Surpluses and Depression

http://bilbo.economicoutlook.net/blog/?p=25039

 

 

 

[Reference: Thayer, F.C. (1996) 'Balanced Budgets and Depressions', American Journal of Economics and Sociology, 55(2), 211-12]

 

The article is the evidential basis for statements you will hear from Modern Monetary Theory (MMT) presenters over the last 15 years that every time the US government runs a surplus, a recession has followed soon after.

 

… the consistently startling historical record.

He documents 6 depressions – 1817-21; 1823-36; 1852-57; 1867-73; 1880-93; and 1920-30 – as “significant economic depressions among the innumerable ‘business cycles’”.

 

He demonstrates that:

Each sustained period of budget-balancing was immediately followed by a significant depression. There are as yet no exceptions to this historical pattern.

 

 

The message from this analysis is clear. As Frederick Thayer notes:

… if the market for consumer goods cannot do the job, there is every reason to turn to the production of public goods, always in short supply anyway.

 

The paper is available – HERE