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  Comments on Robert J. Shiller Article
  Posted by WARREN MOSLER on December 28, 2010 in Deficit 2 Comments
  Warren – would you care to comment on the ny times article by Robert Shiller?
  He's correct on all counts, including the point that the multiplier might not be 1.
  In fact, a 1 multiplier requires all of our demand leakages (pension/ira type contributions, insurance reserves, other corporate reserves, demand for actual cash in circulation, net foreign demand to accumulate $ financial assets, etc. etc. etc.) to be offset by enough non govt sector debt expansion to make up for those 'savings' desires.
  Sometimes that happens. In the late 90's the domestic sector was increasing it's 'borrowing to spend' by maybe 7% of gdp per year, more than offsetting the 2% or so govt surplus as well as the foreign sector savings desires. But that was unsustainable as domestic debt is ultimately limited by income, and it all came apart not long after y2k. And a few years ago we had an ok expansion going also driven by private sector debt expansion which also proved unsustainable and came to an abrupt end when the debt turned out to be largely fraudulent mtg lending, etc.
  So today, with a highly subdued lending infrastructure, including regulatory over reach by bank regulators, seems to me a balanced budget expansion approach is high risk at best. The outcome could easily be a public sector expansion more than matched by a private sector setback.
  However, the larger point is why not just do the spending without a tax increase? That's sure to increase aggregate demand, and if demand pull inflation does ensue, and unemployment gets 'too low' (whatever that means), etc. taxes can always then be raised to cool demand.
  The answer can only be that the author either doesn't understand actual monetary operations and the monetary system fundamentally, or is afraid to say so?
  Unfortunately, the 'headline progressives' continue to be
  A quick read of 'The 7 Deadly Innocent Frauds' might help:
  http://moslereconomics.com/?p=8662/
  I tried to connect with him when I was running for the US Senate in CT with no response.
  Also, the economy did pretty well after World War II largely helped by the Marshall plan which was, functionally, a form of govt. deficit spending. We loaned Europe about $15 billion (back when that was a lot of money) to buy stuff from us, if I recall correctly. And enough of the war time deficit spending was held by soldiers coming home and others who spent from their savings for a while.