Lefty, I appreciate all that you said, and indeed it makes sense if Australia was in an economic mess at the outset of the GFC, but we were not. Rather, we were riding high on Chinese investment with a surplus other nations were envious of. Our economy was still healthy and was not to show signs of destabilization until at least two years into the global down sizing... or economic correction, if you prefer. So when it was that the Labor government wiped out our surplus on cash hand outs and failed, ill conceived and implemented 'stimulus' programs, many a sensible economist wondered why? Surely that surplus would be better used to stimulate a slowing economy, which was not our circumstances then? Surely, the government needed to apply Keynesian economics correctly and become the employer of last resort with a view to long term Nation building programs, that in and of themselves create small and medium sized business opportunities which ripple through the corporate economy.Leftwinger wrote:Hi Sexy Lady.
"Many sensible economists" arguing against pursuing a surplus is a bit of a relatively recent thing. A few argued back during the GFC that returning to Howard government-type surpluses year after year was unlikely to be possible as the private sector needed to repair it's balance sheet and return to more historically normal levels of saving after the biggest household - not government - debt binge in history.
Note also the government's debt - something that causes constant hyperventilating - compared with history....
http://www.stubbornmule.net/2009/07/par ... ebt-truck/
I think we should also note that the coalition's response until very recently has merely been to promise to deliver an even bigger surplus.
I have not changed my mind - I had long hoped that a surplus might be manifest, not as an end in itself but as a result sustained strong growth. But I always had my doubts - the private sector (particularly household) credit bingeing of the past 10-15 years has left a very large hangover of long-term debt to be paid down. And without a large and ongoing surplus in the external sector (something we have never had), accounting realities at the national level dictate that for the private sector to pay down such debt and accrue net savings (surplus), the government sector of the economy must be in deficit.
But for governments, it isn't just about economics. The forementioned makes no sense to the average punter - they understand that it is prudent for their household to balance it's budget and they simply extrapolate that up, logically assuming that if it is good for their household, it must be good for the government and anything else represents incompetence. The inescapable sectoral balances of the economy are not broadly understood by the electorate. For this reason, the risk of being rejected by the misinformed voters for failing to deliver a surplus have been considered very high. Swan has bowed to the inevitable and further, has refused to drive the economy into recession simply because the electorate do not understand the consequences of what they think they want. The coalition's position appears to be rapidly changing to an each way bet - if it transpires that the public will accept an ongoing government deficit, their continued promises to deliver a bigger surplus are going to look seriously out of place.
Such planning takes time, and we had the time. We could have held back on big dollar splurges to increase that surplus whilst doing all the ground work necessary for mega projects of the kind that are necessary in the here and now.
