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October 09, 2010


Luis Enrique

Set aside externalities for the moment, which could obviously justify state-led investment, what should we think about investment that the private sector won't undertake but which the governmetn mignt? If the private sector won't undertake it, then absent externalities, would you conclude that the cost evidently isn't worth the benefit and should the economy be forced to undertake the investment by the state, it would be welfare destroying? Perhaps if there's nothing worth investing in, we shouldn't invest. ... but then how to generate the wealth needed to fund healthcare, old age pensions etc...

Or perhaps have we arrived at a point where externalities have become the dominant consideration? In addition to environmental and other externalities, I suppose you could think about demand externalities.

Isn't another possibility, if investment is low and profits are high, that at some point those profits will be competed away?


well, just a thought, but wheere is consumption in all this ? The public sector running a deficit must imply the private sector is accumulating asets (leaving trade deficits aside for simplicity), so one might argue this will push up consumption via a wealth effect. Two counter arguments would be Ricardian equivalence, and the possibility that the additional private sector wealth builds up as undistributed profit rather than higher direct household asset holdings and has therefore a negligible wealth effect.

Ralph Musgrave

Interesting thought experiment above. Isn’t there a clash between the first para, i.e. the assumption that “The west faces a near-permanent dearth of investment opportunities…” and option No 3 near the end “To kick-start capital spending…”? If there is a dearth of investment opportunities, there is not much point in kick-starting capital spending, seems to me.

Re stopping the national debt rising, that is easy (as is reducing it). Milton Friedman set out a monetary system that involved NO NATIONAL DEBT AT ALL here:


I have explained on my own blog how to make a move in the “Friedman” direction sufficient to stop the debt rising while maintaining the current stimulus:


Warren Mosler advocates something similar, i.e. he advocates having government just cease to issue debt, and let the monetary base expand instead. See 2nd last para here:


The above wheeze, or variations on it, more or less equal the second of your four options (printing money). I don’t see that this “No. 2” involves a big change in the “nature and role of the state”. In contrast, Nos 3 & 4 do involve such a change.

Luis Enrique

high profits and low investment is weird - have corporations acquired such market power as to shut down entry by competitors? Otherwise why doesn't some entrepreneur invest a little, undercut these super profitable corporations, and steal their business?


Maybe someone chould note here that "full employment", whether socialized or not, isn't anymore a society goal : unless for those prisoners of dead economists dreams.

Therefort, forget about public services : public services only have meaning in a almost-full-employment society.

Warren Mosler

If no investment is needed or desired full employment is no less an option and no more difficult to achieve. It just means everyone will be employed in producing goods and services for current year consumption, and not employed in building capital goods for future consumption.

What remains the same is that for a give size govt there is a level of taxation that results in desired levels of performance

Federal taxes function to regulate aggregate demand, not to raise revenues per se.



Is full employment really the goal? Or a fairer society that doesnt rely on poorer countries that treat their citizens with contempt to allow richer countries to make profits?

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