Daily Archives: April 14, 2010

What is Responsible Fiscal Policy?

By Pavlina R. Tcherneva

I can’t fault the taxpayer for being upset with the deficit. I blame my profession, which has been spewing nonsense about government spending for decades. Economics is long-overdue for a renaissance. The deficit phobia, not the deficit itself, should be made public enemy #1. Taxpayers are decidedly working against their own interests when they demand that the government reduce or eliminate its deficit. Here is why:
Government deficits create non-government surpluses. It is a simple mathematical proposition; it is neither high theory, nor rocket science. If one sector spends more than it earns, another, by the rules of double-entry bookeeping, earns more than it spends. And so it is with the government—if it spends more than it collects in taxes, it runs a deficit, which is exactly equal to the surplus accumulated by the non-government sector. Deficits create income and profits for the private sector in excess of the taxes the private sector pays to the government. My fellow bloggers have explained this clearly many times before (e.g. here, here and here).