Friday, September 2, 2016

Lara Merling — How the Government Deficit Helps the Economy

The Minskys
How the Government Deficit Helps the Economy
Lara Merling, UMKC


Gary Hart said...

My problem with that graph is that I think that the private sector side doesn't distinguish between the real sector of the economy and the FIRE sector which means that the graph only shows that government debt is equal to private surplus. What does that prove? How does government debt help anyone if it goes to the top one percent? Where am I missing the boat?

Tom Hickey said...

That has been my objection to an unqualified offset in order to optimize growth, employment and price stability. It is superior to the present policy but does not address the socio-economic issues resulting from asymmetries of income and wealth and it doesn't address the economic issue of economic rent.

Proponents of the unqualified policy have asserted that as long as saving sterilizes money at the top end, the amount of saving is irrelevant. That amy be true economically but it is not true either socio-economically wrt to inequality, or politically wrt to power and influence.

There are essentially two ways address this issue and they are not mutually exclusive — predistribution through law and regulation and redistribution though fiscal policy, chiefly taxation.

The Rombach Report said...

"How does government debt help anyone if it goes to the top one percent?"

To the extent that deficits only reflect non-productive public sector expenditures, then it's hard to argue that it does much more than subsidize the 1%. However, to the extent that deficits reflect real capital investment in infrastructure such as maintenance and upgrading of roads, bridges, rail transport, harbors, waterways, airports, utilities, energy research/development (think nuclear fusion energy), and education, then it the benefits become widespread.

Both Clinton and Trump are calling for robust infrastructure spending, with Trump calling for more than Clinton I think. Either way, infrastructure spending makes sense, despite the fact that the public sector probably allocates labor and capital less efficiently and productively than the private sector.

Think of infrastructure as analogous to the operating system in a computer and private sector capital investment as the applications used on that operating system.

Tom Hickey said...

despite the fact that the public sector probably allocates labor and capital less efficiently

How does that follow, Ed? Government hires private contractors to perform the work and takes bids like anyone else would do. Is there cronyism involved? Maybe, but there is also cronyism in the private sector that results in rent extraction (inefficiency), too.

Moreover, government is concerned with public goods that the private sector is either unable or unwilling to provide.

So first the government funds public works and then the private sector clamors for privatization to "improve efficiency." There is zero empirical evidence that privatization results in wither increased efficiency without reducing effectiveness at the expense of the public. It's just another way to extract rent.