making in the EZ itself and the world at large. My purpose is to show that it is not only based on a flawed understanding of how the economy works, but also intended to institute a permanent us.3 régime of political protection for big finance and austerity for the rest of

To these ends, the first half of the paper delves into the economic thinking that underlies the concept and measurement of the SD. This thinking embraces an embarrassingly simple- minded view of the dynamics of capitalist cycles and crises, a barrage of technical sophistry intended to deflect criticism, and at its heart, our old friend homo oeconomicus, the rational maximising individual of neoclassical economics. Within this complex picture stands in particular the problem of how to measure output capacity and elasticity in a modern industrial economy.

The second half of the paper turns to the political purpose underlying the adoption of the SD as the key indicator for the measurement of fiscal sustainability. Here we leave the mystical world of free market economic thought for the equally strange realm of political science, as applied to the constitution of liberty in a democratic capitalist society. This rests upon the concept of the ‘depoliticisation’ of policy decisions, that is, their removal from direct control by elected governments in favour of control by experts alleged to be politically independent. When applied to the economic realm, this is properly understood as a method of constitutionally protecting the propertied from redistributive justice.

## 2. The economics of the structural deficit

In principle, the structural deficit is a straightforward idea. As one centre-left economist puts it: The structural deficit is a measure of how large the deficit in public spending would be if the economy were to return to full potential output and then grow at its ‘trend’ growth rate and stay at that growth rate into the future. The idea of the structural deficit is that it strips out the cyclical effects of recession on the economy - business failures and unemployment – and shows what the fiscal position would be like if the economy were growing at trend, averaged over the business cycle. (Reed, 2010: 3) Thus, while the cyclical part of the deficit will cure itself as the economy recovers, a remaining structural deficit (or more precisely, one that fails to meet its current target) signals the need for action to reduce the deficit.

Because the SD cannot be observed from available statistics, estimates are usually based (as Reed implies) upon measurement of the output gap (OG), i.e. the difference between actual time.4 and potential output at any point in The assumption is that, during a recession, the level of the output gap will set a ceiling on the extent of the cyclical recovery, and this in turn will set a ceiling on the resulting fiscal outcome. Put briefly, the bigger the OG, the smaller the SD; more importantly, as we shall see, the smaller the OG, the bigger the SD, and therefore the more fiscal tightening is required to ensure that, when the trend line is reached again, the SD reaches its target level.

However, while the difficulties in measuring actual output are mitigated by cross- checking between measures of aggregate sales, expenditure and incomes, it is much harder to determine potential output . As the French group Les Économistes Atterrés put it: