Could you lay out the casual mechanism that this study is claiming, and how they make the distinction between govt consumption and investment?
I'd also like to see an empirical example of the crowding out thesis. The idea that public deficits bid up borrowing rates and reduce private sector borrowing opportunities has been pretty thoroughly debunked.
Increasing the money supply is not in and of itself inflationary, nor does it logically imply a depreciating exchange rate. This is true no matter how many times Austrians and confused monetarists say so.
The idea that the US is running out of money or spending money it doesn't have is a non sequitor. The USG is monetary sovereign that issues it's own currency, and therefore has infinite ability to spend in dollars. Really, it's not even accurate to say the government "has" or "doesn't have" any money. We have an institutional arrangement whereby we cover all spending in excess of taxation by debt issuance, but that is just that--an particular institutional arrangement. The constraint is only inflation--is the USG spending in excess of what the economy's productive capacity can absorb? All available evidence suggests no.
Not to say that waste, corruption, poor capital allocation, etc aren't all legitimate problems. But that's not the question at hand.
I'm not. The private sector generates wealth. One purpose of the government is to facilitate that wealth creation by running deficits to ensure there is sufficient demand for what our productive output supplies (due to growing capacity, income leakages from savings and trade deficits, distributional inequalities, etc)
All currencies are fiat currencies, and all currencies are creatures of the state. If a currency is set at a fixed exchange rate to a precious metal, it's because a "statist fiat" made it so.
Not at all. Gold by itself is a currency / medium of exchange. It doesn't need any "statist fiat" to make it so. The fact that states (or other entities) might issue redeemable paper certificates or receipts (or dollar bills) as a convenient stand-in for gold deposited with them is entirely irrelevant. Gold is already money before that and without that.
Gold is only "money" inasmuch as it is accepted as currency, to pay debts, etc. If cowrie shells were as acceptable then they'd be just as legitimate money as gold.
Or for a better example, cigarettes as currency in prison.
Sure, but this has nothing to do with the point that gold is not money by statist fiat.
Gold's real scarcity and base value are what make it suitable for use as money and therefore universally accepted as money for thousands of years.
Cowrie shells might also make an acceptable non-fiat currency if cowrie shells were really scarce (they're not, because one can presumably breed cowries and generate them at will - something that was perhaps not so practical at the time when they actually were used as currency) or had a significant base value (again, they don't though they once did, but purely for ornamental uses). Similarly cigarettes are a currency in prison without any fiat being involved because they're scarce in that context and they have a base value (based on their use for smoking).
Bitcoin has neither real scarcity nor any basis for a lasting base value. It has illusory scarcity, and a transient base value based on the fact that in the current historical context, it enjoys network effects and near zero competition for certain use cases (illegal transactions where fiat currencies are unsuitable).
There's nothing sacred about gold either. If efficient nuclear transmutation of lead into gold were possible, gold would no longer be suitable as a currency. We'd have to switch to Latinum.
The problem with EZ countries is precisely that you can't "take them together" because there is no centralized fiscal agent. You need this because there has to be fiscal transfers between weaker and stronger nations or else face growing imbalance of payments, and with the right catalyst, financial crisis. That's why the U.S. works as a monetary union.
There are fiscal transfers within the EU and there are other ways to rebalance like freedom of movement for workers. But you are right that it doesn't go far enough. Deeper integration is undoubtedly needed.
People focusing on the excel error and rebuttals such as this one are missing the point. The R/R argument fails because the causal inference itself is bunk. There are few plausible reasons to believe that higher public debt --> slower growth, but many reasons to suggest that slower growth --> higher dGDP. Public debts are private sector financial assets, and they are the result of deficits that represent a net flow of income from the government to households. The risk there--excessive inflation--is almost the opposite of the one suggested by R/R.
However, if the economy stalls and GDP growth slows, that leads to lower tax revenues and higher transfer payments (unemployment, etc), which will contribute directly to the deficit.
The level of confusion one sees in most any discussion of government debt/deficits is really mindblowing sometimes.
Right, but the core idea that high public debt leads to negative growth is not correct.
And that's a big deal. Even if you want to claim that high debt slows growth, your economy won't implode, and the political arguments have used the concerns over implosion as the dire necessity to deal with the public debt.
Please explain how monetary policy is "stealing money". Absurd tin foil hat caricatures like this often makes any reasonable discussion of the Fed and its role impossible.
There is an argument that the zero interest rate policy and quantitative easing helps banks who are technically insolvent, at the expense of prudent savers like pensioners.
The primary dealer banks will always be a ready funding agent for the US government--why wouldn't they be? Treasuries offer a risk free place for excess reserves to earn interest. It's literally free money.
It's instructive to remember that we match our deficit spending with debt issuance by legal fiat and not for any real operational reason. We could just as well deficit spend freely with no debt issuance (and no, it would not be more inflationary.
Of course, treasuries are a risk free savings vehicle for the private sector and world at large, and they play an important role in managing the payments system (though not one that couldn't be replace), so I'm not suggesting that we stop issuing debt. But it's important to understand how the system works so we can stop with the silly notion that we are just scraping by on the good graces of Treasury buyers.
What's the mechanism for this spending through legal fiat?
It seems to me that any spending that doesn't come from taxes or debt would probably have some adverse affects on the economy. I'm still a student of institutional economics, so I'm eager to learn more about this whole process.
Go read zerohedge.com. There is a fair chunk of tinfoil hat baloney and traders talking their book, but they have some serious analysis on the government debt / banking / monetary system.
No doubt that Austrian's avoided some of the neoclassical blind spots that caused many economists to miss the crisis, but then again Austrian's are always predicting crises and they certainly offer no crystal ball--see Peter Schiff's hilarious prediction of soaring inflation every year since 2009.
Schiff's misfire is especially relevant to this discussion, because it demonstrates the Austrian school's grossly flawed understanding of public finance and our monetary system (despite having valuable things to say at times).
