The ‘Rule of Four’
The Business Economist, Vol 43, No1, 2012, SBE (Society of Business Economists)
15 Pages Posted: 24 Apr 2019
Date Written: April 1, 2012
Recently we have found ourselves, like so many people, preoccupied by deficits and debt. This is a difficult subject, both to understand and about which to write simply and clearly.
Moreover we have found that, perhaps because it is so complicated a matter, many policymakers failed to appreciate how serious a situation they would find themselves in were economic growth suddenly to slow, public sector deficits sharply to increase, or the state become obliged to take chunks of private debt on to the public books. The costs of that unawareness are evident today, and will be measured as having been, over a run of years, in the tens of percentage points of GDP.
This raises the question whether some simple ‘rule of thumb’ could warn of impending trouble. And this thought led us to remember such a rule, that one of us (Qvigstad) first espoused many years ago: that, at least where budget deficits and current account deficits are concerned, there is for most OECD economies a magic number: ‘Four’.
Keywords: fiscal policy, macroeconomics
JEL Classification: E61, E62
Suggested Citation: Suggested Citation