Re: Keynesian State of the Union

[Sven R Larson <slarson@xxxxxxxxxxxx>]

Bill,

This is an interesting discussion but I really don't see its relevance
given president Bush's proposal to run a deficit. What's more relevant
in that context is the sad inability of Democrats here in America to
assemble a reasonable fiscal policy strategy. Any Keynesian who is not
tempted to vote for Bush in 2004 should get back to basics: this
president has just announced that his long-term ambition is for the
fedral government to run a deficit for TEN YEARS. The potentials from
this, in terms of growth and full employment, are enormous, and there
are only two stumbling blocks in the way. The first is that states
take the chance to raise taxes - and since state taxes are flat this
means higher taxes for everyone, not just the rich. The second is
actually Bush's own spending plan. Some parts of his budget are
promising, while others may prove to be little more than hot air. But
this is the spending side - so long as the bottom line is a deficit
(FOR TEN LONG YEARS) at least he's not strangling the economy.

Another positive side of this is that the US government will flood
markets with its highly valued bonds. In times of uncertainty on stock
markets this is right on time. Europe is going out of its way to
deprive investors of the low-risk end of their portfolios, so if Bush
can pursue his deficit spending plan the financial world will be a
much better place.

Some have criticized Bush's plan for being a supply side strategy.
That's a bit too simple a labelling. Supply side economics has nothing
to do with deficit spending - this president is purposely opening a
deficit to inject more demand into the economy. If supply siders agree
that this is a good strategy, then why not join them and like it??
Whether his spending increase on military and homeland security is
objectionable, is a different story. I'm speaking as a Keynesian
economist.

The real downside of this is that it takes a Reagan fan to get the US
government out of its fiscal responsibility stalemate. I'm still
baffled by how Democrats stand up as one Ebeneezer Scrooge and point
finger at the president for being fiscally irresponsible. How many new
jobs does that create?

/srl

Bill Mitchell wrote:
>
> >Warren Mosler wrote:
> > >
> > > Just saw O'Neil on tv reminding us that
> > > every $ the govt spends ultimately comes from
> > > the taxpayers.
>
> Sven Larson replied
>
> >Sidewalks are pavements.
>
> as are footpaths but if you are implying that O'Neil's statement is just a
> truism then your
> evaluation is incorrect.
>
> every dollar the government spends provides the essence for the non-govt sector
> to pay its taxes not the other way round.
>
> We have to break this notion that government spending needs to be financed.
>
> The only constraint o government spending is real - the ability/willingness
> of the
> non-government sector to exchange goods and services in return for
> government issued currency. In general, this
> willingness is strong because (a) the private sector requires "government"
> money to discharge their tax
> liabilities, and (b) the same sector desires to net save in the unit of
> account. So you can also draw another
> inference from (a) and (b), and that is that generally a government deficit
> will be required to maintain full
> employment.
>
> warren's post illustrates how top "economic" officials in government fail
> to understand basic
> macroeconomics.
>
> best wishes
> bill
>
> ------
>
> William F. Mitchell
> Professor of Economics
> Director, Centre of Full Employment and Equity
> University of Newcastle
> New South Wales, Australia
> E-mail: ecwfm@xxxxxxxxxxxxxxxxxxxxxxx
> Phone: +61-2 4921 5065
> Fax:   +61-2 4921 6919
> Mobile: 0419 422 410
>
> http://econ-www.newcastle.edu.au/economics/bill/billeco.html
> http://www.billmitchell.org

--
Dr. Sven R Larson
Department of Economics
Skidmore College
815, North Broadway
Saratoga Springs, NY 12866
(518) 580-5278