Are the Keynesian academics right about Osborne?

Keynes too wanted ‘balanced budgets’ over the ‘business cycle’, running surpluses in times of boom and deficits in times of recession or depressions. His difference with the ‘classical economists’ was that they thought there could be no recessions except through temporary shocks while Keynes thought there could be long-lasting depressions that required government deficit spending to get out of them. But once things were okay in the capitalist sector, then surpluses would be prudent to avoid inflation and overheating.

What decides the issue is not whether the government runs a ‘permanent surplus’ or not, but what is happening in the capitalist sector. Under capitalism, the level of ‘net saving’ in the business sector depends on profit generation. And from capitalist investment, there are flows to employment and wages and thus the net savings-investment position of households – and government balances. This is the Marxist view of macro balances (see my post,

Michael Roberts Blog

The announcement by the British finance minister, George Osborne that the Conservative government will legislate to force governments to run annual surpluses on their budgets has provoked an explosion of debate among economists, particularly the Keynesian school.

Outlining plans for a law that forces the Treasury to run a surplus in “normal times”, Osborne said: “With our national debt unsustainably high, and with the uncertainty about what the world economy will throw at us in the coming years, we must now fix the roof while the sun is shining.” The chancellor also argued that the discipline imposed by a new law would support future generations who faced being saddled with sky-high debts.

Now Thomas Piketty, David Blanchflower and 75 other economists signed an open letter that was published in the British newspaper, the Guardian, to condemn this proposal ( According to these economists, such a measure was…

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