Malcolm Sawyer

Progressive approaches to budget deficits

17 pages · 4.26 EUR
(October 2011)

I agree with the terms and conditions, especially point 10 (only private use, no transmission to third party)

From the introduction:

Malcolm Sawyer discusses "Progressive approaches to budget deficits". His chapter argues that striving to have a balanced budget (or indeed setting aims for budget deficits in numerical terms where the number is 'plucked out of the air') is firstly to completely misunderstand the purposes of fiscal policy and unbalanced budgets. It secondly argues that seeking a zero budget deficit would, for many countries, be difficult if not impossible to achieve, simply because there is a tendency for the (average) propensity to save to be larger than the (average) propensity to invest. Thus striving to attain a zero budget deficit not only pushes the economy in a deflationary direction but may well be unachievable. While Sawyer dismisses a range of classic arguments deployed against the use of fiscal policy and specifically budget deficits and places his own argument in a 'functional finance' perspective, he nevertheless asks the question of what are the alternatives to budget deficits, if high levels of employment and economic activity are to be secured. Drawing heavily on Michal Kalecki's work, it is argued that the progressive approach to reducing budget deficits is a massive redistribution of income, from rich to poor, from profits to wages, which would lower the propensity to save, thereby stimulating aggregate demand, and thereby permitting a higher level of demand with a lower budget deficit. Sawyer?s conclusion is encouraging: reducing inequality is a win-win strategy ? it would reduce the transfer of funds to the rich through government debt, and it would reduce the need for budget deficits: not to mention all the other economic and social benefits which would come from reduced inequality.