So for starters, if a party campaigns on balancing the budget then both runs deficits and defends them, can we agree not to check the colour of their tie before denouncing it? And then can we reach tie-free agreement on how much government borrowing is sensible or at worst a minor irritation, and what debt-to-GDP ratio, interest-to-revenue ratio, or some such reasonably objective measure, is dangerous even if our team is doing it, rah rah blue, rah rah red, rah rah orange as the case may be.
It will, alas, require us to use our brains fairly and boldly to re-examine some assumptions that, even if sound, must not be acted on without due consideration. So take my government deficit … please.
It explicitly said something almost none of them would have believed and none would have defended if they had understood it, namely that in hard times government deficits were inherently good for what became known as “macroeconomic” reasons, even if in practice the borrowed money was wasted. No, really. His example was burying bottles containing banknotes that people could then busy themselves digging up, “stimulating” the economy. But his popularizers said something different.
They claimed the great and terrible Keynes proved that when times were tough, the state should borrow for noble purposes like feeding the hungry because in addition to the obvious virtue of preventing starvation, giving people money to buy food meant grocery stores would prosper instead of going bust and the economy would spiral upward to full employment as well as full tummies instead of downward into ruin and revolution. And ditto housing, medicine, etc.
Thus was the welfare state born with the crucial sugar coating that, far from being a reckless leftward turn, everything from Employment Insurance to Old Age Security would save capitalism from its own tendency to crash, burn, and bring communism. Yay! Everybody wins!
Or not, because in Keynes’s original and the consumer-friendly neo-Keynesian version, it was crucial that governments only borrow in what used to be “panics” then “depressions,” before morphing into “recessions” on the same grounds that “underhoused” is a big improvement on having nowhere to live. But that plan failed on two fairly predictable grounds we must discuss without fear or favour if we do not want politicians to keep running on balanced budgets, then declare in office that only a knave or a dolt would even discuss them given present circumstances.
First, most politicians agreed in theory with borrowing in slumps and running surpluses in booms. But under pressure to get re-elected, they routinely defined “hard times” too broadly and “prosperity” too narrowly, and ended up running deficits non-stop. Without non-partisan principles, “guardrails” if you will, we have no firm way of telling our compassionate friends from our spendthrift foes.
Second, and beware the political and PR voltage running through it, these welfare programs tended to expand relentlessly, because Keynes and his ilk pushed aside the notion that “incentives matter.” But if you build it they will still come, so massive subsidies for people who fail to find jobs or save for retirement rapidly become as economically unsustainable as they do politically untouchable. What politician now dares to mention “dependency” to constituents, with hat in one hand and ballot in the other?
Or back to the budget drawing board with we the citizens in the lead. Can we agree, in principle, that past a specified ratio, debt-to-GDP is dangerous under any party, as are interest payments as a share of public revenue? And that if we identify such guardrails then sail smugly through them, we are reckless fools?
They have an election to win. We have a country to save. Please let us rally on the high ground.
