Should governments be forced to create a balanced budget?

spellbanisher

Ad Honorem
Mar 2011
4,136
The Celestial Plain
Looking back at the data I admit you are correct about the UK's debt/GDP ratio in the 19th century. However, what is blatant is the fact that this debt was accumulated during the Napoleonic wars. In other words it was a short term accumulation of debt for a specific goal. After the Napoleonic wars the ratio fell rather quickly. Our economy was also growing at a far greater rate back then. We could just about afford to pay if off. Let's see how well we pay this debt off with an aging population, a bloated welfare state and a growth rate of a measly 2% or so.
The UK's growth rate between the 1820s and the 1860s was only two percent a year, 1.2 percent per capita, according to Angus Maddison. That may seem shockingly low since this was the industrial revolution, but compared to the growth rates in previous centuries (basically a few tenths of a percentage per year), two percent was a revolutionary growth rate.
 

Naomasa298

Forum Staff
Apr 2010
35,460
T'Republic of Yorkshire
I do disagree with your point that governments only ever pay interest on debt. This is the case only when financial institutions have faith in the Governments ability to service the debt. When this faith goes then there is the likelihood that a) Creditors want their money back b) Creditors become only willing to lend at vastly increased levels of interest or c) Default.
If it ever got to that stage, the ultimate resolution is that the central bank would print more money, at the risk of driving up inflation - or it would massively cut spending elsewhere, such as in the welfare budget to pay it. It would have to be a massive drop in economic confidence for it to reach that stage. I'll never say never, but Britain - and the US - are not the likes of Zimbabwe. Our economies still have a huge capacity to produce real output. Zimbabwe was destroying its own capacity to do so, and even they have it under control.
 

jackydee

Ad Honorem
Jan 2013
4,569
Brigadoon
The UK's growth rate between the 1820s and the 1860s was only two percent a year, 1.2 percent per capita, according to Angus Maddison. That may seem shockingly low since this was the industrial revolution, but compared to the growth rates in previous centuries (basically a few tenths of a percentage per year), two percent was a revolutionary growth rate.
My wording in the post you were quoting was not great. 2% over the long term is adequate. My point was more about this specific time in this economic cycle. Four years after a recession, after trillions of stimulus money has been thrown at the US economy and the growth rate is hitting just 2% or so. In more recent historical terms this is not a great rate. It will be especially bad IF this proves to be the high point of this economic cycle.

Also, I am certain as the day is long that these GDP stats are massaged to look good. Things are included in today's GDP that were never included in the past(or could not be adequately counted in the past). These include the assumption of improvements in goods bought and sold, and the very latest intellectual property right changes. This intellectual property right change suddenly increases GDP all the way back to 1929 in the US. At a stroke of a pen tenths of a % have been added to US GDP every year since the great depression.
 
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spellbanisher

Ad Honorem
Mar 2011
4,136
The Celestial Plain
My wording in the post you were quoting was not great. 2% over the long term is adequate. My point was more about this specific time in this economic cycle. Four years after a recession, after trillions of stimulus money has been thrown at the US economy and the growth rate is hitting just 2% or so. In more recent historical terms this is not a great rate. It will be especially bad IF this proves to be the high point of this economic cycle.

Also, I am certain as the day is long that these GDP stats are massaged to look good. Things are included in today's GDP that were never included in the past(or could not be adequately counted in the past). These include the assumption of improvements in goods bought and sold, and the very latest intellectual property right changes. This intellectual property right change suddenly increases GDP all the way back to 1929 in the US. At a stroke of a pen tenths of a % have been added to US GDP every year since the great depression.
Total growth and total GDP(for the present and the past) will be larger under the new accounting methods, but since the growth rate is growth divided by GDP, the growth rate in the past, present, and future will be negligibly affected. Altogether, applying these new accounting methods for the last 74 years yields an economy that is only 3% bigger. Additionally, i would argue that GDP does not account for a lot of economic activity. It does not account for black markets. It does not account for pro bono services. And it doesn't account for things like housework (unless you have housekeepers).

But yeah, the new accounting methods are dubious to me. They seem like double counting. That's why you can't rely on just one stat. But for reasons I explained in post 5, I don't think the deficit in itself is even a relevant issue in a monetarily sovereign country.
 
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Aug 2011
263
Montreal, Canada
When I do a budget, (a truly shocking habit I know) I am forced to choose what I spend my finite resources on. If I end up in the read by the end of the month, I need to recalculate what I spend. Shouldn't the government have to do the same? Do you think it would be positive or plausible to establish some sort of amendment or regulation that Congress must be forced to run a budget that will run on its revenues?
Households function under a different financial logic than a government. As others have pointed out, governments issue currency, households don't. Nor is debt necessarily a bad thing; taking out a loan to make an investment that will increase your total potential earnings over a lifetime can warrant going into the red for a while (student loans, for example).

On an international scale, if every state were to try and achieve a balanced budget, international trade would come to a halt. Someone has to spend in order for someone else to buy.