Should Governments run Deficits? a Minsky Model

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This is a talk about what the eco­nom­ic con­se­quences could be of Aus­trali­a’s ambi­tion to achieve a per­ma­nent gov­ern­ment sur­plus of 1% of GDP. I present a very sim­ple Min­sky mod­el in which banks lend mon­ey to the pri­vate sec­tor, and the gov­ern­ment both spends and tax­es the pri­vate sec­tor. I then explore 4 sce­nar­ios: a bal­anced bud­get; a per­ma­nent sur­plus of 1% of GDP with no change in bank behav­ior; a per­ma­nent sur­plus of 1% of GDP with a sig­nif­i­cant increase in bank lend­ing; and a per­ma­nent deficit of 1% of GDP. The results are not what pro­po­nents of gov­ern­ment sur­plus­es expect.

The video starts with a dis­cus­sion of what “The Age of Enti­tle­ment” is, and a rec­om­men­da­tion of George Mon­biot’s bril­liant arti­cle on how the Tories are sub­si­diz­ing grouse hunt­ing by clas­si­fy­ing grouse as “domes­ti­cat­ed” or “wild” depend­ing on the tax treat­ment this results in. The mod­el­ing itself starts at about the 8 minute mark.

You can down­load the mod­el from here (right click and choose “Save As”; if you left-click you’ll just get XML gob­blede­gook in your brows­er) and run it your­self using Min­sky.

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About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.