Macrobusiness.com have just posted a crackerjack article on the misreading of the Australian government budget emergency and the errant path they have elected to follow.
"A perennial
and divisive issue in politics and economics today is the matter of public
debt. It is commonly asserted that rising public debt threatens the economy and
needs to be reined in. Governments are often portrayed as ‘irrational’ actors
when they incur a fiscal deficit, causing unnecessary inflation and interest
rates to rise by borrowing to meet the shortfall.
Private
sector lending is supposedly ‘crowded out’ by lifting the cost of money and limiting
access to a finite lending pool by government actors. A large stock of public
debt and chronic deficits are considered economically harmful, due to
increasing the interest payment burden on taxpayers. A centrepiece of the
Abbott government’s economic policy platform is its strident warnings about
growing public debt: Australia’s ‘budget emergency’.
This
specious claim remains unchallenged, for commentators are generally unfamiliar
with the long-term trends in debt and its composition. This analysis fills that
void by examining the long-term trends in public, private and external debt.
Unsurprisingly, the conclusions arrived at are diametrically opposed and differ
sharply to those stemming from the established political and economic
narrative."
