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The absurdity of the budget deficit hysteria

There is nothing insidious or inherently sinister about government budget deficits per se. As the economist Stephanie Kelton argues: “Government spending adds new money to the economy, and taxes take some of that money out again. It’s a constant churning of pluses and minuses, and their minuses become our pluses. When the government spends more than it gets in taxes, a ‘deficit’ is recorded on the government’s books.

But that’s only half the story. A little double-entry bookkeeping paints the rest of the picture. Suppose the government spends $100 into the economy but collects just $90 in taxes, leaving behind an extra $10 for someone to hold. That extra $10 gets recorded as a surplus on someone else’s books. That means that the government’s -$10 is always matched by +$10 in some other part of the economy. There is no mismatch and no problem with things adding up. Balance sheets must balance, after all. The government’s deficit is always mirrored by an equivalent surplus in another part of the economy.”

– Marshall Auerback


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