gph1

I'd be delighted to revise or update my views in light of any evidence you could provide.

Could you lay out the casual mechanism that this study is claiming, and how they make the distinction between govt consumption and investment?

I'd also like to see an empirical example of the crowding out thesis. The idea that public deficits bid up borrowing rates and reduce private sector borrowing opportunities has been pretty thoroughly debunked.

I'm not. The private sector generates wealth. One purpose of the government is to facilitate that wealth creation by running deficits to ensure there is sufficient demand for what our productive output supplies (due to growing capacity, income leakages from savings and trade deficits, distributional inequalities, etc)

Increasing the money supply is not in and of itself inflationary, nor does it logically imply a depreciating exchange rate. This is true no matter how many times Austrians and confused monetarists say so.

The idea that the US is running out of money or spending money it doesn't have is a non sequitor. The USG is monetary sovereign that issues it's own currency, and therefore has infinite ability to spend in dollars. Really, it's not even accurate to say the government "has" or "doesn't have" any money. We have an institutional arrangement whereby we cover all spending in excess of taxation by debt issuance, but that is just that--an particular institutional arrangement. The constraint is only inflation--is the USG spending in excess of what the economy's productive capacity can absorb? All available evidence suggests no.

Not to say that waste, corruption, poor capital allocation, etc aren't all legitimate problems. But that's not the question at hand.

This is just fetishism.

All currencies are fiat currencies, and all currencies are creatures of the state. If a currency is set at a fixed exchange rate to a precious metal, it's because a "statist fiat" made it so.

The problem with EZ countries is precisely that you can't "take them together" because there is no centralized fiscal agent. You need this because there has to be fiscal transfers between weaker and stronger nations or else face growing imbalance of payments, and with the right catalyst, financial crisis. That's why the U.S. works as a monetary union.

People focusing on the excel error and rebuttals such as this one are missing the point. The R/R argument fails because the causal inference itself is bunk. There are few plausible reasons to believe that higher public debt --> slower growth, but many reasons to suggest that slower growth --> higher dGDP. Public debts are private sector financial assets, and they are the result of deficits that represent a net flow of income from the government to households. The risk there--excessive inflation--is almost the opposite of the one suggested by R/R.

However, if the economy stalls and GDP growth slows, that leads to lower tax revenues and higher transfer payments (unemployment, etc), which will contribute directly to the deficit.

The level of confusion one sees in most any discussion of government debt/deficits is really mindblowing sometimes.

Please explain how monetary policy is "stealing money". Absurd tin foil hat caricatures like this often makes any reasonable discussion of the Fed and its role impossible.

Agreed re: Greece. Greece's bonds don't have the credibility because they aren't denominated in a currency that Greece controls.

There's no reasonable analogy between the US running a deficit and anyone's credit card. Again, like the commenter at the top of the thread, public and private finance are two different things. The US has infinite spending power. The constraint is not "affordability" but inflation. That's it. A "financially sound" budget for the US is one that maximizes employment with the minimal amount of inflation. It has nothing to do with deficits or surpluses.

You need to look at the federal budget as part of a closed loop of spending and income flows with the private, public and foreign sectors. Just like every country can't run a trade surplus, the public private and foreign sectors can't all run a surplus or a deficit. It has to net out. If the private sector runs a surplus (spends less than it earns) of 4% GDP and we have a current account deficit of 4% GDP, the gov't deficit will be 8%. It's just accounting.

No doubt there is plenty of wasteful and inefficient government spending. But I don't think the opportunity trade off works like you suggest.

It's not as if the government is removing otherwise productive dollars out of the economy to fund its deficits. Treasuries are generally purchased with excess reserves from the primary dealer banks that would otherwise just sit there. Or foreign governments, corporations, institutional buyers looking to stash their cash holdings where they will accrue risk free interest.

We can quibble about multipliers, but deficits represent a net income flow into the private sector and hence have an expansionary effect on demand (even if, unfortunately, those dollars are flowing into the pockets of crony defense contractors and what not).