Okay. I’ll admit it. Having read Sinclair Davidson’s post on the Premier’s plan and the stimulus, I was somewhat skeptical. Heck, you have to bear in mind that I went through High School being taught that the Premier’s Plan failed, and besides, I thought that U.S government spending only went up after FDR took office in 1934. Plus Sinclair’s graphs were a little bit fuzzy. So I decided to research this on my own. Because if Sinclair was right, we really had an iron strong case against stimulus packages.
I mean think about it. Take two economies in an identical situation, and test the impact of different government policies on them. It would be the perfect experiment! We could, for instance, find out whether or not stimulus spending actually works or not! And this is exactly what the case was. After all, both countries were in an almost identical position, both followed deflationary monetary policy, the only real difference was the U.S engaged in stimulatory fiscal policy, Australia did not. So. I set to work.
And what did I find. Continue reading