Keynes argued that rather than government balancing their budgets on an annual (a yearly) basis; instead,...

 

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Keynes argued that rather than government balancing their budgets on an annual (a yearly) basis; instead, government budgets should be balanced over the business cycle - deficits during years of recession and surpluses in years of inflationary full employment. Yet, in the decades since the Second World War ended in 1945, the U.S. and many other governments have run budget deficits that have led to huge national debts, regardless of recession or full employment years. Some have argued that the end of the annual balanced budget rule has created political incentives for politicians running for election to rationalize budget deficits, and for special interest groups to pressure those running for office to find ways to spend government money in their direction without having to raise taxes from one part of the population to spend in various ways on other groups. Explain the logic behind this interpretation of government deficit spending. Do you agree? Why? Keynes argued that rather than government balancing their budgets on an annual (a yearly) basis; instead, government budgets should be balanced over the business cycle - deficits during years of recession and surpluses in years of inflationary full employment. Yet, in the decades since the Second World War ended in 1945, the U.S. and many other governments have run budget deficits that have led to huge national debts, regardless of recession or full employment years. Some have argued that the end of the annual balanced budget rule has created political incentives for politicians running for election to rationalize budget deficits, and for special interest groups to pressure those running for office to find ways to spend government money in their direction without having to raise taxes from one part of the population to spend in various ways on other groups. Explain the logic behind this interpretation of government deficit spending. Do you agree? Why?

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The interpretation of government deficit spending as driven by political incentives and pressures from special interest groups is rooted in several as... View the full answer