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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
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