Why does Germany retain a budget surplus, when most countries agree that incurring debt to fund economic growth is a better strategy?


Why does Germany retain a budget surplus, when most countries agree that incurring debt to fund economic growth is a better strategy?

In: Economics

What’s supposed to happen is the Government is supposed to accrue the budget surplus in good years and put that money back into the economy in leaner years this averaging everything out . That’s the principle of Keynesian economics

Debt is not a good way to prop up your Government if it’s done year after year

No real clue – but the current government wants to stay in power. That‘s why they try to sell these things as something good, instead of what they are – a total shitshow. The public sees less expenses as something that might positively affect them, tax-wise..

YES, there are situations in which this might be useful – if the government also would have increased taxes in the last 2-3 years so the recession (which will happen in a maximum of 7 years) doesn’t hit as hard as it will because the government can just push companies via subsidies..

It’s not.

Incurring debt or paying it off is supposed to be an equally effective policy. Whether one is good or bad depends on the economic status of a nation at that time.

At least, that’s the way Keynesian economics taught it.

In macroeconomics, it is seldom the case that “A is always better than B” which explains why economists are fond of the phrase “ceteris paribus” (all other things being equal).

The primary lesson is that debt is not always a bad thing. If an economy is in recession due to lack of demand etc, it may be good policy to incur debt to try to stimulate the economy. A country with poor infrastructure (schools, hospitals, roads etc) might do better going into debt to finance infrastructure since it should lead to higher economic activity/greater productivity down the road. (where the amount borrowed is more than compensated by the boost in growth). So it means that debt should not be simply viewed as good or bad – it is a tool to use as wisely as possible.

Germany may have an economy that is going along fine, low unemployment, good infrastructure and social protections etc and a tax system that collects more in revenue than it needs to spend in some years. That would generally be seen as a good thing.

By the way, running a budget surplus and not incurring debt are not quite the same thing. A government that runs a deficit MUST incur a debt (or print money) but a country with a surplus can (and usually does) still issue government securities (to manage money supply/fiscal policy). Germany certainly does.

The last time Germany had a lot of unpayable debt they voted Hitler into power, so they need to take measures to keep it from happening again and that includes paying what they owe