Re: Negative consequences of high deficits?

[Peter Dorman <dormanp@xxxxxxxxxxxxx>]

DeLong should answer for himself (of course), but my understanding is that he
views the Fed as a force of nature whose predictable policies have to be taken
into account by everyone else.  So if high fiscal deficits convince the Fed to
raise interest rates, and if this slows economic growth, then the deficits are
to blame.

Of course, the language of this excerpt (especially the metaphor of the "pool
of capital" -- hydraulics again) is directly non-Keynesian.

Peter

Mason Clark wrote:

> Brad DeLong sent out a newsletter containing the following paragraphs.
> Does this make him a non-post-Keynesian?
>
>      Mason Clark
>
> excerpt:
>
> Last--but most important--comes the deficit and the rate of economic
> growth. It had long been clear that whatever supply-side gains in
> productivity were produced by the Reagan tax cut were vastly outweighed by
> the negative consequences of high deficits that drained the pool of capital
> for financing investment and slowed economic growth. Depending on which set
> of economists you asked, the four percent of GDP or so that was diverted to
> buying government bonds to finance the deficit slowed American growth by
> between one-half and one percent per year. It had left America by 1992
> between 4 and 8 percent poorer than it might have been had the budget been
> balanced.
>
> Outside economists and economic advisors had been making these points for a
> decade before Bill Clinton took office. The argument that the economic
> health of the nation required spending political capital on deficit
> reduction was made in 1993 by Bob Rubin, Lloyd Bentsen, Laura Tyson,
> Lawrence Summers, and company. But it had been made back in 1983 by Martin
> Feldstein, David Stockman, and company. And it had been made in 1989 by
> Richard Darman, Michael Boskin, and company.
>
> end of excerpt