Daily Archives: February 16, 2014

Budget Deficits: a Burden to our Children and Grandchildren?

As explained in previous posts a Government budget deficit is necessary to fund any country’s trade or external deficit. So are these budget and external deficits an inter-generational burden? That’s what we hear all the time in the debates in Parliament and on TV, but is there any real truth in this? There are obvious contradictions in mainstream thought. Mainstream thought has it pretty much as: exports are virtuous,  imports are indulgent.  Surpluses are good, deficits are indulgent. The Germans are virtuous – they have a surplus of 7%. The British and Americans  are indulgent with  deficits of around half that. Lets say 3.5%

German children and grandchildren will have a life of ease, whereas British  and American children and grandchildren will be slaves to debt repayment.

The reality is, as usual, is quite different.  Possibly the US and UK economies of some future time will have to have a surplus of 3.5% to pay for our deficits of 3.5%. Their economies could be more like the present day German one except not quite so export dependent. Which would of course,  be a virtuous state of affairs according to our present mainstream economic thinking.

An alternative way of thinking would be to say that every generation consumes the goods and services which are produced in the economies of their time. Its just not possible for us to steal anything from them. They can’t send anything back in time to previous generations. We can’t leave future generations much that will be directly useful to them except whatever it takes to ensure their future economy is in as good a shape as possible. That is a good education system, a good health system, a good housing stock,  a good transport system, and a clean and healthy environment.

There is certainly no point saving up money on a national level and leaving them a pile of Government IOUs. Those IOUs would be just as inflationary, when used, as if they printed their own.

Whether their economy will have a surplus of 3.5% or a deficit of 3.5% is neither here nor there by comparison to the other problems they will have to face such as resource depletion and the adverse effects of climate change.