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Simple Answers

October 4, 2015

Some of the political party leaders are promising to balance the budget if they win the next election.  Is this really necessary?  It’s actually a false analogy, a victory for the conservatives.  They have convinced people that the budget of a country is just like the budget of an individual household, only larger.  It makes the concept simpler, but unfortunately, it’s false.  They’ve also convinced people that balancing the budget every year is a sign of a fiscally responsible government.  Some parties even promise legislation that will require the next government to balance the budget every year.  That promise no doubt appeals the convinced, but it only codifies the false analogy.

Some branches of economics, Keynsian in particular, recommend using the budget to control the economy.  Running a deficit with increased government spending stimulates a weak economy.  Likewise, running a surplus with increased taxes retards an economy that is too strong.  Doing it right requires predicting the future, always an error-prone task.  In the long run, the deficits and surplusses still must balance out.

There is some truth to the requirement for the government to balance the budget every year.  That’s because deficit financing is an easy way for governments to raise money.  They can please the voters by spending money while not raising taxes at the same time.  Of course, doing that for a long time will anger the voters, bringing an end to any government that tries it.

Job creation is something that all parties promise to do these days.  How they propose to do it is the part that differs.  Beware if they say that small business is the job creation engine of the economy.  This is partially true, but small business is also the job destruction engine of the economy.  Many small businesses are short-lived, hiring people initially, but throwing them all out of a job when the business fails.  Once you correct job creation for job destruction, their job creation rate becomes similar to that of large business.  Mostly, this statement is an excuse to subsidize businesses or to deregulate them.  It’s these two government practices that you should evaluate when you hear about how valuable small business is.

Generally, the extremist groups have simple stories to promote and simple answers to all questions.  That’s because they tell only one side of the story.  The world’s more compicated for moderate groups.  They must consider many viewpoints.  They don’t have simple answers.  Instead, they must try to find a balance between the benefits to some and the losses to others, for any action they undertake.

The other danger is in ideologies, principles based around a single idea.  They too are a source of simple answers.  Reality is not that simple.  It’s complex.  Solutions to problems require consideration and judgement.  That’s why all ideologies are false.  There are no simple answers.  The difficult path is the correct one to chose.


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