Now, I don’t want to boast…
Well, actually I do, but I’ve got very little to boast about and if I start boasting without actually having any concrete to back it up, I’ll sound like Tony Abbott…
Mm, I’m wondering if it’s too early to add: “and Malcolm Turnbull” to that sentence.
Anyway, when I did Year 11 Economics at highly respected private school I got the top mark in the whole school by a significant margin. I point this out so that you understand that I had an intuitive grasp of basic economics. By the end of Year 12, I just scraped a pass because, well, it made no sense. The things I learnt in the ensuing eighteen months just seemed to me contradictory or just plain wrong. I was confused because when I tried to use real world examples to explain the theory, they contradicted the theory.
Ok, now I’m not going to be so bold as to claim that I was ahead of my time because shortly after my exam, all of the economists in the world were confused, but I think that it’s worth pointing out that, if Malcolm Turnbull invented the internet in Australia, then I invented the change in economic thinking in the seventies…
On a side note, when one thinks about Abbott’s suggestion that Turnbull practically “invented” the internet in Australia one realises why they had no problem stealing their “jobs and growth” slogan from George W. Bush’s election campaign. Or the “continuity and change” slogan. It was just “inventing it” in Australia. Pedants would argue that patents are patents and that things are only “invented” once, but then they would say that because they’re the sort of people who’d pick on Malcolm Turnbull for suggesting that Medicare would “never ever” be privatised because it echoed John Howard’s “never ever” GST comment. See, you can invent things more than once!
But back to the topic…
I read John Kelly’s great post this morning and I couldn’t help but think that maybe I should try and explain the economy in ways that even someone considering voting for Tony Abbott in this election could understand it. (As in: Tony’s no longer PM? When did that happen?)
Let’s imagine that I’m so important that people will accept a cash cheque from me because it can be used as a fungible item. In other words, there’s no difference between my cheque and actual money. In this sense, I’m rather like the government because they print notes and we treat them as though they’re actually worth something. Let’s imagine that I have about a billion dollars in the bank.
Ok, now I’ve been giving people all these cheques and, after a while, I notice that some people aren’t cashing them because I’m so important that they’re keeping them as some sort of relic that they actually were having dealings with me. I then decide to keep writing out cheques way past the billion dollars I have in the bank.
One night this concerns me, so I go to the bank and arrange a line of credit, so that if it ever happens that all the cheques are presented at once, they’ll cover it. I ask for a million dollar line of credit and the bank says don’t be ridiculous, we don’t intend to put a limit on your credit.
At this point, I have become the government.
The question for homework is this:
Should I attempt to buy back all the cheques? Or should I just keep writing as many cheques as I like and not consider the possiblity of ever having to pay them back? And what effect will each of these have?
Once you’ve thought about this, you’ll understand the dilemmas facing the federal government and why the economy is neither a household budget nor a blancmange.
And sometime in the next few days, I’ll give feedback on your homework!
Comments?
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