He basically makes the same points I made.
He's not particularly concerned whether it is literally "impossible" to burden future generations like Nick was. He says it's possible - I agree. He's more concerned about whether it's responsible or makes sense to talk about "burdening future generations with debt" the way we talk about personal debt.
It depends a lot on whether we're talking about investing or consuming. Nick's post was all about consumption.
One thing I've pointed out is that when we do straight young-people-let-old-people-consume-more-now stuff with government (at least in the United States), we don't finance it with debt. So I have to wonder how much Nick's "cohort A consumes more apples" model really tells us about public debt (again, in the United States at least). It's very good at telling us that we shouldn't borrow money to give old people Social Security checks - but then, we already knew that, didn't we?
Monday, January 2, 2012
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Yes or no, please
ReplyDeleteDoes the Ricardian equivalence apply to private debt?
If not, why not?
Assume the borrowing in both cases is from bank's who fund the loans solely by creating money.
Does the Ricardian equivalence apply to private debt?
ReplyDeleteI believe the phrase is "Miller-Modigliani".
@ Anonymous:
ReplyDeletePrivate banks (excepting the Fed) don't create money. However, what you write sounds more or less like how money is created.
Edwin Herdman
ReplyDeleteget serious dude
if private banks don't have the ability to create money, why do we regulate them as we do?
we are talking wiki level knowledge here
http://en.wikipedia.org/wiki/Fractional-reserve_banking
vimothy
ReplyDeletemy point is a different one. What I am showing is that the Ricardian equivalence is false, for it does not apply to private debt.
AS Keen and many others have explained, private debt permits economic expansion (what must be avoided is a private debt bubble)
if true, the same would hold true for public debt