tag:blogger.com,1999:blog-2546602206734889307.post7264591606980760811..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: Austerity, debt burdens and hypocrisyMainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-2546602206734889307.post-42983565045767694852012-10-25T11:52:38.140+00:002012-10-25T11:52:38.140+00:00nice writtennice writtenEnlightenmenthttp://www.enlightenmentcity.com/index.htmlnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-75498560520303027492012-10-23T20:01:21.207+00:002012-10-23T20:01:21.207+00:00If the children are the main concern of these poli...If the children are the main concern of these politicians as much as they say they are,then they need to ask themselves how are these austerity policies helping the children of today never mind tomorrow.<br />Cuts in tax credits if you cant get 24hrs work a week,increased from 16. Stagnant or falling wages,increases in VATresorting in parents going to food banks to put a meal on thetable. Combine all this with little or no job prospects for 18-24yr olds and one is left with a situation of neglect of a generation because of an ill conceived philosophy of what will happen to the next.<br />Let's sort the present before we sort the future.Mark Allannoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-45332836860510313862012-10-22T17:00:31.492+00:002012-10-22T17:00:31.492+00:00Great post, I agree with what you are saying, but ...Great post, I agree with what you are saying, but I think there is one important caveat.<br /><br />I think that when economists talk about burden of debt, we are talking about one of three things 1)in the future, collectively as a nation, we will be poorer (can afford fewer consumption or investment goods) than we otherwise would be, 2) a cohort, possibly living now (but younger) or to be born in the future will have lower welfare than otherwise, 3) (since Miran brings it up) there could be a future run on government debt.<br /><br />I would argue that 1) is the view that many politicians/economic layman have on the issue of debt; moreover this is the view that Krugman/Noah Smith/Dean Baker are fighting--because this view is absolutely wrong!--and so we point out correctly that debt is a pure transfer payment.<br /><br />I would argue that 2) is the point that Nick Rowe likes to make, but talking to non-economists, I just don't think regular people understand this as the cost of debt--most people think the problem with debt is 1). I think its a helpful corrective for us economists remember your point that 2)--which is the "debt burden" that you are talking about as well--is a cost which is small compared to other considerations.<br /><br />For completeness, I want to also say that Miran's point (#3), is just wrong. Sorry Miran, but its true. A country with its own currency that gets into debt trouble only needs to devalue or run a primary budget surplus. The argument that we have to cut now, so that we don't have to cut or devalue later is just nonsense.<br /><br />So, I think we are left with the conclusion that the only cost of debt worth worrying about--which is really important cost!--is the crowding out of investment by debt. This is importantly not an issue in the middle of a depression.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-44641002053251271302012-10-22T09:23:31.731+00:002012-10-22T09:23:31.731+00:00In my view, the problem is sustainability of deman...In my view, the problem is sustainability of demand for government debt. Until investors are willing to take peaces of paper in exchange for real goods and services there is no problem. Japan is doing fine with debt to GDP level around 200%. If the mood changes for the worse however, it is not clear if the government is willing to expose its constituency to the consequences of such policies. If the government cannot sell bonds on the market to retire old debt there are only two ways to tackle it. Debt monetisation (inflation), if there is a willing central bank in sight, or default. We can see that small nations at least are exposed to such risk. The real question is who is big enough not to worry...Miranhttps://www.blogger.com/profile/04905289368600212696noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-66960649918856597792012-10-22T05:25:26.508+00:002012-10-22T05:25:26.508+00:00Prof Simon,
You say, “it would be foolish to not...Prof Simon, <br /><br />You say, “it would be foolish to not try and reduce the high levels of government debt we currently have when the economy recovers..”. <br /><br />I rather feel you are condoning the view taken by the economically unsophisticated, namely that national debt should be treated like household debts: i.e. “something that needs to be reduced”. Isn’t the view taken by Keynes the correct one, i.e. “Look after unemployment and the budget looks after itself” – (which implies that the debt looks after itself)?<br /><br />I.e. if the private sector decides it wants to hold a significantly larger amount of Gilts over the next fifteen years than over the last fifteen, why not let it? As long as government continues to pay a zero real rate of interest, I see no harm. In fact if the private sector is PREVENTED from doing that, we’ll get paradox of thrift unemployment: the private sector will try to save liquid assets (monetary base or government debt).<br /><br />Personally I’d aim for a small negative real rate of interest: that way we make money out of foreign holders of Gilts. I.e. we sort of supply them with bits of paper in exchange for real goods and services. Put another way, if the world wants us to act as banker (which it does to some extent), that’s great. Let’s supply the service that they want, and make a profit at the same time. <br /><br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.com