"Balancing a nominal budget will solve nothing, and attempting to achieve such a spurious balance will produce much mischief"
About this Quote
William Vickrey warns against fetishizing an annually balanced budget as a policy goal. Nominal balance is a bookkeeping artifact, not an economic achievement. What matters is the state of the real economy: employment, productive capacity, inflation pressures, and the quality of public investment. A government that slashes spending or hikes taxes just to hit zero deficit in a downturn will deepen unemployment, shrink incomes, and erode the very tax base that supports fiscal health. That is the mischief he anticipates: procyclical austerity that trades statistical tidiness for real harm.
Vickrey stood in the Keynesian and functional finance tradition, alongside Abba Lerner, arguing that budgets should be used to balance the economy, not the other way around. When private demand is weak, deficits are a tool to mobilize idle resources; when the economy overheats, surpluses or tax increases can cool it. Sustainability hinges on whether borrowing expands productive capacity and whether growth outpaces interest costs, not on achieving an arbitrary yearly equilibrium of dollars in and out.
Calling the balance spurious also points to the tricks often used to achieve it: deferring maintenance, offloading obligations to lower governments, selling public assets at fire-sale prices, or cooking the books with off-budget entities. Such measures can look prudent on paper while raising long-run costs and degrading public services. The historical record bears this out, from the 1937 relapse in the United States after premature fiscal tightening to the eurozone austerity that prolonged unemployment and weakened recovery after 2010.
The wiser test asks whether fiscal policy moves the economy toward full employment with price stability and builds assets that boost future incomes. A narrow focus on nominal balance mistakes the map for the territory, elevating an accounting identity over human welfare and economic resilience.
Vickrey stood in the Keynesian and functional finance tradition, alongside Abba Lerner, arguing that budgets should be used to balance the economy, not the other way around. When private demand is weak, deficits are a tool to mobilize idle resources; when the economy overheats, surpluses or tax increases can cool it. Sustainability hinges on whether borrowing expands productive capacity and whether growth outpaces interest costs, not on achieving an arbitrary yearly equilibrium of dollars in and out.
Calling the balance spurious also points to the tricks often used to achieve it: deferring maintenance, offloading obligations to lower governments, selling public assets at fire-sale prices, or cooking the books with off-budget entities. Such measures can look prudent on paper while raising long-run costs and degrading public services. The historical record bears this out, from the 1937 relapse in the United States after premature fiscal tightening to the eurozone austerity that prolonged unemployment and weakened recovery after 2010.
The wiser test asks whether fiscal policy moves the economy toward full employment with price stability and builds assets that boost future incomes. A narrow focus on nominal balance mistakes the map for the territory, elevating an accounting identity over human welfare and economic resilience.
Quote Details
| Topic | Money |
|---|
More Quotes by William
Add to List
