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June 17, 2013



Accounting isn't everything, but I do fear that people aren't taking seriously the relationship between public and private debt. There are some very suggestive graphs of an apparent correlation.

Now, that's not proof, but I'd be a lot more comfortable if the people proposing fiscal conservatism could explain the mechanism by which said correlation will be broken.

Ralph Musgrave

Monetary policy, i.e. interest rate adjustments or QE are nonsense because they alter the mix of investment and consumption spending, and there is no reason to suppose the optimum mix of those who changes as between when an economy is in recession as compared to other times (not to mention the bubble inflating effects of low interest rates).

The only possible excuse for monetary policy is that the lags might be shorter than in the case of fiscal, but there is no strong evidence for that.

Ergo we might as well abandon monetary policy and just create and spend new money into the economy to the extent that stimulus is needed. That policy was advocated by Milton Friedman in 1948 and is currently advocated by followers of Modern Monetary Theory, Positive Money, the New Economics Foundation, etc etc.

Unfortunately the latter ultra-simple policy would put large numbers of academics out of work, so the policy might not get enthusiastic support in academia.


Having targets for the public sector but not for the private sector is a fools game as the financial crisis illustrates. The Labour regime did follow fiscal conservatism but if the private sector screws up that is of little use.

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