An Australian Perspective
Edited by Mohamed Ariff, John H. Farrar and Ahmed M. Khalid
Chapter 6: The Fiscal Policy Response to the Global Financial Crisis: A Critique
Tony Makin 6.1 INTRODUCTION Since the onset of the global financial crisis in late 2008, frequent comparison has been made with the Great Depression (IMF, 2009a) which spanned the economically disastrous 1930s. However, the impact of the global financial crisis on the real sectors of economies was far less than the depths reached then, when economies such as those in Australia, Britain and the US experienced huge falls in production, deflation, and unemployment rates that ranged from 20 to 30 per cent of the workforce. To counter the impact of the global financial crisis (GFC) on the real sector of economies, governments around the world implemented unprecedented fiscal stimulus in 2008–09, which entailed a combination of tax cuts, income transfers and public infrastructure spending. In commentary on the crisis, it has become commonplace to credit fiscal stimulus measures for subsequent recovery in many economies. Whether it was the avoidance of severe recession, higher than expected retail sales, or other miscellaneous measures of spending, we have been led to believe that things would have been much worse without the unprecedented fiscal activism. The most recent comparable international financial crisis was the Asian financial crisis of the late 1990s. Yet Australia and many other economies coped well during that crisis, relying mainly on rapid monetary responses and shock-absorbing exchange rate adjustment, with no fiscal response at all. So whether this time around so many advanced and emerging economies needed to engage in the largest ever coordinated fiscal responses in the world...
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