Abstract

All but a few politicians and most of the media present as needing no defence that governments should continuously balance their budgets and not accumulate debt. Lack of an economic or even accounting justification for balancing the budget has not stopped this fiscal foolishness from justifying appallingly anti-social policies under the umbrella of ‘austerity’. Part of this ideology is the fantasy that ‘fiscal correction’ will have little or no impact on total output or growth because expansion of the private sector automatically compensates for the contraction of the public sector. This presentation addresses the common justifications for reducing deficits: the affordability fallacy, the appeasing capital markets myth, and the superficially plausible ‘structural deficit’ argument. In addition to their logical inconsistencies, all of these and others fail to recognize a fundamental economic relationship: when recession hits, fiscal deficits are not a problem, they are part of the solution.