Joshua Gans is Professor of Management (Information Economics) in the Melbourne Business School and a Professorial Fellow in Economics at the University of Melbourne. He was recently awarded the 2007 Young Economist Award by the Economic Society of Australia. He blogs on these issues at economics.com.au .
The overwhelming economic challenge for the next government will be how to deal with the fact that in a decade of prosperity little has been done to ‘mend the house while the sun was shining’.
The 1980s and early 1990s saw waves of difficult economic reforms designed to increase efficiency and hopefully create more for all; most notably in competition policy and reform of government enterprises.
But there was much about microeconomic reform that remained to be done. This was especially the case in health (where our health insurance system is a mix of fraying band aids), education (where the fundamental issue of how to get people to be more willing to invest in educations, directly or indirectly remains outstanding) and the environment (where we have failed to prepare the nation for the fact that environmental costs will have to be paid for by this generation).
Add to that an erosion of public support for science and innovation and continuing issues in basic infrastructure investment (eg, our dependence on Telstra for telecommunications) and we see many overdue bills with ‘final notices’.
We need to look for leadership to act urgently on a reform agenda for an economy that has been neglected. We will have a few more years of commodity boom and good economic times. The opportunity to do something to solidify our economic prosperity for the next generation should not be missed. It is this realisation that we need to pay now for benefits later that is the salient economic issue of this election
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Debt and Deflation
By: AlanK (Registered ) on 21-11-2007 22:42
Might I suggest that thinking voters could do worse than read the postings at this site on the internet:- http://www.debtdeflation.com/
blogs/
There may very well be a number of persons that will dismiss the statements contained on these pages, but, I am sure, an equal number will enjoy the history lesson, particularly The Political Debt Cycle . As one who has lived through all that is mentioned, I enjoyed seeing it spelt out so succinctly.
Steve Keen's DebtWatch No. 14 October 2007 The Political Debt Cycle Both parties will make much of their economic management credentials in this election campaign. Many Australians, on the other hand, seem convinced that the economy would do as well regardless of which party were in power. The average punter has it right: luck, rather than skill, has determined which governments in retrospect came up smelling like roses in the economic management stakes, and which instead smelt like manure. By far the biggest determinant of political luck is what was happening to private debt while any given government was in power. If debt was rising, then the government looked good; if it was falling, then the government looked bad. How come? Because there are two ways in which you can finance spending: you can either earn the money, or you can borrow it. Your total spending in any one year is thus the sum of your income plus the change in your debt. The crucial issue is how you spend that borrowed money: if it is being consumed or gambled, then you will come to grief; if instead you are investing in a business, or successfully speculating on shares or houses, then you can pay your debt off and end up much wealthier than when you started. The same spending equation applies at the national level, so that aggregate demand is the sum of GDP plus the change in total debt. But the conditions under which an increase in debt can be for the good are more restrictive for the nation than the individual. The country can gain if the borrowing finances investment, but not if it finances speculation. Investment--building new knowledge, new factories, new houses--increases the country's income-generating capacity. Speculation--gambling on the prices of shares and houses--just changes who owns what within the country; it doesn't add to aggregate income at all. Borrowing for speculation can be good for the individual speculator who sells on a rising market, but ultimately it just drives the country as a whole deeper into debt. However, in the game of politics, that economic distinction doesn't matter: a speculative dollar spent boosts demand just as much as an investment dollar. If you happen to come to power when a speculative borrowing binge is on, then you can look like a miracle worker, simply by "Being There" at the right time. Woe betide you, however, if you take over
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