Balanced budget ‘like shooting the economy in the head’ – experts
My employers at Renegade Inc very generously published an excerpt of my upcoming book How The World Really Doesn’t Work. (Told you the title was due to change).
I am publishing a partial excerpt here for my Inkl subscribers.
ONE of the classic fallacies of logic is to believe that what works for one person, will naturally work for everybody, and that therefore surely all of us can do the same thing at the same time and expect a beneficial outcome.
In economics, this is highly unlikely to be true.
“If everybody tried to sell GM stock at the same time, probably really, really bad things are going to happen to GM stock, which is not going to stay at 65” says economist Professor William Black.
Black is an American lawyer, former bank regulator and Associate Professor of Economics and Law at the University of Missouri-Kansas City.
“It’s going to get pushed downwards and, at the limit, essentially to zero,” he said.
But all of the people who bought that stock still have to pay back the loan. This is what is known as ‘Buying on Margin’ and can lead to severe liquidity crises to boot.
Likewise, when a government analogises its budget to that of a household, bad, bad things happen. It is this very logic of composition that contributed to this terrifying moment in history. The bid to balance the budget has sucked trillions of dollars out of the economy, destroyed productivity, put downward pressure on wages and employment, encouraged unprecedented levels of private and household debt and has encouraged financial deregulation which has led to inflated property, equity and auto-loan bubbles in a desperate bid to keep the economy afloat.