Aside from programming, photography, audio geekery and parenting, I’m also a closet economist. And, at least on paper, a semi-qualified one too - I double majored in Finance and Economics in my (to date, unused) Commerce degree from ANU.
There’s much of talk going on around the world about the various stimulus packages proposed and being implemented by various governments and I’m going to add to the discussion with my take on the proposed Australian package.
A lot of commentary has focused on the value of running a deficit budget in economic down times, however little real discussion about how that deficit should be spent. In general there are two main reasons to borrow money: to substitute future spending for current spending, or to invest in order to increase future income. Both are valid in various circumstances, but businesses almost always use substitution borrowing to cover short term liquidity issues, allowing them to deal with unsynchronised incomings and outgoings. For example, if their accounts are paid monthly, but they pay their employees fortnightly, a business may borrow short term to cover that gap. It would be very rare for a business to borrow long term for any spending that will not increase future productivity.
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