Bill Mitchell — "We came up with the 3% [deficit] figure in less than an hour."

The Le Parisien article (September 28, 2012) – L’incroyable histoire de la naissance des 3% de déficit (The incredible story of the birth of the 3% deficit) – spilled the beans.

An English language report – The secret of 3% finally revealed – says that a “former senior Budget Ministry official” in the Mitterrand government was asked to come up with the fiscal rules that would become the Stability and Growth Pact (SGP).

He was quoted as being the “the inventor of the concept, endlessly repeated by all governments whether of the right or the left, that the public deficit should not exceed 3% of the national wealth”.

Note that this reporting, itself, is misleading because wealth is a stock and GDP is a flowand the SGP budget deficit rule is specified in terms of 3 per cent of GDP (the size of the flow of national output and income in any given period). But we can overlook that reporting slip.

Anyway, the French official had this to say when asked about the origins of the 3 per cent rule:

We came up with the 3% figure in less than an hour. It was a back of an envelope calculation, without any theoretical reflection. Mitterrand needed an easy rule that he could deploy in his discussions with ministers who kept coming into his office to demand money … We needed something simple. 3%? It was a good number that had stood the test of time, somewhat reminiscent of the Trinity.

Somewhat religious (Trinity) no less.

So what appear to be “credible” rules are just arbitrary numbers – all part of an elaborate smokescreen or charade – to limit the capacity of government.

Bill Mitchell – billy blog
Incroyable! – France – cap-in-hand and grateful – and sinking fast
Bill Mitchell

Remember that "back of the envelope" — actually "on the napkin" sketch — that became the Laffer curve as the foundation of Reaganomics?

My recommendation is that the EU elites hire a bus for a month and go to Spain and Greece and some of the French towns where huge housing estates are located and check out what their policies are breeding.

They would find, although I am sure they wouldn’t admit it, a seething, deprived and angry cohort which is growing and will become a force for lawlessness and societal instability.