External Stability policies. (1 Viewer)

[HayleeKate]

This is a paragraph fromLeading Edge's Australia in the Global Economy by Tim Dixon & John O'Mahony. I'm seeking clarification... they talk all about the effects of budget deficits, when theyre discussing policies of the Howard government, BUT with 7 consecutive surplus budgets from the government, I'm not sure why.

"The aim of the Howard Government adopting the fiscal policy goal of maintaining fiscal balance over the medium to long term was to ensure that the public sector did not draw on savings that could otherwise be used to find domestic investment. Traditionally, economists have explained the negative effect of budget deficits on investmentthrough the crowding out theory. If the Australian government continues to run budget deficits and borrows from the domestic public in order to finance the deficit, it will soak up the available domestic funds available for firms to borrow for investment purposes. However, in a world of global financial markets, firms have access not only to domestic savings but also to foreign savings in order to finance investment. This means that, rather than crowding out domestic investment, sustained budget deficits may force firms to borrow from overseas even if they would have preferred to borrow domestically."

Why talk about a deficit when they havent done one? It doesnt really say that a deficit is bad, so thats why theyve done surplus, just says what a deficit does. Irrational. Please explain.

 

[monique66]

Well, they do look at it from a textbook point of view. It doesn't matter too much does it? As long as you know whats going on then it doesn't matter. Anyway, perhaps they are taking about deficits in terms of expenditure (ie are last budget surplus exceeded this year's surplus so technically we are spending more) Maybe that's what the article is on about. Anyway, i think Pitchford is probably right (to some degree)

Edit: Isn't it in the syllabus anyway?

 

[HayleeKate]

Well, they do look at it from a textbook point of view. It doesn't matter too much does it? As long as you know whats going on then it doesn't matter. Anyway, perhaps they are taking about deficits in terms of expenditure (ie are last budget surplus exceeded this year's surplus so technically we are spending more) Maybe that's what the article is on about. Anyway, i think Pitchford is probably right (to some degree)

Edit: Isn't it in the syllabus anyway?

The book was written before this years budget, so theyre not talking about whether we spent more this year or not... thats not called a 'budget deficit' anyway.
It hasnt got anything to do with Pitchford really....
"Isnt it in the syllabus?" ... isnt what in the syllabus?

 

[monique66]

The book was written before this years budget, so theyre not talking about whether we spent more this year or not... thats not called a 'budget deficit' anyway.
It hasnt got anything to do with Pitchford really....
"Isnt it in the syllabus?" ... isnt what in the syllabus?

meh, stop destroying my arguement
I'm just being random today
I just thought that maybe the syllabus required us to know what economic policy objectives could be used to overcome a budget deficit.
Niver mind

 

[Jago]

relative deficit? this is the only thing i can think of if what you say about the consecutive surpluses...

 

[~ ReNcH ~]

It could possibly be hypothetical, but just badly worded.