The Coalition has announced their broadband plan for the 2013 election and have a nice little infographic to go with it.
Unfortunately for them I don’t think it is selling the message they wish it to do. I am sure many would dispute the price tag as well. Nonetheless that message is what we shall discuss.
Some critics of fiscal policy claim that by running large budget deficits, governments risk creating unsustainable levels of public debt and a burden on future generations. In reality, budget deficits create no such debt burden for societies whose governments are monopoly issuers of flexible exchange-rate fiat currencies. The debt of these governments will never become unsustainable unless for some inexplicable reason they decide to borrow foreign currency rather than their own fiat money.
In fact, as was discussed in the previous post, there is no financial need for these governments to borrow at all in order to fund their deficit spending. The reason, in practice, that they do issue debt to match their deficit spending is to meet voluntarily imposed legislative requirements that are in place for operational or political reasons – none of which are indispensable – but not financial reasons.
This clearly shows the impracticality of leaving any debt to your children or your grandchildren. I am not saying the Coalition is economically illiterate, they are not, just misguided.
Not all governments are so fortunate. The Spanish and Greek governments, for instance, don’t have the same policy freedom because they have committed themselves to operating under a common currency, relinquishing the right to issue their own currencies as they see fit. National governments who maintain a fixed or pegged exchange rate similarly give up some policy freedom. Lower levels of government, such as local or state governments, also lack such freedom because they are mere users of the currency, as opposed to issuers of it. However, for the governments of the U.S., U.K., Japan and many other countries, there is plenty of scope to pursue as much deficit spending as is necessary to facilitate economic recovery.
None of this is to suggest that debt is without consequences. But the debt that is problematic is private debt, not public debt. Unlike the government, private households and firms really do need to fund their spending. A household can’t simply credit its bank account on whim; nor can a private firm. When private debt can’t be paid, economic crises can occur, as recent events have made clear.
This is an adaptation from Heteconomist on Budget Deficits and Savings