So on Thursday morning we were greeted by the thoroughly unedifying spectacle of Federal Treasurer and Irredeemable Incompetent Scott Morrison pitching up the idea that there is now “Good Debt” and “Bad Debt”. You have got to be kidding me. After years of relentless talk of “Debt and Deficit Disaster”, people are starting to notice that under this government, the debt and deficits continue to climb, yet unemployment remains stubbornly high, inflation has been well below target, and consumer confidence is shot. Which begs the question: what the hell are they spending this money on? It clearly isn’t going anywhere useful.
So now ScoMo is going to rewrite the rules, and retrospectively declare some debt good, and some bad. Furthermore, entire functions of government will be rated on their net debt, as if the whole thing were some corporation implementing an internal charge-back model, rather than, well, government programmes: doing the unprofitable things of positive social worth. It’s just idiocy. You don’t have to be Einstein to figure out that this is going to lead to an apples and oranges comparison of all debt under Labor, versus (what they hope will be) a downward trajectory of “bad debt” under their so-called superior economic management. Ignore the “good debt”, nothing to see there, folks! That’s investment! Jobs and Growth. Just ignore that man behind the curtain.
So how will debt be classified?
This unmitigated disaster of an NBN, that will be worth a fraction of what’s been spent on it when completed, that’s a “good debt”, presumably? Obviously welfare will be “bad debt”, that goes without saying. Where does the Health Insurance Rebate fit? How about the Chaplaincy programme? Wars on Terror etc?
This mob truly are irredeemably incompetent. They’re obsessed with what the ratings agencies think of them despite it being of zero consequence to anyone, and fixated on how many dollars they can claw back out of the economy, as if they’re some scarce resource we might run out of, rather than the renewable fuel necessary to makes the economy work.
And whilst they bloviate, millions of hours of productive human potential are wasted every day, lost forever.
Hang on a minute. The term ‘printing money’ should be avoided: it refers to fiscal operations that applied under a gold standard, where the size of the economy was constrained by the amount of gold the government held (or the currency your currency was pegged to). These days all money is printed.
The laws of supply and demand suggest that prices increase if demand is greater than supply, and vice versa. But defining the demand for money itself is not that straightforward, is it? It’s not easy to conceive a situation where the demand for money is less than the available supply.
Furthermore, assuming businesses can adopt a monopolist position and just charge more for the same thing is not valid. Unmet demand leads to greater supply, as new businesses enter the market, and existing ones ramp up production to take advantage. If widgets are profitable, selling more widgets = more profit. Indeed, increased production can lead to lower per-unit cost of production.
Increasing the amount of money increases the aggregate spending capacity. That will increase aggregate demand, and increased production will follow. That leads to more employment, as firms need more workers to make more stuff.
It’s a virtuous cycle, until you run out of the fixed resources, be they raw materials or labour. That’s when you get inflation: when there’s no more idle labour and production to be put into service, and any further injection of cash into the economy will lead to too many dollars chasing too few goods. So whilst adding $200-$400BN to the net financial assets of the economy is not endlessly sustainable, the progressive nature of income taxes will attenuate that spending and drain a significant portion away again.
All that said, I don’t agree with the UBI concept. But for entirely different reasons, and this post is long enough already.