Budget `surplus` - wise policy or foolish mistake?

Budget surplus at any cost, but cut interest rates to restore consumer spending.

Is this a fair summary of the Gillard-Swan government's current approach to stabilisation policy?

Also - have a special tax for Australia's most productive wealth creation industry, but tilted against the small miners and exploration companies that create most new activity.

Also - impose a carbon tax ahead of any other country, a tax that could have been designed to handicap all Australian industry, at a time of great global economic stress and uncertainty.

'Gadzooks!' Henry says at the Club as he sips his first brandy of the day. 'Do these people have no judgment about economic policy?'

In early 2009, a senior politician asked Henry to provide a set of 'principles' to guide economic policy.

These principles are available here, with a summary below. You will immediately see that Henry's principles have been ignored by the Swan-Gillard government, but I defy any serious economist to find fault with them. John Quiggin, you have first opportunity - please contact Henry here.

Six principles

1. Provide incentives for individuals to finance for themselves and their children the necessities of life, including adequate medical care, education, food and shelter. Battler bailout should be limited to alleviating real hardship and should come in forms that encourage a culture of robust self-reliance, such as income-contingent loans.

2. Establish and maintain a tax and welfare system that encourages work, entrepreneurial activity and saving ahead of indolence, the tyranny of monopoly and consumerism.

3. Maintain the role of an independent central bank with a mandate to control inflation and protect the stability of the financial system.

4. Balance the government budget over the business cycle with maximum use of 'built in stabilisers' rather than discretionary changes in government spending and rates of taxation, which shall be limited to declared states of economic emergency.

5. Fiscal stimulus should be focussed on spending and tax policies that encourage Australians to be more productive and internationally competitive.

6. Recapitalisation of companies in trouble should to the maximum extent possible be from market sources. Should market sources fail, and jobs lost might therefore be great in number, recapitalisation by government with taxpayers funds should be in exchange for equity so that taxpayers can recover their investment in due course – 'No bailout without equity'.

Henry shall comment later today or tomorrow on the extent to which Australian economic policy is following these principles.

Meanwhile, Professor Quiggin or anyone else is invited to comment first.