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Comment by mkramlich | Hacker News Reader

This article reminded me of the larger issue: why do so many modern, national governments seem incapable or unwilling to ever operate with a balanced budget? Why do deficits and debt seem to be the norm? Why all the excuses? Is it a kind of stupidity brought about by having a large group of people each pulling in different directions? Or is it by design and due to malevolent intent? Just curious what everyone thinks.

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Elected politicians have to aim for the short-term goal of getting re-elected. Money, and both monetary and fiscal policy, are based on collective hallucinations that people rarely think clearly about. No politician wants to be seen idle, and killing projects makes enemies, so they make new projects and spend more money.

As Bob Kerry once pointed out, sometimes it can be truly heroic to simply do nothing.

In a down economy, a requirement that the budget be balanced simply leads to a downward spiral - the state takes in less tax revenue and has to cut it's spending, which removes a large portion of demand from the economy, which results in less tax revenue, etc.

Balancing a budget in a recession does not subsequently mean that the state will take in less tax revenue. It also does not necessarily mean that a "large portion of demand" will go away. That would depend entirely on what was cut.

However, consistently running an unbalanced budget will most definitely lead to a "downward spiral".

What kind of government spending can you cut that does not reduce demand of some kind in another part of the economy?

If the answer is "entitlement spending", where do you think the money spent by the government on Social Security/Medicaid/Medicare/welfare/jobs programs/etc goes? Into consumer's hands and right back into the economy.

Could you be more specific about this? I've seen this argument several times, and it always seemed flawed to me.

Let's say you cut the budget by X. Part of this X (X') doesn't get invested in money making enterprises any more, and less money goes back as taxes (X" less money).

Now, unless the economy is super efficient, I'd say X > X' > X". And given the realities of public government, usually X >> X".

How is then any better to borrow X just to get back X" (and still owe X), then to simply lose X"?

You cut the budget. Some companies go under, increasing unemployment. Unemployed people not produce and do not pay tax, but they continue to consume and receive government services (traffic lights, toilets, parks, police, firemen, etc). To further balance the reduction in tax revenue from the increase in unemployment, you cut the budget some more. Some more companies go under, further increasing unemployment, decrease tax revenue, leading to further budget cuts etc.

I think you are missing the downward spiral part of it. Today's budget affects tomorrow's economy which affects tomorrow's budget (through tax revenue), ad infinitum.

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