between two of Australia's heavyweight economists.

I think if you tried to find two economists in Australia

who agreed less with each other,

you'd have a hard time finding anyone else to fill this stage -

and I'm sure they looked far and wide.

Our two speakers today have exchanged barbs in the blogosphere.

They've penned columns criticising one another.

And they faced off on 'Lateline' earlier this year.

and they're now in the room, we have confirmed, for the first time,

speaking face-to-face for the first time.

(LAUGHTER)

I'm going to stand in the middle if it gets too heated.

So we have, of course, here today -

and I'm about to introduce them in turn -

Professor Judith Sloan, and Stephen Koukoulas, who I'll get to.

First of all, Judith Sloan is one of Australia's best-known economists.

She's a leading figure in academic and business circles

with extensive experience in both the public and private sectors.

She's currently an honorary professorial fellow

at the Melbourne Institute of Applied Economic and Social Research

at the University of Melbourne.

She's also a member of the Westfield board,

a director of the Lowy Institute for International Policy,

and the contributing economics editor of the 'Australian' newspaper.

And although it's an accolade you might not think much of, Judith,

you are actually the first

female 'Australian' economics editor that we've had.

There was somebody else who was hoping for that title,

but you got there first - well done.

On 'Lateline' earlier this year, Judith said that

Australians are right to be nervous about public debt,

that the Labor Government wasted too much money,

and in fact a recession could have been quite useful in Australia.

Some dangerous ideas there.

We're going to stand by those and explore them in a bit.

Before we get to that, I'm going to introduce Stephen as well.

Stephen Koukoulas is the managing director of Market Economics,

which is a firm he established in January 2012.

He's been a working economist for more than 25 years.

That's a quarter of a century in journalist speak.

He started his career as an economist at the Commonwealth treasury

in the mid 1980s.

And most recently he worked his way all the way up to the top

and was a senior economic advisor to Prime Minister Julia Gillard.

Before that, he was the global head of economic research and strategy

for TD Securities, and he also spent five years working at Citibank.

It is timely for us to come together and talk about this topic today.

We're fresh from a rather gruelling federal election

which was fought, as elections often are,

on the issue of economic management

and whether we need to reduce waste and debt,

with the Australian electorate seeming to have produced a verdict

which said that, yes, we do need to be worried about debt.

The world economy is also still experiencing a bruising recovery

from a global financial crisis,

which arguably, was caused by too much debt, both private and public.

If it wasn't so much the public debt that was the problem to begin with,

it has been the lasting legacy of the GFC,

with public debt in Europe and the United States

keeps threatening to tip us back over the brink and back into crisis again.

So we come together today to discuss,

can we really afford to forget about debt?

And hopefully you'll know in about 57 minutes.

(LAUGHTER)

Just some administrative things before we start.

I'm going to ask the speakers to come to the podium

and do a sort of 10-minute kick-off rally speech

for their points of view,

which will be followed by some general fisticuffs,

as I've defined it in my mind,

between us all on stage.

Then we've set aside 10 minutes at the end

for you guys to ask some questions.

If you want to ask a question, just pop up to one of these microphones

that we've got there and there

and wave at me and catch my attention,

and I will turn to you.

Also, everybody, turn off your phones and turn on your brains.

It's time to start.

Can you join me in welcoming Professor Judith Sloan to the podium?

Thanks very much, Jess.

When I was invited to speak here, so, the Festival of Dangerous Ideas,

I was wondering, is it dangerous for me to attend?

I think it probably is a bit.

I am assuming I don't have many fans here,

but I come to the conclusion

that it is important to be involved in the discussion,

to put points of view that perhaps people

might not initially feel very favourable towards.

And even though I think I do disagree with Stephen in some ways,

I think we are very civil towards each other.

STEPHEN: Always.

Well, no, I'm trying to make an important point here,

because I think that if you look at the economic policy discourse

in the United States, for example, that is not what you'd call civil.

It's rude, it's personal, it's playing the man/woman.

And I don't think we ever want to get to that point.

And I guess Stephen agrees with me on that.

(APPLAUSE)

STEPHEN: Yes, I do.

I'm not saying I love him, by the way.

(LAUGHTER)

What I thought I'd do is just take a few minutes,

because I actually think, and I hope you all agree,

that if you have a debate,

it's always quite useful to have a kind of common set of facts.

If there's a certain sort of PowerPoint presentation

which you can basically agree with,

and then we can kind of debate where we should go in terms of policy.

I also think it might be quite important,

even though I am an economist who tends to specialise -

and I guess Stephen is too - in Australian economic policy,

that we shouldn't think of this just in an Australian context.

It's a very important worldwide context

both for developed economies and for developing economies.

So hopefully in the discussion, Jess, and in the questions,

we can broaden it out.

I guess when I saw the title 'Forget Debt',

I was going to say "Forget Debt: As If".

(A FEW CHUCKLES)

What is debt?

Debt, basically, is retimed spending.

It's spending undertaken now rather than in the future.

We should not forget,

and we can think of this in a personal way as well,

that debt must be repaid.

So if we think, then, about government debt,

government debt is effectively a liability on future taxpayers.

Of course, those future taxpayers, by and large,

are not voting for the current accumulation of debt.

So this may sound a weird thing for an economist to be saying,

but I think there is an important issue of morality,

because it is a sort of intergenerational transfer

that you build up in terms of accumulating current debt.

I'm hoping this is something that we don't deal with too much.

There are some technical issues about how we define government debt.

Is it face value or market value? Is it gross or net?

Now, where I'm coming at, Stephen,

is that really for most purposes,

you'd be thinking about net debt at face value.

So we don't...

And it'll put you to sleep -

you'll be going back to sleep, where you possibly want to be anyway.

(LAUGHTER)

So can I just put it in some sort of numbers, figures?

In Australia, when we think about net debt,

we're hovering a little under $200 billion.

We got about a $1.5 trillion, $1.6 trillion economy.

We're hovering around the 10% to 11% mark of GDP.

You might want to remember that figure.

I'm sure Stephen might want to emphasise that one,

because by international standards, that's a pretty low figure.

So it's about effectively 10% of our national income,

annual national income.

What's happened over time,

if we go back long enough, say like after the Second World War,

we had absolutely heaps of government debt as a result of the war effort.

If we think, though, in the late 1980s there was very little debt.

It then increased a lot in the last years of the Labor Government,

ending in its defeat in 1996.

John Howard was able to cut the debt considerably,

but he did have a lot of assets to sell, which he did sell.

He restricted spending for a while, but only for a while,

and in the end he basically secured a windfall tax gain

because of the early version of the minerals boom.

After that we've had what I regard as a massive increase.

Stephen mightn't, and I guess this is a point of difference.

We have got a gold medal -

or a wooden spoon, depending on your point of view -

in increase in government debt since 2008.

There has been a very, very significant increase in gross debt

under the Labor Government.

Now, of course, our newly elected treasurer

has increased the debt ceiling to $500 billion.

I think we should have a bit of a debate about that, Jess.

As I said, though, Australian government debt

is low by international standards.

But can I just get you to think about this?

That quite a lot of those countries which have very high debt

are complete basket cases.

They're the Greeces and the Portugals, Italy, Spain.

I mean, the UK and the US have very high government debt too,

and Japan, extremely high government debt.

So for at least some of them,

they are in a real pickle trying to adjust to their debt.

They're facing low growth and very difficult adjustments.

And there are quite a lot of important countries

that have lower net debt than Australia -

and I rattle them off - including basically all of Scandinavia,

Sweden, Finland, Norway, Denmark,

Chile, Singapore, Hong Kong and Estonia.

I think Stephen will agree with me on this point,

we have to think, when we think as an economist...

We mightn't just actually think about government debt,

we actually think about household debt.

Australia is very indebted in a household debt sense.

And secondly, we might think about our current account deficit,

which Australia runs chronically.

I'm just about to wind up, but it's worth, I think, thinking about

why do you have government debt?

This is, I think, where the arguments become kind of confused.

There is one reason why,

which is what you'd call a Keynesian reason for having debt.

So in the event of the economy growing below par

or in fact contracting and unemployment increasing,

the argument is that the government should increase spending

and that will involve deficit financing, which will involve debt.

So think of that - that's what you call the Keynesian argument.

There is another argument, though,

that you should use debt to finance long-living assets.

So you don't pay for your house using cash.

It's a long-living asset.

So you use a financial instrument,

which smooths the payments over the life of that asset.

That's, I think, a different argument.

Maybe that can be a central core of the debate.

And for my money,

as long as those assets clear

what I call a clear cost/benefit test -

so they're are clear net benefits to the community -

then there's probably no problem using debt

to finance those long-living assets.

I don't think Keynesian priming works,

but I'm not sure I'm totally opposed to raising debt

for the purposes of financing long-living assets.

Does that mean we forever should be increasing debt?

I don't think so.

We were talking about this in the green room,

which was green, by the way - I love that.

In the ABC, it's not really green,

it's some sort of hideous version of green.

But is debt like cigarettes where one is harmful to you