Debt 101

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:

Should governments run budget surpluses?

Should Governments run Deficits? a Minsky Model?

Should governments run permanent surpluses? (2)

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?

 

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