Thursday, October 25, 2012
circuit — Bill Vickrey and Alan Blinder on the burden of the national debt
Alan Blinder on the blindingly obvious. "...the bonds that will be issued to cover deficits will almost always mature in less than 10 years, a time frame within which most of today's taxpayers will still be around to pay the bills. So intergenerational aspects of present-value budget constraints are mostly irrelevant."
But the post is mostly about Vickrey.
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2 comments:
In general I agree with this article. However, I believe there could be a real distributional issue in regards to deficit spending since saving post tax dollars in the form of Treasury securities (or any vehicle for that matter) allows one to avoid most changes in taxes that occur over time. For example, MMT says that if aggregate demand is too high taxes would need to be raised (or government spending reduced), but since most tax in the US is collected from incomes (FICA + income tax) spending associated with the liquidation of Treasury securities will not have an increased tax burden. This effect doesn’t even require that there is a budget surplus – it would occur whenever an individual bond holder liquidates, and spends, a bond in a high tax period that was purchased with post tax dollars in a low tax period. I would expect that this issue is small and insignificant compared to the benefits associated with deficit spending during a period with under-utilized resources, but I believe this sort of thinking feeds into the deficit resistance that is out there.
CDNDC raises an interesting consideration if 'aggregate demand is too high'. Unfortunately, the MMT paradigm (and keynesian models in general) need not consider taxation in that specific context. There is no theoretical parameter that precludes the private corporate sector from endorsing additional investments to accommodate economic growth. Fiscal policy in the form of corporate taxation is feasible as a policy option when the private sector refuses to invest in growth.
I welcome the comment 'this sort of thinking feeds into the deficit resistance that is out there.' One must beware contaminating a vision by inserting conceptual frames borrowed from other optics.
Juxtaposing Vickrey/Blinder is very appropriate, circuit!
In passing, the same blog (FRB) has a great take by Joseph Laliberte on 'hyperinflation'!
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