Republican numpties make much of
their “balanced budget” idea. Unfortunately, that idea is also supported by
numerous so called “professional” economists. The latter tend to talk about “balancing
the budget over the cycle”. They’re talking thru their rear ends.
The entire balanced budget idea is a
mathematical absurdity, and for reasons I’ve spelled out several times before
on this blog. But let’s run through the reasons yet again. Here goes.
First, it’s generally accepted that
the optimum rate of inflation is about 2%. Second it’s also generally accepted
that for the foreseeable future we’ll enjoy real economic growth (though
obviously such growth shouldn’t be allowed to damage the environment.)
Now 2% inflation means the REAL VALUE
of the national debt and monetary base will shrink at 2% a year. So if those
two are to remain constant relative to GDP (which over the very long term they
do, more or less), then both will have to topped up, won’t they? But they can
only be topped up via a deficit!!!!!!!!
And real economic growth compounds
the point: that is if GDP expands at say 2%pa in real terms, then the debt and base will have to be topped up even
more!!!! Still with me?
In fact to take some not unrealistic
figures, if the debt and base come to 50% of GDP, and growth and inflation are
2%, then the deficit will have to be (2+2)x50%=2%xGDP. I.e. 2% of GDP.
Quad erat demonstrandum.
But doubtless I’ll be repeating the
above points in a few months, since it seems no one understands the above
argument – least of all Republicans. In fact I doubt they could add 2% to 2%
and get the right answer.
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