SECTORAL BALANCES AND DISCRETIONARY BUDGET DEFICITS: RESPONSES TO COMMENTS ON MMP BLOG #5

This week I am going to be unusually and thankfully brief (it is 4^th of July holiday, after all). I will respond to the following comments:

From Neil, can we tell from the sectoral balances what the multiplier effect from government spending might be?

Answer: No. It would be great if we could, but we need estimates on things like spending and saving propensities across sectors, and then we need those things to be stable across a cycle. I am extremely skeptical that they are stable. I do believe multipliers are reasonably big on direct government employment programs. Other than that, all bets are off. But look at it this way. Say the multiplier is one or less than one. Then we can have more tax cuts and more government spending on stuff we need. Personally, I’d like better roads, 21^st century infrastructure, and some of those flying saucers we were promised when I was a kid. My Toyota looks an awful lot like my dad’s 1959 Olds. That is sad. I expected much more. My cellphone approximates something like what I was looking forward to. Dinosaurs that drink petroleum and still require rubber on the road is not even close.

Jean: can you carry the graph back to look at growth of “transfers”. Yes. But of course we are an aging society and so yes you will see growing spending on Social Security since Ida May Fuller first began to collect benefits. (Yogi says: look it up)
Murray: many questions, most to be addressed in coming weeks and months. One response now: what about gambling. As a rough rule of thumb, it is ignored. Only the profits and wages of gambling houses show up in the data. The bets (and losses) do not.
Willorng: 45 mph speed limit. Mosler beat you to it—his campaign platform included a national 35mph speed limit. I did not sign on. Sorry, call me old fashioned. I’d rather drive fast and save the planet by foregoing meat—our meat consumption is far more disastrous for the environment than driving SUVs at 100mph.
Dale on net imports: I mostly agree. It takes two to tango so we actually have little power over the outcome, anyway. I do not imply morality on imports and exports. I would not say net imports are good or bad. They just “are”.
Anon: fast or slow collapse and rich vs poor savings: I do not want a collapse at all. I want debt relief and jobs creation. On the empirical evidence—who is cutting spending and increasing saving—I do not know. I suspect it is low to middle income that has cut spending but I am not sure.
Wh10: again, I prefer to keep morality out of this, however, I am willing to say that in the circumstances that have existed since the early 2000s, increasing private sector deficits and debts is “bad”, unsustainable, and ultimately will (did) create a crisis. And, again, it takes two to tango. The rest of the world wants dollar assets. In such a situation, given US endorsement of mostly “free trade”, we will run a current account deficit. That is not good or bad, and it is sustainable. Now most analysts believe it is both bad and unsustainable. Hence, I called them out—how can they advocate private sector savings ,and government sector balanced budget without telling us how we will bring the current account to a surplus. They have no plausible story. They are either stupid or dishonest. I simply ask them to tell us which label they prefer. Personally, I am indifferent.