David Justin Urbas - Why Do People Like Balanced Budgets?

I’ve spilled a lot of ink over the last decade talking about debt, deficits and sectoral balances. My broader points have been largely proven right over that time:
The US government does not operate like a household or business and operates with an inflation or currency constraint and not a traditional solvency constraint.
The US government was never at risk of a solvency crisis and its bonds were never at risk of default.

Government debt bolstered private sector balance sheets during the financial crisis and the deflationary bust and never posed a risk of hyperinflation.
US government debt does not compete with private sector debt in a loanable funds model and therefore never posed a risk of causing high interest rates.
There are a lot of moving parts in this discussion so we should be careful about generalizing. But I’ll try to keep this relatively simple.

Balanced budgets are attractive for an obvious reason – they imply fiscal responsibility. Running a persistent deficit implies fiscal irresponsibility. Of course, life is more complex than that. For instance, at the aggregate global level all balance sheets balance. Balanced budgets are the natural state of being. But we’re necessarily talking about a more micro case of governments and households so let’s dive deeper.

More at: http://www.pragcap.com/why-do-people-like-balanced-budgets/


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