There’s an interesting article by Greg Jericho in the Guardian today. It’s typical on many articles which have appeared in the left-of-centre press which criticise the unfairness of Joe Hockey’s recent budget. Greg likes his graphs and statistics to make his point but, even so, he never really gets to the nub of the matter.
For instance he claims: “Now, I know none of this will change anyone’s view that our debt position is good, bad or irrelevant, but at the very least it gives us some proper context.”
Does it? I wouldn’t use any of the words “good”, “bad” or “irrelevant” about the debt or deficits. The parallel would be the exchange rate of the A$ and, clearly in that case, what’s good for some is bad for others, but it isn’t irrelevant to anyone.
The Australian National debt can best be understood as the store of all financial assets, held both domestically and internationally, which are denominated in Aussie dollars. So the only way the government can remove its debt is to remove everyone’s assets too. I guess we all know that instinctively as no-one has questioned the imposed “debt levy” or “deficit levy”. We all know that it will transfer financial assets to government from the private sector.
Even Norway which could afford to pay it off actually has a National Debt of some $200 billion. It needs that ND to store everyone’s assets.
So whilst the conclusion of the article is correct, ie there is no debt problem, the reasons why aren’t quite correct. The simple reason there is no debt problem is that Australian inflation is very low but unemployment is higher than it should be. End of story. The hidden assumption of all neo-liberal economists, even the ones like Greg with a social conscience, is that government debt can be compared to household debt. That is not at all correct for countries which are sovereign in currency issuance.
It is correct for the Eurozone countries though. They have lost the ability to issue and are now currency users like the rest of us. Which is why many of them, and many of us, are having a hard time right now!