The balanced budget mythology

26 Aug, 2017 at 18:58 | Posted in Economics | 5 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

Samuelson’s statement makes me come to think of the following passage in Keynes’ General Theory:

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is com­monly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authori­ty, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.

Wonder why …


  1. Today you quote Samuelson expressing something I have good reason to believe you don’t agree with. The other day you quoted a passage from Theodor Adorno that I figured you did agree with, but was surprised that you did. What’s going on here? Usually you provide block quotes that you think are good. Or if you disagree with them, you explain why. That is a practice that is fairly effective and if you are changing it you could at least mention it. It is not like everything you write about is easily understood to begin with.

    Or is it that you just want opposing commentary? I already registered my objection to the Adorno quote so calling Samuelson a hypocrite here is easy enough. Some educator- justifying teaching myths- just ridiculous. Not you Lars- the guy who wrote all the textbooks- Samuelson. Unless you agree with him here, in which case I am baffled again and you can apply my criticism to yourself as well. Tell me it isn’t so…

    • It isn’t so.
      Re Adorno we obviously disagree.

      • Thank you for adding to the Samuelson quote, and for the Lerner post, and for telling me it just isn’t so. I got nervous there for a bit.

        As far as Adorno, I am doubtless far, far less familiar with his work than you, seeing as I never heard of him until your post quote. Working off only the quote as translated that you provided, and a little learned from Wikipedia, is probably a foolish thing to base a negative comment on. Nevertheless, I do not agree with what is written in that particular quote for the reasons I gave.

        The Wikipedia article does mention that it is difficult to translate Adorno from the German to English, which may also be a part of my problem. Anyways, thank you for writing the blog, I read it every day and enjoy it tremendously.

  2. “you will have anarchistic chaos and inefficiency.”

    That’s what we have, with a vast world food surplus but ppl starving in Venezuela. The private sector has figured out how to relax the budget constraint in ways Samuelson was too unimaginative to see. World finance creates dollar-denominated assets that multiply the price value of underlying real assets, and which circulate as money. The Fed bends over backwards to maintain a par between privately-created dollars and Federal Reserve notes. We have ended up with a chaos of gross inequality and inefficient machines that spew carbon dioxide and pollution willy-nilly. Public policy should adopt the private sector technique of creating as much money as needed to fund a basic income, for example.

    • Note that even Samuelson signed a letter in support of basic income in the late 1960s. You know the old saying about a stopped clock …

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