Why Can't We Balance the Budget?

Mainstream economics views budget deficits as fundamentally unsustainable in the long run, arguing that governments must eventually balance their books just like households or businesses. The conventional view holds that persistent deficits lead to mounting debt that crowds out private investment, burdens future generations, and risks triggering debt crises or inflationary spirals. Most mainstream economists advocate for fiscal responsibility through spending cuts or tax increases to achieve balance, viewing deficits as a sign of fiscal irresponsibility that constrains future policy options and threatens economic stability.

MMT reveals that for a sovereign currency issuer, the question itself is based on a fundamental misunderstanding of government finance. As Warren Mosler and L. Randall Wray demonstrate, a government that issues its own currency cannot run out of money and faces no operational constraint requiring it to balance its budget. The government's deficit is arithmetically equal to the non-government sector's surplus—when government spends less than it taxes, it removes net financial assets from the private economy. Bill Mitchell and Stephanie Kelton emphasize that attempting to balance the budget often destroys jobs and economic growth because it drains spending power from households and businesses. The real question isn't whether we can balance the budget, but whether we should, given that government deficits provide the private sector with the net financial assets it desires for saving. Rather than being fiscally irresponsible, deficits are often necessary for full employment and economic stability, with the real constraints being inflation and resource availability, not government solvency.