funniest exchanges in Senate Estimates history with Doug Cameron!) over at Catallaxy has redone the same chart with more than just this G7 plus selected countries, but expanded it to the whole G20, finding much more variation in the results, leading to a crashed significance and much reduced slope on the regression line over the full G20 spectrum.

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89 thoughts on “The most important chart in the budget

  1. John Quiggin » After the Budget

    […] from elsewhere in the aid budget. Unsurprisingly, it was old money * A bigger thing I missed: What Possum’s Pollytics correctly calls the most important chart in the budget, a graph showing a regression of the size of economic stimulus against economic growth relative to […]

  2. james pham

    They suggest that fiscal policy made little difference during the 1930s because it was not deployed on the requisite scale, not because it was ineffective. They suggest a positive impact of government expenditure on GDP during the interwar period, with substantial fiscal multipliers: for example, the first set of VAR exercises suggested that these were 2.5 on impact and 1.2 after one year. Where significant fiscal stimulus was provided, output and employment responded accordingly. Generic medicine

  3. aloha

    Have not read all of the comments so i’m sure somebody along the way must have mentioned this but…..Wow what a load of garbage this articule is!

    I am an econometrician and to claim that there is any real causation in such an under-sepcified regression is just as you put it at the end of this blog:

    “You know what an argument without evidence is called?

    Making shit up.”

    You have draw a major bow here….and i’m not surprised to see the results turn on their head when you add more data….the bottom line is that there is/was no statistical relationship here.

    I’m just surprised that Treasury has put this sort of poor economic rubbish into the public domain!

  4. How to Save a Life « The Jackal’s Codex

    […] of most governments post-GFC was Keynesian – and there is evidence that it does work (http://blogs.crikey.com.au/pollytics/2010/05/12/the-most-important-chart-in-the-budget/#). The problem was that most of those stimulus packages were not big […]

  5. Club Troppo » How do we know if the stimulus worked?

    […] hand. Budget Statement No.2 included a scatter graph, proclaimed by Possum Comitatus to be ‘the most important chart in the budget‘, showing an apparent correlation between the amount of fiscal stimulus and the […]

  6. Super Profits Tax finds support

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  7. JamesK

    It will be interesting to see the fallout as more and more people realise the dishonesty of the Treasury graph.

    If it was done at Wayne Swan behest, I expect he will be called upon to and should resign.

  8. Lincoln Fung

    You state: “You can see the Treasury version of the chart over in Statement 2 of Budget Paper No. 1 – “Box 4: Economic growth and fiscal stimulus”. However, that treasury graphic is a bit of a chartcrime, so we can reproduce it ourselves from the raw data cited in the budget papers.”
    Then you went on to recreate your own charts and regression results to derive your own nice chart or graph – “Australian GDP growth under alternative stimulus sizes”.
    Then you went on to say:
    “According to IMF data and the consistency and significance of the stimulus/forecast error relationship, a stimulus package in Australia around the 2.2% of GDP would have given us zero growth – anything less than that would have delivered us negative growth.

    When the Coalition says the stimulus package should have been smaller – they need to be asked how much smaller. Every drop in GDP causes an increase in size of unemployment. How many more people would they have been willing to throw on the scrap heap of unemployment in their pursuit of a smaller package?

    Every time the Coalition complains about debt, they need to be asked how much smaller they believe the stimulus package should have been and how many more people would they have been willing to throw on the scrap heap of unemployment in their pursuit of a smaller debt load.

    Debt was the cost of growth – growth was and always is the provider of jobs. Pretending that less debt could have provided the same jobs is fairy floss economics. A dollar is a dollar is a dollar.

    The size of stimulus packages mattered – the international evidence is in.

    The Coalition needs to be questioned about its economic viewpoints – viewpoints which are far from mainstream economics, existing on the very fringes of economic debate and which are completely at odds, completely and utterly at odds, with the international empirical evidence.

    You know what an argument without evidence is called?

    Making shit up.”

    But have you realised or ever considered whether the IMF data is correct based on its own forecasts that were revised on a monthly basis and changes all the time?
    Man, we need some sanity in place!

  9. James McDonald

    @It’s Time:
    [… seem to be attracting a better class of right wing ding bat than at Poll bludger, but right wing ding bats all the same.]
    It’s Time for what? Not for rational thought, it seems. Or do you have something to say on whether — from a purely Keynsian or “left-wing” point of view, take your pick — the PRC’s stimulus was both far more intelligently implemented than the Australian one, and far more effective on the Australian economy? That would be the overall Australian economy, not just a few wroughters charging a million dollars for a tin shed, or subsidies to people selling their homes.

    Or are you still struggling with the concept that we all benefit from mining wealth, even if some benefit more than others?

  10. The Stimulus Fudge – Rudd, Swann or Henry Responsible? « Did You See It

    […] least one blog Pollytics  picked this up, and quite innocently it would appear, used it to run the line Treasury, Rudd and […]

  11. Tim Watson

    Sinclair Davidsons regression analysis shows a positive stimulus effect- albeit without a high degreee of statical significance at the 5% level I gather.

    What about at the 10% level?

    In any case he should publish the full results of his regression to let people make up their own minds.

    Regardless of statisical significance, what about what his regression doesn’t show:

    – it doesn’t definitively show no multiplier effect from stimulus funding
    – it doesn’t show a crowding out effect from government stimulus

    It doesn’t look at the composition of stimulus money between various countries (i.e. how much was spent on enhancing consumption and investment versus bailing out the financial sector).

    It doesn’t greatly enhance the sample of countries considered from the Treasury analsysis.

    JC- you should also read Barry Eichengreen’s historical paper on fiscal multiplier’s. A little quote from that paper:

    “They suggest that fiscal policy made little difference during the 1930s because it was not deployed on the requisite scale, not because it was ineffective. They suggest a positive impact of government expenditure on GDP during the interwar period, with substantial fiscal multipliers: for example, the first set of VAR exercises suggested that these were 2.5 on impact and 1.2 after one year. Where significant fiscal stimulus was provided, output and employment responded accordingly.”

    Just because I am not enthused by your shallow analysis of fiscal multipliers doesn’t make me a “concern troll”.

  12. jc123

    Possum:

    The link you provided is from a couple of working schleps at the IMF. The IMF was the organization that pushed for stimulus, so I would hardly think their argument lacks conflict of interest. As I said earlier the IMF chief economist mistakenly also said the US was still running an inflation target in it monetary policy settings. That isn’t just an ordinary mistake. It is in fact an unpardonable error for a person in that person to make. In a just world he ought to be sacked for marking such an error as he doesn’t seem to know how monetary policy operates in the largest economy in the world. It’s embarrassing.

    Barro’s work showed that stimulus offers less than 1. In other words it costs more than it offers back.

  13. jc123

    Tim Watson:

    Saying Barro and Sinclair are wrong isn’t enough in this area of debate. You need to explain why and show your workings otherwise it just cancels out as a sort of concern troll.

    It’s (Certainly not) Time.

    The argument is whether the Treasury used best fit to propagandize their support of the stimulus.

    If you can show why only 11 best fit data points were used (selected) instead of G 20 or in fact anyone that used stimulus then you can make a point. If you can’t you’re just in the same boat as Tim Watson, which is just a concern troll with nothing much to add other than participating in the equivalent of a tribal dance at a native wedding… all the paint on but nothing really to add to the festive occasion.

  14. It's Time

    [For example, the stimulus launched by People’s Republic of China had rail construction as its centrepiece. (Which also meant the Chinese got something useful for the cash they spent, while Australia just squandered its stimulus.)]
    Possum, you seem to be attracting a better class of right wing ding bat than at Poll bludger, but right wing ding bats all the same.

    Surely the next stage in their argument will be that Australia didn’t have a recession so the the stimulus wasn’t needed to a avoid a recession that didn’t happen.

  15. Possum Comitatus

    JC, one of the things I find interesting about stimulus packages generally is the way that the deficit spending they’re generally based on has correlated well with minimising the actual time period of the recession itself

    There’s a pretty good visual of it in chart 3 here – although the document it’s wedged in is a bit too bullish about it all for my personal liking:
    http://www.imf.org/external/pubs/ft/fandd/2009/12/pdf/baldacci.pdf

  16. Tim Watson

    Eviews rocks.

    jc123- Barro is wrong, have a look at the regressions above.

    Oh yeah and Sinclair Davidson’s regressions as well.

  17. jc123

    Who is publishing the research? If it’s the IMF one would have to go through it like a fine tooth comb, as they were the main instigators of this action and have made gross errors in the past: for instance The IMF suggested the US was on an inflation target throughout the past decade when in fact it eliminated inflation targeting in 2002 under Greenspan (thanks SRL).

    Perhaps you should also compare like for like in one economy such as the US over the past 40 years.

    The US had recessions (from memory) in early 70’s, late 70’s, early 80’s, mid/ate 80’s, early 90’s and early 2000’s.

    In each of those recessions, with the exception of the last one (2008), stimulus spending was small to non-existent while the deficit never reached these humongous levels that it is now. The automatic stabilizers certainly were allowed to work but there was no large significant stimulus.

    Take look at the respective trajectories of the growth rates as they came out of those recessions without the need to this stimulus? It was actually much faster and the causation could be just as easily ascribed to the fact that there was no stimulus spending during those times.

    The fact is that stimulus has been shown by Barro to have a multiplier of less than 1 which in fact means $1 of spending will result in less than a dollar of gain. In other words it’s a dead weight loss.

  18. Possum Comitatus

    JC,

    It will probably be over around December when a large, comprehensive bit of research on it is due to be published. There’s still a reason why every major international economic organisation was running full throttle on getting a global stimulus package happening

  19. jc123

    Possum:

    I saw your update about Sinclair’s work, so I presume the argument is over now?

    Even if we took the shockingly selective best fit data that treasury propagandized to assist the government sell the botched programs in the name of stimulus, you couldn’t rely on it as the comparable economies are too fluid to compare that way.

  20. peteg

    I may be over simplifying and so missing the point, but doesn’t that data just show that for every percent of GDP that the government borrowed or printed and then spent into the economy, the result was that the spending in the economy increased by about one percent?

  21. James McDonald

    Possum, never mind the sample size, haven’t you and the IMF drawn a bit of a long bow using linear single-variable relationships? Don’t you think at least the global-trade-to-GDP ratio should be included here, and the size of their major export markets’ stimulus packages?

    For example, the stimulus launched by People’s Republic of China had rail construction as its centrepiece. (Which also meant the Chinese got something useful for the cash they spent, while Australia just squandered its stimulus.)

    International trade in general was hammered during the crisis, but China’s steel-based stimulus package was an exception to this and a windfall to Australia that nobody predicted. I’d like to see some projections of Australia’s hypothetical GDP during that period with or without the Chinese stimulus of that size and nature.

  22. JamesK

    @1934pc

    Don’t quote me on this elderly pc but I suspect most mining companies “mention” it.

    Not to mention (I couldn’t resist) the Minerals Council of Australia who “mention” it fairly frequently.

    Makes sense.

    Advertise your distinguishing advantages and all that.

  23. 1934pc

    JamesK
    ?Australia’s largest export markets are Japan, China, South Korea, India and the USA.?
    Australia is by far nearer to Japan and China, than OTHER resourse countries therefore the cost of shipping and the time factor is important. No mention of this by the Resourse companies?.

  24. JamesK

    I see Possum santimoniously informs LO:

    “I thought the words “albeit with only 11 observations” spoke for itself – though apparently not.”

    But apparently not for Possum either in the self same article no less!:

    “The size of stimulus packages mattered – the international evidence is in”

    That in fact is only Possum’s opinion with tenuous statistics demonstrating a dubious relationship between Actual GDP Growth minus IMF Predictions vs Size of Stimulus as a % of GDP.

    Whatever about the very dubious correlation, it certainly does not show that the stimulus mattered. That would imply cause and effect.

    Furthermore the obvious fact that stimulus spending fleetingly increases GDP and that the more spent the greater the ephemeral effect was never in doubt.

    So what? It was still an act of gross insanity not to say negligence.

  25. David

    But of course Jamesk would disagree, whats new?

  26. Possum Comitatus

    LO went:

    [Sorry to ruin the love-in, but the following statement is just plain wrong]

    Hang on – the chart you’re complaining about is the best, most easily understood visualisation that incorporates all the complexities going on underneath the GDP results that I’ve seen. (incorporates them via the mechanics of the models that produced the baseline projections from which forecast errors actually derive in the first place)

    Do you really think I’d run this graphic if the more complex data underneath it didnt justify it? Well, you might – I think you’ve tried to slap me a few times before for doing the same 😛

    The international evidence *is* “in” – and it’s hardly surprising… it was expected.

    Back before the actual GDP results of 2009 released, but after the IMF’s initial growth forecasts, the IMF ran another set of growth projections incorporating early planned stimulus packages of various countries (early, in that the size of the fiscal injections used were much smaller than what was eventually deployed through 2009).

    Those projections clearly showed the correlation between the size of projected growth and the size of stimulus packages across their forecast ranges:

    Page 18:
    http://www.imf.org/external/np/g20/pdf/020509.pdf

    The size of the stimulus – all things being equal – was expected to correlate with the change in growth.

    And it’s not just some quaint little IMF issue, all of the big structural models suggest the same under a wide spectrum of uncertainty and conditions – at least as far as the G20 nations (or combinations thereof) are concerned.Last week I was reading through this:

    http://www.imf.org/external/pubs/ft/wp/2010/wp1073.pdf

    …which made the chart in the budget (that you’re complaining about) quite fortuitous.If I hadnt just read that paper, I probably never would have done this post. The thing that strikes me about what is happening as the actual GDP numbers are rolling in is how much larger the multipliers appear to actually be, compared to what just about everyone thought they would be going into the crisis.

    To the point, where the size of the multipliers were seeing doesnt appear to be constant across the size of the fiscal injection – but where larger injections seem to provide even larger multipliers.

    The reason I published the regression equation in the post was two fold. Firstly, to demonstrate that the chart I produced was identical to the chart in the budget (identical T-stats on a coefficient don’t come about by accident). The second was so I didnt have to answer questions about the results of the regression line in the chart since all the info is right there.

    I thought the words “albeit with only 11 observations” spoke for itself – though apparently not.

    This isnt, nor was it meant to ever be, the definitive econometric explanation of the behaviour of the global economy – it’s really pretty silly to suggest it was trying to be. What it is, however, is the best visualisation around on what is actually going on in terms of the results we are seeing.

    On your other part:

    [I’m going to use this post as an opportunity to register a broader complaint. The blog seems to have become mainly a vehicle for pointing out the errors and inconsistencies in MSM commentary on political and policy issues.]

    I’m glad you did, because a few people have said this lately.

    Over the last 30 posts I’ve made (excluding the post saying that I’m going on holidays), if we really stretch the definition of pointing out errors in media commentary, there has been 3 posts dealing with that.

    The BER post that dealt with the poor understanding of the audit report, the post dealing with Rio Tinto using the news cycle as a lobbying vehicle and how it blew up in their faces (forcing them to backdown with an ASX statement) and the ETS post that was mostly about the importance of the commencement date in the DD trigger legislation – but which had a go at the commentary that seemed to overlook this rather important bit of info.

    3 out of the last 30 (or 31)

    I think what is happening is that the relatively few articles that point out these errors get much wider net linkage than the bread of butter if this place – which is polling data.During those last 30 posts we’ve had a series on the Roy Morgan Polliegraph data from the health debate, a large piece about electoral demography, an election simulation, migration stats, betting market roundups and large chunks of polling.

    I don’t know what else I can say.

    [While it isn’t unreasonable to spend some of your time doing this, I can barely recall a single post that has subjected the government’s own statements, analysis and policies to the same critical evaluation.Why is this? The evidence base underpinning a host of government policies has been thin at best. Yet you never turn your statistical analysis to scrutinising the government’s claims. Don’t you think such analysis would be important?]

    The last time I attempted to do that was with the insulation program – but the data came in the other way.

    Got a suggestion for any issues to have a squiz at?

  27. cud chewer

    I guess one positive is that for the first time a government has run the recession-stimulus experiment in a way that will be crucial in informing a new generation of economists.

    Sadly, there has been a lot of bad, even if self-evident ideas that form the basis of public debate and sadly have persisted. For instance, the GBC (government budgetary constraint.) The idea that a government budget is like a household budget and that expenditure must equal revenue. Here’s a better view of the real situation.

    See:
    http://e1.newcastle.edu.au/coffee/pubs/wp/2008/08-10.pdf

    And also something up to the moment:
    http://bilbo.economicoutlook.net/blog/?p=9643

  28. caf

    Mr Squiggle: Korea is not a command economy. It’s a open, capitalist economy and a modern liberal democracy – certainly not communist. (The IMF is clearly referring to the ROK rather than the DPRK).

  29. Tweets that mention The most important chart in the budget – Pollytics -- Topsy.com

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  30. EngineeringReality

    Great article Possum.

    Yeah the injection of money into the economy either had an effect or it didn’t. The likelihood of billions pouring into the economy having no effect is about as Likely As Wombat-shit.

    So it almost certainly had an effect.

    An injection of cash never reduces economic activity so any effect it would have had would have been a positive effect on our GDP.

    The only question remains “How much was that positive effect?”. I think your article answers that Possum.

    It leaves the coalition exposed as the financial dunces and bullsh!t artists that we know they are.

    They have unfortunately realised the ease that they can quickly and effectively perpetuate the simplistic myth through the MSM and crap political ads that:

    Government debt = bad

    and therefore

    Government surplus = good

    Without the mainstream public being educated that government fiscal policy is really one of the levers of control of an economy and not like the finances of ordinary people or the balance sheets of corporations then unscrupulous political parties can keep influencing public opinion with this falsehood.

    A government surplus is where the government takes more money off us than it gives back to us. It keeps some of our money – to reduce the amount of money in the economy – to reduce inflation and reduce the need to raise interest rates. Its not the same as saving money for a rainy day that individuals do or raising levels of cash that a company may do to meet upcoming commitments or use in future takeovers or investment.

    The real pity is that no one in the MSM understands this – so they just regurgitate the press releases and comments of the coalition.

  31. Labor Outsider

    Sorry to ruin the love-in, but the following statement is just plain wrong:

    “The size of stimulus packages mattered – the international evidence is in.”

    This is a regression with 11 observations and besides the constant, only 1 regressor!! You can’t make any reliable inference on that basis given the potential size of the omitted variable bias. Take out 3 of the eleven countries (Korea, Australia and China) and there is no statiscally significant relationship at all.

    There are no controls for the size of the intial shock (the regression assumes that the original forecasts made the right assessment of how large the shock was) nor non-fiscal stimulus and crisis resolution measures.

    Now, I think it is likely that the Australian stimulus had a positive short-term impact on GDP. Theory and most of the rigorous empirical literature suggests that it should. But to say that the evidence is in on the basis of this empirical test is a joke. You certainly cannot do something as simplistic as read off the impact on GDP from a smaller stimulus given the potential endogeneity problems. Think about monetary policy for example. If the fiscal stimulus had been smaller in Australia, the reaction of the central bank would have been larger. Take a look at the literature trying to determine the impact of fiscal policy on GDP and the sophisitication of the econometric methods used to try and identify the causal impact. This regression wouldn’t see the light of day in even the world’s least sophiticated economic journal.

    Also, many of the arguments against the stimulus are based on concern that some of the government’s expenditure programmes wouldn’t have passed a cost-benefit test, and hence are likely to reduce the level of potential output. In that sense, there is a trade-off between current and future growth.

    I’m going to use this post as an opportunity to register a broader complaint. The blog seems to have become mainly a vehicle for pointing out the errors and inconsistencies in MSM commentary on political and policy issues. While it isn’t unreasonable to spend some of your time doing this, I can barely recall a single post that has subjected the government’s own statements, analysis and policies to the same critical evaluation. Why is this? The evidence base underpinning a host of government policies has been thin at best. Yet you never turn your statistical analysis to scrutinising the government’s claims. Don’t you think such analysis would be important?

  32. ihatett

    Wow… a statistician here. I never expected to see an article in the media that actually paid some respect to statistical methodology – a fantastic forward. It’s… refreshing to say the least, considering the **** that comes out of some outlets! I would just like to comment on Mr Squiggles remarks.

    1) Statiticians sometimes find reason to remove the top and bottom outlying numbers from a group under analysis as abberations. In the case of your chart, Korea looks very much like an outlyer, and possibly even the UK or Italy. I wonder what the following charts would look if you removed these countries. My guess is the line would be flatter, and as a result the line representing Australian GDP under alternative stimuls packages would move to the left somewhat.

    Mr Squiggles… the decision to remove observations from a regression analysis is never as arbitrary as you suggest. The decision to remove outliers, when made by a statistician, is related to the concept of that point influencing the magnitude and variance of the coefficient estimate. Information that can assist in whether or not to remove observations can be found by plotting the residual errors, determining points that sit above the cook’s distance, dfbetas… blah blah blah too much information.

    The ‘statisticians’ that remove observations in that fashion are usually the ones that did an intro stats course in their masters degree or a ‘research methods’ psych degree and hence think they know everything. It’s quite scary what you can pick up from journal articles where there wasn’t a statistician involved in the experimental design. I don’t remember the title, but I remember there was a journal article floating around the traps about statistical errors (i.e. in terms of methodology and pure mis-statement of results).

    Most statisticians wouldn’t bother removing observations from such a small data set, but then again most statisticians would only use an 11 observation data set to demonstrate the concept of linear regression.

    Like all statistical analysis however, there are a lot more variables at play in the gdp = stimulus size equation. I’d be careful making any major inferences on this point, given all the nested and latent factors involved in a model like (e.g. distribution of stimulus by sector, consumer confidence etc etc). Though major props to you crikey – I think I’ll have to read your news site more often!

  33. New budget

    […] of "Stimulus Spending" to keep the Australian economy progressing, have a read of this link HERE, it details quite nicely various economies managed and contains an estimate/projection of how we […]

  34. Ern Malleys cat

    Well done poss.
    In the recent discussions about population growth the distinction between national GDP and GDP per person was canvassed.
    Is it possible to factor in GDP per person to also compare with other countries?

  35. JamesK

    Australia’s largest export markets are Japan, China, South Korea, India and the USA.

    Agricultural products are largely recession proof. Mineral resources exports are understandably strongly correlated with the GDP of the importers.

    I don’t know how you made that graph statistically significant on 11 point data but that shows only a tenuous relationship but certainly not cause and effect.

    Perhaps personal predilections are effecting your statistical analysis Possum?

    My view is the Henry inspired spendathon insanity was just that and appealed to the krudd’s natural instincts which are very far removed from fiscal conservatism.

  36. blinvisible

    Treating (for example) China and Australia as each one data point can lead to misleading results. I think weighting each country by its GDP would be a better idea, would probably drag down the line though which isn’t the point you are trying to make 😉

  37. marshall hughes

    Sorry Possum, I’m thinking about the IMF that didn’t predict the GFC.

    December 2006:

    “WASHINGTON (AP) — The global economy should turn in an energetic performance this year, even though its biggest player, the United States, is expected to experience its weakest growth in five years, according to a new International Monetary Fund forecast.

    “Notwithstanding recent financial market nervousness, the global economy remains on track for continued robust growth in 2007 and 2008,” the IMF said its latest World Economic Outlook, released Wednesday.

    Specifically, the IMF is projecting the world economy to grow by 4.9 percent this year and next. While that would be a moderation from last year’s 5.4 percent advance, it would still represent a remarkably healthy showing, analysts say.

    The U. S. economy is expected to grow by 2.2 percent this year, which would be the slowest since 2002, when it was recovering from a recession. Last year, the U.S. economy managed to expand by 3.3 percent, a two-year high even as it coped with a painful housing slump.

    In its fresh forecast, the IMF downgraded its projection for U.S. growth this year to the current 2.2 percent gain, from a 2.9 percent increase that had been forecast in September.

    The reason for the lower projection: “The U.S. housing market downturn in the United States has, if anything, been deeper than projected,” the IMF said.”

  38. Possum Comitatus

    Squigs went:

    [Not sure if you are still reading, but there is a danger in making things so clear in that you enable further discussion]

    Heh! That’s pretty funny.

    I’ll answer all the questions – just have to go faff about for Question Time

  39. Mr Squiggle

    Poss,

    Great work! Not sure if you are still reading, but there is a danger in making things so clear in that you enable further discussion. My points/questions:

    1) Statiticians sometimes find reason to remove the top and bottom outlying numbers from a group under analysis as abberations. In the case of your chart, Korea looks very much like an outlyer, and possibly even the UK or Italy. I wonder what the following charts would look if you removed these countries. My guess is the line would be flatter, and as a result the line representing Australian GDP under alternative stimuls packages would move to the left somewhat.

    2) Not so much a comment on your work, but if our closest neighbours in chart 1 are China and Korea (centralist command economies), then I would ask what is Australia doing spend as much as communist countries too much for a democratic country?

    3) There is growing evidence that the GFC was not entirely global, more of a Euro + US disaster, with moderate downturns only for China and SE Asia. I can almost see two lines on chart 1, one for US/Euroland and a seperate line for China/SE Asia/Australia. …Just thinking…

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