Tuesday, 6 December 2011

Willem Buiter is not 100% clued up.

Builter has written an article claiming the prospects for growth worldwide are near non-existant. (h/t to Credit Writedowns.)

Buiter says amongst many other things that “The US also may be technically able to use fiscal expansion to stimulate demand, but even if markets continue to be tolerant, political gridlock makes it impossible.”

That implies that there is a problem if “markets” become intolerant, which is certainly a popular view. But Buiter fails to tell us what the problem is (probably because he can’t).

If “markets” won’t to lend to a monetarily sovereign country, like the US, other than at high rates of interest, what of it? If such a country wants to implement some stimulus, it can fund the stimulus by printing money rather than by borrowing it, as Keynes and Milton Friedman pointed out.

In contrast to stimulus deficits or debts, there are structural deficits, and debts. If structural debt needs to be rolled over, no problem: structural deficits, by definition, do not impart stimulus. Ergo abolishing a structural deficit, or paying off a structural debt involves no “anti-stimulus” or any of that dreaded “austerity”. At least that’s the case if one goes by the Reuter’s and Wiki definition of “structural”. And the Financial Times Lexicon definition isn’t all that different.

For more on this, see: http://mpra.ub.uni-muenchen.de/34295/1/MPRA_paper_34295.pdf


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