The Deficit Myth

There are fiscal conservatives on the right and left of the political spectrum—and in the middle too.

By fiscal conservative I mean someone who believes, in Stepanie Kelton’s phrase, the Deficit Myth. The Deficit Myth is simply the idea that an excess of government expenditure over tax receipts is a deficit, that it will have to be filled by obtaining funds from elsewhere (i.e. by borrowing), and that the accumulated ‘debt’ will have to be paid off through taxation at some unspecified time in the future.

As anyone familiar with Modern Money Theory is aware, this is all nonsense. But you would think that by now the realisation would have dawned on everyone who takes an active interest in the government’s spending policies. That really means all of us, but particularly politicians and pundits.

I mean, look at this graph:

Its original source is the Office of Budgetary Responsibility (OBR) no less, and it could hardly be more in the public domain than the BBC website whence I borrowed it (thanks, BBC!). And what it shows is that no one ever balances the books (well, just occasionally, but not for long). If we were to go back over the decades we would get exactly the same picture—the government virtually always runs a ‘deficit’, the ‘national debt’ keeps on increasing, and nothing bad happens as a result because the economy keeps expanding.

In fact when something bad does happen (like a recession) it’s usually in part, at least, because an ideological chancellor has tried to balance the books by imposing austerity on the country.

There really is no excuse. The evidence is in plain sight, but somehow the people responsible for running the economy can’t see it.

As my mother used to say, ‘There are none so blind as those who won’t see’.