Enough of the bookkeeping, Mr Osborne
Posted by WARREN MOSLER on June 23rd, 2012
From Sam Brittan. Veteran FT writer.
A permanent secretary under an earlier Labour administration once asked me what I thought were the limits to permissible Budget deficits. My answer was: “Up to the point where the gains to output and employment are offset by the inflationary effects of a fall in the exchange rate.”
June 24th, 2012 at 12:44 am
“Up to the point where the gains to output and employment are offset by the inflationary effects of a fall in the exchange rate.”
Ok…but you have to give the economy some time to adapt to changes inthe exchange rate. New productivity capacity will be created in the economy to produce substitute products for overly expensive imports.
The inflation doom mongers are not inlined to wait for inflation to stabilize.
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June 24th, 2012 at 5:13 am
Good answer
Re total Govt debt (from yearly deficits). My view is up to required retirement savings
So if in the US this figure is $100 trillion. Then up to this figure. So a long way to go.
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June 24th, 2012 at 8:56 pm
“Instead of risking the Budget deficit-reduction programme by boosting public spending and cutting taxes, the government is trying to encourage the private sector to borrow on special terms.”
Why, that’s it! They MUST be out of money!
FT – Cash Hoarding Companies Seem Unable to Splash Out:
http://www.google.com/url?sa=t&rct=j&q=uk%20companies%20hoarding%20cash%202012&source=web&cd=7&ved=0CFoQFjAG&url=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F584de60a-6a03-11e1-a26e-00144feabdc0.html&ei=ebPnT93gPOng2QWN1qDaCQ&usg=AFQjCNFvpvhYb6RGP8DlJUwMvQaSRHsbSA
Well… hmmmm.
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Unforgiven Reply:
June 24th, 2012 at 9:01 pm
@All,
Sorry about that, thought I’d found a way to link to FT. Just google the title and the resultant links should work.
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June 24th, 2012 at 10:01 pm
Sam Brittan slipped up in that sentence about the “inflationary effects of a fall in the exchange rate”.
The fundamental constraint on budget deficits is inflation, period.
Whether that inflation stems largely from exchange rate effects, or not is irrelevant. In a country heavily involved in international trade relative to its GDP, exchange rate effects would loom large. In contrast, for a country not so heavily involved in international trade, the exchange rate contribution to inflation would be small.
But the fact remains that it is OVERALL inflation that really matters.
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Unforgiven Reply:
June 25th, 2012 at 2:44 am
@Ralph Musgrave,
So, policy under these circumstances should be…?
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WARREN MOSLER Reply:
June 25th, 2012 at 9:13 am
understood!
but also depends on who’s paying your salary…
:(
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Andrew Reply:
June 26th, 2012 at 3:53 am
@Ralph Musgrave,
How much inflation, when and under what circumstances. Give us the inflation limits and criteria for spending.
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WARREN MOSLER Reply:
June 26th, 2012 at 8:37 am
it’s a political judgement, and with my transition job in place total employment can likely be quite a bit higher than otherwise before ‘inflation limits’ from excess demand are reached.
And while it can be tricky at what are considered low levels of unemployment, seems obvious today that we have a massive output gap to fill to meet our stated political goals
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June 25th, 2012 at 7:49 am
Q. How fast can I drive?
mmtA. Up to the point where you spin out of the corner.
Funny, but how do you calculate this limit?
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pebird Reply:
June 25th, 2012 at 9:44 am
@Jacob Goense, By checking your speedometer when you spin out.
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Tom Hickey Reply:
June 25th, 2012 at 1:21 pm
@Jacob Goense,
Jacob, Warren makes racing cars. I am sure the engineers have figured that out and the drivers, too. And more precisely than economists have been able to do in their field.
http://www.moslerauto.com/
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roger erickson Reply:
June 25th, 2012 at 5:09 pm
@Jacob Goense,
You never can, fast enough. Spin-out thresholds can can by the moment.
Very little useful you can calculate & “bank on” next lap. :)
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y Reply:
June 25th, 2012 at 5:22 pm
Good point about spinning out. Perhaps, rather than going right up to the maximum limit, it makes more sense to be a bit ‘prudent’?
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Andrew Reply:
June 26th, 2012 at 3:55 am
@y,
Or be everything you can be.
Anders Reply:
June 26th, 2012 at 5:58 am
@Jacob Goense, MMT says the limit is when inflation begins to accelerate, not when hyperinflation has taken hold. There is a big difference. Whilst the Fed, ECB and BoE would have you believe that inflation in the high single digits inevitably leads to hyperinflation, this is nonsense: plenty of countries have seen inflation at these levels for years without it becoming hyperinflationary.
The key thing is having a decent view of what causes inflation, and how can it be stopped.
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