Monday, March 23, 2009

New CBO chief Elmendorf gets it wrong

I got this from Warren Mosler's website.

In case you thought the new head of the CBO understands the way the monetary system works…

> > On Sat, Mar 21, 2009 at 1:37 AM, Scott wrote:> > FYI . . . from page 43 of CBO’s 10-year projections published> today…influence of CBO’s new head Doug Elmendorf (co-author a few> years ago of a widely cited paper on the effects of deficits on interest> rates) is pretty clear . . . .> > ”Capital accumulation is affected because the increase in government> debt is expected to displace, or “crowd out,” a smaller amount of private> capital.>

There is no such thing.

> > That result occurs because the reduction in overall national saving> dampens spending on business fixed investment and the construction of> housing.>
Non-sensical rhetoric. ‘National savings’ as he is using the term is a relic from the gold standard when there were hard supply side constraints on reserves.
> > Although the size of such displacement is very uncertain,>

Yes, in fact it doesn’t exist.

> > CBO assumes that, in the long run, each dollar of additional federal debt> crowds out about a third of a dollar’s worth of private domestic capital> (with the remainder of the rise in debt offset by increases in private> saving and inflows of foreign capital).”>

Ridiculous empty rhetoric from yet another deficit

These were my remarks:


How, then, does he explain the fact that while annual gov’t outlays grew 33-fold from 1946 to 2008 ($90 billion to $3 trillion), corporate consumption of fixed capital grew 125-fold? ($8 billion to $1 trillion.)

Moreover, even with the big expansion in gov’t spending, which by his own definition was supposed to “crowd out” the private sector, there is plenty of idle capacity, meaning that rather than crowding anyone out, more productive assets were created to produce wealth and these assets are available to whomever needs them. It's all there in the numbers. Does he even bother looking at them? Apparently not!

More importantly, why does anyone listen to this guy? How did he get a job like this?

-Mike Norman

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