Excellent to remind governments that “it is not just how much money is spent or how fast it is spent, but on what the money is spent that will determine the long-term payoff.”

However, drawing lessons from the Great Depression is dubious. Despite all the rhetoric about the US New Deal, economists have known since Cary Brown’s 1956 AER article that fiscal policy had trivial impact in stimulating the economy until the USA prepared for war. The most economically successful western economy in the 1930s was Hitler’s Germany, and again the fiscal stimulus was military spending. These are not good models for Australia.

The soil conservation subsidies are a nice example of good policy, and public spending on Australia’s water crisis is surely justified. If we know what the best policies would be, then public spending should be accelerated.

However, the “If” is important, and we should not hide the dilemma between spending to stimulate demand and spending for long-term growth. A stimulus requires speed, but large long-lasting projects require care. The lagged onset of serious recession in Australia gives the government some breathing space compared to the US or UK, and this should be used to identify valuable infrastructure projects, but there is no substitute to open debate and serious analysis of alternatives before taxpayers’ dollars are actuallly spent.

At the state level, a current debate in SA is between building a new sports stadium and a new hospital. The leading newspaper advocates speed in embarking on the stadium. Such a construction project would stimulate the economy short-term and provide a tangible outcome, but if the consequence is a foregone hospital then a quick decision and the ensuing Keynesian boost may not be in the public interest.