Smart People talk about Government Buying
Neil Wilson
2125

“The fiscal limit is reached when the government runs out of things it wants to buy at the price it is prepared to pay.” Since the latter sentence is in bold in the above article, presumably it’s supposed to be more than normally meaningful or important. Trouble is though that the phrase “fiscal limit” is not defined. So I can only guess what it is supposed to mean.

If the phrase is a substitute for “maximum possible size of the deficit”, then the size of the deficit is not limited by constraints that government might put on public spending (e.g. for the above “runs out of things it wants” reason). Reason is that the deficit can perfectly well be expanded by increasing household after tax incomes, e.g. by tax cuts.

Alternatively if the phrase is a substitute for “proportion of GDP going to public spending”, then that is not actually constrained by government “running out of things it wants to buy”. It is constrained in a democracy by the % of the GDP that the electorate wants to see allocated to public spending (though obviously different governments adhere to the wishes of the electorate with varying degrees of precision). I.e. “at a price it is prepared to pay” is irrelevant.

Indeed, “government” in the form of senior bureaucrats and politicians DELIBERATELY spends money on items it knows perfectly well are a complete waste of money, because such expenditure is popular with the electorate. There are dozens of examples of that in “Yes Prime Minister”.

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