"... in retrospect it is clear that we should have been talking about big new public spending programs to boost demand."
This graph shows the exponential trend (red) of the Federal debt, based on the debt in the years 1945-1974, along with the actual path (blue) of the Federal debt out to 2015:
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| Figure 1: Showing the Growth of the Federal Debt above and beyond its pre-1975 Trend |
The difference, 17 trillion dollars, was the result of a four-decade attempt to boost the economy by means of big new public spending.
We tried it. It didn't work. It didn't work because expansion of the Federal debt leads to expansion of private-sector debt, and private-sector debt is already so big and costly that it undermines the effectiveness of the "boost" provided by the big new public spending.
This problem cannot be solved by additional government spending. It can only be solved by reducing private-sector debt.
3 comments:
My assertion that "expansion of the Federal debt leads to expansion of private-sector debt" is supported by JW Mason's observation:
"many financial institutions wanted (or were compelled by regulation) to hold a substantial amount of ultrasafe, liquid debt, and there was not enough government debt in circulation to meet this demand."
A related thought, from Understanding Lowflation (PDF) by David Andolfatto and Andrew Spewak:
"First, central banks are normally constrained to create money out of Treasury securities... Because this is so, the supply of central bank money cannot grow more rapidly than the public debt for an indefinite period."
Steve Keen:
"... a private debt crisis can’t be solved simply by increasing public debt. If deleveraging is to really occur and allow a real private sector revival, then private debt has to be substantially reduced by deliberate government policy."
Yes, yes, yes. The link is
https://static1.squarespace.com/static/52c4c212e4b019e1bba20f52/t/54b4ed4ee4b0b491c39819b8/1421143374162/Final+Outlook+0115+x.pdf
but it no longer works. I googled
Final+Outlook+0115+x.pdf
and got three hits, all pointing to the the same defunct link.
I captured the quote back in 2015 in
Steve Keen, exactly right
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