« Adnan Januzaj, & counter-signalling | Main | Tax rises vs immigration caps »

January 29, 2014

Comments

Socialism In One Bedroom

Let us talk good politics then.

The Scandinavian nations have larger public sector's, greater tax revenues as a % of GDP and Welfare states that reduce poverty by greater % than almost everywhere else. Oh, and they top most standard of living indexes.

The nations that top the welfare spending as a % of GDP also tend to score higher in standard of living indexes.

If you can draw any conclusions, you would have to say that advanced capitalism requires a 'large' welfare state and the reduction of the welfare state signals a demise, not an addressing of a 'problem'.

We are in the demise.

Ralph Musgrave

Spot on Chris. Treating government finances in the same way as the finances of a microeconomic entity like a household or firm is barmy. As for aiming for any specific rate of deficit or debt reduction, that is also barmy.

The debt and deficit simply need to be whatever induces private and public sectors to spend at a rate that keeps employment as high as is possible without giving us excess inflation.

Re your criticisms of MMTers (of which I’m one), they do overstate their case sometimes, but I think that’s a case of “exaggerating to make a point”. Obviously it would be madness to simply stop collecting tax, leave government spending at its current level, and thus run a deficit twenty times larger than its present size.

thomas

Ralph: I can see that this is true:

" Obviously it would be madness to simply stop collecting tax, leave government spending at its current level, and thus run a deficit twenty times larger than its present size."

but as an amateur, I get stumped at what point the deficit would still be acceptable. Stiglitz and Krugman can be vague about it, to my amateur mind. I'm not asking for a formula - just a pointer.

Socialism In One Bedroom

"I get stumped at what point the deficit would still be acceptable."

Did you read the OXFAm report the other week, which gave the sober fact that 85 of the worlds
richest Billionaires own more than half the entire worlds population! Did you get that, did that startling fact penetrate your brain? If that fact exists then i think the question of what is an acceptable deficit pretty much becomes irrelevant.

And those who want to know about acceptable deficit levels are really avoiding the pertinent questions.

Neil Wilson

MMT always says that the deficit matters. Just not in the way it is usually portrayed.

http://www.rooseveltinstitute.org/new-roosevelt/deficits-do-matter-not-way-you-think

The deficit *is* the savings in excess of investment of the non-government sector. If there is spending because of the non-government sector getting uppity about saving, then there is taxation and the deficit automatically drops.

If there is currency changes then exporters lose sales and need to decide if they are prepared to stand the impact on their economy (because there is nowhere else to sell them to - exports grow with world income), or simply reverse the situation by correcting the currency imbalance.


Ralph Musgrave

Thomas,

The bigger the deficit, the more stimulus the economy gets. Ergo the stimulus / deficit needs to be whatever gives us as much employment as is possible without excess inflation.

Forget about “what point the deficit would still be acceptable”. There is no such “point”. If the deficit needs to be 30% of GDP then make it 30% of GDP. And if the opposite of a deficit, i.e. a surplus is needed to achieve the above objective, then have a surplus.

And if no one wants to lend to a government that needs to run a deficit, then all that government needs to do is print money instead of borrow it (as Keynes pointed out). And that won’t be inflationary assuming a deficit is needed: i.e. assuming the economy has spare capacity.

Socialism in one bedroom,

Inequality is an important issue, but it’s not what we’re discussing here. That’s off topic.


thomas

Ralph,

Thanks: a most neatly put pointer. I will think on.

Socialism in one bedroom,

I did read that, it did penetrate. More than one thing can matter at a time, though, surely . In these posts, I'm just asking about deficits.In other posts in other places I may ask and be knowledgeable about inequality, chemistry, cooking or cat juggling. My email is tango mike romeo four zero@ gmail etc if you would like to discuss any of those.

George Carty

Won't balancing the government budget without balancing trade just lead to the impoverishment of Britain's private sector? Given this, why is protectionism such a taboo subject for so many economists and politicians?

Neil Wilson

"Given this, why is protectionism such a taboo subject for so many economists and politicians?"

Because it doesn't work and it isn't necessary.

Why do you need to impoverish another part of the world to avoid impoverishment at home when there is a win-win situation available?

Neil Wilson

"And if no one wants to lend to a government that needs to run a deficit, then all that government needs to do is print money instead of borrow it (as Keynes pointed out). "

I'd suggest that is a bad way of putting it.

In a sovereign currency if nobody wants to 'lend' to the *Treasury*, then they will automatically 'lend' to the Central Bank by precisely the amount that they refuse to lend to the Treasury. The Central Bank then just provides the overdraft to the Treasury and the Treasury gets the money anyway - at much less interest cost.

This is why the consolidated Central Bank/Government view that MMT uses provides so much insight. It's just applying international group accounting standard to two entities under common control.

Ralph Musgrave

George Carty,

You’ve got a point. I.e. a balanced budget plus an external deficit equals “impoverishment of the private sector”. MMTers are very clued up on that sort of point in that they pay attention to so called “sectoral balances”. To take an even simpler example, if there’s no external sector, then a public sector deficit must be matched by a private sector surplus of the same size.

George Carty

Neil Wilson,

Protectionism has worked splendidly for East Asia, allowing it to grow at the West's expense. I'm not suggesting that Britain should try to run a trade surplus (which would be "impoverishing another part of the world" as you put it), only that it should minimize its trade deficit as much as possible.

George Carty

Oops, I meant to link to this, but this forum doesn't seem to allow a-hrefs:

http://www.craigwilly.info/2013/07/24/is-the-economist-converting-to-mercantilism/

Nick Rowe

Isn't "an acceptable level of activity" just another name for a zero "output gap"? If one is mumbo jumbo, so is the other.

chris herbert

(S -I) + (T-G) = X-M; I believe this is an accounting identity regarding trade deficits/surplus. Bottom line here is that a trade surplus requires an equal surplus on the other side of the equation; same for trade deficits.

Yet you say "But let's say we get to a reasonable level of activity, and there's still a deficit. What then?

By accounting identity, this can only mean that the private and/or overseas sectors are running surpluses - saving more than they are investing. Such surpluses are potentially demand-deflationary, in which case a fiscal tightening would add to upward pressures on unemployment."

I'm confused.

The comments to this entry are closed.

blogs I like

Why S&M?

Blog powered by Typepad