Surpluses mean unemployment and deficits bring employment

It’s a strange paradox. There is a professor of economics John T Harvey who writes a lot on the fallacy of “getting rid of the deficit.” It seems it is his mission in life to educate politicians that the government’s budget can’t be likened to a household budget and that it shouldn’t be a government’s aim to get a surplus. He writes in Forbes magazine on why you should learn to love the deficit.

But how little progress he is making! I don’t know if he has an equivalent academic in New Zealand, but Australian Professor Steve Keen who now works in UK is also doing his bit. Hs latest article last week was entitled Beware of Politicians Bearing Household Analogies. Then there is a Professor Randall Wray of the University of Missouri and Kansas City doing the same thing.

Despite the shortfall this year, Treasury still backs Mr English to pull the country into the black over the next few years – predicting a $565 million surplus in 2015/16 and $4.1 billion in 2018/19.

Read more:—english-2014121709#ixzz3M73GczGY

Russel Norman blamed it on 2010 tax cuts and the fact that the Govt borrowed $5b in 4 years.

Treasury’s predictions Budget time: $372 m
Election: $297m
Dec: $572 million

(To year to June 30, 2015)

L Randall Wray:
Whenever a demagogue wants to whip up hysteria about federal budget deficits, he or she invariably begins with an analogy to a household’s budget: “No household can continually spend more than its income, and neither can the federal government”. On the surface that, might appear sensible; dig deeper and it makes no sense at all. A sovereign government bears no obvious resemblance to a household.

Surpluses cause a fall in your net assets. Deficits create private sector wealth while surpluses deplete it. If Government takes in $1000 taxes from private sector but doesn’t spend any of it and they had $100 of their own earnings, their total intake is $1100. The private sector has gone into debt of $1000. Government deficits create private sector wealth while govt surpluses drain it. Learn to love your deficit.

But in New Zealand, as in Australia and no doubt Canada and UK, politicians all believe in surpluses. Here’s the current petty interchange from our country.

On Dec 16 on Yahoo the headline was “Don’t blame deficit on tax cuts says English”

“The Government believes a surplus is achievable this financial year despite the Treasury’s latest forecast,” Mr English said.
“Previous forecasting rounds show the outlook can change significantly between the half-year update and the final accounts.”

Opposition parties were quick to describe the forecast as proof of a broken promise.
“Bill English’s face is redder than the crown accounts,” said Labour’s finance spokesman Grant Robertson.
“This is the political test he set himself, and he has failed… the government owes New Zealanders an apology.”

The Greens say National’s economic credibility is on the line and NZ First’s Winston Peters believes the government has been cooking the books for years.”

In Australia we see the headline “Australia budget deficit to hit $40.4 billion” with all the accompanying handwringing and blaming of the opposition. And it is the same in the UK.

New Zealand is in dire need of a professor of economics who makes it his (or her?)mission to educate our own politicians on the topic of deficits and surpluses.

And in an interview with Professor Steve Keen on the Greek issue, he said as one of the conditions of the loan, the Greeks run a surplus of 4.5%. That means you take 4 and a half percent of money out of the economy every year and Europe keeps asking why they can’t grow. That is cruel and ignorant. Tortuous terms. No wonder Yanis Varoufakis the new Greek Finance Minister would prefer to meet with politicians than the Troika. The Troika says they have to keep on going but it is obviously not working and causing a heap of pain.