Monday, May 7, 2012

Miscellaneous Keynesians and one non-Keynesian on short-term commitments signaling consistency on the long-term debt

Joseph Stiglitz: "Most economists also agree that it is a mistake to look at only one side of a balance sheet (whether for the public or private sector). One has to look not only at what a country or firm owes, but also at its assets. This should help answer those financial sector hawks who are raising alarms about government spending. After all, even deficit hawks acknowledge that we should be focusing not on today's deficit, but on the long-term national debt. Spending, especially on investments in education, technology, and infrastructure, can actually lead to lower long-term deficits. Banks' short-sightedness helped create the crisis; we cannot let government short-sightedness – prodded by the financial sector – prolong it. Faster growth and returns on public investment yield higher tax revenues, and a 5 to 6% return is more than enough to offset temporary increases in the national debt. A social cost-benefit analysis (taking into account impacts other than on the budget) makes such expenditures, even when debt-financed, even more attractive." (here) [Stiglitz makes an important point here that a lot of critics of Keynesians neglect, that the long-term debt is as much about how you spend the money as it is about how much money you spend. The debt burden is influenced by growth. Cutting taxes on the rich and spending money on infrastructure and education both "increase the deficit" in the most direct sense of the phrase. But the latter has very different consequences for the long-term debt burden than the former because they have a very different effect on growth].

Alan Krueger: "The previous Administration enacted a series of sweeping tax cuts skewed toward high-income Americans. These tax cuts were all put into place without any offsetting spending cuts or replacement revenue sources. As you have pointed out, Figure 3-1 of the Economic Report of the President illustrates that these cuts, along with the establishment of the Medicare prescription drug benefit program and the wars in Iraq and Afghanistan, account for a huge portion of current deficits, and will continue to impair our fiscal health over the next decade." (here).

And one non-Keynesian, Alan Greenspan Indeed, the former Federal Reserve chairman Alan Greenspan, who has sterling conservative credentials, has said that all the Bush tax cuts should lapse, to reduce long-term deficits.” (here).

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