Question

In: Economics

Name and explain the first “deadly innocent fraud” of economic policy? What is the conventional view?...

Name and explain the first “deadly innocent fraud” of economic policy? What is the conventional view? Why & how is it wrong?

Solutions

Expert Solution

The term ‘deadly innocent fraud’ was coined by Professor John Kenneth Galbraith in ‘The Economics of Innocent Fraud’, which was the last book he wrote before he died. He used the term to describe fraudulent concepts that were being sustained by the ‘conventional wisdom’ (a term he created in a previous book). The presumption of innocence by those perpetrating the frauds is characteristic of Professor Galbraith’s cynically gracious approach.

The first deadly innocent fraud is:-

The government can only raise funds through taxing or borrowing in order to spend.


What that means is that government spending is limited by the government’s ability to tax or borrow.

The truth is government spending is not just limited or constrained by taxing or borrowing. Government can print money or its own currency to spend. Similarly spending by government is mere entry of data about payment confirmation on the spreadsheet.

A government can never go bankrupt in its own currency.


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