For the optimal fiscal stance has dominated the macroeconomic policy debate around the world. Following the credit crunch that started in 2007, and what economists now term the ‘Great Recession’ of 2008–09, almost all Western governments have allowed their budgets to go into deficit, so that total spending on items such as over a year now, debate concerning public-sector salaries, welfare payments and infrastructure investment exceeds total revenues from taxes on labour income, company profits and market transactions.
To take one example, the UK government’s annual budget deficit currently exceeds £150 billion, or 11% of gross domestic product (GDP), a measure of the total income generated in the UK each year. By the middle of the decade the cumulative effect of current and projected deficits is predicted to be a stock of government borrowing (often termed the ‘national debt’) equal to 75% of GDP.
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