Former treasurer Joe Hockey (Image: AAP)

Remember crowding out?

Back in the days of the financial crisis, when the Rudd government, in the face of hostility from the Coalition and much of the media, deployed large-scale fiscal stimulus to protect jobs and prevent a recession, a number of arguments were deployed against it by the right.

One was that people would never spend stimulus payments -- they would only spend permanent tax cuts (that was a myth peddled by economists who simply liked reducing the size of government no matter what). In fact there are now extensive studies in both the US and Australia (including work by Andrew Leigh when he was an academic) showing households immediately spent around 40% of stimulus payments, and low-income households up to 70%.