00:01
So a cyclically balanced budget fiscal policy means that you run a deficit in recession or what you might call a recessionary gap.
00:09
And then you counterbalance that by running a surplus when there's an inflationary gap or when the economy is expanding rapidly or booming, right? so you run deficits some of the times.
00:18
You run surpluses some of the times.
00:20
And as you switch between those over time, they cancel each other out and the budget ends up balanced.
00:26
Right so there are real problems with this right and it's because from the perspective of politicians spending is popular right this is going to be very popular everyone likes spending in recession something bad happens and the government runs to the rescue with buckets of money helping people out very popular this is not popular the idea that the government when times are relatively good should raise taxes cut spending and accumulate savings for the future, that's not going to be popular at all.
01:01
People don't want to pay higher taxes.
01:03
People don't want to cut spending, right? so politically, spending is always possible, always popular, but cutting spending is never popular.
01:15
And this asymmetry in the political incentives creates a lot of problems, right? so let me just run through these options, a easy, easier to cut than spend.
01:30
A has got it exactly backwards, right? it is much easier for politicians to spend than cut.
01:35
Everyone likes getting money from the government...