Peter Hoskin

Balancing the budget

Well worth reading Professor John Taylor’s article for the FT today, in which he extrapolates from Standard and Poor’s recent assessment of the UK’s creditworthiness to deliver a warning about the rising national debt in America.  This passage jumped out at me:

“While there is debate about whether a large deficit today provides economic stimulus, there is no economic theory or evidence that shows that deficits in five or 10 years will help to get us out of this recession. Such thinking is irresponsible. If you believe deficits are good in bad times, then the responsible policy is to try to balance the budget in good times. The CBO projects that the economy will be back to delivering on its potential growth by 2014. A responsible budget would lay out proposals for balancing the budget by then rather than aim for trillion-dollar deficits.”

Taylor’s point also applies over here.  By the Treasury’s own (optimistic?) forecasts, we’ll still be running a budget deficit of 5.5 percent of GDP in 2014.  Going off their current plans, that deficit would be similiar under the Tories.  So unless the next government undertakes bolder fiscal consolidation than is currently being mooted, we may again be lamenting a failure to “fix the roof while the sun was shining.”

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