There’s an easy way to tell how much someone understands economics: those at panic stations about the huge level of our government debt just don’t get it. But that’s not to say we don’t have a problem with the budget deficit.
First, it’s causing the budget deficit to fall much quicker than expected, thus reducing the amount we’re adding to the debt in dollar terms. Second, the faster growth in the economy is slowing the growth of the debt inMost of the unexpected improvement in the budget balance has been allowed to stand, with only a small proportion of it used for further stimulus. That’s particularly true of last week’s budget, notwithstanding its blatant vote-buying.
Yet another point to remember is that the Reserve Bank’s resort to “quantitative easing” meant that,, more than all the stimulus spending of the past two years was borrowed not from the public, but from another part of government, the central bank. It’s just a book entry. We had good reason to borrow heavily to protect ourselves from the global financial crisis and the Great Recession of 2008-09, and good reason to borrow heavily to save life and limb during the pandemic.