> But at the end of the day, this means a balanced or surplus Government budget is actually bad for the economy by definition
Not necessarily. You're thinking in nominal terms. There could be the same money supply but nothings prevents producing more and consuming more. Also beware the trap of equating fiat money with wealth: Zimbabwe government's deficits are also private assets...
There needs to be enough money to purchase the goods and services produced. Yes, there is some multiplier from monetary velocity (one persons expenditure is another’s income, so the same money can be spent multiple times), but the supply still needs to grow to not experience deflation, and that can only come from a trade surplus, bank created money (private debt) or Government deficit spending, by the definitions above. And since lending in the private sector must create debt too, the private sector cannot increase its own net financial assets.
Zimbabwe is well understood by modern monetary theory. If you look at what actually happened, it’s not an argument against the mathematical fact that a Government must spend somewhat more than it taxes to have a stable economy in the presence of a trade deficit (don’t make the mistake that many do when confronted with the fact that a currency issuing Governmment is not fiscally limited - of course that doesn’t mean that the Government should spend unlimited money. Of course if its spending pushes aggregate demand enough above the supply of goods and services produced in the economy you’ll have inflation, and even hyperinflation if you push enough - but on the other side, some of the most successful Government surpluses (apparently ‘responsible’ Government budgeting) without trade surpluses have preceded many financial crises).
Zimbawbe’s economic woes started when farms were confiscated, leading to huge unemployment (80%!) and a huge supply shock with food production reduced by a massive 35%. The Government then depleted foreign reserves by using it to import food. In response, the Government overspent domestically, partially in an attempt to buy political favours - and not investing in productive capacity. Of course hyperinflation happened!
Venezuela has similar issues (big supply shock due to Government policy), as well as the added problem of attempting to keep up a fixed exchange rate to the US dollar (fixed exchange rates always fail eventually).
> And since lending in the private sector must create debt too, the private sector cannot increase its own net financial assets.
In this respect it is identical to the logic of real world deficit spending in the developed world, where (ceteris paribus) each and every dollar spent is matched by the issue of government debt (with the "net financial asset" monetary base being adjusted independently of current period G by a separate institution in order to hit a target interest rate).
But the wealth of a nation is not a growth in what MMT calls "net financial assets" (i.e. currency with no debt obligation attached), the wealth of a nation is a growth in goods and services sold. The fact I have to repay a loan with interest in ten years time does not mean that I am less likely to generate goods and services with it this year (if anything, it encourages me to do so, because I need to generate a profit to repay the loan). Provided lending continues to grow, the amount of currency available to purchase the goods can continue to grow even in trade deficit and budget surplus (which might in some circumstances represent a useful counterbalance to excess lending growth) whilst holding monetary velocity constant.
What actually matters is not whether the money pumped into the economy has debt attached, but whether it's spent creating new assets/services which the public wishes to purchase or spent bidding up the price of existing assets or production processes. In theory (but not always in practice) money which is in aggregate lent into the economy is more likely to be invested in production to meet repayments than money spent into the economy.
Not necessarily. You're thinking in nominal terms. There could be the same money supply but nothings prevents producing more and consuming more. Also beware the trap of equating fiat money with wealth: Zimbabwe government's deficits are also private assets...