Deficit - ticifeD

Dr Swanlove (or How I Learned To Stop Worrying And Love The Deficit)

Treasurer Wayne Swan went crazy last night trying to avoid saying the country might end the year in deficit. "In the red" was how he preferred to style it. It's understandable. The government would hate to come into power on the back of 11 years of unbroken financial success and budget surpluses under the Coalition and deliver a deficit within a year of taking office.

But the Swanster needs to chill out. Yes it's not going to look good. No, there's nothing they can do about it. In fact, it shows they're doing their job.

A very very very simplified version of this financial principle

- When the economy is doing well, confidence is up, the government stays small. Keeps taxes and regulations low, lets business get on with the job of pushing the economy along. The government watches out for inflation, and keeps the budget in a surplus.
- When the economy is in recession and confidence is down, that's when governments get big again. Businesses won't spend money in a recession because they can't afford to. Governments, on the other hand, can. So they spend money to reinvigorate the economy. Big construction projects, roads, hospitals, anything to pump money and confidence back into the economy. This means the budget will probably run at a deficit.

During the Great Depression, it took a long time for people to understand this principle. That's one of the reasons why it lasted so long, and was indeed called "the Great Depression".

So, in this worldwide recession, the Government is doing the right thing. Protecting our financial institutions, getting money out into the population and trying to cushion the fall as much as possible.

It's just not easy to sell. We've had years and years of good economic management from Keating and Costello, although they both had some tough calls to make. Now we'll see if Swan can make the hard decisions too.

(Although, Kevin Rudd should probably avoid declaring a "war" on anything else for the next couple of years)

Sorry, been away for a bit. Back now.