ABSTRACT
Nevertheless, while government deficits are necessary to sustain production, they are not sufficient. They can lead merely to inflation. This perhaps 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. The fact is that even Mr Micawber ought to issue more IOUs than he reclaims, if people wish to accumulate his IOUs rather than redeeming them – framing his famous cheques on the wall, perhaps, rather than cashing them at the bank. After all, if people want to frame his cheques, why should he deprive them of the chance to do so by refusing to write more than he can cash? And if people are willing to undertake valuable productive activities in order to earn those framed trophies, why should he deprive everybody of the benefit of those productive activities by begrudging them the trophies? If he leaves his IOUs in short supply, people will resort to any manner of financial fraud to try to extract them from each other. This, by the way, is why the standard narrative that the recent financial crisis was caused by governments running deficits that were too large tells the very opposite of the truth.
