Running a budget deficit to give needy individuals one-off payments and keeping citizens in work is a good move by the government according to Dr Bruce Littleboy, a senior lecturer in economics at UQ.
Dr Littleboy specialises in Keynesian economics, a theory of macroeconomics proposed by John Maynard Keynes in the 1930s during the Great Depression. Active policy responses by the government and central bank are required to maintain total spending and employment when the private sector loses its confidence and its ability to generate jobs.
"The ball is still up in the air about exactly how to deal with the collapses in the financial sector, but there is a separate need for significant fiscal stimulus," Dr Littleboy said.
Dr Littleboy said too much expert commentary had been critical of deficit spending and urgent stimulus packages.
"People are coming up with weird reasons for doing even less than we are now," he said.
"We can be quite relaxed about going into deficit. Recent government spending will not be a debt burden, it will enhance our national wealth.
"Our wealth is our ability to produce. If resources are left idle, output is lost forever. It is better to produce and consume than not to produce at all."
While balancing the books and even producing surplus is important in boom times, once financial disaster strikes it is necessary for governments to go into deficit, according to Dr Littleboy.
"Given the choice between the government damaging their balance sheet or lots of citizens out of work, I know what I'd prefer."
"Our governments should stand as body shields between us and the severe global downturn. Balancing the budget by cutting spending while the economy is in a slump would be the fiscal equivalent of the army opening fire on its own citizens."
When comparing Rudd's latest stimulus packages to Turnbull's preferred tax cuts, Dr Littleboy said the difference was 'neither here nor there'.
"There is very little difference in cost between Rudd's and Turnbull's ideas. The alternatives are a $250 billion deficit or a $200 billion deficit, after a few years. Both figures are in the same ball-park," he said.
"We need quick action: a stitch in time will save nine later. We can spend the next few months polishing the details of the next round or two of stimulus."
While many are worried by the prospect of the governments, both state and federal, having to repay a large debt, Dr Littleboy said maintaining investment would keep a higher level of capital available for future generations.
"If deficits are funded by bond sales, taxpayers eventually bear the burden of their repayment. But taxpayers also directly or indirectly own the bonds, so we are paying money to ourselves, and there is no net burden," he said.
However, Dr Littleboy's main complaint is that not only could better fiscal solutions for weathering the financial crisis have been debated six months ago, strategies "could have been settled 10 years ago".
"Fiscal policy just withered away," he said. "We left everything to monetary policy and to the Reserve Bank."
"You don't have to see exactly what's coming to make proper preparations for crises — you still need to have lifeboats on the ship even if you haven’t seen the iceberg yet."
Media: Dr Bruce Littleboy (07 3365 6573) or Amanda Sproule at UQ Communications (07 3365 2339).
.jpg)
