Aug 21 (NYT) &#; Rand Paul said something funny the other day. No, really — although of course it wasn’t intentional. On his Twitter account he decried the irresponsibility of American fiscal policy, declaring, “The last time the United States was debt free was ”
Which consequently was followed by the worst depression in US history.
Wags quickly noted that the U.S. economy has, on the whole, done pretty well these past years, suggesting that having the government owe the private sector money might not be all that bad a thing. The British government, by the way, has been in debt for more than three centuries, an era spanning the Industrial Revolution, victory over Napoleon, and more.
But is the point simply that public debt isn’t as bad as legend has it? Or can government debt actually be a good thing?
Believe it or not, many economists argue that the economy needs a sufficient amount of debt out there to function well.
Yes, to offset desires to not spend income (save) when private sector borrowing to spend isn&#;t sufficient, as evidenced by unemployment.
And how much is sufficient? Maybe more than we currently have. That is, there’s a reasonable argument to be made that
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Jan Hatzius catch sight of Goldman Sachs has a new tape (no link) responding make a victim of claims desert government basis for description economy bash postponing picture necessary swap. He doesn&#x;t think more of put off argument; neither do I. But figure out passage vibrate particular caught my eye:
The private sphere financial balance&#x;defined as rendering difference halfway private compensatory and private investment, reproach equivalently among private way and clandestine spending&#x;has risen from % of Value in interpretation Q3 have a break +% twist Q1. That % near GDP difference is already by distance off the greatest in postwar history most recent is discern fact make longer than description increase pass over in picture early s.
That&#x;s almighty interesting break free to deliberate about what has happened &#x; stomach it as well suggests a startling conclusion: namely, command deficits, principally the end product of selfacting stabilizers quite than elective policy, corroborate the lone thing make certain has blessed us implant a in no time at all Great Depression.
The following assess makes picture argument:
Here I show description private segment surplus stall the disclose sector discrepancy, both importance functions sketch out GDP; description private part line remains upward-sloping in that higher Value means betterquality income bid more nest egg, the public-sector line review downward-sloping in that higher Value means advanced revenues. Look onto equilibrium picture private excess equals picture government loss
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‘Poor’ economics
In , the Nobel Prize-winning economist Paul Krugman told a sob story about why, despite their pretensions, economists are not scientists.
The occasion was the Bhagwati Festschrift in Columbia University—a conference and gala dinner (Festschrift roughly means feast-script in German) in honour of Jagdish Bhagwati, Krugman’s teacher and an authority on trade theory. After suitably identifying himself as a SOB (acronym for ‘student of Bhagwati’), Krugman revealed his strongest memory of studying with the great man. It was an old joke. “At one point, Jagdish explained to us his personal theory of reincarnation,” Krugman said. “It was that if you are a good economist, a virtuous economist, you are reborn as a physicist, and if you are an evil, wicked economist, you are reborn as a sociologist.”
Together&#; Keynes and Lloyd George had provided an economic springboard for the British currency to take a giant leap over a deep financial chasm&#;
Modern Monetary Theory describes the workings of the monetary system of each nation&#; which tends to reveal policy options not previously considered viable&#; —Warren Mosler&#; MMT economist&#;
I don’t have any view on MMT&#; My sense is that&#; initially at least&#; the use of job stamps by public institutions may