What Makes Economic Sense - Government Budget Surpluses or Deficits

The British Government announced plans for permanent budget surpluses designed to cut the national debt arguing it will allow the government to borrow only in exceptional circumstances and ensures successive governments run a budget surplus.  

But others have argued that the obsession with reducing national debt needs to be seen in a broader historical context. The current national debt of 80 per cent of GDP is not exceptional. Indeed, the UK welfare state was built against the background of high debt as that facilitated redistribution of wealth and investment in industries and improved people’s purchasing power.

The net result was higher economic prosperity and lower national debt. In times of recessions and economic turbulence, only governments have the capacity to bailout companies and stimulate the economy. The self-imposed fiscal straitjacket is a recipe for social instability.

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