And How Much Is Sufficient?
I’m not in 100% agreement with Krugman’s ideas in this article, which argues for further national personal debt. But note that this is a thought provoking article: to demonstrate, Warren Mosler responds to it, as will Winterspeak. “Believe it or not, many economists argue that the overall economy needs a sufficient amount of public debts out there to function well. And how much is enough? Maybe, more than we now have. One answer is that issuing debt is a real way to pay for useful things, and we have to do more of this when the purchase price is right.
The USA suffers from apparent deficiencies in highways, rails, drinking water systems, and more; in the meantime, the federal government can borrow at historically low interest rates. The first problem with the above-mentioned passage, and this is not just a very serious objection, are that funding for infrastructure and other public investments is NOT NECESSARILY best done by borrowing.
Kersten Kellerman in the European Journal of Political Economy argued that public investments are best funded via a TAX rather than government borrowing. Second, the idea that more open public investment is justified because rates of interest are low is a popular one, but it’s not just a strong debate. The reason is that when considering an investment, the important rate to look at is the AVERAGE rate that will have to be paid over the life of the relevant asset, and that can be a century or even more.
Of course it’s very hard to predict that average rate. But certainly the fact that rates have recently dropped is no argument for presuming those low rates will last for another century. Perhaps, some kind of moving average rate during the last half hundred years would be appropriate. MMT and private sector net financial resources. Next, Krugman argues that the private sector may need an increased stock of what he calls “safe assets”. Advocates of Modern Monetary Theory have long shared that view, or something similar.
That is MMTers have long attracted attention to the fact that the private sector’s propensity to invest must vary using its stock of net paper resources or “Private Sector Net Financial Assets” to use MMT parlance. And PSNFA contains base government and money debt. The long-held MMT belief that the private sector should have the stock of base money it wants remains valid.
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As to whether INTEREST YIELDING authorities debt needs increasing, that’s more debatable. Indeed, Milton Friedman argued that federal government should concern no interest yielding liabilities at all. Obviously there are doubtless good quarrels for the condition wading into the market and borrowing as a crisis measure when the overall economy needs cooling. But the quarrels for having a stock of interest yielding condition liabilities as a long-term objective are a bit weak.
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