The Budget Deficit – The Record


The role that economic theory plays in the creation of money — even if understood by a government —  is ignored in favour of economic manipulation for the purpose of a fiscal policy. Self interested post war governments have little interest in the social responsibility that Peter Drucker applied to a private enterprise.

“The first responsibility of business is to make enough profit to cover the costs for the future. If this social responsibility is not met, no other social responsibility can be met.”

Peter F. Drucker, The Practice of Management (1954)


When economist, politicians and ultimately governments introduce a fiscal policy it always involves debt and taxation. Ideally the taxation revenue income stream would fund government  budgeted expenditure that included paying off the capital and interest on any ‘borrowing’. Politicians, however, buy support with promises that lead to budget deficits and increases in the national debt. The last time the UK government ran an absolute budget surplus was in 2001 and has only balanced the budget in seven out of the last 50 years.

Deficits by chancellor

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Government budget deficits create a debt burden that inevitably increases the national debt. Even when the fiscal deficit is financed by the issue promissory notes in the form of gilts, if these gilts fail to increase the revenue sufficiently government profligacy can be met by printing more money. As printing money is seen to be inflationary, the government’s sleight of hand now takes the form of quantitative easing. This ‘electronic process of money creation’ favoured by the government as the means of increasing the money supply is based on the assumption that the government is in control of the money supply. This; despite the issue of credit by banks injecting far more money into the economy than any government’s fallacious quantitative easing actions.

An electorate has the expectation that a government will pursue a fiscal policy for a stable economy; a Pollyannaism  that politicians count on. Individuals that pay off the debts incurred on one credit card by using another credit card, are scoffed at for doing so, yet this is exactly how the government finances its budget deficits. Government fiscal policy introduced to correct its own fiscal imprudence,  whether it is a government issuing bonds, actually printing more money or electronically printing money as in quantitative easing, it always increases debt and inflation.

Inflation benefits the debtor, in that inflation allows the debtor to repay previously borrowed  ‘good money’ with (inflated) ‘bad money’. It always penalises the holders of  fiat money in that it always erodes its purchasing power. If any fiat income does not keep pace with ‘real inflation’, it has the same effect as reducing that income, be it a tax revenue income stream, a salary, a pension, a welfare income, or fiat currency savings.

To paraphrase Alexandre Dumas (père)

Fiscal Policy? It’s quite simple; it’s other people’s money.

First published on 20 November 2013 as Debt And Taxation

A Guide To The Uk Monetary And Banking System (pdf)

2 responses to “The Budget Deficit – The Record

  1. Pingback: Assignats and Reprises! | Aasof’s Reflections

  2. Pingback: Green and Fiscal Ineptitude | Aasof getting serious!

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An Anthology of Short Stories

Selected by other writers

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