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Posted by Warren Mosler (66.54.1.38) on 17:07:53 04/09/03
In Reply to: Martin Feldstein probable Greenspan succesor posted by Robert DeLuca
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: An important feature of the recent fiscal package was the use of policies that stimulated demand with little or no increase in budget deficits. The temporary rise in the tax depreciation rate and the resulting tax cut are automatically offset by lower depreciation and therefore high tax liabilities in later years. This increases the budget deficit in 2003 and 2004 and then reduces it by roughly the same amount in the following years. But even without a net rise in the national debt, this type of fiscal policy encourages investment now when the economy needs the boost.
***He doesn't understand that the sectors sum to 0.
Govt deficit = non govt surplus. His above expansion can only come via more corp debt, for example, which is not sustainable without govt deficits.***
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: The ability to use fiscal incentives to stimulate the economy without increasing the national debt is particularly relevant to Europe,
***Without increasing govt 'debt' non govt net financial equity can't/doesn't increase.***
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: Those European countries that are growing too slowly or are in recession can use temporary fiscal investment incentives offset by temporarily higher profits taxes to spur business outlays. Similarly, a temporary cut in value added tax, balanced by a rise in personal taxes, could stimulate household spending. Both techniques would help to accelerate economic activity and neither would raise the budget deficit.
***they can't dig out longer term without larger govt deficits***
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: Persistent budget deficits crowd out investment
***this is total nonsense!!!****
and thus reduce long-term growth. Fortunately, some of the projected deficits of the next few years are explained by lower tax collections that result from cyclical weakness and will shrink as the economies grow.
***as before, growth will choke itself off due to the tax structure***
In the US the budget deficit is projected to fall to about 2 per cent of gross domestic product over the next five years and the ratio of national debt to GDP to stabilise at less than 40 per cent.
***just like a surplus was projected. I doubt the economy will stabilize before a 7-8% deficit is reached********
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: Bigger deficit problems
***'problems?' only if 'overspending' uses up excess capacity including labor, and drives up prices fast enough to be disruptive. Studies show inflation up to 40% is not disruptive to real growth, though politically uppopular for sure!****
lie in the decades ahead in both Europe and the US because the rapidly ageing population will bring a dramatic rise in pension and health spending. Reforms to avoid those deficits should be the highest fiscal priority over the next few years.
*****this is counter productive and totally misses the point.*******
But there is no reason why fiscal incentives cannot be used now to make sure that the economies on both sides of the Atlantic enjoy faster growth and rising employment.
*****true!******
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: The writer is president of the National Bureau of Economic Research
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