Thursday, January 5, 2012

Back to Diamond

So I was looking over Diamond's (1965) OLG national debt model today, and was interested in this paragraph:Of course, the simple modeling that we've seen in the blogosphere on the debt recently has only covered half of this: the consumption half.

I think it would be worthwhile redoing either Nick or Bob's model with an investment good instead of a consumption good, because we're really only presenting half the OLG picture when we focus on consumption.

It should come out much different (correct me if I'm wrong).

With that established, I think we have to ask ourselves: have we really been fighting over deficit financing and its impact, or have we been fighting over what is done with deficits financing.


  1. Those can't be separated. With minimal deficit spending taxpayers have to face the negative consequences in a more straightforward way now. So they are less willing to increase the scope of government. This is why tax-hating repubs love debt as much as demos love taxes. They're different avenues to increase the mass movement of stupid money which can be directed by pols for gains.

  2. Simplest version: add apple trees to my "model". Apples trees live forever, and produce a constant crop of apples. What matters is now the net debt: government liabilities minus government assets (trees).

  3. Is this more like what you are thinking about?

  4. My "simplest version" above is, I think, the same as David Andolfatto's "PF1". Government-owned and privately-owned apple trees are the same.


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