NEWSFLASH! In September I will join The Conversation as its Business and Economy Editor. I have been honoured to work at The Age for the past ten years, originally alongside the legendry Tim Colebatch, and for the past four years as economics editor in my own right.

At The Conversation, my job will be to make the best thinking from Australia's 40 univerisites accessible to the widest possible audience. That means you. From the new year I will also write a weekly column.

On this site are most of the important things I have written for Fairfax and the ABC over the past few decades. I recommend the Search function. The site is a record for you, as well as me.

I'll continue to post great things from The Conversation and other places here, and also on Twitter and Facebook. Enjoy.

Saturday, November 08, 2008

Gittins on the "need" to maintain a surplus

Nice line in the Sydney Morning Herald this morning:

" It's appropriate (and desirable) for budgets to fall into deficit when the economy is entering or leaving recession (or a serious downturn), whereas it's appropriate and desirable for the budget to move into surplus when the economy recovers from recession in the expansion phase of the business cycle.

Surprisingly, considering all Costello's political point-scoring to the contrary, that belief was perfectly embodied in his government's "medium-term fiscal strategy": "to maintain budget balance, on average, over the course of the economic cycle".

In other words, if you add up all the deficits in the bad years and all the surpluses in the good years they should total roughly zero. I call this "symmetrical Keynesianism" and there's much to recommend it (though it's not appropriate for governments with a need for heavy investment in capital works).

The Rudd Government's medium-term fiscal strategy is an imperfect version of the Liberals' version: "maintaining a budget surplus, on average, over the medium-term". It's faux macho, proving nothing more than Labor's inferiority complex in economic management. "