The “serious people” in the political world, the media and a lot of “think tanks” (where, apparently, people do very serious thinking) keep telling you, day after day, that a very important goal right now — today, immediately — is to have a balanced government budget. Never mind the need for major investments that are needed in a whole host of things like infrastructure and social services. Balance. It. Now. Except they are wrong — and they are leading us down a quite foolish path.
I know this is a bit wonky but it’s actually quite easy to understand. Money for public spending is actually quite cheap right now to get. Nobel-Prize winning economist Paul Krugman points this out, speaking mostly about the US economy but the point is relevant worldwide, that government borrowing costs are lower than they’ve been in recent memory. Why?:
The main answer is that this is what happens when you have a “deleveraging shock,” in which everyone is trying to pay down debt at the same time. Household borrowing has plunged; businesses are sitting on cash because there’s no reason to expand capacity when the sales aren’t there; and the result is that investors are all dressed up with nowhere to go, or rather no place to put their money. So they’re buying government debt, even at very low returns, for lack of alternatives. Moreover, by making money available so cheaply, they are in effect begging governments to issue more debt.
And governments should be granting their wish, not obsessing over short-term deficits.
No one is happy with the conditions that are making money so cheap to borrow — the Global Financial Crisis has brought down a world of hurt on to the heads of tens of millions of workers, while the bankers have skated by.
But, if there is a silver lining here that governments should seize, it’s that the terrible mess opens up a window of time to spend money to make some serious, long-term investments that will make the economy better for real people. Of course, some day, you do pay back debts — just like one does in paying for a child’s education, or a home or another investment that makes sense. But, right now, at a time when money is so cheap it’s almost being handed to governments for free, we should not be wringing our hands over government deficits.
By the way, Australia’s deficit, as a percentage of gross domestic product (which is how you want to look at it — think of it: it’s like your personal income…you always wants to balance how much you borrow with your ability to earn enough to pay the debt back) is 0.7 percent — a tiny amount. By comparison, China’s annual deficit is running at 2.3 percent of GDP, Japan 8.1, Canada 3.3 and on and on. The only two countries with serious big surpluses are Saudi Arabia and Norway — thanks to oil revenues pouring in.
Anyway, spend the money.
Hate to say, “we told you so” because that won’t pay the bills. But, remember, when we pointed out that China was slowing down and it was downright foolish to let the American Disease infect the thinking in Oz? Well, the mining boom’s last act is coming faster than you think–and that’s a huge warning to take seriously.
AUSTRALIA’S budget surplus has evaporated and its mining investment boom has only two years to run, according to Deloitte Access Economics.
The forecast marks a watershed in assessments of Australia’s prospects, implying in the words of this morning’s Access publication: ”The strong bit of Australia’s two-speed economy won’t stay strong for more than another two years or so”.
The sad thing is that it doesn’t have to be a rocky road. If the mining barons, and their political patron– the man in The Empty Suit, leader of the Coalition– would stop resisting, blocking or whittling back serious taxes on the staggering riches a few people are pocketing from every Australian’s birthright, there would be plenty of money to invest in economic strategically smart efforts that would help the country blossom even when the mining boom evaporates.
And if people would stop wringing their hands over a non-existent deficit problem, we could even be plowing money into projects now.
The head aches.
Cough. Cough. Cough. It’s that time of the year — the office becomes a petri dish and, please, would you just stay home. But, it’s not that pesky disease that passes that should be of concern. Rather, what hurts more is something more permanent–The American Disease.
I wrote about this back in April for the Sydney Morning Herald:
But the American disease spreads its hurt into every pore of society. Here is how I define it: an ideology based on a phantom idea called the “free market”, whose purity and virtue can only be realised by tearing down any regulation deemed “anti-business”, cutting every tax ever conceived and shovelling most of the wealth created in society into the hands of a few.
The American disease has been wildly successful. It has killed the middle class, diverting 30 years of wealth growth from the people who created the value into the hands of the few. More people live in poverty in the US – 46 million – than at any time in the half-century the US government has measured that figure.
What reminded me of this disease is the continuing obsession with a phantom threat: budget deficits. For some reason, the Labor government has decided that it has to worry about government deficits–which are puny, in relative terms, to the economy. But, this idiotic obsession with deficits has been sweeping the globe, and powered most strongly from the United States, where politicians of both political parties–including the president–are trapped in the foolish debate.
The reminder of the rhetoric here came from, not surprisingly, the Financial Review, last week, which started a hand-wringing warning (behind the newspaper’s paywall) from the International Monetary Fund with:
The US faces a decade of fiscal discipline to get its “heavy and growing debt” under control, International Monetary Fund chief Christine Lagarde warns.
And only at the end are we reminded:
US revenues are lower than in most rich countries and could be raised by introducing a value-added tax, increasing personal income tax rates for high earners, eliminating loopholes and reforming corporate tax.
Well, duh. There is not debt or deficit crisis. None. The problem is not balancing the books. It’s getting the priorities right. So, if the priority is to let the rich continue to rob the country, well, then, you might have to look for more revenues. And if you want to let the drug companies and insurance companies rob people, as opposed to having a real national health care system, then, since health care costs are the major cost factor (15 percent of US gross domestic product) driving the US federal budget, of course, you’re going to have less money.
But, it still is not a crisis.
Which brings us back to Oz. It is obvious to anyone who does basic math that as long as robber barons like Gina, Clive and the rest of the gang are unwilling to pay a fair share of the mountain of cash they keep stashing away, the government’s cash position will be just a bit less.
But, no one should be fooled. Believing there is a deficit crisis is just nonsense. It’s part of the American disease that needs to be rooted out and killed.
Read Essential's ongoing research on the public response to Covid-19.
In this week's report:
- Federal government response to Covid-19
- State government response to Covid-19
- Views towards reopening international borders
- Views towards state border closures
- Comprehension and confidence in PM’s plan to ‘safely reopen’ Australia
- Uptake of a Covid-19 vaccine
- Necessity of mandatory vaccinations in specific situations
- Views towards easing restrictions for fully vaccinated people