Wednesday, September 23, 2020

Fiscal Sustainability And The Fiscal Folk Theorem — Brian Romanchuk

Fiscal sustainability is often invoked in mainstream discussion of fiscal policy. However, "sustainability" is rarely defined in editorial pieces. The reason for this reticence is straightforward: there is no agreed-upon definition. Unfortunately for the concept, there is no clear way of testing whether real-world fiscal policies are sustainable, nor what are the side effects of being unsustainable.

This is related to what I refer to as the Fiscal Folk Theorem. If the technical definition of sustainability is not specified, nor the alleged problems created by unsustainability is specified, the discussion is inherently non-quantifiable -- no matter how many numbers are mentioned. The resulting discussion collapses to the Fiscal Folk Theorem. The theorem suggests that bad things can happen due to a high level of debt. However, this does not mean that something bad will happen -- as the Widowmaker Trade demonstrated....
Bond Economics
Fiscal Sustainability And The Fiscal Folk Theorem
Brian Romanchuk

See also

New Economic Perspectives
CBO—Still Out of Paradigm after All These Years (July 20, 2014) 
Scott T. Fullwiler | Assistant Professor of Economics, University of Missouri - Kansas City

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