Democracy in deficit

United States federal budget deficit/surplus, as percentage of gross domestic product (source).

 

‘Elected politicians enjoy spending public monies on projects that yield some demonstrable benefits to their constituents. They do not enjoy imposing taxes on these same constituents. The pre-Keynesian norm of budget balance served to constrain spending proclivities so as to keep governmental outlays roughly within the revenue limits generated by taxes. The Keynesian destruction of this norm, without an adequate replacement, effectively removed the constraint. Predictably, politicians responded by increasing spending more than tax revenues, by creating budget deficits as a normal course of events.’ (James M. Buchanan and Richard E. Wagner, 1977, Democracy in Deficit: The Political Legacy of Lord Keynes).

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17 Responses to Democracy in deficit

  1. Poor Old Rafe

    That 2010 figure is not very scary compared with the other peaks, where do people think the blue line has reached at present?

    I appreciate that there are more bad influences at work now than before, like the entitlements and the blankets of regulations and litigation and political correctness over the nation.

    On the other hand, as JC likes to remind us, they are cooking with gas!

  2. papachango

    Clearly the deficit’s gone north at a huge rate since Obama took over, but if I read the graph correctly it’s been in deficit all though the 70s and 80s. A bit of a surplus from say 91 to 95 then a deficit ever since.

    So that would mean Bush snr and Clinton ran some surplusses, while Reagan and GWB were running mild deficits at 4-6% of GDP. Seems surprising, particularly in Reagan’s case.

  3. Julie Novak

    Hi Rafe

    I could’ve easily added another chart of US public sector debt, which might’ve scared you if the 2010 US budget deficit figure didn’t!

    As for the “cooking with gas” effect, as I said in The Australian last week, worry about governments dissipating their resource revenues on low-value added spending, and taking their eyes off microeconomic reform in light of their budgets being showered upon by growing royalties etc. These might well compromise the robustness of the oil-and-gas boom, and hamper private sector development outside of the oil and gas sectors.

  4. papachango

    That 2010 figure is not very scary compared with the other peaks.

    The other peaks relate to a war effort, which quickly retuned to surplus in peacetime. Obama’s stuff is setting itself up for sustained deficit increases on the other hand.

  5. Julie Novak

    papachango – yes, the point I’m making here is that, I think, Buchanan is right; in the sense that balanced (or modestly surplus) budgets are an exception, not a norm, in the modern era of large US government fuelled by welfare state expenditures.

    Same issues apply in Europe, and budgetary irresponsibility may solidify in Australia unless policymakers act fast, and soon, to consolidate their budgets.

  6. rebel with cause

    Great point Julie. Full credit must go to John Howard and Peter Costello for promoting the idea that balancing the books is something that responsible governments do. That a surplus budget still has some political capital in Australia is, I think, one of the main reasons we do not (yet) have the debt problems of other developed countries.

  7. johno

    So that would mean Bush snr and Clinton ran some surplusses, while Reagan and GWB were running mild deficits at 4-6% of GDP. Seems surprising, particularly in Reagan’s case.

    There was much to like about Reagan (and Thatcher), but reducing government expenditure is not one of them.

    Clinton’s fiscal management needs to be more widely acknowledged.

  8. Kingsley

    Should we be agitating for a “debt brake” referendum like the Germans did a few years ago AND got it passed?
    Basically I’d be after something like can’t run a deficit except for a National Security emergency. Go into deficit and a general election called in 90 days. That would in fact mean fairly good surpluses are run to avoid going anywhere near the trigger point of a deficit

  9. Jannie

    OK, so what do they do?

    They print dollars and pay their debts with inflationary money.

    The losers are the bondholders, Rich Arabs and Poor Chinese – a few westerners with savings, they mostly dont vote in US elections, and never vote Democrat anyway.

    The evil capitalist system sows the seeds of its own destruction, and socialist superman will have to bail them out, again. You can tell why it does not bother Obama at all.

  10. Token

    The losers are the bondholders, Rich Arabs and Poor Chinese – a few westerners with savings, they mostly dont vote in US elections, and never vote Democrat anyway.

    Don’t you mean the average person in those countries who have the excess wealth drawn from their labour / mineral wealth squandered buying debt instead of allowing the people to invest in projects with real ROI?

  11. Derp

    There is no so such thing as compulsory voting. Only compulsory attendance at the polling station to have your name ticked off on a list.

    That’s not quite correct. IIRC the law states you must also obtain a ballot, fill it in and place ballot in the booth. But it’s not really enforcable.

  12. Jannie

    Don’t you mean the average person in those countries who have the excess wealth drawn from their labour / mineral wealth squandered buying debt instead of allowing the people to invest in projects with real ROI?

    Um Token, I guess I might do, and it does seem a bit unwise for those ‘people’ to buy US bonds instead of investing in something real. Its not clear to me why anybody would invest in Government Bonds, US or Euro, when they clearly have no intention of repaying you with units of equal value.

    I was being a bit flippant, there will be a down side when the Bondholders work out they have been stiffed.

    But borrowers could just say ‘caveat emptor’?

    (Clearly, I am no economics expert, but I have read a lot of history, and investors have lost their shirts investing in govt bonds, many times before. But not English speaking countries, as far as I am aware).

  13. Token

    I was being a bit flippant, there will be a down side when the Bondholders work out they have been stiffed.

    That’s cool. You gave me a lead in.

    The squandering of the resources of those countries by autocrats, by purchasing the debt which will never be paid, is just another way the statists/autocrats rob their people.

  14. JAG

    It appears that previous debt spikes have ended Hitler, slavery and the first world war.

    The current debt spike eventually ended the life of a reclusive elderly adult film enthusiast and… well… umm… shit.

  15. Maws

    probably off topic, but OMFG where do these idiots come from

    “AUSTRALIA’S most needlessly wasteful spending took place under the John Howard-led Coalition government rather than under the Whitlam, Rudd or Gillard Labor governments, an international study has found.

    The International Monetary Fund examined 200 years of government financial records across 55 leading economies.”

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