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The cult of balanced budgets is strong. But not insurmountable. But if there is fiscal action it is probably going to be rather small.
by rz on Fri Jun 6th, 2014 at 03:37:14 AM EST
[ Parent ]
I support balanced budgets. The only problem is that we seem to insist that our modern industrial society should balance its budget according to the pace set by the old pre-industrial agricultural economy, that is, over the course of the growing year. For obvious reasons, balancing the annual budget makes perfect sense when your output is basically entirely agricultural, and your consumption almost entirely is food.

It makes less sense when agriculture constitutes 1 percent of our national economies. Modern firms report results to their owners every quarter. Why not balance the state budget every quarter as well? Why not indeed balance it every month, or every week? Why not every day, every hour or every minute?

If you've managed to get this far when discussing this issue with a friend or co-worker, the absurdity of arbitrarily focusing on balancing the annual budget should be patently clear to all involved.

So what's the alternative? Well, the modern equivalent of the old growing year is the business cycle. Hence, the state budget should balance over the business cycle. Clear as crystal, right?

If your friend seems to be of the clever kind, you can add that actually, you don't really need to balance the budget at all. Indeed, you can run a permanent fiscal deficit, as long as the national debt is not growing at a faster pace than the economy is. As long as that is the case, the size of the national debt as a fraction of GDP will stabilize, despite the budget being in permanent deficit.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Jun 24th, 2014 at 11:06:12 PM EST
[ Parent ]
And actually, changing portfolio preferences (e.g. as a result of an aging population shifting its portfolio increasingly into sovereign bonds) means that the correct level of sovereign debt is not even constant after you smooth out the business cycle.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jun 25th, 2014 at 03:35:18 AM EST
[ Parent ]
One of the great tragedies of our time is the fact that in the media the correct response to the aging Population is lower levels of debt. When in fact it should be the other way round.
by rz on Tue Jul 1st, 2014 at 08:47:50 AM EST
[ Parent ]
For obvious reasons, balancing the annual budget makes perfect sense when your output is basically entirely agricultural, and your consumption almost entirely is food.
You should still use fiscal policy to balance out years of good and bad crops, so the balanced budget is a myth even fot the agricultural economy.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Jul 1st, 2014 at 09:24:13 AM EST
[ Parent ]
Well, I was thinking of a very simplified model where the surplus of the summer months (the "boom") is saved to "finance" the "deficits" of the winter "bust".

It's not a perfect analogy, but it is first and foremost meant to be pedagogic and super-simple.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Mon Jul 7th, 2014 at 02:22:16 PM EST
[ Parent ]

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