commentary by Roger Erickson
The point here is that the public/private sectors can coordinate actions, or they can try to work in isolation, or even ignorant opposition. Your choice.
"To Wynne Godley - and those of us who have absorbed at least a rudiment of MMT – this was self-evident. A sectoral balance approach is a necessary ingredient in understanding financial crises – and that’s also one of the reasons why the Fiscal Cliffers are so wrong.
It was the bubble that banks and big companies created with a large private sector debt that led to the crash, and that dwarfed government tax revenues and a fortiori drew the government sector into the red and forced it to reduce spending and cut down on employment.
If the the government in such a situation tries to reduce its debt, there’s a real risk it triggers the private sector into a large deleveraging that inevitably will raise unemployment even further. So, today’s problem is not that we’re not reducing the deficit of the government sector fast enough. On contrary. The risk is we’re reducing it too much and too fast. To follow the Fiscal Cliffers is repeating the mistakes of the 1930s. Cutting governmental spendings and raising taxes only prolong the recession. Bad idea!"