Budget Surpluses and the IMF

…and the US, at the just concluded International Monetary Fund meetings in DC.

The IMF, backed by the US, has pressed Germany and others with budget surpluses to cut taxes or raise spending to prop up growth. Countries with budget surpluses “should certainly make use of it and have the space to invest and to participate in the economic development and growth,” IMF Managing Director Christine Lagarde said, “but not enough has been done on that front.”

The IMF has begun pressing Switzerland to spend more, too.

A little bit of this is accurate.

Several US States have set up rainy day funds into which they put budget surpluses in order to build up the resources for State emergencies or to tide them over during a recession without having to borrow excessively.  There’s no reason nations can’t do the same with their surpluses; indeed, such a savings pile should come first.

Once the savings have been built to a satisfactory level, though, surpluses should be used to cut taxes and to pay down debt (which is future taxes), never to increase spending.  Leave the citizens’ money in their hands; they know more about how to use it than Government.

Above all, don’t use surpluses in any effort to counteract the forces of a free, capitalist market.  For the vast majority of cases, market problems are self-correcting and only made worse by activist government intervention.

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