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.
