Fiscal Policy

Abstract

Fiscal policy refers to the budgetary activities of governments, their taxing and spending along with their borrowing. There are, however, two incongruent frames of reference within which economists have conceptualized fiscal policy. The United States was founded on a classically liberal frame of reference where governments existed to support what were the largely privately ordered efforts of individuals. In the alternative frame of reference, fiscal policy reflects a vision of government as managing and directing the economic life of society, which means that politically expressed desires trump the desires of citizens in their private capacities. This essay contrasts the two conceptions of fiscal policy and explores the contrary logics that inform those conceptions. Where the classically liberal conception treats fiscal policy as reflecting some harmonization among individual values within society, the alternative conception treats fiscal policy as the site of political direction of social and economic activity.

Keywords: two conceptions of fiscal policy; classically liberal fiscal policy; socialistic fiscal policy; democratic feudalism; realistic socialism; John Maynard Keynes

JEL Classification: E66, H30, H62, H83, P48