The great debate:what they didn’t tell us

Tony Abbott was lucky last night that he was debating Julia Gillard in the leaders’ debate, rather than someone with a strong grasp of economics.

He attacked both government spending and government debt repeatedly, making some appealing points.

“The government will have to live within its means,” he said, “like you do.”

He repeatedly accused the government of spending recklessly, sending government debt to unsustainable levels.

Mr Abbott particularly attacked the government’s stimulus spending, saying there had been “too much” “too soon.”

These statements all have strong, popular appeal.

We all know that reckless spending, in our private lives, leads to bad consequences.

But we have just experienced the most serious collapse in the world financial system since the Great Crash of 1929.

That produced Keynsian economics.

There’s nothing mysterious about that.

The Nobel Prize winning economist, Paul Krugman, explained that, very well, saying governments could spend more, when economies were flat, or in recession, and less when they recover again.

What, he asked, is so difficult to understand about that?

Tony Abbott declared, repeatedly, that he is worried about the levels of debt the Gillard government is incurring, by its heavy borrowing, which he said is crowding out other potential borrowers, like the business people who drive the economy.

Once again, this is an appealing political point, unless, of course, you are burdened with some understanding of economics.

Debt is always a worry, isn’t it?

The Reserve Bank Governor, Glenn Stevens, had something to say about all this, just last week.

And he was quite blunt about it.

“There is virtually no net public debt in the country at all in contrast to much of the developed world,” he said in reply to a question put to him, after a speech he gave in Sydney.

“The most recent figures out of Canberra was a peak of five or six per cent of GDP,” he added.

“So far from that being the highest in history, it is closer to the lowest.”

Oddly, perhaps, Mr Abbott did not quote Mr Stevens, in last night’s debate.

Sadly, Ms Gillard didn’t either.