Bill Mitchell — Changing private investment activity requires higher fiscal deficits

Clearly, if the private firms are reluctant to invest and if rising government deficits are required to sustain economic growth, the shift between public and private resource usage will also alter – that is, larger public sector and smaller private sector.

That is a consequence of these underlying trends that the Federal Reserve Bank research paper has identified.

It may be though, that the perception of a lack of profitable investment opportunities in the non-financial corporation sector is a reflection of the fiscal austerity, which has stifled economic growth and left millions of people unemployed without incomes.

A reversal of this fiscal mindset can easily reduce unemployment and allow the economies to breathe again. In that sort of growth environment, one would expect profitable private investment opportunities to arise more easily.

Models are tools. If a wrong tool is being used, the likelihood of a botched job increases markedly in proportion to how unsuitable the tool being employed is and crucial it is to doing the job correctly. The loanable funds model is way wrong.

Bill Mitchell – billy blog
Changing private investment activity requires higher fiscal deficits
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia