This post is DCE related but perhaps not a traditional choice modelling one – nor a personal one. It concerns modern monetary theory (MMT) – an explanation for how money is created and circulated and as such (in my humble opinion) should not be called a theory at all. It is fact. Verified by countless central bankers and (google it) the God of (North American at least) economics textbooks for decades, Samuelson.
In short, the government deficit/surplus is identically equal to the private sector surplus/deficit. It’s the way national income accounting (and note the word ACCOUNTING) devised by Kuznets and Keynes works. Things MUST balance: it is (for you mathematicians) an IDENTITY RELATIONSHIP. (The current account balance introduces a minor complication to the private sector balance but unless you are a huge mega powerhouse of exports ad infinitum then it can be ignored for ease of exposition.)
So, and often due to the government stabilisers (unemployment benefit etc) which depend on the strength of the economy, the government has LITTLE OR NO CONTROL over the final government deficit/surplus – witness the humungous failures that the UK’s own Chancellor has achieved in eliminating that “nasty” deficit during the past 5 years.
So, let’s say we present a given amount of spending to the public and ask for their relative preferences for some (I assume costed) outcomes. But even if uncosted, what follows remains true. It is blatantly obvious that the public still regards a government with sovereign money creating capacity to be like a household – thanks to the media – which is PATENTLY FALSE (see Samuelson etc again). This is why people in the UK, US and Australia keep, when asked, keep worrying about “affordability, given the deficit”. Nonsense! So we know that most people, when presented with a priority-setting task, probably bring incorrect assumptions to the task – “priority x could not be afforded” or “pay little attention to the lower ranked priorities as they are impossible anyway”.
See the problem? (Apart from the obvious one that the budget amount is an ENDOGENOUS variable)
If people don’t understand that ALL the priorities are possible, to the extent that REAL resources (people, skills, capital) are available, then we risk a “garbage in garbage out” scenario. If people think purely in terms of money they are AUTOMATICALLY thinking in the wrong paradigm. The “constraints” they MUST be told about are things like “our ability to retrain primary school teachers as carers” (given an aging population) etc. NOT MONEY – unless you are a currency USER like Greece. On the contrary UK/Aus/USA are currency ISSUERS.
The idea of putting forward an amount of money to divvy up is (to paraphrase the MMT gurus) is as nonsensical as saying “only 150 runs can be scored in a cricket match and it is up to you to assign them to the players”