May 3rd, 2014
in Op Ed
by Dirk Ehnts, Econoblog101
There is a nice comment by Warren Mosler on an FT article by Martin Wolf. You can see very clearly the differences in thinking. I side with Warren Mosler, who is correct to point out mainly that deficit spending by the public sector is an available way out for those countries that have a sovereign currency (not the euro zone).
Of course, one could just dismiss this discussion and say that Mosler is basically a financial market guy and Wolf a journalist, and both are maximizing their own utility function, but that would be completely wrong. This is about ideas, and Wolf just ignores the one big idea - more deficit spending to stabilize the economy - that we learned (and unlearned) from the aftermath of the Great Depression. Mosler is correct in pointing that out.
And by the way: an economy "fed" by deficit spending is incredibly boring for bankers (and doesn't allow big profits), as the example of Japan in the last two decades has shown. The private sector is repaying loans but not taking out many new ones, and government bonds cannot be speculated against if the institutions - interplay of treasury with central bank - are working correctly.