As Jacques’ point illustrates, though, I can’t imagine effective laws against it.

Unrelatedly, I wonder about this statement:

As in, you dont accept that countries likes Finland where tertiary education is basically fully subsidised have better quality outcomes than countries like the U.S. where is it fairly poorly subsidised?

Doesn’t every US State have free State universities, most of which are quite respectable? And whilst I know that America’s primary and secondary education systems are patchy, I actually thought that their tertiary system was regarded as basically the best going.

I know the U.S. has a law controlling the maximum about of debt the government is allowed to hold, which I understand the TARP bill will necessarily cause an increase in.

Raising the debt limit is pretty much a regular occurrence for the US Congress. It’s stopped being controversial, it’s almost purely ceremonial at this stage. They are too used to having unlimited credit.

In practice, most of the lending would be Treasury bills, which are brought (or not) by a diverse range of people none of whom are imagining the money to be in way linked to any specific project – they are just buying Australian debt.

Of course, the overall spending mix will affect (if not a lot especially at first) the price, but that is about it.

Andrew – I hear you, I really do, but practically, if we assume that we do need further infrastructure and that the existing political system is more or less what it is, isn’t borrowing a reasonable means to finance it? And ideally, won’t borrowing, and the resultant debt service costs, act (perhaps only to a tiny degree) as a disciplinary measure in and of itself?

I could certainly believe that was the case in an election year for a government that was struggling at the polls. But it’s rather harder to see why that would be the case for the current budget. Can you list some specific examples?

This is why Keynes actually wrote the General Theory.

I do not see that at work in Australia as yet

You think deficit financing would be well spent, but this seems very optimistic.

It would be interesting to see the ratios of capital-to-recurrent spending in high-borrowing states vs low-borrowing states.

Thersites, it is indeed the level of debt that is the problem: it seems to make it almost impossible to run a significant absolute public debt.

NPOV, I am well aware of the views of the Left – but that does not stop “political Labor” from doing its own thing.

Andrew Norton, I have been urging action on infrastructure as far back as January 2008. That would have made it possible to run a few short-gestation (early maturation) infrastructure investments.

And it can still be done today because many of the “old” infrastructure investments have had to be abandoned (as the private sources of investment are too expensive). They are waiting to go ahead.

That said, I would not object to some tax reductions either.

But while not strictly accurate from a purely intellectual perspective, if a public debt averse culture has been entrenched it will help save us from the fiscal mess that so many other countries now find themselves in. You think deficit financing would be well spent, but this seems very optimistic.

The argument about infrastructure is largely a separate one – we can’t really link major projects that require years of planning and construction to tweaking of the economic cycle.

Perhaps this quote in todays Sydney Morning Herald from NSW Premier Nathan Rees is very topical as he also signals cuts in capital spending …..

Especially considering the growing unpopularity of public private partnerships for the provision of essential infrastructure.

Current events overseas will surely see a resurgence in the popularity of Keynsian economics, and I think that will flow over into more public support for government debt in the Australian polity.

Sure, the ALP might be, but that long stopped being even vaguely representative of the political Left. Most serious Left-wing commentators and certainly the Greens party have long been arguing for the government to invest more in infrastructure, even if it means borrowing to do so.

In Victoria, the economic recession of the early 1990s, and the financial institution collapses of the State Bank and the Pyramid Building Society, seem rather strongly associated in the public mind (not least, by Kennett’s effective wedging it in there) with the level of deficits the Kirner government ran.

The links are, of course, pretty dubious, but that’s what we’ve been sold.

Similarly, federally, economic times were indeed good during the Howard era for reasons that didn’t have that much to do with his government. The Howard government ran surpluses built on the back of increased tax revenues.

Thus, people think that running a surplus means economic growth, running a deficit means a recession, when of course it’s in large part the other way round.