Author of ‘Thinking about “debts and deficits”’
Interview and article by Alice Stafford
Richard Holden is an economist, Professor of Economics at the University of New South Wales and co-director of the New Economic Policy Initiative. Richard holds a PhD from Harvard University and has previous faculty experience at the Massachusetts Institute of Technology and University of Chicago in the United States. His publications have been featured by The New York Times, The Financial Times, The Economist and the New Republic as well as academic journals the Quarterly Journal of Economics, the American Economic Review and the Review of Economic Studies.
Richard’s article, Thinking about “debts and deficits”, is featured in the 2020 edition of the Evatt Journal.
How does your professional life align with the work of the Evatt Foundation?
My work covers a very broad range of areas of economics, ranging from the mathematical and theoretical side to more policy-based issues. I have written a number of policy reports for Australian think tanks on topics ranging from negative gearing to how to build a strong middle class to how we can return to LNG resources. I care a lot about both the technical side of economics and the human side.
The piece that I wrote for the Evatt Journal obviously touches on one very important aspect of how to respond to the biggest economic crisis since the Great Depression.
What are the key takeaways from your article?
The article is about rethinking the narrative surrounding national debt. This narrative belongs not only to this government but to many centrist or left leaning media commentators. The article focuses on the fact that Australia has an extremely low level of government debt. Australia’s net government debt is about 18%, which is really low by historical standards and in comparison to other OECD countries. Also, our government can borrow a lot of money over a long-term period and at less than 1% per annum. So – in terms of our capacity to help the economy rebound and individuals navigate their way through this unprecedented crisis – the government has a lot of fiscal capacity to do this.
When spending money on getting people, households and businesses through this crisis – and also making smart investments into the economy of the future – that money is really well spent and will have a really high social return.
For those reading your article, how can individual members of a community work together to contribute to a stable economic recovery?
The most obvious way individuals can contribute to a stable recovery is by holding our leaders to account. When the current government says, ‘there's only so much we can do’, it is important to understand that while debts and deficits do matter on some level, there is still more than they are saying that they can do.
One of the main things that I'm trying to get across is that you can be a mainstream economist and still think that the government could borrow a lot more money and do a lot more. So, people need to question the narrative that we are being sold.
In the article you say, “the worst of all possible worlds is that a large amount of fiscal spending is used but the amount is insufficient to heal the economy and put it on a robust growth path post-COVID”. What is the likelihood of this happening?
Unfortunately, right now, I think it’s worryingly likely. JobKeeper wasn't nearly as big as I and many others thought it should be. To give a sense of this, $1500 a fortnight is less than half of the average full-time weekly earning of an individual, so people who are average full-time earners are taking a 50% pay cut on JobKeeper. There's also at least 1 million more people who did not have access due to the specificity of the criteria.
Once JobKeeper ends – because it was so subscale to start off with – there will be a lot of people who will not be in the position to pay their mortgage payments, rent, or other essential payments. My worry is that the government will say ‘we have spent $150 billion, what else do you want us to do?’ – which will not be enough to put us on a good footing to recover. This is going to be devastating for a lot of households, individuals and especially, the economy.
Ultimately it's not that debts and deficits never matter, it's just that we have the capacity to do a lot more than we are currently doing.
Richard’s full article can be found here.