Monday, February 2, 2015

David Dayen — Why a $1 trillion DC spending spree is just what America needs

6 comments:

Dan Lynch said...

Last I heard, Bernie had not revealed the "pay for" for his proposal? As MMT knows, it's not stimulus unless it's deficit spending. I have a hard time taking Bernie's proposal seriously without the "pay for" spelled out.

If it turns out that Bernie's plan would be "paid for" with say, an increase in the regressive gas tax, then there would be no stimulus effect.

Even if it is deficit spending, $200/billion per year is not a lot, relative to the slack in the economy.

In any event, Bernie's proposal is DOA in the 1%-controlled government. It's still worthwhile to throw out constructive proposals, for our own sanity, and with the hope to gradually shift the Overton window, but at the same time we should be mindful that political change must precede economic change.

Anonymous said...

You can get an economic boost by redistributing wealth from high savers and the capital flight crowd to ordinary consumers and small business people, even if the deficit doesn't increase.

There really doesn't seem to be much evidence that GDP correlates in any significant way with the size of the deficit.

http://research.stlouisfed.org/fred2/series/FYFSGDA188S

A said...

"it's not stimulus unless it's deficit spending"

That's not actually correct though. State spending can have a positive impact on employment, ouput, growth etc even if it is matched by taxes.

Dan Lynch said...

@Dan Kervick and @Philippe, the so-called balanced budget multiplier is small because the rich consume much more than is commonly assumed. From memory, the top 10% spend about 75% of their income?

@Philippe, state spending is not stimulative at a national level. It can be stimulative at a local level if the state pays for it by taxing non-locals or by borrowing from non-locals, i.e. when Idaho funds education by selling lottery tickets to Utah residents. :-)

If Bernie "pays for" his infrastructure bill with a regressive gas tax, that might have a multiplier less than one and result in a net reduction of jobs.

GDP does not correlate closely to the deficit because there are other factors that affect aggregate demand, like private debt and current accounts, and because for political reasons government spending in the US has been small relative to GDP. Ask yourself what would happen if we chose to make government spending 50% of GDP?

Tom Hickey said...

Running a deficit accommodates saving desire by increasing aggregate net financial assets to meet demand for safe assets.

The other option is not to accommodate saving desire at the top by providing safe assets as a vehicle, but rather taxing the surplus usually captured at the top and recycling it at the bottom with targeted spending and transfers.

Sanders is advocating something like the second option, although the optimal way economically and politically is to tax away economic rents, that is, gain in excess of productive contribution.

That way the pie would grow and everyone would be better off in the long run measured on a more sophisticated standard than accumulated wealth and power. This would require replacing the concept of homo economicus with homo socialis and methodological individualism with a systems approach.

I think this makes more sense socially, politically and economically than just accommodating saving desire.

A said...

Dan, even if the balanced budget multiplier is small (it may not be, depending on the circumstances), it still has a positive effect - i.e. it is stimulative. So your "state spending is not stimulative at a national level" is not correct.