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.

Should governments run budget surpluses?

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Ask any politi­cian if gov­ern­ments should run sur­pluses and the answer is likely to be a resound­ing yes, with the ratio­nale being that gov­ern­ments should “live within their means”.

Pre­cisely this rea­son was given by the Aus­tralian National Com­mis­sion of Audit, which has been charged by the Abbott gov­ern­ment with the task of sug­gest­ing ways to rein in gov­ern­ment spend­ing. Its first report gave as the very first of its “Prin­ci­ples of good gov­ern­ment” the mantra that gov­ern­ments should:

New Principles of Economics Textbook

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Pro­fes­sor John Kom­los has just released a new text­book on eco­nom­ics which breaks away from the mold of pro­duc­ing clones of Samuelson’s genre-defining opus. Its title is “What Every Eco­nom­ics Stu­dent Needs to Know and Doesn’t Get in the Usual Prin­ci­ples Text”. At a price of $26.55 via Ama­zon, it is priced to be an afford­able sup­ple­ment to a stan­dard text­book. Given the fail­ings of the dis­ci­pline that were so vividly high­lighted by the global finan­cial cri­sis, this book is well worth con­sid­er­ing as an alter­na­tive to the Neo­clas­si­cal mono­cul­ture that dom­i­nates eco­nomic tuition today.

More Effective Remedies for Inequality than Piketty’s

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I will launch Sack the Econ­o­mists, by Geoff Davies, on Sun­day 4 May (3:30pm for a 4pm start) at Glee­books, 49 Glebe Point Road Glebe NSW 2037 Syd­ney.  The event is free, but an RSVP is required here or via phone at 02 9660 2333.  Fol­low­ing is an edited extract per­tain­ing to Thomas Piketty’s recent best-seller.  I hope to see Sydney-side read­ers of this blog at the launch.]

A sudden conversion of property bubble doubts

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Back in the Olde Days, before the global finan­cial cri­sis, when I was one of a hand­ful rais­ing the alarm, some of the most stri­dent oppo­si­tion to my opin­ion about what this might mean for hous­ing in Aus­tralia came from Christo­pher Joye (who was then a Direc­tor at Ris­mark). We went head to head on many occa­sions, with me argu­ing that our prices were a debt-fuelled bub­ble, and Joye argu­ing that ris­ing house prices sim­ply reflected ris­ing house­hold incomes.

Vale Ted Wilshire

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There are very few peo­ple who qual­ify as unfor­get­table in your life, and Ted Wilshire was one of those for me. A larger than life char­ac­ter in every sense of the word, Ted was best known as the Research Offi­cer for the Aus­tralian Metal Work­ers Union (AMWU) who penned the then-influential pam­phlets Aus­tralia Ripped Off and Aus­tralia Uprooted in the days prior to The Accord under the Hawke and Keat­ing Gov­ern­ments.