… over the last couple of decades when fiscal policy got a bad name because governments couldnt show any discipline.

Benjamin Franklin:

When the people find they can vote themselves money, that will herald the end of the republic.

It’s been a long standing problem of Democracy that the time horizon of the voters is shorter than a lot of the things you would want to be able to achieve. However, the design of Democracy is not to achieve good decisions, it is to keep people alive and discourage civil war, political cleansing, etc. Think of it as a least-worst outcome.

In a similar vein, forcing government to balance their budget in the short-term does at least give a guarantee that really bad things can’t happen, even though it might prevent some good things from happening. Least-worst reasoning. Then again, if we used gold as currency, there would be no way for governments to raise money other than tax and/or loans, so then they would just have to learn a bit of discipline and everyone would be comfortable that this was the case for now, and for all time (until someone figured out how to print gold, probably not something to worry about just yet).

But whilst I am slightly warmer on your idea of institutional fiscal constraints, I am about as skeptical as ever about your chance of getting them!

The point is that they cannot be credible. No more than a country without a central bank with some heft could be credible about future inflation fighting or a country without a court system could be credible about maintaining the rule of law. That’s why we need to build institutions to deliver what you say and I agree we need – a credible commitment to wind back the fiscal stance at the right time. If we don’t do that, fiscal policy will be neutered and we’ll go through another political cycle like the last one – over the last couple of decades when fiscal policy got a bad name because governments couldn’t show any discipline.

Fair point too. I should have been more cautious.

While I can accept that economic modeling can provide a good case for a certain outcome I think that citing it as “ample proof” is overstating the case a little (especially when trying to forecast outcomes a decade down the line in a very uncertain environment).