Monday, January 9, 2017

Paul Krugman goes all “crowd out” on us. Is he right?

But how reliable is this crowd-out hypothesis? It’s actually pretty hard to find a correlation between larger budget deficits and higher interest rates in the
On the Economy
Paul Krugman goes all “crowd out” on us. Is he right?Jared Bernstein | Senior Fellow at the Center on Budget and Policy Priorities and former Chief Economist and Economic Adviser to Vice President Joe Biden in the Obama Administration


Noah Way said...

It's not about "forcing the government to shrink". To the contrary, it is about increasing the use of government to funnel public money to corporate interests. The ACA is the court-tested model for the privitaztion of Medicare and social security. US foreign policy is driven solely by profit - it's United Fruit on steroids backed by the taxpayer funded nuclear military, which is itself a massive profit vehicle.

Ralph Musgrave said...

Silly article by Bernstein. Krugman is right to say that assuming labour markets are now pretty tight (and Krugman provides evidence that they are) then excessive deficits will induce the Fed to raise interst rates. Indeed, Scott Sumner has been making that point for years: he calls it “monetary offset”.

The fact that there seems to be little relationship between deficits and interest rates proves nothing. To be more accurate, it probably just proves that the size of deficits implemented so as to deal with recessions has been about right or deficient rather than excessive. MMTers tend to say “deficient”, and I agree.

If the amount of penicillin someone took to deal with infections was exactly right, i.e. the penicillin clobbered infections as soon as they appeared and resulted in almost no infection at all, then you’d see little relationship between the amount of penicillin they took and the extent to which they were infected: proving according to Bernstein logic that penicillin is useless for fighting infections.