There has been a lot of media coverage of the Budget over the last 24 hours. But I have not heard one bit of commentary (bar the inimitable Bernard Hickey of course) question the assumption that there is some immutable fiscal threshold within which the government must operate. And that breaching that threshold will rain indescribable calamity upon us all.
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It is an unquestioned imperative that government must get debt down, “balance the books”, get “its fiscals into shape”, create some “operating space” or some “fiscal headroom”, and get “back in black” so that it can “live within its means”. In other words, the government is - or so we are told - exactly like a household.
Because if you are household, debt is bad. If you are a household, you must strive to pay back loans, spend within your means, and "save for a rainy day". You must ensure that your income covers your expenses.
But this analogy ignores one important thing. The government is nothing like a household.
I know no household that issues its own currency. I know no household which, when it spends, stimulates the entire economy, including private sector investment. (Or when it pulls back spending, can drag an economy into recession.) I know no household which can spend before it receives income. (Yes, because the idea that the government needs to borrow or tax before spending is a myth. It is the other way around. And the real constraint on government spending is not currency but real resources - eg, energy, steel, concrete, skilled workers and environmental capacity.)
It is a pity that we don’t see this myth being questioned by the media. Because this would get to the heart of what government is for. Is government simply a glorified book-keeper, there to “balance the books”? Or is it a body elected on our behalf to invest into an economy that supports resilience, wellbeing and a flourishing future for all?
To understand more about why the “government is like a household” analogy is a dangerous myth, please watch Richard Murphy’s explainer on the topic.
And to hear more of an Aotearoa take on this, don’t miss Dr Ganesh R Ahirao and Morgan Edward’s (New Economic Management) session on “Unleashing Public Finance” at the Reality of Everything Symposium.
*Based on some heroic assumptions: including that the war in the Middle East will end soon; that fuel price and supply chain shocks caused by the conflict are temporary; that there will be a strong economic recovery (GDP growth of 3.2% by June 2028); and planned cuts to public sector etc will actually produce enduring cost savings.
‘The government is like a household’
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Mar 7
One of the expert briefings I am really looking forward to at the upcoming Reality of Everything Symposium is entitled ‘Unleashing public finance’. In it, leading economist Dr Ganesh Ahirao and doctoral researcher Morgan Edwards will tell us about the reality of public finance, debunking the mythology we have been inculcated with since neoliberalism bec…
Help alert our political leaders to reality
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Mar 4
As a follower of this Substack, you are probably already aware of the upcoming Reality of Everything Symposium and the intent behind it. You may have already secured your place at what could be 2026’s most important conference. But even if you can’t make it on the day, there are still important ways to you can
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