Capturing Gordon Brown in one paragraph

It is important to understand that the no-deficit rule was a sharp break with tradition. In the postwar years, many economists argued that you did not need to be in the black every year, as long as budgets were balanced over the course of the economic cycle, so that deficits during slumps would be paid off with surpluses in good years. Whatever the economic rationale for that approach, it didn\’t work in the real world of politicians. Once you break the spell–once governments find that they can get away with borrowing instead of taxing to pay the bills–it is almost impossibly tempting for politicians to do it again and again until the debt is out of control.

That \”balance over the economic cycle\” never happened, did it?

For the simple political pressure is to keep spending, to not do the 50% of the Keynesian prescription, which is to run a budget surplus in the good times.

A theory of economic governance which only works 50% of the time for such political reasons isn\’t all that much good to us  really. Sure, it\’s better than one which works 0% of the time but shouldn\’t we carry on and find one which works 100% of the time?

5 thoughts on “Capturing Gordon Brown in one paragraph”

  1. Is there actually a no-deficit-rule somewhere? We’re talking about Canada? At least in Europe, what people speak about as a horrible limitation to Keynesian politics, the fiscal deficit rule, actually means that the deficit shouldn’t exceed 3 % of GDP. I think 3 % of GDP – typically around 5-6 % of public sector budget – as actually a scaringly large buffer. If Keynesian politics cannot be made to work with that, then I don’t think they will work at all any more.

  2. It’s pretty libellous to Keynes to associate the rubbish passed off as Keynesian Economics with his name.

  3. Is there actually a no-deficit-rule somewhere? We’re talking about Canada?>>

    keep that question mark on canada…they believe in borowwing like all others
    the only thing that keeps them out of massive all round deficit is their massive inflow of green chits(US dollars)
    otherwise known as “we dont pay”…iou s….

  4. The rule was circumvented in two ways.
    Firstly, by re-defining where we were in the economic cycle – and later saying boom and bust was ended so it did not matter.
    Secondly, by adding a the golden rule sub-clause. That is only borrow to invest. This would worked if the investments had a financial return greater than the cost of debt maintainance. Only most of the investment was for unmeasurable social returns. Therefore the rule lead to structural deficits.

    If there is to be a rule allowing temporary deficits, then it would have to be a prudent one about structural deficits. That is the budget would be in balance if growth were slightly below the long term trend. For the UK it would be equivalent to a balanced budget at 1% growth.

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