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A budget philosophy of balancing the budget annually is not popular because it is procyclical (it makes business cycles worse). A functional budget philosophy (deficits whenever needed) is attributable to Keynesian employment theory (it has produced excessive debt). A cyclically balanced budget philosophy is a third often proposed alternative.
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The most devastating effects of a balanced budget philosophy were learned from Hoover's administration efforts to balance the budget in the early 1930's in the United States (and similar efforts in Great Britain). The cut in spending contributed significantly to the severity of the great depression. |
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