Philosophical Conversations Public Opinion Junk for code
parliament house.gif
Think Tanks
Oz Blogs
Economic Blogs
Foreign Policy Blogs
International Blogs
Media Blogs
South Australian Weblogs
Economic Resources
Environment Links
Political Resources
South Australian Links
"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

economic myths « Previous | |Next »
July 31, 2010

One of the big myths of our time is the debt and deficit one. We are all consistently told that the government should balance its budget just like a household does, that persistent budget deficits are unsustainable and will lead to stagnant growth and even to sovereign defaults. Debt and budget deficits are bad for the resurgent austerity advocates.

This myth has been pushed by the Coalition and most professional free market economists since the global financial crisis These deficit hawks argue for lowering government deficits and debt in the midst of the current global economic recession, even though these orthodox economists don’t have a theory to explain the global financial crisis (since their models exclude the possibility of one).

Though they know that reducing the debt and the budget deficit through slashing public spending will create a heck of a lot of unemployment----unlike the Great Depression when they didn't know this --- their politics dictates that the market will continue its recovery without any additional government stimulus. Markets always work all the time, no matter what.

Government debt, they proclaim, is the spectre haunting Australia, not sagging global economic growth resulting from the global economy heading for a serious slowdown this year; a slowdown greased by the cutbacks in public spending in Europe that will shrink European economies, slow U.S. export growth thereby slowing China's exports.

The global financial crash of 2008 didn’t turn into another Great Depression because the government learned the importance of flooding the market with cash, thereby temporarily rescuing some stranded consumers and most big bankers. It makes sense to cut back debt and the budget deficit when the global economy is likely to grow at a rapid rate because unemployment will come down.

So what will drive global economic growth? China, of course, because of its insatiable demand for commodities, an its fiscal stimulus, working mostly through infrastructure investment, did a great job in terms of buffering the real economy in the face of declining world trade in 2008-09.

China is the leading candidate to be at the epicenter of the next boom. The bet is that China can keep its growth high enough to sustain the global economy while o not getting drawn into some sort of bubble.China will save the day. How? Their middle classes will eventually become so big and rich they can buy everything the nations of Europe and the US will be able to produce,

As of now China and India are still relying on net exports to America and Europe to fuel their growth!

| Posted by Gary Sauer-Thompson at 11:28 AM |