3QD friend Mark Blyth testified before the U.S. Senate Budget Committee yesterday. Here is his statement:
My name is Mark Blyth and I am the Eastman Professor of Political Economy at the Watson Institute for International Studies and Brown University in Providence RI. I am also the author of a book entitled Austerity: The History of a Dangerous Idea (Oxford University Press 2013) a book, which oddly just received a national award in Germany, the country most associated with budgetary austerity. Given that irony is not a German national trait, it might be the case that even the Germans are re-thinking their stance on balanced budgets. As I shall show you today, it’s really not working out so well in Europe and it would be a disaster if it were tried here too.
And yet balancing the budget as a matter of principle is intuitive. After all, you can’t spend more than you earn. It is also appealing. After all, people want more money in their pockets rather than less, so spending ‘other people’s money’ now so that they would have less in the future because of debt interest repayments seems to be the height of folly. But balancing the budget because of these arguments is also folly. While they are intuitive, these arguments are systematically wrong, because they are based upon two faulty analogies: one drawn between households firms and states and another between savings always being good and spending always being bad. I begin by taking each in turn before giving more specific examples.
The flaw in the first analogy is that the national or federal government’s budget is nothing but the sum of the budgets of the households and firms that comprise it. This is wrong, and for the United States of America in particular, it is absurd.
First, national governments do not have income in the same way individuals have income. Rather, individuals only have income by virtue of the existence of the government. Think of earning a buck in a job. What makes that possible is not just the labor contract, but also the existence of property rights, courts, police, roads, airports, education, and a host of other state provided functions. Don’t believe me? Go look at Somalia’s rate of job growth. With no state to protect both parties to the transaction, it’s hard to make a buck.
More here. And here is video in which Mark's testimony starts at the 46:20 mark.