me: >> money libertarians use language differently. For example, in those >> circles, it's common to hear about "inflation" during the 1920s in the >> US. What? the path of the consumer price index was flat and drifting >> downward. But by "inflation," they mean credit inflation, where the >> money supplies grow relative to the monetary base. They sometimes like >> the idea of Henry Simons and the early MF, who wanted to end the >> ability of banks to "create money."
raghu wrote: > To give credit where it is due, I think the argument is more subtle > than that. To monetarist-libertarians, deficit spending is > inflationary because to them it makes no difference that the > government (or other government chartered institutions) is printing > debt securities instead of outright printing currency. I think there > is something to that argument. 1) I call them "money libertarians," not monetarist libertarians," because they want those who currently own money assets to be free, with more freedom as the amount of money assets owned increases; they are typically moneyed libertarians, too. 2) I was talking about the 1920s, where government deficits were zero (and surpluses were positive). The issue was instead the credit "inflation" that money libertarians saw back then, due to bank behavior. 3) debt securities are different, since they promise to pay interest. > What is a debt security but a promise to print currency *later*. After > all, no one seriously thinks it will ever be politically feasible to > pay off trillions in debt through taxation - which of course would be > the honest way to pay for any government spending. It's important to remember that Clinton raised taxes to balance the budget, indicating that taxes _can_ be raised. It's true that the rich and their allies will resist the tax increases being on them, but that doesn't mean that it can't happen. The likely non-renewal of Dubya-era tax cuts for the rich will help raise revenues and reduce the government deficit a little. But the more important question concerns the debt. No-one expects government debt to disappear, while it's a mistake to think that it's automatically a burden on the country (though it's likely a burden on the working class). A large government debt was hardly a severe burden back in the 1950s when it was really high relative to GDP (above 100% at the start of this period). Somehow the US economy grew smartly during that period (though of course that's only in capitalist terms, i.e., GDP growth) despite the debt -- and maybe even _because of_ the debt. On the latter, to an extent not seen since then, the government's debt was to middle-class people (who had bought war bonds). This mean that for the first time in US history, urban people actually had some wealth, giving them a cushion that moderated the post-WW2 recession. In addition, raising the government deficit (and the rate of growth of its debt) can be productive, i.e., an investment, allowing easier payment of interest and even some of the principal (as under Clinton). First, in a recession such as the one we're in, a rising deficit causes the real GDP to be higher relative to potential output than it would be otherwise, whether it's a cyclical deficit (due to the recession itself) or a "structural" one (deliberate stimulus). a) The cyclical deficit moderates the fall in real GDP, so that fewer resources are wasted. Since GDP does not fall as much as it would under balanced-budget strictures, this dampens the rise in the deficit by making the amount of tax revenues higher and the amount of transfer payments lower. (There's two-way causation here, so the two sentences must go together.) b) If and when the demand side of the economy recovers, the "normal" growth of GDP will bring in a lot of tax revenues and cut back the amount of money spent on transfers. Of course, Obama's stimulus program (a.k.a. deliberate structural deficits) aims to spark this recovery. His grossly inadequate ideas about financial reform are also supposed to help with recovery. Second, I don't know how successful Obama's program will be but, in theory it is supposed to emphasize public fixed investment, which raise potential output. That means that to some extent (but not completely), the deficit will pay for itself. The greater government debt will also correspond to more government assets (which are typically ignored by the economics profession, obeying its free-market bias). Since the federal government (like other institutions presumed to be infinitely-lived, such as corporations) typically rolls over old debt, turning it into new debt, it is the interest payments that count and that can be a burden. Then, they are only a burden on those who don't own government bonds. For those who own bonds, it's a benefit. The problem with government debts and its interest payments are that they put a big weight on the government budget, discouraging new purchases and transfer programs while encouraging tax increases. These are likely to lead to falling after-tax working-class incomes (intensifying the already-existing trend), given the balance of political power and how Obama is shifting to the right. Further, inequality is encouraged by the fact that interest payments are mostly made to the rich (who own most of the bonds). Third, a lot of those (about half?) will go outside the US. US workers will thus have to produce more output than will actually be purchased inside the US. To do this, I expect the word "competitiveness" to come back into vogue, and will still be interpreted as meaning low wages, speed-up, and unpaid hours of work. The creep to the bottom will likely continue. Given the resulting stagnation of mass consumption, the only things allowing US GDP growth will likely be continued government deficits (and debt accumulation) and another bubblicious profit-led economic boom. But these results of deficit, debts, and interest payments are really due to the class bias of US society, not due to the deficit, etc., themselves. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
