Monday, September 30, 2013

Peter Cooper — More on Budget Deficits

The previous post, which emphasized a currency-issuing government's capacity to deficit spend, generated lots of positive feedback but also numerous questions that perhaps should be addressed in a new post rather than getting buried in the comments. Although for regular readers the general answers to these questions will already be evident from previous posts and comments, it may be helpful for newer readers to expand on these answers. In doing so, I'll end up touching on a few points that have not been discussed explicitly in previous posts (though sometimes in the comments), which may make it of interest to regular readers as well. The post is a modified version of one of my contributions to the comments.
The following questions are addressed:
1. If the government is not like a household, how come Greece, Spain and Detroit have got themselves into financial trouble?
2. In what sense does government spending create money and taxes destroy it?
3. How can money created out of thin air have any value?
There were a couple of other interesting issues raised in the comments, but I will leave discussion of those to future posts.
More on Budget Deficits
Peter Cooper

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