ABSTRACT
While government deficits are necessary to sustain production, they are not sufficient. They can lead merely to inflation. This spawns the temptation towards lazy thinking and tawdry solutions, such as the easy fix of supposing that the government, like Mr Micawber, ought to pay out no more than it takes in; from this error arises the mistaken ideology of austerity. Another instance of lazy thinking is sometimes employed with respect to what economists call the NAIRU - the non-accelerating inflation rate of unemployment. This is the level of unemployment that, must be maintained in order to keep inflation under control. When there is debt deflation, or a high demand for private sector saving more generally, the government ought to run a deficit to accommodate the higher rate of saving. It makes it seem as though all the government needs to do in order to be safe is avoid going into debt.
