The Demand Side Economics Blog is full of
very useful information, but often hard to decipher. That’s general when I call
on PK to figure things out for me. But here is one in their last blog that I do
understand and makes a great deal of sense.
Folk complain that the government
ought to operate as we ordinary folk do and not spend more than we make. Makes
sense right? Well, Shiller on the blog says that if you own a home you are
indeed involved in deficit spending like most governments. You could counter
and say “I can sell my house.” which I find nearly impossible in this market.
But the government could also see a national park and things of that nature.
Face it, we are debtor nations just
like the government. Our personal debt is equal to the national debt. That is
part of the capitalist system.
Running up personal debt is also the only way to grow the economy when all the income increases are going to those at the top of the scale. Demand has to come from the broader base. When incomes are going nowhere for well over a decade, to grow demand at all you have to grow credit.
ReplyDeleteGrowth in credit/borrowing is what drives the growth in the money supply. The notion that it's the government 'printing' more money is a popular misconception except in unusual circumstances - usually when private borrowing collapses, as happened in 2008-2009. If you look at the 'Balance of Payments' reports from this time it is apparent that government borrowing *barely* supplanted the collapse in private borrowing (which would have resulted in catastrophic deflation, left to its own)