Friday, October 11, 2013

Boneheaded Boehner’s Balanced Budget Blunder. (BBBBB).

Republican numpties make much of their “balanced budget” idea. Unfortunately, that idea is also supported by numerous so called “professional” economists. The latter tend to talk about “balancing the budget over the cycle”. They’re talking thru their rear ends.
The entire balanced budget idea is a mathematical absurdity, and for reasons I’ve spelled out several times before on this blog. But let’s run through the reasons yet again. Here goes.
First, it’s generally accepted that the optimum rate of inflation is about 2%. Second it’s also generally accepted that for the foreseeable future we’ll enjoy real economic growth (though obviously such growth shouldn’t be allowed to damage the environment.)
Now 2% inflation means the REAL VALUE of the national debt and monetary base will shrink at 2% a year. So if those two are to remain constant relative to GDP (which over the very long term they do, more or less), then both will have to topped up, won’t they? But they can only be topped up via a deficit!!!!!!!!
And real economic growth compounds the point: that is if GDP expands at say 2%pa in real terms, then the debt  and base will have to be topped up even more!!!!  Still with me?
In fact to take some not unrealistic figures, if the debt and base come to 50% of GDP, and growth and inflation are 2%, then the deficit will have to be (2+2)x50%=2%xGDP. I.e. 2% of GDP.
Quad erat demonstrandum.
But doubtless I’ll be repeating the above points in a few months, since it seems no one understands the above argument – least of all Republicans. In fact I doubt they could add 2% to 2% and get the right answer.

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