For those who came in late:
Before we proceed any further, aficionado’s of ‘supply side’ economics and readers of The Economist should sharpen their pencils and their heads and try to keep up – there will be a test later!
Treasurers and Chancellors of the Exchequer who suffer from N.F.I. – yes, Australia’s Joe Hockey and UK’s George Osborne, I’m looking at you! Do try to pay attention. This for your benefit!
For liberal democracies to function efficiently and fulfill ‘the social contract’ while continuing to breath life into the rotting carcass of Capitalism, their governments almost always have to run a deficit.
A DEFICIT IS NOT A ‘DEBT’ IN THE SENSE OF EITHER HOUSEHOLD OR BUSINESS DEBT!!!
The term ‘deficit’ is used by governments to describe how much money they outlay in order to keep their economies functioning.
This is capital ‘out-flow’, while taxes are capital ‘in-flow’ or monies returned to governments who, if they have sovereignty over their own currency are the monopoly issuers of that currency. This includes nations such as the UK, US, and Australia.
The money flows into the economy, where it aids in creating aggregate demand, (the need for goods and services) and then flows back out again via the taxation system.
This is somewhat similar to a Hydro-electric scheme, where the water flows into the generator (the economy) where it does its work and then flows back out again.
Taxes fund nothing! Taxes simply serve to rein in inflation caused by overspending.
Got that Hockey? What about you Osborne?
This means that when the government is in deficit, the private sector is in surplus and therefore the economy remains robust. The private sector creates more jobs, people spend more money which in turn creates further aggregate demand, and government budgets remain sustainable.
Balancing the books’ or ‘the Joy of Surplus’, so beloved of Messers Hockey and Osborne means that the only way a nation’s Gross Domestic Product (goods manufactured, demand for those goods and services) can hold its ground is by the private sector making up the short-fall is through borrowing which quickly becomes unsustainable, and the end result is to put the private sector into recession.
Students of History may like to confirm this by referring to Australia’s Paul Keating’s, ‘recession we had to have’ in Australia during the early 90s or the Clinton Administration’s attempts to put the US economy into surplus in the late 1990s. In both cases the end result was the same – the economy of both countries slumped into recession and unemployment soared.
So let us now turn our attention to Master Hockey’s assertions that the budget for Medicare is ‘unsustainable’ and requires an up front fee in order to bring about ‘The Joy of Surplus.’
This is a classic example of ‘wood duck’ economic theory
Every working Australian pays a ‘levy’ to cover the cost of Medicare and this levy could be increased on those in the upper income brackets ($150.000 p.a and above).
The government can also easily fund the so-called shortfall through firstly, creating the necessary funds (which can be done at a key stroke) and secondly, through a reduction in the superannuation concessions afforded to those in the upper income brackets.
Other measures could, and should include the scrapping of the ‘negative gearing’ aspect of home ownership that has put the median price of housing beyond the reach of most average Australians.
All of the above measures could easily fund any shortfall in health care budget allocations.
The Neo-liberal obsession with the pursuit of ‘The Joy of Surplus’ is simply the desire to advance the interests of capital at the expense of labour while its proponents lick-up the cream in the form of tax and superannuation concessions while low-income earners, pensioners and the disadvantaged shoulder the burden, or as Hockey and Osborne prefer to put it; ‘do the heavy lifting.’
The intelligent use of Budget deficit spending coupled with an equitable taxation system, create a strong economy and a fulfilling of the ‘social contract.’
The mania for Budget surplus at the expense of the private sector, destroys the economy through rising unemployment, and increased welfare payments. The greater the number of unemployed, the less money there is to bolster the economy and keep it strong. This is not only basic economic theory (demand creates supply) but also common sense!
Therefore, and without further ado, The Post bestows the ‘Wood Duck of the Week’ Award to Australian Treasurer ‘No Dough’ Joe Hockey, for his tireless efforts in trying to convince the electorate of the validity of his argument through his mantra of ‘deficits – bad! -surplus-good!’
‘No Dough’, your Mugwump Wood Duck Award, lovingly hand carved from a petrified stool passed by Milton Friedman (certificate of authenticity provided) will be forwarded to you.
So grab your copy of Atlas Shrugged, slap on the factor +30, and bask in the warmth of your own bullshit!
But don’t expect anyone with a smattering of economic knowledge to join you!