I've come across a lot of arguments for why trying to cut the amount of borrowing being done by the government is a bad idea, though it seems to be the policy of both of the main parties in this country. So what are the advantages of it? What are they thinking when they advance it as a plan of action? And is it demonstrably 'wrong' to think as they do?
Professional economists are broadly in agreement in very large areas of policy ideas. But politicians of all stripes can still find tame economists who'll shill for whatever hairbrained scheme they'd like to push. As Hygro was saying, it's easy for politicians to demagogue for balanced budgets. And they can usually find some whore of an economist to back them. There are a number of thinktanks who will rent out people to find a convincing reason where whatever nonsense you just brainfarted on a political speech really is the 'truth of economics'.
But 'balanced budgets' really does have more of a pedigree than the usual political idiocy. Not that it's any less idiotic, but rather that its been around a very long time. And it really appeals to the ignorant. So it's not just bad economics, it's demagoguery of the basest sort.
Now what does the economics say? Like Hygro was saying, full employment is the relevant goal. Whatever deficit it takes to be at full employment, run that deficit. Why? Let's say a nation has a population of 100 million people. Being an average country, at average times maybe half those people have jobs. Why only half? Because that 100m includes children. It includes retired elderly, stay at home parents, adult full time students, people who are unable to work because of disability, because they are institutionalized in hospitals or prisons. And it includes people who have dropped out of the labor force because they couldn't find work, and they are on welfare or are homeless.
Now here's the key part: Whether 50m of those people are working, or 52m, or 48m, the nation is still paying to feed, clothe, house, and provide some medical care and other services to the whole 100m of them. So, what should be obvious to everyone, if 48m are working to feed ect 100m the burden of doing so is heavier on each of them than if 52m are working to feed ect 100m of them.
What that should tell you is that the cost to the country of keeping unemployment higher is, well, high. Actually a great deal higher, in the long run, then just borrowing and spending enough money now to bring the unemployment down to normal. Because what is true is that as the unemployment rate rises, the revenue that the government receives from taxes declines at the same time that the spending of the government is driven up because more people qualify for the social spending. But as the unemployment rate drops, tax receipts go up, and fewer people apply for government assistance. So if you borrow to put people to work, the deficits solve themselves. But if you try to balance the budgets, then you are acting in a way that makes the situation worse.
Maybe this is counter-intuitive, but for a real fiscal conservative, the the enemy is not borrowing, the enemy is unemployment. This is why Japan's government debt is so high now. They were never willing to do what it took to resolve the economic problems, and so the budget problems just dragged on year after year after year. And the accumulated debt of decades of a weak economy end up being far higher than the short term debt of fixing the economy would be.
The roof on your house starts to leak. You can borrow the money to have the roof replaced, and you won't have to do it again for a very long time. Or you can continually repair the damage to the inside of your house that the leak is causing. Which makes more sense?
