The “adults in charge”: some myths about our economy

Joe Hockey

  • There is a budget emergency.
  • A deficit equals a bad economy.
  • A surplus equals a good economy.

These are all myths. False slogans spread by the Liberal government, unscrutinised by a sympathetic media and swallowed whole by a vast majority of the population. Calling a “crisis” is how Abbott justifies cuts to the poor and disenfranchised. The truth is:

  • There is NO budget emergency.

Australia’s spending is low by OECD standards. And our economy is relatively healthy, especially when compared to our friends in the US.

  • A deficit DOES NOT equal a bad economy.

Being in debt is often not a bad thing. People regularly go into debt to invest in their future. Mortgaging a house is a good example; voluntarily going into debt temporarily to ensure your family has a roof over their head, and with a long-term goal of owning the house as an assert, is a good investment. Spending money on infrastructure, stimulus, health, education etc. all help an economy grow and increase a country’s quality of life, which pays dividends in the future.

  • A surplus DOES NOT equal a good economy.

A surplus does not necessarily mean an economy is strong. At its core, a surplus means the government is taxing its population at a higher rate than it is spending the income on them. And if a surplus is achieved by cutting funding to long-term investments and selling assets, it is not economically wise. Charging more for a GP appointment, for example, is a poor strategy; doctors are a preventative measure and if people are priced out of visiting a GP when they need to, they will eventually cost the economy much more in ER visits, medication and lost working hours. The real problem is a revenue shortfall, and selling assets like Medibank is not a solution. Selling/privatising assets is a quick fix but a poor economic choice; making a dollar now but depriving future governments of a source of income is selfish and stupid.

Spending $24 billion on factory second fighter jets from the US that are largely useless unless we go to war with Papua New Guinea is poor economic management. Cutting funding from education and health is poor economic management. The Abbott government slogan of “trimming the fat” is all good and well, but the “fat” is in tax cuts and superannuation tax concessions for the rich, not trips to the doctor for the poor.

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11 thoughts on “The “adults in charge”: some myths about our economy

  1. Great post and all of the above are true. If a government is in surplus ( the Holy Grail of the LNP), then the private sector – the real driver of the economy – is in debt.
    It is an economic impossibility to have both the private sector and the government in surplus – it has to be one or the other. Nice to see that people are finally waking up to the ‘We’ve got to get back to surplus’ myth. 🙂 🙂 🙂

    • Thanks Edward! I see you’re fighting the good fight over at your blog too. You’ve got a much deeper understanding of the system than I do! Hopefully the general public wise up to the lies they’re being spun.

  2. Welcome to the fray James! Thanks for the ‘like’ and the comment – always appreciated.
    If you’re interested in expanding your knowledge of Modern Monetary Theory, the following sites offer a good introduction and are easy to understand (because of the bullshit fed to us over the past 30 or so years, it takes a little while to get your head around it).
    snowcow is a US site, the system there is slightly different to the one in Aus. but the theory is the same.
    http://www.snowcow.com/society/federal-budget-not-like-household-budget/http:

    Peter Martin writes an excellent and regular easy to understand guide at wordpress.

    http://petermartin2001.wordpress.com/2014/03/30/the-world-owes-57-trillion-who-the-f-to-mars-jupiter-2-its-high-time-for-some-clear-thinking-on-the-subject-of-debt/

    Bill Mitchell’s site is the grandaddy of them all. Bill is one of the leading lights of MMT and you can read his in-depth analysis on all aspects by scrolling down the menu on the right hand side of the page.

    http://bilbo.economicoutlook.net/blog/

    Finally, the Youtube clip offers a light, colour, movement, explanation

    Other names you might like to check out are; Mike Norman (who is also very funny),
    Stephanie Kelton and Randy Wray.
    Cheers and looking forward to your next blog 🙂 🙂

      • Anytime James, we’re all in this together! 🙂 Feel free to contact me at anytime through The Post’s e-mail address which is found on the bottom right hand side of the page if you need more info.

  3. Your dot points are spot on James, but the reasons you give leave a bit of wriggle room for the “deficit terrorists”.

    That’s because you employ the “household analogy” to make your case. It’s the same analogy that Hockey uses to convince us that we have a budget emergency, that we “are living beyond our means”. But it’s a false analogy.

    It’s a powerful and very convincing argument however because it plays to our own experiences in managing our personal affairs.

    It has no relevance or application in any analysis of the government’s budget outcome for the simple reason however that the government has no financial constraints. It is the monopoly issuer of the currency. To put it crudely, it can “print” whatever money it wants.

    In reality, there is no debt.

    So, the reason there is no crisis is not because our “deficit” is small, or manageable, or that borrowing can be useful if the cause is worthwhile, it’s because the government doesn’t actually owe anybody anything.

    A good place to start is here:

    Deficits 101

    • Thanks for the link John, between you and Edward I have a lot of reading to do!
      It’s becoming increasingly obvious that my (very) limited understanding of economics isn’t cutting the mustard here. I know the government issues the currency, but I thought “printing” was limited to keep inflation low. What you’re saying about the “household analogy” makes sense though, it’s a completely different system.
      To be honest I just woke up angry about the whole thing and had to get the words out of my head for my own sanity. Good to know that the dot points are accurate though, even if I don’t understand why haha.

  4. Your “dot points” already put you a hundred miles ahead of the ekonomicks heavy-hitters of the LNP, Hockey, Cormann and Robb. And you’re pulling away. They’re going backwards. Sadly, they’re taking us with them.

    But Hockey’s justification for the budget emergency is, in the words of a famous German scientist (Wolfgang Pauli), “not even wrong”.

    “Printing money” is pretty sloppy language (and Bill Mitchell, rightly, dislikes the term) but it does cut through at this level of discussion. In reality, very little money is “printed”. Money these days is 97% or thereabouts what used to be called “fountain pen money”, entries in ledgers, but now in digital electronic form.

    Most folk don’t realise that the government creates money out of thin air, but this is where you have to start in getting a handle on state finances. Most folk don’t understand that commercial banks create money out of thin air too, but that’s a story for another day.

    To keep inflation under control when you’re creating the state’s money ex nihilo you have to drain some off to keep inflation under control, and that’s the main purpose of taxation.

    The one thing that tax can’t be is revenue!

    Check out the simple adage in the top left corner of this excellent website:

    http://moslereconomics.com/

    • “MOSLER’S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.”

      That’s a great quote. And a podcast, now you’re talking my language!

      Thanks once again for the info. I feel like I’m falling down an economic rabbit hole; people devote their lives to studying this and it certainly falls outside my area of training. But it’s important not to be ignorant, to protect against government rhetoric if nothing else.

  5. Yes, that too, but I was referring to this:

    MMT: Taxes function to regulate aggregate demand, and not to raise revenue per se.

    As Bill Mitchell says repeatedly, “taxes fund nothing”.

    When you understand this, it turns the current debate we’re having about the “deficit tax levy” upside down. Or makes it a silly distraction.

    The most worrying thing about it though is that it tells us the Treasurer of the Australian Government has no understanding of the monetary system he’s supposed to be managing.

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