The Budget (what else) and a parrot or two

Tonight is federal budget night – which presents the most comprehensive picture of where the Government is going with fiscal policy and the Treasury’s estimate of how the economy is travelling. So for a macroeconomist like me it is a biggest night in the annual calendar. But I am more interested in parrots and spotted owls at the moment. What? Yes, I guess it is escapism … to avoid the hysterical public debate that has surrounded this budget. The economic falsehoods, the outright lies, the duplicity and the all of that. But I cannot escape it because I have a newspaper opinion piece to write on the Budget by 20:00 tonight. So, given that, here is my take on the budget and then …. I can get back to the birds!

Budget reaction

More press hysteria has accompanied this Budget than any I can recall. The public debate has been sidetracked from the real issues by erroneous claims like “the deficit blowout will drown our children in debt” and the rest of the rubbish.

The Budget has now concentrated our minds on the real issues. GDP growth will be negative this year which will force unemployment to peak at 8.5% in 2011.

We should judge the Budget by how effectively it minimises these negative impacts.

Recessions occur when waning spending leaves unsold output. The resulting unemployment imposes huge costs on individuals, their families and, indirectly, all of us (via increased crime, etc). The sharp spikes in unemployment that accompany recessions take years to reverse.

The $58 billion Federal deficit aims to fill these spending gaps and underwrite employment and income growth. Deficits are good! The Budget demonstrates leadership in this regard by increasing infrastructure spending on future educational and productive capacity while also increasing pensions and introducing maternity leave.

Although the dollar value of the deficit looks “big” it is still only 4.9% of GDP compared to 4.1% during the 1991 recession.

Concern over the “record deficit” is misplaced. The deficit has to be whatever it takes to fill the spending gap. Focusing on the size of the deficit misses the point that it is merely the accounting consequence of protecting jobs when private spending declines.

In 1991, the Government reacted slowly (remember Keating’s “soft landing” boast) which prolonged the recession and created higher unemployment than was necessary.

The size of this deficit signifies the alacrity of the Government’s response. Their quick intervention has already reduced the severity of the downturn. The budget deficit announced last night will further help our economy ride the global crisis.

The public infrastructure investment will underwrite jobs and provide future benefits to regional Australia. It also shows the recent obsession with surpluses represented a decade of lost opportunity and a failure of fiscal leadership. The surpluses squeezed private purchasing power and forced households into increasing levels of indebtedness. That growth strategy was always going to be unsustainable – and we have learned that the hard way

Several budget initiatives will reverse the shameful bias of the previous government towards high income earners. Increasing pensions and trimming back middle-class welfare will better rebalance our priorities.

It was disappointing that no direct public sector job creation was foreshadowed which would lower unemployment more quickly.

But it is still a self-conscious Government – insisting the deficit will be “temporary”. Attempts to get the budget back into surplus will prove unsustainable. The private sector typically desires to save which creates spending gaps that have to be filled by deficits. The recent debt binge was historically atypical. So on-going deficits will become the norm – as it should be.

Continuous deficits were mainstream thinking until economic rationalism took over. Fortunately, the global crisis has exposed the failures of the free market experiment and governments around the world are now using deficits responsibly to steer their economies back to sustainable growth.

Overall, the budget is not expansionary enough given the already high unemployment.

Will our children be burdened by the debt? Don’t even worry about that nonsense.

Statement from the Treasurer

I listened carefully to the speech tonight and I thought I picked this bit up but I might be mistaken. Can anyone confirm it?

….. Our actions are expected to support up to 210,000 jobs, and reduce the peak in the unemployment rate by 1 percentage points below the double digit peak it would reach if we listened to those who said we should do nothing.

The Government believes in those 210,000 Australians and we won’t cut them loose.

We understand the dignity of work, and the cost of being without it.

Hold on a minute, we need more jobs than that Kevin!

Then I noticed some hasty scribbling, a pocket calculator or two coming out, Peter Costello looking ashamed, and the Treasurer got up again and resumed his speech.

People of Australia, we actually will introduce policies to support up to 1 million jobs or more if necessary and create full employment with an unemployment rate of 2 per cent by the end of this year. While the other side of politics have stood by and allowed 10 per cent of more of our valuable labour resources to go to waste we will not do that.

The Government believes in those 210,000 … sorry MORE THAN A MILLION Australians and we won’t cut them loose.

We understand the dignity of work, and the cost of being without it.

With that understanding, the Federal government has taken advice from the Centre of Full Employment and Equity (CofFEE) at the University of Newcastle who have done extensive research on the problem of unemployment. Much more detailed work than the Government’s own departments have done. The latter have been occupied working on plans to discipline the unemployed and force then into useless training schemes outside of the paid work context.

Well not anymore! CofFEE has calculated that 557,000 full-time equivalent jobs (80 per cent in the public sector and 20 in the private as a result of the boost) would cost us $8.3 billion per annum. That will push the deficit up to just over 5 per cent of GDP. Full employment never came so cheap.

So now I want to announce to the Australian people that the Federal Government will offer a job at the federal minimum wage to anyone who wants to work and currently cannot find it. All you have to do is turn up tomorrow morning at your local depot to start work. If we haven’t any work ready for you to do immediately, we will have soon! In the meantime your pay starts tomorrow. Ring your local office for details or look in tomorrow’s newspapers. We are calling this initiative the Job Guarantee and believe it will provide a safety net for those who lose their jobs.

It sure sounded like that to me anyway. Great Government! Great leadership. First budget in years that I have been happy with. And don’t bother writing in to suggest hearing or eye examinations.

Anyway, it is back to the birds!

Parrots versus jobs .. Jobs versus owls!

A few thousand birds at most and around 320 direct jobs and 537 indirect jobs in the Riverina area of NSW. That is the big showdown which is pitting the NSW State Government against the Federal Government, the National Parks Association against the Mayor of Deniliquin (a small town in south western NSW) and the Timber industry against the conservationists.

superb_parrot_1

This delightful looking bird is a Superb Parrot and there are only around 5000 breeding pairs left. They face declining habitat and threats from other birds. They will become extinct unless there is a species management scheme put in place.

Along comes Midnight Oil’s Peter Garrett, aka the Federal Environment minister who has put a ban on logging in certain Murray redgum forests where the Superb Parrot likes to live.

The towns that are supported by the timber industry in that area say that their towns will die if they are not allowed free access to these old forests. The Mayor of Deniliquin said:

Peter Garrett should think of the people that he is putting out of jobs in ruining the inland of Australia – he is not concerned about the cities, he is not concerned about the coastal area … “He and his government at the moment are working on a witch-hunt to try and cruel the central parts of NSW.

The NSW Forest Products Association say that all is well and they leave a fringe of trees for the parrots.

But it is also likely that if a carefully designed transition plan is put in place the region could increase its overall income via ecotourism. There is evidence that the forest depletion will kill the prospects of the timber industry anyway along with the parrot.

In these situations, emotions run high but alternatives are always available if there is sufficient public sector adjustment support which has to include direct job creation.

Further, environmentally concerned people who do not live in these areas should not be isolated from the adjustment pain. Given that the State Government will have to be involved in any adjustment process and is revenue-constrained (because it is not the sovereign issuer of the AUD), then it may have to raise taxes to fund adjustment programs. City folk who do not face job loss should be prepared to pay an appropriately scaled timber adjustment levy which could underwrite the lost incomes for the timber workers while new tourism and other industries are constructed in these areas under stress.

The Superb Parrot debate rehearses the same debate that communities around the world have struggled with for years. When I read the Superb Parrot story, I recalled the huge struggle in the US over the last twenty years to protect an owl! There has been a famous “bird against job” conflict raging for years on the North-west Pacific coast of the USA. There is a very rare habitat of Northern spotted owls who live in the native forests there and it just so happens that the same forests supported a very lucrative timber industry.

northern_spotted_owl

As an aside, one of the reasons the Northwest was considered attractive in the first place is that the dust-bowl refugees called it “the promised land” and migrated there in droves to feed their families. This suggests that if proper regional development policies were in place populations would not feel the need to move and plunder new areas. But that is another story.

Anyway, the problem for the owl is that they are very fussy about where they live and just happen to relish the surroundings that the old growth forests in this area provide. The unrestricted logging up until the injunctions just about wiped this species and a number of other species that rely on the environment in this region out. Continued logging would have destroyed the fragile biodiversity of the region.

The US Fish and Wildlife Service federally listed the northern spotted owl as a threatened species in 1990. According to the serveice “In 1992, areas of critical habitat were designated to further protect this subspecies on federal lands. A draft recovery plan was written in 2007 and has not been finalized yet.” This decision was challenged by some local Oregon communities and ended up in the US Supreme Court. The Supreme Court ruled in favour of the USFWS and this stopped logging on federal lands which was deemed to be of danger to the habitat of the owl.

It is clear that there was economic dislocation after the decision as logging declined in the area. The job losses initially were significant and there was no clear federal plan in place to provide alternative income earning opportunities. However, over time, viable new industries have emerged to replace the timber industries in the Northwest.

The research evidence also does not support the doomsday scenarios suggested by logging interests. The ECONorthwest report found:

Despite years of rhetoric and misinformation, national and regional economies are not dependent on logging National Forests. The most often cited misconception is that the regional economy of the Pacific Northwest declined after a court injunction and related events reduced National Forest logging … In fact, instead of collapsing, the region’s economy expanded and the Pacific Northwest weathered virtually unscathed the national economic recession that occurred at the same time as the court injunction. Today economic dependence on logging is minimal in each state and currently not one state is as dependent on logging as Oregon was in its peak logging year of 1988. The day when National Forest logging was the base of economic development has long gone. Relying on logging of National Forests to produce a vibrant economy will harm real economic benefits and lose jobs … Forest Service economists estimate that timber only accounts for 2.7 percent of the total values of goods and services derived from the National Forests while recreation and fish and wildlife habitat produce 84.6 percent. However, this only tells part of the story. When the value of clean water, carbon sequestration and the protection of wild forests is taken into account it becomes clear that not logging National Forests creates even more economic benefit that previously measured.

The point is if we want to save habitat then we have to turn the parrots and their habitats into jobs. There doesn’t have to be a trade-off. Analysis of regional adjustments across the globe suggest that these dilemmas are not zero-sum games.The task is to look for creative solutions that can turn the parrots into employment. And my work on regional restructuring (mostly coal at present) leads one to consider the concept of a just transition.

Just transitions

Economic restructuring at a regional level is painful. In a Commissioned Report that I co-authored modelling the transitions away from coal-fired power to renewables, we noted that a just transition policy recognises that people and ecology are both important. It recognises that ‘business-as-usual’ and high risk technological fixes to unsustainable economic activity are not credible options for confronting climate change. We could have talked about the so-called dominance of timber industries over native habitat if we had have been talking about the Superb Parrots.

A just transition ensures that the costs of economic restructuring and the shift to sustainability do not fall on workers in targeted industries and their communities. A just transition in any threated region requires government intervention and community partnerships to create the regulatory framework, infrastructure and market incentives for the creation of well-paid, secure, healthy, satisfying environmentally-friendly jobs with particular attention to appropriately meeting the needs of affected workers and their communities.

A just transition requires the governments to play a critical role in fostering the adjustment such that it protects local communities and environments during change. Government support must include:

  • Assistance for both displaced workers and for contractors;
  • Adequate notice of workplace change and closures;
  • Consultation and full engagement of relevant unions;
  • Support for innovation and partnerships for new local industries, research and development and infrastructure investments;
  • Training and alternative employment tailored to local and individual needs and opportunities;
  • Special targeted support for older, disabled and less educated workers;
  • Relocation assistance for displaced workers;
  • Income maintenance, redundancy entitlements and retraining allowances;
  • Cheap loans and subsidies for new industries and employers;
  • Compensation and equipment buy-outs for contractors;
  • Assistance programs extended to workers employed by contractors;
  • A just transition requires investment in training programs and apprenticeships to create a highly trained ‘green’ workforce;
  • The introduction of a Job Guarantee to provide continuous employment for all those without work.

So from my perspective jobs are very important but so are the habitats that support endangered species. I don’t really want to be part of a generation of humans that disregard the flora and fauna and value it less than private profit. But then I also value jobs and require that all people have access to decent work wherever they choose to live. If there are no private job opportunities in some areas then the public sector has to stand ready to provide the vital employment. So I never see these disputes in terms of “parrots versus jobs”. We can have both with a little creativity and a lot of public sector support.

That is what Peter Garrett has to provide the timber communities so we can enjoy the Superb Parrot for longer. The Greens and supporters are strong on what needs to be protected but are often not very conversant with what needs to be done to support the economic base (that is, jobs) in a region they want to save. We just have to get a public debate going where we can construct these issues more creatively and see that all sides can win.

Anyway, thinking about the Superb Parrot and the Northern Spotted Owl certainly beat thinking about the budget. Don’t you think?

I also did promise some free giveaways if you came back but I ran out!

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    21 Responses to The Budget (what else) and a parrot or two

    1. K says:

      I’m an engineer and work in rail. I thought infrastructure spending would have been greater. I can’t believe as you say earlier how much things will change with an 8.5% predicted unemployment rate, but I also saw that it is predicted it will be very close to that by the end of next year. I heard about the Peter Garrett thing. He’s just a die hard greenie wannabe. Aparently the Parrot is on the bottom of the endangered species list as least likely to become extinct and at the cost of that employment at a time like this one, pff.
      This may sound like a dumb question, but what do you think will help us more with getting out of this budget deficit Government spending or consumer spending?

    2. timothy watson says:

      Bill

      My thoughts entirely on the budget- I was looking for more direct job creation, 210,000 just ain’t enough.

      All the talk about carers, and responding to climate change- these are precisely the roles where a RED type scheme could be of great assistance.

      Swan appeared almost apologetic about the budget being in deficit- this is no way to approach the next 5, or however many years of deficits to come.

      I was hoping for a more forceful and unapologetic display. All the talk of temporary deficits, and plans to return the budget to surplus are laying the foundations for sustained, unacceptably high levels of unemployment.

      I hope the treasurer finds some ticker somewhere, and gets over his fear of the “D” word.

    3. stuart says:

      Also the lack of an increase in unemployment benefits is disgusting. Surely noone can stick to the discretionary unemployed line now, so they should be getting a proper wage rather than the pittance they get at the moment. Its a truely counter cyclical measure and its the just thing to do given the increase in unemployment. If they arent going to supply jobs they can at least provide a decent safety net.

    4. bill says:

      Dear Stuart

      I could not agree more. The politics demanded that the aged pensioners and maternity leave get a show but the single parents and unemployed are at the top of our list of vilified citizens. They are expendable when you have a Government who thinks it has a deficit problem.

      I would have rather seen them provide the unemployed with jobs though as you might guess.

      best wishes
      bill

    5. Edward says:

      Bill,

      I am particularly surprised that this budget hasn’t received a far greater level of criticism in the media, or for that matter, in your blog.

      I do not ever remember feeling this concerned about the sheer lack of economic ability at a Federal Government level.

      What are they hoping to achieve by increasing the aged pension (without first working out how to fund it)? How do they expect that the discouraging of superannuation contributions will lessen the future financial burden of an aging population?

      My primary concern is that we will have to wear the mistakes of this government for at least the next decade: which is particularly frustrating given that they are achieving such poor value for each dollar that they are spending. Such reckless and poorly planned decisions.

      Cheers to all the good folks that voted these amateurs into power – you’ll feel particularly satisfied with your choice during your next few years of unemployment, and your last day of work (assuming you find another job) at age 67.

      Good work Australia.

    6. Alan Dunn says:

      Hello K,

      “… but what do you think will help us more with getting out of this budget deficit Government spending or consumer spending?”

      Until all labour is fully employed it is the governments responsibility to run a budget deficit to fill the spending gap?

      If the government does not run a budget deficit then the non-government sector will eventually run out of savings and then either have to seek credit to maintain their standard of living or reduce it.

      When people reduce their standard of living they spend less and when they spend less people lose jobs and with it income…and so it continues.

      Howard and Costello through running surplus budgets forced the non-government sector into using credit to fuel growth and it failed miserably.

      Cheers, Alan

    7. K says:

      Hi Alan,

      Thanks for that response. I think most of you guys would support the government running a budget deficit rather then focusing on trying to gain a surplus because a deficit will mean higher employment. Sorry, I don’t know much about Economics. I have to stop writting in this blog.

      K

    8. graham says:

      Dear Alan,
      “Howard and Costello through running surplus budgets forced the non-government sector into using credit to fuel growth and it failed miserably.” It sounds as though you are saying that Howard CAUSED the private sector into using credit. I am not sure that I see this causation. Yes, people seem to have run up a lot of debt no doubt made easy to come by via the banks dishing out easy loans. Many people seemed to be not bothering to save because you could get an easy loan and begin to pay it off ( instead of saving first then buying). Could it not be that the flat out economy (demand from Asia etc with royalties and the spinoff jobs etc) and people taking on easy credit gave the government the opportunity to “cream off” plenty to provide the surplus so Costello could thump on his chest as to what a great treasurer he is (was)?

      Cheers
      Graham

    9. bill says:

      Dear Edward

      I think you should read more of my blog and then you will understand that I have no time for the intergenerational debate (it is a furphy). I also don’t see your evidence for your conclusion that they are reckless. How will you measure “value for each dollar spent”? I don’t think the Government is doing enough for the unemployed but they are doing more than the last regime would have done to meet this crisis head on.

      best wishes
      bill

    10. bill says:

      Dear Graham

      Alan can speak for himself but the statement about the government sector surpluses forcing the non-government sector into deficits is purely a matter of national accounting. If there are two sectors and their flows are interconnected then if one is taking more out of the other than it is putting back in (Government running a surplus) then the other has to be giving (in the form of tax payments) more than they are receiving (in the form of government spending) – which means a non-government deficit. The individual behaviour below this can of-course be varied but overall for the sectors as a whole this must hold (that is at the macroeconomic level). So the non-government sector could not save while the government sector was running surpluses. Individual yes but the sector as a whole no! So unless the private sector increased its indebtedness the economy would have ground to a halt much sooner than it has.

      best wishes
      bill

    11. Lefty says:

      Yes, that’s one thing I have struggled to get my head around. Very many people were in debt to the eyeballs but I’m not sure that I know of anyone who simply could not save anything. Everyone around me gives me the impression that this was a lifestyle choice – easy to get credit has simply been such a normal part of life for so long that being constantly in debt to consume was just something most people did. I have been surrounded for years by people earning up to $2000 a week, not including spouses income and most of them were always in debt simply to buy “stuff”. Nothing prevented me from accruing a $9000 surplus, I simply chose to rarely use the credit that was on offer at every single turn.

      If you offer people the choice to “have all their material desires now and worry about paying later” very many of them will take it – especially if you have no memory of depression, recession or much tighter and narrower credit availability.

      Perhaps the answer is necessarily complicated but it does seem to me that most of the debt I have seen around me was a choice. It would seem that if anyone needed to run down private savings, it would be the banks, convincing people to part with an ever increasing ratio of their income as debt (which certainly occurred) in order to get the deposits to lend as the government deposited less and less in the commercial banking system with each consecutive surplus, squeezing the amount of money in the economy. But if lending creates deposits (still confused as to how they loaned more and more $AUSD when surplus after surplus meant that there were less and less in existence in the economy) then this would not be the case. If the banks are not reserve constrained………

      OK my head is starting to spin now. The comings and goings of this intangable medium of exchange and the situations it creates by it’s very nature gets mind numbing at times, fascinating though it is. Will think about it tomorrow, but I do have to say on reflection that most of the borrowing to consume I have personally witnessed appears to be the choice of the borrowers, who saw no reason not to go into debt in order to have it all right now.

    12. bill says:

      Dear Lefty with the spinning head!

      No-one is suggesting that individuals do not make choices. I write about sectoral relationships (being a macroeconomist). When the government sector is running a surplus the non-government sector does not have a choice – it must be in deficit as a matter of national accounting. The question then is what happens next. If the non-government sector does nothing, then the economy will contract because of the fiscal drag and ultimately the government will go back into deficit (through the automatic stabilisers) and the non-government sector will be able to save again overall. However, if there is cheap credit and a “can’t wait until tomorrow” mentality in the non-government sector then increasing indebtedness will, for a time, be able to mask the fiscal drag and the economy will continue to grow on the back of the private debt mountain. But as soon as the defaults start or the private sector starts to save again the house of cards collapses quickly – exactly what is now happening.

      best wishes
      bill

    13. Lefty says:

      More hard stuff at posting time (night time codral cold and flu – hopefully not swine flu).

      To the public at large, it will be a similar thing to government borrowing while running a deficit – it’s outward appearence will mask what is actually occurring. The majority did choose to use debt to satisfy their material desires instantly instead of having to delay gratification by saving first, simply because so much super-easy credit was on offer (I think Clive Hamilton has a point regarding affluenza – people are always following mass trends, for good or ill) so you have to try and explain to them what would have happened if instead, everybody had tried to save, as has been traditional, while the government was running perpetually expanding surpluses.

      Aside: do foreign customers pay for what we export them in $AUSD from their foreign currency reserves? Does more Australian currency enter the economy in this fashion?

    14. bill says:

      Dear Lefty

      What would have happened if the non-government sector had not loaded up on debt is that the spending gap left by the fiscal surpluses would have quickly caused deflation – unsold inventories, people looking for a way to earn $s without finding the spending to support the jobs. As production levels fell and unemployment rose, tax revenue would fall and welfare payments would have risen eventually pushing the budget back into deficit. At that point the spending gap starts to shrink as a result of the net government injection (via the automatic stabilisers) and eventually the economy would establish a new point of balance but at much lower levels of output and employment and much higher employment – with the government in deficit and the non-government sector with positive saving (albeit lower levels than would have been the case at full employment).

      This is an inferior outcome to the Government running strategic deficits in the first place to match the spending gap and underwriting high levels of employment and low unemployment.

      The point is they get a deficit whichever way it goes – a bad one or a good one!! That is the point that needs to be understood. It is the choice of Government which sort of deficit they end up with.

      Aside: it all depends what the export contracts say. Some are specified in foreign currency units ($US typically) while some (very few) are sold in $A units. So there is exchange rate exposure in most of the contracts which the producers then hedge (insure against in the forward exchange markets) to ensure they get a certain $A income. But ultimately, irrespective of the unit in which the contract is specified, the transactions have to executed by some bank selling foreign currency and buying $A to add to credit the account of the Australian exporter. The foreign importer might have the $As or might have to buy them in the foreign exchange market. If we are exporting more than importing the there will be a greater demand for $A (from the foreign importers) than supply of $A (from Australian firms/people wanting imports) and the exchange rate will appreciate (and vice versa if we are exporting less than importing). The price adjustment (exchange rate movement) adjusts the imbalance by making goods and services more expensive or cheaper in relative currency units.

      best wishes
      bill

    15. graham says:

      Dear Bill, Alan and Lefty,
      my query was just about the causation. Yes, I think I understood the matter of the national accounting. It is that in this instance of the business cycle, it seemed to me, that because on aggregate people had gone into such high levels of debt ( for whatever reason) that this inadvertently shored up the economy to such an extent that it was easy for Costello to run up a surplus as a result. If people had not run up such a debt and Costello had run a surplus then there would have been a major problem anyway, presumably much earlier than this current one, with people having a large deficit or drop in personal savings in order to prop up the surplus. In short the impression is that it wasn’t the surplus that CAUSED people to use credit to fuel growth but the other way around in this particular case where the credit only put off the pain until later (now).
      Cheers
      Graham

    16. bill says:

      Dear Graham

      The causation runs both ways because the budget balance is endogenous – that is determined by the system but also determining for the system. But the important starting point in understanding this stuff is to realise that the macroeconomic constraint is binding on individual choices. So when the Government runs a surplus it has to force the non-government sector to run a deficit. That is the constraint. So in net terms the non-government sector is running down wealth even if within it some individuals may be building personal wealth. The non-government debt did allow the economy to grow while the government fiscal drag was increasing which was, in turn, assisted by the debt-driven growth. It is clear that if the private sector had have tried to save early on as the surpluses were being accumulated that the whole show would have collapsed earlier than it has.

      But it remains true that the intentions of the federal government of the day to pursue surpluses initially squeezed the non-government sector and forced the latter (as a whole) into deficit.
      best wishes
      bill

    17. graham says:

      Dear Bill,
      I’m beginning to feel more like Lefty every day. Just when I think I’ve got my head around things – more or less – I discover its not quite like it has seemed to me.

      Anyway, a new question: Last night I woke up at about 2am and had a sudden “insight” (I think these days they use the biblical expression “epiphany”). I felt I understood now what is going on when people say the government would be “printing money” when they run a deficit.

      OK, as I understand it when the government spends it puts money into the system by way of simply crediting a bank account and then extracts it a) by way of taxes and b) the RBA charging interest on private bank borrowings. Both the taxes and the interest are then simply deleted from the system. The question then is simply about the relatives sizes of the inputs and the outputs when it comes to running a deficit or a surplus. So there is nothing to be balanced by the government. In between the inputs and outputs the private economy can use the money tokens although they have to balance their budgets. That’s all there is, right?. The rest is just the economic sugar (in computer science the expression was “syntactic sugar”).

      Now don’t tell me that is all wrong or I’ll have another sleepless night!

      Cheers

      Graham

      PS Regarding your last entry OK. What came first the chicken or the egg was what I was on about. Maybe the gov did start squeezing before there was such a lot of takeup of credit by the non-gov sector – it just wasn’t my impression.

    18. Lefty says:

      Yes, that’s the thing Graham. I’m finding this subject to be riddled with things that, to the layperson, look like a duck, walk like a duck, quack like a duck – but then turn out to be something else entirely. No wonder the public are confused and misinterperet how it functions! I think we just have to keep plugging along to steadily expand our understanding and more things will fall into place. I accepted the idea of fiat currency straight away as I had heard it alluded to previously, but then to follow the comings and goings of this intangible medium of exchange through the in’s and out’s of the economy can get somewhat tricky until the information you are absorbing becomes knowledge proper, I suspect. But it’s always fun finding out what makes things tick.

      But don’t try to think hard when you are fatigued and have popped night-strength flu tablets.

      cheers

    19. tricky says:

      bill

      can i sum up the situation as this….

      if successive govts. [not just in australia but in the uk and us aswell] had been more relaxed about running budget deficits ie won the media battle or just not cared, we wouldn’t have had a situation whereby the private debt mountain didn’t need to exist ?

      govt. deficits and low private debt is preferable to the inevitable reverse situation of budget surpluses and and a huge private debt mountain ?

      instead we’ve had a preoccupation with not running govt. deficits until the threat of deflation raises it’s head, and a similar obsession with meeting decidedly abritary debt-to-gbp ratios which were jettisoned in the blink of an eye due to the GFC and the threat of the big “D” ? This only reaffirms your argument out about how govts. appear to be basically undertaking this bizarre act of prudence acting as if they ARE a household with revenue constraints and other limitations as some sort of ritual, knowing full well they don’t need to. !!!

      It’s pretty shocking when you think about it, they’ve allowed millions of people to become mired needlessley in debt.

      does history bear this budget surples = private sector loading up on debt, as a hard and fast rule ?

    20. Alan Dunn says:

      Dear Tricky,

      Excellent post

      If you were running for PM you would get my vote.

      “It’s pretty shocking when you think about it, they’ve allowed millions of people to become mired needlessley in debt.

      does history bear this budget surples = private sector loading up on debt, as a hard and fast rule ?”

      It does if they want to maintain or improve their current standard of living.

      cheers, Alan

    21. righty says:

      Hey Lefty,

      I don’t agree with you.

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