How Budget Deficits Reduce Investment

A identity is a equation that is true because of the way the terms are defined. Thus, when an economist says that “gross national product is equal to the sum of consumption plus investment plus government spending on goods and services plus exports minus imports,”

Savings and Investment: Sorting Out Confusion Over Definitions

A Bit More on Savings and Investment by Steve Randy Waldman, Steve Roth (1, 2), Scott Sumner (1, 2, 3), Bill Woolsey, and Matt Yglesias have been debating questions of saving versus investment and paradoxen of thrift. See also JW Mason in the comments here, and Simon Wren-Lewis a while back. Cullen Roche reminds …

The Real Truth Is, When It Comes To The Government There Is No Debt

by Guest Author Mike Norman, Chief Economist at John Thomas Financial All we hear about is the debt, the mountain of debt. Debt, debt, debt…it never ends. My question is, what debt? What’s the debt that everyone is talking about? Okay, the so-called, “debt” is $14 trillion or thereabouts. That’s the amount that the non-government …

Aggregate Demand and Austerity

Both modeling and the historical record indicate that austerity in the midst of a balance sheet recession leads to increased deficits. The historical analogy frequently raised by Richard Koo, who argues that the attempt by the Japanese government in 1997 to reduce budget deficits in the midst of a balance-sheet recession resulted in larger deficits, not smaller ones. We may be already seeing the same thing in the UK, as deficits there are now growing in the aftermath of austerity measures undertaken late last year.