The enemy is Keynesian macro

I’m afraid you can talk about debt and deficits to the end of time but unless you understand that the true enemy is macroeconomic theory with its emphasis on aggregate demand your chances of success are approximately zero. This is the equation of economic death: Y=C+I+G+(X-M). If this is not the focus, then things will just continue as they are until the crash comes and no one is willing to lend to us any more. Two bits from today.

First there was Jennifer Oriel with her Budget 2017: forget the fake patriotism and get working on debt. She sees the point, I suppose, but where is her full-blooded attack on the underlying theory? This is her hardest para but it is hardly a call to arms.

If the government drifts away from fiscal conservatism and ­engorges itself on the elusive promise of growth, it risks driving Australia off the fiscal cliff. It must downsize to reduce debt and ­repair the deficit. It could begin by cutting the morbidly obese ministry down to size. If the Coalition’s patriotism is more than mere rhetoric then it must make plain the case for an Australia-first budget by simplifying the taxation system, dropping the spin and putting the national interest first.

And then there was marcus with his terrifying statistics and historical record. This is a major public service: What did we get for our $400 billion loan? It really is the most blood-curdling analysis I have come across except that other than a few of us out here on the periphery, no one’s blood has been curdled. You really should read it, but my guess is that with aggregate demand at the core of economic theory, the general belief is that this debt and spending has saved us from a fate far worse than our current levels of debt.

Completely wrong, but we still have a lot of capital to run down before we truly hit the skids. So along the way we will put Labor back in who will blame it on Malcolm, or at least Tony. If you do not understand that the problem is the economics of Keynes and the theory of aggregate demand deficiency, you are not even at first base in understanding what needs to be done and why.

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