Balanced Budget
Should the government be required to maintain a balanced budget and eliminate national debt? If they are allowed to be in debt, should there be a limit on the amount and from what source should the debt be paid (i.e. taxes, politicians’ salaries, etc.)?
My Perfect Government 
June 27, 2010 at 7:50 am
No, the budget should be balanced over the course of the business cycle, i.e., surpluses during sustained growth and deficits during economic downturns.
Not that economists’ advice should always be followed, but 90% of surveyed economists agree on this: http://www.jstor.org/pss/30042564?cookieSet=1
June 27, 2010 at 2:02 pm
In my view, this is like gambling. I see no logic in treating the economy of a country like a craps game. Of course, it is beneficial for the country to have a surplus, but isn’t that benefit offset by the chance of reaching a deficit? Is planning ahead really a bad idea?
June 27, 2010 at 2:16 pm
I fail to see how it’s analogous to gambling. Perhaps you can explain that a little more clearly. There really isn’t any doubt that the business cycle exists, i.e., that there are periods of growth followed by recessions. There aren’t any risks associated with long-term fiscal planning since the rate of economic growth has been pretty constant throughout history. But, we do know that cutting spending during a recession can perpetuate it, so there are huge risks to doing that. We also know that continually running deficits in the long-term is inefficient because we are getting less “bang for our buck” (i.e., we’re paying interest on what we spend). If we decide that we’re going to balance the budget in the long-run, and that we’re going to run deficits during recessions, then there really is no alternative to running surpluses during periods of sustained economic growth.
June 27, 2010 at 4:46 pm
I equate it to gambling in the sense that it’s a fix it as you go mentality. If we rely on the business cycle, we are inevitably going to have recessions when we could have planned for a stable economy beforehand.
June 27, 2010 at 4:47 pm
Should we live within our means? Should I spend more then I earn? Thats a stupid question. Sure spend yourself into bankruptcy, that always works.
June 27, 2010 at 5:02 pm
We cannot plan for a stable economy. The stability of the economy isn’t dependent on whether we run a surplus or a deficit. The business cycle is inevitable.
@whitelocust
I know it’s easy and convenient to try and think about government spending as a personal finance scheme, because it’s something we’re more familiar with, but I don’t think it’s not the best way to think about it. You can basically think about the debt/deficit as money we owe ourselves, which doesn’t really happen in personal finance. The only way we can go bankrupt is if we default on our loans, which typically doesn’t happen to countries like ours because everyone knows we have an extremely large capacity to produce and therefore feel comfortable making money (via interest) off of us. So bankruptcy, though theoretically possible in the long-run, isn’t really on the table at this point. Even small countries have run up their debts to up to 200% of GDP without defaulting. We’re currently around 70%.
That’s not to say that having such a large federal debt is a good idea; on the contrary, as I said earlier, long-run deficits are inefficient because we’re getting less “bang for our buck.”; because we have to pay interest when we borrow. All I mean is that the “live within our means”/”spend yourself into bankruptcy” talk isn’t really relevant to this discussion.