Musgrave, Ralph S. (2011): Consolidation causes little austerity.
Download (65Kb) | Preview
There is a widespread view that reducing national debts and deficits, or “consolidating” them, causes austerity or would hinder the recovery. The reality is that reducing structural debts and deficits and “stimulus debts” is easily done without any significant deflationary effects. In contrast, stimulus deficits cannot be reduced in that they are required to deal with recessions, thought they can perfectly well accumulate as extra monetary base rather than as extra debt.
Money for the above debt and deficit reduction can be obtained from raised taxes and/or public spending cuts, while making good the deflationary effect of the latter with quantitative easing. As long as the deflationary effect of the former equals the stimulatory effect of the latter, there is little net effect on GDP, aggregate employment and so on. Meanwhile debts or deficits are reduced.
|Item Type:||MPRA Paper|
|Original Title:||Consolidation causes little austerity|
|Keywords:||consolidation; debt; deficit; austerity; stimulus|
|Subjects:||H - Public Economics > H6 - National Budget, Deficit, and Debt > H62 - Deficit; Surplus
H - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt; Debt Management; Sovereign Debt
H - Public Economics > H6 - National Budget, Deficit, and Debt > H61 - Budget; Budget Systems
|Depositing User:||Ralph Musgrave|
|Date Deposited:||25. Oct 2011 12:28|
|Last Modified:||11. Feb 2013 21:32|
Friedman, M. (1948). A Monetary and Fiscal Framework for Economic Stability. American Economic Review. XXXVIII (3): 245-264, URL: http://nb.vse.cz/~BARTONP/mae911/friedman.pdf
Harding, R. (2011) Tackling the deficit is next fiscal battle. Financial Times. URL: http://www.ft.com/cms/s/0/af521dc4-63a9-11e0-bd7f-00144feab49a.html#axzz1ba97li8U
Hillinger, C. (2010). The Crisis and Beyond. Thinking Outside the Box. Economics. Discussion paper No. 2010-1. URL: http://www.economics-ejournal.org/economics/discussionpapers/2010-1
Keynes, M. (1933). An Open Letter to President Roosevelt. New York Times. December 31st. (See 2nd half of 5th paragraph). URL: http://www.scribd.com/doc/33886843/Keynes-NYT-Dec-31-1933
Lerner, A.P. (1983). Functional Finance and the Federal Debt. In David C.Colander (Ed.), Selected economic writings of Abba P. Lerner. New York University Press. URL: http://k.web.umkc.edu/keltons/Papers/501/functional%20finance.pdf
Mosler, W. (2010). Proposals for the Banking System. Huffington Post, January 21st. (See 2nd last paragraph). URL: http://www.huffingtonpost.com/warren-mosler/proposals-for-the-banking_b_432105.html
Musgrave, R. (2010). Government Borrowing is Near Pointless. Munich Personal RePEc Archive Paper No. 23785. URL: http://mpra.ub.uni-muenchen.de/23785/
Mitchell, W. (2011). The IMF – incompetent, biased and culpable. URL: http://bilbo.economicoutlook.net/blog/?p=13471
OECD (2010). Fiscal Consolidation: Requirements, Timing, Instruments and Institutional Arrangements. URL: http://www.oecd.org/dataoecd/63/57/46435606.pdf
Ostry, J.D. (2010A). Watch This (Fiscal) Space: Assessing Room for Fiscal Manoeuver in Advanced Countries. IMF Direct. http://blog-imfdirect.imf.org/2010/09/01/watch-this-fiscal-space-assessing-room-for-fiscal-maneuver-in-advanced-countries/
Ostry, J.D., Atish R. Ghosh, Jun I. Kim, and Mahvash S. Qureshi, (2010B) Fiscal Space. IMF Staff Position Note, SPN/10/11. URL: http://www.imf.org/external/pubs/ft/spn/2010/spn1011.pdf