More hints deficits are high enough for stability?
Posted by WARREN MOSLER on July 5th, 2012
Headlines:
U.K. House Prices Rise for a Second Month in June, Halifax Says
U.K. Pay Growth Accelerates to 10-Month High, VocaLink Says
German Factory Orders Unexpectedly Rose on Euro-Area Demand
Eurozone PMI rises in June but still signals steep rate of contraction
Euro-Region Retail Sales Unexpectedly Increased in May on France
Italy First-Quarter Deficit Rises to Highest in Three Years
Italy Plans More Than 8 Billion Euros of Spending Cuts This Year
July 5th, 2012 at 10:43 am
Ever tried bailing out a leaky boat and staying just ahead of the incoming flow?
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July 5th, 2012 at 11:38 am
Hi Warren,
let me try to get this straight: What you claim is that the deficit/GdP ratio with deficits rising and/or GDPs falling (in Europe) is rising up to a point where the situation stabilizes ?Stabilization happening once the relative part of public deficit in overall spending has increased enough to compensate for lacking private spending ? So austerity by increasing the public deficit (in spite of its intentions) and shrinking the GDP tends to increase the relative share of public spending on overall spending ? Austerity as a public spending program (with shrinked GDP however) ?
Hope I make myself understood.
Erik
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WARREN MOSLER Reply:
July 5th, 2012 at 11:45 am
yes, but both transfer payments increase and tax collections decrease with austerity
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July 5th, 2012 at 12:01 pm
your statement describes the mechanism by which austerity increases public spending / wouldn’t defend austerity, but it’s fun to see that it “works” for the same reasons its adherents deny = deficit spending
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WARREN MOSLER Reply:
July 5th, 2012 at 12:22 pm
yes, what they miss is the economy could have just as easily achieved that same (modest) growth with an immediate pro active increase in the deficit vs using austerity to build the deficit
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SteveK9 Reply:
July 5th, 2012 at 1:51 pm
@WARREN MOSLER, … with a higher level of GDP?
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WARREN MOSLER Reply:
July 5th, 2012 at 2:33 pm
yes, they could have gotten to today’s deficits from higher levels of employment with a pro active fiscal adjustments