Reply to post: Re: It doesn't matter...until it does

NEVER MIND the B*LLOCKS Osbo peddles, deficits don't really matter

David L Webb

Re: It doesn't matter...until it does

It makes sense to run a deficit in a recession - it's a way to get out of it - but you must run a surplus during the boom, or the debt will become too high to pay.

Not so long as the economy grows enough and inflation eats away at the debt.

As I stated earlier surpluses since the 1970s are extremely rare and were just blips with subsequent deficits wiping them out in short order.

Unfortunately the Keynsian goal of running a surplus during the boom and spending your way out of a recession with a deficit is harder to achieve than to talk about.

Firstly it goes against human and political instincts which are to spend during the good times and cut back during a recession. This latter tendancy was bolstered by Margaret Thatcher's popular but flawed comparison of the country's finances to those of a business' or housewife's budgetting.

Secondly it is difficult to accurately determine the position in the economic cycle. The cross-over point from bad times to good or vice-versa can often only be determined a few years later after all the stastics have been collected and been corrected a few times.

The only governments since the 1970s which came reasonably close were the Labour governments starting in 1997 which probably by luck as much as judgement followed the economic cycle reasonably well up until about 2006. No other government came anywhere near as close which makes the Conservative charge that Labour should have got back to running a surplus before the financial crisis a bit rich.

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