Thursday, March 20, 2014

Public Debt in Australia 1853-2013

The following graph from a recent RBA article puts the whole recent obsession with public debt in Australia into perspective.

As Peter Lindert points out in his authoritative two volume study on social spending and economic growth since the eighteenth century: Growing Public: Social Spending and Economic Growth since the Eighteenth Century :
There is no clear net cost to the welfare state, either in our first glance at the raw numbers or in deeper statistical analyses that hold many other things equal … It turns out there are many good reasons why radically different approaches to the welfare state have little or no net difference in their economic costs. Those reasons … boil down to a unified logic: Electoral democracy, for all its messiness and clumsiness, keeps the costs of either too much welfare or too little under control.[1]
Lindert also points out that ‘the history of economic growth is unkind’ to those with a suspicion that higher taxes and social spending are necessarily bad for productivity. Beyond this basic fact is another unpleasant one for those who argue that the welfare state must be cut in the interests of growth or productivity: ‘people in the countries with higher social budgets get to enjoy more free time every year and retire earlier’.[2] Well educated, healthy workers have the potential to be more productive workers. Parents with access to childcare and leave can continue careers sooner or later and maintain their productivity. Providing even more options in this area enhances the productivity of a large section of the population with parental responsibilities.

[1] Peter H Lindert (2004) Growing Public: Social Spending and Economic Growth since the Eighteenth Century, Cambridge, Cambridge University Press, p. 6.
[2] Ibid., pp.17-18.

For a primer on public debt in Australia see here and the links contained within ...