Wednesday, May 22, 2013

Michael Boskin — The Debt-Growth Controversy

Hoover Institution propaganda. Expect more of the same from American Enterprise Institute and the Heritage Foundation.Nonetheless, the evidence clearly suggests that high debt/GDP ratios eventually impede long-term growth; fiscal consolidation should be phased in gradually as economies recover; and the consolidation needs to be primarily on the spending side of the budget. Finally, the notion that we can wait 10-15 years to start dealing with deficits and debt, as economist Paul Krugman has suggested, is beyond irresponsible.
The good news is that the deficit hawks and debt fetishists are backing off on calling for austerity now and are beginning to talk like deficit doves. So the R-R affair seems to have them on the run.

Project Syndicate
Michael Boskin | Professor of Economics at Stanford University and Senior Fellow at the Hoover Institution. He was Chairman of George H. W. Bush’s Council of Economic Advisers from 1989 to 1993, and headed the so-called Boskin Commission, a congressional advisory body that highlighted errors in official US inflation estimates.

9 comments:

F. Beard said...

Hey, if they don't like government spending then let them support restitution in the form of a universal bailout with new fiat and let the private sector do the spending.

system failure due to insufficient evolution? said...

Three years of austerity: "Zero in the quotient" for public debt

http://failedevolution.blogspot.gr/2013/05/three-years-of-austerity-zero-in.html

Matt Franko said...

Here from Boskin: "A more fundamental question is causality: the state of the economy certainly affects the fiscal position, just as taxation, spending, deficits, and debts may affect economic growth."

This idiot has causation going both ways!!!! What a moron!

http://en.wikipedia.org/wiki/Causality

"Causality (also referred to as causation) is the relation between an event (the cause) and a second event (the effect), where the second event is understood as a consequence of the first."

The ENTIRE academe of economics is corrupt and morons, this battle cannot be fought on their turf.... GET OUT OF THE ACADEME IF YOU CAN.... go into 'govt operations' or somewhere else related...

Tom Hickey said...

Matt, the causation does run both ways in an endogenous system, where good policy results in "good deficits" and bad policy, "bad deficits."

There will be deficits either way since the deficit is not discretionary due to the variation in tax receipts and functioning of automatic stabilizers.

They just don't know how the causation works in both cases due to the sectoral balances and demand leakage to saving, which is why the eurocrats were surprised when deficits rose due to austerity and the IMF had to admit a mistake.

paul said...

"There will be deficits either way since the deficit is not discretionary"

The deficit is not a budget item…it's an equilibrium.

Deficits are inversely related to public spending…

…taxes are directly related to public spending.

Deficits can't be cut by cutting spending but they can be cut by increasing taxes if taxes are focused on excess saving and rents and not incomes.

Deficits greater than the trade deficit tell us public spending is too low.

As long as we have a trade deficit we will have a budget deficit…the leakage must be accounted for…or we will have increasing unemployment.

Transactions in the private sector can only move money around within the private sector…financial wealth creation in state money through private sector economic activity is not possible…saving reduces flow, so saving kills the system. It's a decay function.

If saving isn't offset with public spending the economy will wind down and unemplotment will rise.

Public spending is the direct cause of flow in the private economy. No public spending…no flow other than drainage to saving or accumulation.

Matt Franko said...

right Paul,

And "public spending" is NOT "the deficit" it is PUBLIC SPENDING...

How much $NFA is going out of the TGA? THIS is 'public spending'.

Govt SPENDS FIRST and THEN collects the taxes... 'Order of Procedure' is important, NOT the ex post "net of taxes" that is later determined. This is an almost meaningless number...

The only reason imo that one would want to monitor this is because one mistakenly thinks that all of a sudden, the holders of all of these balances that have been hoarded over time will suddenly go out and try to spend them all at the same time... which I think would NEVER happen... people save 'for a rainy day' or some such or for retirement because the private pensions are gone from the scene and SS is not enough for retirement...

Tom,

I agree that current policy people dont know what is really going on...

But I dont understand how causation can run both ways?

ie govt SPENDS FIRST and then collects the taxes... without the 'spends first' (cause) there can be no economic activity/growth in USD terms (effect)... perhaps just barter or trade conducted in REAL terms...

rsp,

Tom Hickey said...

Matt, with a "good deficit" govt uses the sectoral balance approach and functional finance to manage the deficit and let the automatic stabilizers and MMT jg handle the residual.

With a "bad deficit," the govt is clueless about demand leakage to saving and so the deficit rises endogenously after a crisis has already resulted in due to falling tax receipts and increasing automatic stabilization, even if a govt adopts austerity to try to stop the deficit from rising.

IN the case of a good deficit, the crisis is headed off or mitigated by spending the appropriate amount to offset saving desire, where in the latter case the spending is forced on the govt by automatic stabilization after the fact.

Matt Franko said...

Tom,

if we cant really control the deficit ( I believe that is what MMT teaches) then how can there be a "good deficit" or "bad deficit" in our though process in general?

We can only put policy into operation.

Then ex post we can measure the deficit... but I dont see how looking at the ex post deficit has any real value for us as policy makers ex ante...

For instance right now we ought to be getting balances into the OK area wiped out by those tornadoes the other day, but we are concerned with "what that will do to the deficit".... who cares?

The outcome may be that the deficit goes down... who cares?

I think a lot of the left is mixed up on this because they are "scared" of savings in the non-govt sector in some way... the left has some sort of fear about non-govt savings imo...

rsp,

Tom Hickey said...

Matt, the distinction between good and bad deficits is from the MMT economists. A good deficit is sufficient to maintain full employment w/o resulting in price instability, and a bad deficit undershoots or overshoots, more likely undershoots so that there is a deficit but also unemployment. That is to say, deficits serve a purpose and they are good when the purpose is served. A bad deficit serves the purpose badly.

Rebel Capitalist explains, Bad Deficit vs. Good Deficit