Alex Douglas raised the mainstream view of government budget constraintsagain this week, where he was ably assisted in his argument by Brian Romanachuk.
The bone of contention is whether governments can continue borrowing indefinitely. Alex and Brian demonstrate that the mathematics of the mainstream is based upon assumptions that cannot and do not hold in reality.
The popular defence at the moment is that everything fails if r > g. Bad things happen if the growth in the rate of debt/interest is greater than the growth in GDP. But what does that actually mean in practice?
To show what it means, I’ve built a little three agent model in a spreadsheet. This model is the mainstream economist and basic income fan’s dream scenario. Everybody gets a payment straight from government and all anybody cares about is earning interest....Modern Money Matters
The Bond Economy
Neil Wilson
That was actually funny. Just because it uses the same ridiculous thought experiments as orthodoxy. Which indicates nothing about reality. But feels emotionally relevant and intellectually stimulating and plausible af.
ReplyDeleteRyan,
ReplyDeleteFor academic economists, "internal consistency" of their fancy models is everything. In contrast, whether the initial assumptions are BS or not is of little interest.
A classic example is Ricardian equivalence. That's an absurd idea. As Joseph Stiglitz put it, "Ricardian equivalence is taught in every graduate school in the country. It is also sheer nonsense." But many an academic career has been boosted by publishing fancy models based on Ricardian equivalence.
"and behave like a Norwegian Sovereign Wealth fund."
ReplyDeleteHehe....
Obviously, the solution to the problem of scarcity for human beings is for us all to go into debt as deep as one can and then have the government create fiat funny money and pay everyone's debts and bills with it. All of them. For all of us. Always. Meanwhile, we can all go the beach and quit worrying about this kind of thing.
ReplyDeletePeople opposed to this quick and obvious solution are morons and neanderthals.