I am worried.
One of the blogs I watch is published by Steve Keen and he has recently (at the beginning of the month) published a three blogs looking at whether governments should run surpluses or not. This was in response to a proposition from the Australian National Commission of Audit that the government should “live within its means.”
His three blogs are:
His conclusion (based on some numbers using his modelling software) is that running budget surpluses takes money out of an economy and effectively reduces growth.
On the other hand running a balanced economy (no surplus or deficit) will see public debt reducing. But running a deficit has higher growth.
So is a deficit economy a good idea?
It matters because if we remove the possibility of debt (commercial lending) from an economy, then it must follow that a government cannot run a deficit – because it cannot borrow.
Or is lower growth a price worth paying for the advantages of taking debt out of the system?