Mark Thoma — Can China Reduce Its National Savings Rate with More Social Insurance?

Brad Setser replies to Andrew Batson — abbreviated.

Edging toward functional finance.

Economist’s View
Can China Reduce Its National Savings Rate with More Social Insurance?
Mark Thoma | Professor of Economics, University of Oregon

Andrea Terzi — A T-shirt model of savings, debt, and private spending

As long as the Euro area enforces balanced budget constraints at ALL levels of government, the Euro area will not be sustainable.

I have summarized here the argument behind the statement above.

What follows is a simple model that shows the logic of the argument.

Money And The Real Economy
A T-shirt model of savings, debt, and private spending
Andrea Terzi | Professor of Economics, Franklin College, Switzerland

Asad Zaman — Why does Aggregate Demand Collapse?

Summary of Atif Mian and Amir Sufi's House of Debt. It attributes the decline in aggregate demand to the collapse of assets held by the middle class, which led to their greatly increasing saving desire and consequent demand leakage. The summary omits stagnant wages along with increase in household debt, however, which also contributed to demand leakage as a result of the crisis and subsequent economic contraction. 

This was a crisis in the making over several decades as productivity gains were distributed chiefly to capital and top earners and workers — the 99% — borrowed more to maintain lifestyle. This was supported by increasing middle class asset values. When asset value crashed, a "balance sheet recession" ensued from which the middle class is still trying to recover.

Real-World Economics Review Blog
Why does Aggregate Demand Collapse?
Asad Zaman

Mary Manning Cleveland — Is Paul Krugman's Liquidity Trap Really an Inequality Trap?

Mary Manning Cleveland makes a good case that if are going to fund deficits with through Treasury "debt" offset, then we also need to address hoarding through tax policy as disincentive. There is no reason for the government to make up for increased saving desire based on hoarding at the top, when this leads to gross inequalities. Hoarding needs to be discouraged at the same time that increased nongovernment saving desire needs to be offset. 

The macro solution is clear based on sectoral balances but there are different policy approaches through targeted expenditure and taxation.

While increasing taxation to address saving desire seems to go against functional finance, it can be argued that it is possible to offset increased saving desire through expenditure and also discourage hoarding by tax policy.

The Huffington Post
Is Paul Krugman's Liquidity Trap Really an Inequality Trap?
Mary Manning Cleveland | Adjunct Professor of Environmental Economics, Columbia University