Sauk Eslake, on the radio this morning, for the most part provided a good commentary on the upcoming budget. Spoiled by two things, each of which are reflex actions of neoclassical economists, but neither of which should any longer go unremarked.

Firstly, he explained that the deficit would be smaller than previously anticipated, but described this as the budget position being "better" than anticipated. A larger (or smaller) deficit cannot be said to be better or worse, taken out of context. It is misleading to say so.

Secondly, he said that the government is having 'no difficulty' at the moment 'financing its budget'. A meaningless and misleading thing to say about a monetary sovereign, issuing liabilities in its own currency. Again, we need to pick people up on this misleading language.

Were we to converse, he would say 'I meant financing through bond sales rather than printing money'. I would reply that all federal spending is always done through currency creation. Every $ the govt spends is a new $.

They then delete some of those $ via taxation, and offer the private sector the chance to convert other $ into treasury securities, but those treasuries ought to be regarded as another form of government money, and their issuance is just an asset swap.

They do not 'fund' government spending, and the distinction between 'printing money' and selling bonds is misleading, and although widespread based on a misunderstanding of the monetary system.

Spending in Australia is 'funded' by being authorised through parliament. Spending and which are determined by the state of the economy mean that an economic recovery reduces the government deficit/non-government surplus.

The economy is better than before, but the budget position is an outcome. It should never be a target. It should always be a tool. We do need better automatic stabilisers. More progressive taxes help. A job guarantee is better still.

But the fact that fiscal policy remains, as it has always been, a more effective and reliable tool of demand management than monetary policy, has been demonstrated once again by experience. That much I think is more widely understood.

But our best economists, and Saul Eslake is one of those, ought to stop using misleading language, which they do out of habit, because that misleading language biases the narrative, and means out of habit we will slip back into the old way of thinking, if we are not very careful.

Saul - not Sauk. Oops.