Approaching Budget Deficits, Debts and Money in a Socially Responsible Manner

Government can always finance its expenditure with the cooperation of the central bank. Key issue should be the desirability of proposed expenditure, resource and funding implications. It is argued that ‘people’s quantitative easing’ does not contribute beyond what traditional fiscal policy could achieve. The ‘golden rule’ whereby borrowing is permissible for public investment is critiqued. It is argued that the target budget deficit should be set to secure macroeconomic objectives and focus on ‘full employment’, noting the difficulties of defining full employment and capacity. The budget constraint coming from full employment is set out. The structural budget balance alternative is critiqued and argued to be in general infeasible. The possible role of interest rates is discussed. It is then argued that a debt arising from budget deficit along the lines indicated in this contribution is sustainable. It is argued that governments should operate where there is no fiscal space left.