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.

5 comments:

  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.

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  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).

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

    http://andolfatto.blogspot.com/2011/12/on-paulo-and-bobby-english-and-math.html

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  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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