Balanced budget — an old fashioned religion

30 December, 2015 at 13:12 | Posted in Economics | 2 Comments

PAUL_SAMUELSONI think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked, [it] takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that the long-run civilized life requires. We have taken away a belief in the intrinsic necessity of balancing the budget if not in every year, [and then] in every short period of time. If Prime Minister Gladstone came back to life he would say “oh, oh what you have done” and James Buchanan argues in those terms. I have to say that I see merit in that view.

Paul Samuelson

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  1. “In John F. Kennedy’s administration, a rare period of Democratic realism, the key debates were between Keynesians of different stripes. One such was between those (led by my father [John Kenneth Galbraith]) who favored increased public expenditure and a creative leadership role for government, financed mainly, if not wholly, by taxes, and those (including Paul Samuelson, James Tobin, and Robert Solow) who argued that government should mainly manage the aggregate flows of expenditure and demand. My father [John Kenneth Galbraith], speaking from the Left, favored balancing the budget over the cycle: he wanted the tax revenue in order to make possible more spending. Samuelson, Tobin, and Solow favored deficits, relying on Keynes’s multiplier mechanism to raise income and therefore tax revenue. They did not believe that tax cuts entirely financed themselves, but it was widely understood that higher growth would push deficits back down as the economy approached full employment. Kennedy’s proposed tax cut of 1963, enacted under Lyndon Johnson in 1964, was the great victory for their view. My father [John Kenneth Galbraith] foresaw that it would someday prove fatally seductive to conservatives, generating a new form of reactionary Keynesianism; he would live to see this prophecy validated in two reactionary administrations.* Henceforward, demands for growth and employment could be met by tax reduction, while public investment would be checked by the budget deficits that would become the chronic result. Tax cuts indeed had two decisive advantages: they helped the vocal rich, and they worked quickly. One could always argue that a spending-led recovery would come too late, and the opponents of that course could also always hold things up long enough to make their predictions come true.”
    .
    Galbraith, James K. (2008-08-05). The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too (Kindle Locations 940-952). Free Press. Kindle Edition.

  2. A good discipline should include targeting the debt to GDP ratio (dynamically) in order to be an intelligent discipline.


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