Neither borrower nor lender be?

Deficits are not always bad, surpluses not always good in public finances

Neither borrower nor lender be?

All over the world, and here, budget time is crunch time for politicians and financial experts, as opinions differ on the merits of balanced and deficit budgets.
Fiscal conservatives demand balanced budgets at all costs, claiming deficits penalize future generations. That is a widespread notion, but it has its detractors, too, among them the developed economies of the world in recent years.
Economics Nobel Peace Prize winner P. A. Samuelson says deficits, inherently, are not evil, the same as all surpluses are not good. The mythology of 'the parts being equal to the whole' is part of the reason. What is relevant and valid for the parts (firms, households, individuals) is not necessarily valid for the whole (society).
History shows there is no direct relation between debt and the success of a nation. For 28 straight years, the USA's budget was deficit, that record being broken in 1998 (an 80 billion USD surplus). Greater surpluses are predicted, which could be used to pay off the 5.5 trillion USD debt. The budget was not always passed on time, however, and provisional budgets had to be used, this year included. Other countries and lesser entities act in a similar fashion.
The EU, in order to limit debt, does not allow deficits to go higher than 3% of GDP, for good reason: Debt, though lessened in the last years by privatization proceedings here and in the EU, could threaten the EMU. On the other hand, deficit budgets can free up funds used for investment in infrastructure, export supports and micro-restructuralization. Long term, deficit can actually lead to a decrease in debt.
CR debt is still just 27% of GDP, though it was 19% in 1993. Although budgets passed balanced, expenses were often transferred to non-budgetary institutions (KoB, Česká Inkasní, Česká Finanční, FNM). State-owned firm and other debt was passed to dying banks. In 1998, all-inclusive state debt was raised to 340 billion Kč. Today, it stands at an estimated 500 billion Kč, including state guarantees for ecological damage through privatization. Hidden debt is an even bigger problem.
Ladislav Hájek
Pedagogic University, Hradec Králové
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