tag:blogger.com,1999:blog-4900303239154048192.post8243599233130592387..comments2024-03-06T06:34:42.881-05:00Comments on EconoSpeak: Bubblicious, ContinuedUnknownnoreply@blogger.comBlogger4125tag:blogger.com,1999:blog-4900303239154048192.post-33556336944751373762008-03-07T12:40:00.000-05:002008-03-07T12:40:00.000-05:00Peter - I will read it again- sorry!Peter - I will read it again- sorry!kevin quinnhttps://www.blogger.com/profile/04880872194080353414noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-71564699788380901942008-03-06T12:45:00.000-05:002008-03-06T12:45:00.000-05:00I'm concerned that a runup in spending would incre...I'm concerned that a runup in spending would increase the severity of our economic problems.<BR/><BR/>We've blown trillions in ancillary defense spending over half a decade here, and we're still lurching into a recession/depression/stagflatory scenario.<BR/><BR/>My general understanding is that deficit spending by the government in a period of economic decline is intended to hold the economy relatively steady through the downward portion of the cycle. Infrastructure spending is intended to provide a base that private companies can use as supplements (of a sort) to independent capital spending, and is expected to benefit their output in the future, driving federal revenue shares from their future profits to repay the debt expended on that investment.<BR/><BR/>But in a bubble economy model, how is this going to be appreciably different from leveraged purchases of second homes etc? Is our problem really a lack of capital spending? I'd love to see the federal government help localities pay off the debt associated with past transit improvement projects, and finance new ones (by transit I mean things other than more tollways and toll bridges, and other than freeways).<BR/><BR/>If we are really going to be making capital investments that are going to help drive private and therefore public revenues in the future, then shouldn't we be investing in more efficient capital resources? Subways, intercity rail, rail/sea links for shipping, federal takeover of rail maintenance and extension (CRX & Co. have failed miserably), internet, efficient power generation. Just building more highways is like building more coal fired power plants, we're adding inefficient capacity where none is really needed on a national level (you've got traffic issues in certain places, but they're better alleviated by moving away from individual transportation than by facilitating it).<BR/><BR/>That looks a little more rail obsessed than I intended it to, but at this point, highways are pretty much all the fed seems to think of when it comes to capital spending. They aren't going to invest in a TVA any time soon, everything's been privatized.<BR/><BR/>Maybe the highest return on our public investment is actually paying off our national credit cards to reduce future interest payments, and letting the private sector handle the things that it has seized from the commonwealth. Unless of course we intend to seize it back. Which I'm assuming isn't going to happen.J.Goodwinhttps://www.blogger.com/profile/03498614081570554833noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-72670338991424835402008-03-06T12:20:00.000-05:002008-03-06T12:20:00.000-05:00Kevin,I wonder how you inferred from the Challenge...Kevin,<BR/><BR/>I wonder how you inferred from the Challenge article that I might see the accounting identity as an equilibrium condition. The biggest point I was trying to make is that it is a mistake to conflate the two. Yes, if it's an equilibrium condition we are back in the world you describe. But I was saying two things against this: that the identity is always true, which distinguishes it from an equilibrium condition (which may not hold and has dynamics that restore/establish the equilibrium), and that, in the absence of a theoretical reason for supposing causation goes primarily in one direction or another, the empirical evidence points to the centrality of trade.<BR/><BR/>Your comment leads me to think I wasn't clear enough. Where did I get fuzzy?Peter Dormanhttps://www.blogger.com/profile/00093399591393648071noreply@blogger.comtag:blogger.com,1999:blog-4900303239154048192.post-82259494848926696882008-03-06T10:15:00.000-05:002008-03-06T10:15:00.000-05:00Peter, I guess I'm not convinced on your claim tha...Peter, <BR/><BR/>I guess I'm not convinced on your claim that the trade deficit drives the savings shortfall, rather than vice-versa, though of course I agree that this is a terrible time to push savings incentives. I agree that in the short run, with output determined by demand a la Keynes, you do get this reverse causation. But in a model with Y at its potential level, the conventional story seems plausible to me, where trade deficits are driven by either low US saving or high saving elsewhere. I can't put my finger on why I think you're wrong, but let me pull on one thread that may bring out the issue. In your Challenge piece I think you equivocate between taking: Capital outflow = Net Exports as an identity on the one hand, and taking it as an equilibrium condition in the foreign exchange market, on the other. The conventional results follow it seems to me form taking it in the latter sense, where Net exports are a decreasing function of the real exchange rate, and the *level* of capital outflow emerges from the loanable funds market equilibrium condition that Saving less investment (an increasing function of the real interest rate for given Y) must equal Capital outflow (a decreasing function of the real interest rate.) Then the amount of capital outflow (and thus the trade surplus) won't change unless either <BR/>the savings schedule, the investment schedule or the capital outflow schedule shifts. Am I hopelessly benighted?kevin quinnhttps://www.blogger.com/profile/04880872194080353414noreply@blogger.com