Friday, 25 July 2014

Poor article by Brookings Institution on deficits.

BI have just published a 3,000 word article entitled “Constitutional Solutions to Our Escalating National Debt…”. It argues against the Balanced Budget Amendments. The article misses out the basic and very simple reason why deficits are inevitable, given economic growth the given the 2% inflation target. For the umpteenth time, that reason is as follows.
1.Given positive inflation and/or economic growth, the debt and monetary base will shrink relative to GDP.
2. Assuming they are to remain CONSTANT relative to GDP in the very long term (which they actually do, more or less) then both will have to be topped up.
3. There is only one way of topping them up, and that’s via deficits, i.e. unbalanced budgets.
I wouldn’t expect a politician to understand that. But I WOULD EXPECT one or two economists to understand it. But strange to relate, I’ve never come across an economist mentioning or spelling out the above very simple point. So RELATIVE TO the economics profession, the BI are perhaps not so dumb after all.

A second conclusion is that the above omission by professional economists supports my suspicion that there are numerous very simple points that professional economists don’t understand. And as to the Byzantine complexity of some of their writing, that’s just made up or contrived so as to make what they publish look technically sophisticated.

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