That old time fiscal religion

The ongoing debt-ceiling debate has brought concerns about the sustainability of US fiscal policy to the forefront of public discussion once again. While it may be tempting to blame current budgetary problems on the federal government’s pandemic spending spree, the problems are much more fundamental. They stem from the widespread belief that the federal government is responsible for managing the economy.

Rather than wade into the current debate about the merits of raising the debt ceiling, we want to take a step back to address more fundamental questions: how did we get here, and, more importantly, what can we do about it?

Before the adoption of fiat money, adherence to the classical gold standard meant that counter-cyclical fiscal policy had little-to-no effect on the economy.