A government surplus represents the removal of funds from the private economy with uncompensated public sector productive value creation. It is a policy recommended by those that champion “austerity economics” – however logically, this pattern is liable for encouraging systemic weaknesses and therefore future economic crisis.
It should be noted that although this blog post critiques austerity government policies, it does not argue for uncontrolled government spending. Rather, the ultimate implication is that “a” level of government deficit is not a bad thing because it helps enables economic growth (or at least does not actively damage the ability to achieve for economic growth). But if this is not politically feasible, at least target balanced government books – because at least this is not actively harming the ability for economic growth and encouraging economic crisis.
Minskyian economic theory directly links an oscillating aggregate supply of credit in an economy to the potential for economic crisis. It suggests that credit supply has a cyclical nature in highly financial economies. Thus the seeds of crisis are endogenously sown during seemingly productive booming previous periods. This piece will describe the model’s principles and note how its theories stray from mainstream economic thought. This analysis will come in useful in future posts, as the model seems to well approximate numerous historical crises – and of current importance: the ongoing travails of the Chinese economy in 2015.