The Need for Compromise on Public Spending

As described above, collectivists prefer governments to play a greater role, and therefore spend more, than individualists want.  Government cannot continue to function without an agreed budget, though, so a compromise agreement must be reached.  The difficulty of reaching that compromise has been vividly illustrated recently, as described in the BBC article: US government shutdown: How did we get here?.

The negotiations are political, as discussed later (6.7.1), but they should take account of economic factors:

  • There is a limit on how much tax can be raised (, determining how much government spending is economically sustainable.
  • And tax income fluctuates across the economic cycle, so affordability must be assessed over the long term; the government has to be able to repay some debts during the good times, so that it can afford to borrow in the bad times – and avoid an ever-increasing level of government debt which would be a burden for taxpayers in later years (
  • Value for money, rather than ideology, should determine the choice of public service providers – as analysed below (3.5.3).


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