Well HOLD ON. WHY Are Interest Rates Low?

Well HOLD ON. WHY Are Interest Rates Low?

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Joseph Stiglitz wrote an uninspiring guide to reducing the deficit by the end of this past year. Here is a guide to the primary ideas in the paper. One flaw in that idea is that worthwhile public investments (and private investments) should be be made ANYWAY – whether or not we are in a recession or not. The second problem is that if the investment “increases taxes revenues by plenty of to repay the principal plus interest…” then the investment will withdraw cash from the private sector. In the balance-sheet recession that’s plain daft. Or in MMT parlance, the very last thing that should be done in a recession is to lessen private sector world-wide web financial property.

Thirdly, general public-sector investments often require specialized labor, e.g. highway or bridge construction. A dramatic increase in public sector investment in a recession could be plain impossible or problematic for insufficient the relevant skilled labor. But even if it is possible, to expand one sector of the economy dramatically, only to contract it again come the recovery simply distorts the labor market: barely desirable.

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The distortion needs to be unwound come the recovery. Stiglitz then enlarges with this public sector investment idea under item A in his web page 2. Here he claims that general public-sector investments during a recession a good idea because interest rates are currently low. Well hang on. WHY are rates of interest low? It’s because the Federal government / central bank or investment company machine has DELIBERATELY lowered them!

And those low interest rates have been lowered by printing money and buying government personal debt. So Stiglitz says authorities should borrow the stuff (i.e. money) which authorities itself has produced. Well now, why go to all or any the trouble of dishing out money to the private sector only to borrow it back again? It would be much simpler just to printing money and spend it (in a downturn), which is exactly what MMT advocates!

His next reason under item A for public investment is that given the high unemployment, the multiplier from such investment will be high. True. However, the same applies to any kind of spending, which means this is not specifically a spot in favor of investment! MMT beats Stiglitz just as before: MMTers have a tendency to favor payroll tax reductions in a recession.

Having extended the overall economy via such payroll tax reductions, a portion of the expanded economy will doubtless end up in the form of extra public sector investment. But that’s by the by. Stiglitz’s second brainwave is, “It is better to tax bad things (like pollution) than the good stuff (like work).” Revelation of the hundred years!

There was me wanting to know why we taxes alcoholic beverages. His 3rd idea is, “Economic sustainability requires environmental sustainability. Right Quite, but what’s that got to do with deficits or recessions? Absolutely nothing. Again, the above-mentioned principle applies recession or no recession. That is, “Eliminating corporate and business welfare is good both for efficiency and for collateral.” True, but for the umpteenth time, this has nothing at all specifically regarding recessions or deficits.