Re: New Economy Transcript

[Warren Mosler <mosler@xxxxxxxx>]

Seems the President sort of makes sense, cutting him a bit
of slack.  With the consumer
charging into debt getting the goverment out of the way certainly
helps keep ag demand in line.  The responses, however,
make no sense to me.  Tsy Sec Summers wants to pay down debt and
increase (non govt) savings?  Do he and Baily not understand accounting,
or am I missing something?





>From the President:

 And the third thing I wanted to just ask you to think about,
since I was hoping Professor Galbraith would raise this question of whether
I was making a mistake to try to get us out of debt -- because some of my
good friends have accused me of practicing Calvin Coolidge economics.  Let
me tell you what my reasoning is, and I just want you all to think about
this, because I'm prepared to have somebody say I'm wrong about this.

          The reason that I wanted to continue to pay down the public debt
is that private debt in this country is so high, both individual and
business debt, and I worry in the same way you do about that coming down
not only on individual firms and families, but also on the economy as a
whole.  So I figured what really matters is the aggregate savings rate or
the aggregate debt-to-wealth ratio, and if I can keep bringing down the
public debt, we could keep interest rates down and at least lengthen the
time between now and some darker reckoning on that.

          So the reason that I always thought it was important to pay down
the public debt, once we got into surplus, is that private borrowing is so
high in this country.  And the debt-to-wealth ratio is not bad at all,
because of the value of the markets.  But still, the individual and firm
debts are quite high.  So I was trying to get the aggregate balance right,
and that's been my logic all along, and why I think it's different from
previous times when, I admit, the government's been in surplus when it
should not have been.


>From Tsy Sec Summers:

  I think there are many aspects of all of this, but I would just
highlight four themes that came out of the discussion that we've just
heard.  The first is that the new economy is new, but has to be built on
old virtues.  For us in government, that means respect for markets and it
means paying down debt and increasing savings.

          However important that used to be, increasing national savings
and paying down debt becomes much more important when we have the
staggering high quality investment opportunities that we have today.  It
becomes more important to take savings out of the sterile asset of
government paper and put them to work in these new investments.


>From Martin Baily:

 So what's different about this expansion.  I agree with the
President and with Secretary Summers on the importance of paying down the
debt -- not only for the future, but I think it's been an important part of
the success that we've had and why this expansion looks so young.  The
paying down -- the reduction of the deficit, the shift to surplus, the
beginning of paying down the debt has helped make room for the investment
which has contributed to this productivity-led expansion.