Agricultural Economics

In the wake of the severe flooding on the eastern states, particularly Queensland, there will be an enormous and costly task of cleaning up and making good all that was damaged by the water.

Insurance may pay for the restoration of houses and businesses but who is paying for the cost of cleaning up roadways and restoring power and sewerage systems. Well, in most cases the government will simply pay for it. Money may need to be borrowed to do this, and of course we, the taxpayers, will eventually be the ones who pay for it.


Photo source: Daily Telegraph

The economic irrationalists in Opposition, Federally, are beginning to argue that in order to pay for all this, the Government should cut back on unnecessary expenses - "We just can't afford the National Broadband Network now" says Opposition Leader, Tony Abbott. Well, if I recall it, according to him we couldn't afford it before the floods happened, so the call is a bit hollow.

I would like to suggest that the solution to the current situation is found in the practices of a key constituency of the Opposition, a group of people whom the Opposition believes they alone can represent, and even defend - farmers. When farmers have a bad year they go and visit their bank manager and secure a new loan or an extension of their terms to enable them to manage.

If the farmers of this country adopted the proposed practice of the Opposition in running the country there would be no agricultural industry anywhere. A flood would come and the farmers would pack it in, because if they borrowed money it would so increase their costs that they could no longer be competitive.

The reality is that borrowing money in such circumstances enables everyone to spread the enormous cost of this event to be spread over many years, thereby reducing the cost of it - reducing all your other costs in order to pay for something like this up-front will simply lead to the collapse of a whole lot of infrastructure plus the opportunity cost of lost production.

Government debt in Australia is minuscule and despite Opposition protests is not at all toxic. We all live with debt and so long as the debt ratios are safe, which they are, borrowing is actually the best thing to do.