RE: Re: RE: saving and aggregate demand

["Forstater, Mathew" <ForstaterM@xxxxxxxx>]

There is actually some disagreement, historically, about the impact of debt
reduction.  Lerner and Hansen, e.g., disagreed about the impact. The
disagreement is based on two related issues. First, Lerner took into
consideration the monetary and not only the fiscal impact of debt reduction.
Second, the effects often depend on what other monetary and fiscal actions
accompany debt reduction.  Often, these are all not clearly distinguished.


-----Original Message-----
From: Brad DeLong [mailto:delong@xxxxxxxxxxxxxxxxx]
Sent: Tuesday, October 03, 2000 11:53 AM
To: pen-l@xxxxxxxxxxxxxxxxxxx
>Subject: [PEN-L:2619] Re: RE: saving and aggregate demand


>query: where did economists get the habit of ignoring the way in which
>"paying down the government debt" reduces aggregate demand, along with the
>phenomenon of fiscal drag?

Since the Federal Reserve made it clear that *it* was managing
aggregate demand, and that it could move faster and had more powerful
policy tools than the congress-plus-president.

In normal times, the Federal Reserve can undo whatever fiscal policy
action the congress-plus-president takes--and the Federal Reserve
does.

There is, however, the possibility of un-normal times to worry about...


Brad DeLong