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Because the GDP growth rate swing between peak and trough can be as much as 8% or more.

So, if the deficit limit is 3% what is the guideline yearly budget surplus governments should be running? 5%? A 3% debt limit assumes the GDP rate swing will be something of the order of 4% and is a consequence of bullshit "great moderation" "we tamed the business cycle" "small government" neoliberal bullshit.

It makes a whole lot more sense to have an over-the-cycle guideline and to force states to run budget surpluses in the growth years instead off saying that a 1% deficit when GDP is growing at 4% is A-OK just because the deficit is less than 3% and the debt less than 60%.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Fri Feb 5th, 2010 at 11:02:12 AM EST
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