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The conservative reconstruction of history

I am increasingly reading analysis from the mainstream economists that attempts to reconstruct the current crisis as a fiscal crisis. The claim is that the crisis is about lax fiscal policy and that the solution to the on-going sluggish (if not continued negative) growth is to quickly withdraw all fiscal stimulus. The conservatives are thus in total denial as to the real causes of the crisis and the role that fiscal policy interventions have played in attenuating the damage invoked by the crisis. For a time they were silent because it was clear that the neo-liberal macroeconomics paradigm that is forced down the throats of students around the world was incapable of providing any coherent explanation for the crisis. But they are now re-appearing, larger than life itself, and have resumed their arrogant hectoring of the policy makers and the electorate. They are once again trying to impose the same policies on governments that led to the crisis in the first place. They are doing this by reconstructing history and relying on our lack of memory recall and incomplete comprehension of things economic.

This is one the worst articles I have read so far in 2010 – G20’S Keynesian group think bungled GFC. It was published today (June 24, 2010) in the News Limited daily (our only national newspaper) The Australian by one Tony Makin, who is a professor of economics at an Australian university. He is an ex-Treasury official and aligned with the right-wing think tank, the Institute of Public Affairs. The fact that he has been able to get a professorial appointment is one of those anomalies in our educational system. These anomalies are common in economics though given the dominance of the mainstream paradigm.

Makin claims that in the early days of the gloabl financial crisis the world leaders (G-20), influenced by the IMF, reverted back to “Keynesian group think on a grand scale” which has worsened the problem.

However, in fighting the GFC, the fiscal element of the response promoted by the IMF and endorsed by the G20 contributed to the second, European-centred, crisis. Europe’s economic problems are nothing more than the culmination of past fiscal folly, including budget laxity in the wake of the GFC.

So this article in among the growing number that are attempting to reconstruct the crisis and the fact that it is dragging on and threatening to double-dip as a fiscal crisis of the state. This strategy is an essential plank of the conservative attempt to regain the dominant intellectual position which it had lost as the full implications of the crisis and its causes came to attention in late 2007.

It is clear that the crisis was caused by a complex interplay of factors which were all manifestations of the two or more decades of financial and labour market deregulation, privatisations and outsourcing, attacks on welfare systems, and the erroneous belief that the private markets could effectively self-regulate. Please read my blog – The origins of the economic crisis – for more discussion on how this crisis emerged.

If you studied macroeconomics at a university over the last 20 years or more and used the standard mainstream textbooks you would be unable to understand anything about the reasons the crisis emerged. The mainstream profession, of which Makin is part of, does not have the analytical capacity which would have enabled them to see the crisis coming or provide an effective solution.

For them the increased financialisation of the economy was fine because they extolled the alleged virtues of self-regulated markets operating under their defunct efficient markets theorems and blind faith in free markets.

They also believed that allowing a huge gap to emerge between real wages growth and productivity growth was desirable because it transferred more real income to the profit sector and they believed that would be invested. It was “invested” but not in real productive capacity. Instead, it provided the largesse for the unproductive financial markets to develop unfathomable products (in terms of risk) in pursuit of even more profit.

All of this resulted in the collapse of the banking sector and the subsequent withdrawal of private spending which ensured that the financial crisis became a crisis that has beleagured the real economy.

So if you understand the true nature of the crisis and the fact that it was the culmination of a few decades of neo-liberal policy changes then you will realise that trying to reconstruct it as a fiscal crisis of the state is ludicrous.

Further, the current crisis in Europe is not a fiscal crisis. I have written extensively about the problems that confound Europe at present. Please read these blogs – Euro zone’s self-imposed meltdownA Greek tragedy …Exiting the Euro? – as representative of the analysis.

The focus on the fiscal state of several EMU nations is a typical smokescreen that the conservatives use to avoid confronting the real problem which is the structural design of the Eurozone monetary system and the rules that were imposed on the member states by the Stability and Growth Pact.

The design of the EMU system meant that the member states could never adequately respond to an aggregate demand failure of the magnitude that the world economy has had to absorb in the last three years. The automatic stabilisers were always going to drive the budget outcomes beyond the SGP thresholds.

That only tells you that those thresholds were not meaningful in any real sense. Further, it was to be expected that the member states would also expand their discretionary fiscal components to try to minimise the real damage that the demand failure was inflicting on their economies, particularly the rise in unemployment.

The long-term costs of not acting would have been huge. Now those costs are likely to be significant because the Euro bureaucrats have forced nations to introduce pro-cyclical fiscal policy as a re-assertion of the mindless SGP rules.

So the real problem of Europe is nothing to do with the capacity of fiscal policy to improve real outcomes in an economy. It has all to do with the lack of vision among Euro planners and their penchant for imposing mindless neo-liberal constraints on their economies.

Further, the fact that a banking crisis in Europe is still likely to emerge is indicative of the poor design of the monetary system. The member states have largely guaranteed their banks but do not have the monetary capacity to follow up on those undertakings should a bank run begin. Ultimately, the ECB will have to intervene and violate all the Lisbon rules. In other words, the ECB intervention already and that which will come later has already shown the design of the overall monetary system to be unworkable.

But for the conservatives it is very convenient to re-cosntruct the crisis as a fiscal crisis given their hatred for government fiscal interventions.

Makin argues that:

Applying fiscal stimulus in southern European economies became untenable when international lenders refused to finance ever larger budget deficits without exacting a much higher interest risk premium.

This is factually correct but misses the point. Makin is trying to argue that it is the fiscal stimulus that is the problem. But the responsible and correct thing for any government that was facing rising unemployment and stagnant (if not falling) private spending was to further expand fiscal policy. The design of that fiscal injection is open to debate but from my perspective should be employment-rich and ensure that the most disadvantaged citizens are saved from the ravages of recession.

So the real problem relates to the restrictions that bond markets place on governments pursuing their legitimate responsibilities. The power of the bond markets is only realisable because of the voluntary arrangements that governments have imposed on themselves. These voluntary constraints are more binding in the EMU because of the member states gave up their currency sovereignty.

The way forward is to redesign the operations associated with fiscal policy so that governments can pursue responsible policy choices and be judged on their performances at the appropriate democratic forum – the national election.

Allowing the amorphous bond markets to be the judge and jury is a gross violation of the democratic rights of all citizens.

Makin then argues that:

Faced with a fiscally generated crisis similar to crises experienced in numerous countries over recent decades, the IMF has reverted to norm and is once again prescribing fiscal austerity for the ailing southern European economies.

It has been little noticed that this position is a reversal of the rationale underpinning the G20 response to the GFC from late 2008 onwards, heavily influenced as it was by Keynesian-oriented economists in the IMF and the US administration.

Yes, the IMF doesn’t know where it is on policy. Its blind adherence to its neo-liberal ideology promoted policies that created the crisis in the first place. Once the crisis hit it was obvious the IMF had no clues at all. They even starting hedging their bets and issuing quallified apologies. Please read my blog – We are sorry – for more discussion on this point.

Now the dust is settling, the IMF are just like all the other conservatives, trying to reassert their neo-liberal ideology. They are coming in from behind a media and think-tank vanguard that has spread lies and misinformation with the aim of obscuring the neo-liberal role in undermining income and wealth generation around the world.

They assume that memories are short and comprehension limited. Accordingly, they are unashamedly imposing the types of policies that caused the crisis. It is an absurd scenario when you think about.

Makin then tries to run his favourite argument – the crowding out attack on fiscal policy:

… fiscal stimulus in the form of extra government spending has used up funds at the expense of the private sector.

The availability of funds is central to sustaining economic activity. Yet, it is remarkable how its importance has been neglected in interpretations of the worldwide fiscal response that followed the GFC.

Given the unprecedented global fiscal stimulus of recent years, it is therefore no surprise that funds for business ventures are in shorter supply than previously, globally and domestically.

Much blame is directed at banks in Australia for the unavailability of funds for financing investment, especially for small business, but fiscal largesse both at home and abroad must ultimately bear some responsibility.

First, you will note he just asserts that fiscal policy “must ultimately bear some responsibility”. Why should it? How does the fiscal interventions undermine the private capacity to access credit. It is a nonsensical claim reflecting blind ideology.

Second, the available of credit to fund working capital is an important part of expanding a business. Banks are not reserve constrained so can extend loans to any credit worthy customer. The fact is that apart from a few weeks early in the crisis, there has not been a shortage of liquidity in the banking system.

The banks can always lend. The problem is that they have reacted to the grave prospects of economic collapse and have increased the requirements they impose on borrowers seeking to establish their credit worthiness. Minsky covered these changes in banking standards across the stages of the financial cycle in great detail.

Please read the following blogs – Building bank reserves will not expand credit and Building bank reserves is not inflationary – for further discussion.

The reality is that a fiscal deficit adds exactly the same volume of bank reserves ($-for-$) that are subsequently drained by public bond issues. This is what I have called a “wash”. And as I demonstrated yesterday in this blog – Market participants need public debt – the debt issuance provides profit-making opportunities for the private buyers as well as a storage of saving for millions of workers (via pension funds).

If you put those two facts together – banks can always lend if there are creditworthy borrowers and fiscal deficits add the same volume of reserves that the bond issues drain – then the crowding out hypothesis that Makin is advancing is nonsensical.

Makin’s preferred policy strategy to the crisis was to rely on monetary policy:

The Asian financial crisis of 1997-98 was in retrospect the first major regional financial crisis of the modern globalised era and comparable to the GFC, surely now more aptly named the North Atlantic financial crisis. However, pre-G20, the international macroeconomic policy response was very different. There were no calls for an internationally co-ordinated fiscal action, yet we managed to survive it quite well. Instead, the international response relied on monetary easing by independent central banks in economies distanced from the epicentre of the crisis.

The Asian financial crisis was an exchange rate crisis driven by excessive holdings of foreign currency-denominated debt in some of the Asian nations. The developing nations had up until the mid-1990s soaked in huge volumes of financial flows in search of profit, much of it uncommitted to actually expanding the productive capacity of the host nations.

Interest rate rises under Greenspan in the US in the mid-1990s (under a misguided (informal) inflation targetting strategy) attracted a significant amount of the financial flows away from the developing nations.

This impacted severely on SE Asian nations which the IMF had bullied into pegging their currencies to the US dollar. The rising value of the latter reduced US export competitiveness and the other IMF strategy imposed on the developing nations – export-led growth – faltered badly.

So this crisis was the result of unregulated financial markets combined with the lack of exchange rate flexibility that the nations imposed on themselves via the dollar pegs. Further, the reliance on export-led growth strategies, which was the centrepiece of the misguided IMF development strategies proved to be the undoing of the Asian nations.

Fiscal policy should have been used to attenuate the domestic damage that the crisis caused. But the IMF had such a dominant position in the policy sphere and had the developing nations subjugated to their free market ideology that it was impossible for individual governments (other than the defiant Malaysia) to buck the IMFs iron grip.

The current crisis bears very little similarity with the Asian crisis. The current crisis was sourced in the banking system and spread to the real economy as private spending collapsed. It was not originated as an exchange rate crisis.

Further, the current crisis has been a truly international crisis affecting the banking systems and the production systems in all the advanced nations.

And, we should not underestimate the massive fiscal intervention of the Chinese government which has protected a number of economies, including Australia, from the worst of the recession. Makin completely overlooks the role of the Chinese fiscal intervention. It has had a very significant effect in the region.

Warren Mosler on Fox News

I don’t recommend anyone watches Fox Channels anywhere but overnight my good friend Warren Mosler appeared. Here is the link.

I just love the way the interviewers are so impartial and are such reflective listeners.


That is enough for today!

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    This Post Has 22 Comments
    1. Perfectly seemless.

      Many share your concerns. If I can engage in pop-psychology, I think the link is as follows:

      * Households engaged in excess borrowing — that is the only way median incomes can fall and yet have output continue to rise.
      * The excess borrowing was due to dreams of asset appreciation. Those dreams are shattered.
      * Therefore excess borrowing is blamed for the crisis — true, but excess household borrowing. And I blame Taylor rule policies as well.
      * Now apply the oikonomos mental model of the government as a household
      * Therefore the government should also not engage in excess borrowing. All borrowing must stop.

      It is very difficult to torpedo these instinctual arguments by analogy.

    2. IMX, I have had some success in getting a major point across by making use of the analogy between the government and a household, by using a series of toy economic examples. The toy economy has two households, those of Alice and Betty, and the government. It is closed, with no exports or imports.

      Scenario 1. During the year Alice saves $10,000 and the government runs a balanced budget. What do we know about Betty? (Pause to let them figure it out.) Betty goes into debt or reduces her savings by $10,000.

      Scenario 2. Next year Alice saver $10,000 and Betty saves $5,000. What do we know about the government? (Pause.) The government runs a deficit of $15,000.

      People get the point that if we want people as a whole to save, the government must run a deficit. Note that the government is treated just like a household in these scenarios. :)

      OC, you also make the differences clear and talk about imports and exports. But you don’t have to engender resistance by confronting the analogy head-on.

    3. Bill says, “If you put those two facts together – banks can always lend if there are creditworthy borrowers and fiscal deficits add the same volume of reserves that the bond issues drain – then the crowding out hypothesis that Makin is advancing is nonsensical.”

      I suggest bonds are a side issue. To illustrate, Milton Freidman and Warren Mosler have advocated MMT compliant monetary systems where there are no bonds.

      The more fundamental point is that were government supplies the private sector with adequate net financial assets (monetary base or bonds – it doesn’t matter too much) then crowding out is impossible or becomes meaningless.

    4. It is now clear what the calls for austerity really aim to achieve. The Eurozone has become a cancer on the global economy due to its flawed policy structure. Either the ECB undergo a trans-formative shift expanding its mandate to include full employment or the Euro experiment comes to an end and allows member countries to return to being monopoly issuers of sovereign currency. Once austerity “fails” to bring growth –or rather, once austerity brings depression type effects– either the former or latter is sure to result.

    5. We as a global unit, will not move forward until the zone makes its choice. The ECB has made the first step by agreeing to purchase member nation’s debt through emergency operations. It will need to add these operations to its permanent policy or preferably, issue debt on behalf of member nations and fund its member nations on the basis of clearly defined productivity and per capita criteria.

    6. Typical RSJ,

      Thank you for telling us that you agree! As about the Taylor rules YOU blame, in addition, where is your reasoning? Or maybe you forgot to mention RBC or CES functions or unlimited arbitrage. Very profound! Billyblog is a community not a private playground! Someone is “naked” to quote from another comment!

    7. Dear Bill,

      Here are some points for your feedback.

      1. There is a way to understand the reversal impact of the SGP thresholds and the claim by Makin that higher debt burdens “..exacting a higher interest risk premium…”. Recently I am working on a new relativity hypothesis (RH) with a bifurcation effect and I have presented a summary of it with comments in this blog addressed to Tom Hickey. Notice that these thresholds can be viewed as bifurcation points that reverse behavior of markets. For eaxample, economic units and markets begin to expect that austerity measures will be imposed and stabilizers and discretionary stimulus will be restrained and they reduce their spending and investment. Furthermore, bond markets realize that the forthcoming austerity will reduce growth and raise the probability of default of EMU debt and they react ex ante by demanding higher risk premia! So existing debt that previously was assessed manageable now is viewed as more risky corresponding to a risk preference switch!

      2. There is definetely a conflict of behavior if we realize that bond trades form a market that respond to different incentives of interest than citizens sharing a common purpose and form a community that respond to incentives of public duty. This conflict is currently resolved in favor of bond markets.

      3. One point of clarification. In my opinion the Minsky position of shifting borrower/lender requirements is a form of credit rationing because of the higher uncertainty, during a crisis, and a gap of assessment regarding the actual credit conditions and economic prospects of potential borrowers.

    8. P,

      I blame monetary policy in general and specifically Taylor-rule policies because in choosing to lower interest rates in the face of a downturn rather than deficit spend, the government is abdicating its fiscal responsibility.

      Instead, it is enticing the private sector to self-stimulate by encouraging household borrowing. This “works” — for a time, but long term, it puts households into a worse fiscal position, and also has negative distributional effects.

      And it is also predicated on secularly falling rates, as well as the willingness of households to bid up real estate prices — to deficit spend on housing. Really the effectiveness of monetarist demand management policies was an aberration predicated on this unique set of circumstances. At some point, it hits the zero bound and stops working. Then, you need a far greater fiscal response and the economy is worse off.

      If you look at how borrowing has changed in response to a rate cut in the 1980-2007 period, you will see that real estate borrowing increases first, and business borrowing follows, primarily after the recession has already ended. Business investment did not lead us out of the recessions, but residential investment did. The phenomena of “jobless recoveries” tracks this — e.g. the jobs increase when business investment increases, which lags the increase in household deficit spending that restores demand. If you run a VAR tracking the rate shock, business investment, employment, output, and residential investment, you can see this pretty clearly.

      Monetary policy is asymmetric, and the brunt of it is borne by household debt growth, not an increase in capital investment. This is again because of the asymmetric channel by which banks can arbitrage rates. It is much more expensive for banks, in terms of capital adequacy requirements, to lend to a firm rather than to lend for mortgages. So firm funding costs fall much less than real estate funding costs, and the households end up bearing the brunt of the dissaving, rather than the government or industry.

      In any case, rather than trying to encourage more borrowing during the downturn, I think the government should have a fiscal, not a monetarist, response. When trying to cool down the private sector, it’s fine to hike rates and then lower them when household debt growth slows back to normal. But even there, you can accomplish the same effect in a more efficient and targeted way via tax policy or by, for example, tightening lending standards or increasing capital requirements. They are equivalent to hiking rates.

      Having said that, there is a lot of blame to go around.

    9. Bill et al.
      I’m not qualified to understand macro-economics – i’m just a ‘punter’ like most people. I have read your blogs about ‘Structural Deficits’ and the caution which should be attached to them. As I understand it, the debate (behind-the-scenes) in the UK is, what proportion of the budget deficit is ‘structural’.

      I have a question:
      Is it possible (and to what extent, is it possible) for a sovereign nation, with a fiat currency, to be running a goverment-sector deficit, whilst having a ‘structural’ surplus?

    10. Dear CharlesJ

      Is it possible (and to what extent, is it possible) for a sovereign nation, with a fiat currency, to be running a government-sector deficit, whilst having a ‘structural’ surplus?

      It is entirely possible if a contractionary discretionary fiscal stance (the structural surplus) is squeezing aggregate demand (total spending) so much that private sector economic activity starts to falter and the automatic stabilisers push down tax revenue. The fiscal austerity packages that are now being implemented will have this sort of effect.

      best wishes

    11. Sorry,
      To add to the above – a short answer is enough – I just need some feed-back to determine if I’m ‘getting it’, or if I’m on the wrong track.

      Kind regards

    12. RSJ,

      Now you have stated a hypothesis. However, utilizing fiscal policy has nothing to do with Taylor rules. Actually, your analysis about the effect of lower rates is the same argument that John Taylor (who actually argues that his Rule was not followed!), John Kochrane, Gary Becker and other monetarists and NeoKeynesians are using (although not Woodford and his coworkers) to explain the recent financial crisis. Are you then in their camp? You are arguing that you are against their views. I suggest you read what they say. as about asymmetry, I am glad you begin to realize the importance of imperfections. Maybe you will come around to see the impact of the other sources as well.

    13. RSJ,

      Wasn’t there a post by Bill relating “monetary policy” is not to blame by the Fed? Household debt may well have been encouraged through other channels, such as disinter mediation, deregulation, than low interest rates.

      Now, of course “mopo is not too blame” is misleading as much of these changes were under control of the Fed.

      As for interpreting the gov abdicating its fiscal responsibility for not letting debt grow more, that’s not going to foray much into mainstream soon…

    14. Hmm, I don’t know Bx12, Bill has a lot of posts.

      You are right in that you need the combination of giving banks attractive funding costs together with giving them the ability to lend those funds out.

      But that is part of the game. Witness the downpayment assistance programs, interest subsidies, and other incentives to entice households to stimulate the economy.

      If you believe that banks are in the business of making loans “that get paid back”, then all you need to do is lower their funding costs and possibly incentivize households. Then house prices will rise, and loans will get repaid while prices are rising.

      That is assuming that households have not yet reached the revulsion stage. I.e., just because this strategy stops working at the zero bound doesn’t mean it can’t work for a good 20 or 30 years.

      If you believe that banks are in the business of making loans that are no more than 3X the borrower’s income with 20% down and low back-end debt to income ratios — irrespective of whether the loan will get repaid if those requirements are lessened — then that would put somewhat of a breaker on things.

      But see the difference — all of a sudden we went from “prudent banking” to “public purpose” banking. If the public purpose part is a general agreement on arbitrary credit limits, then that is a different regulatory structure than one focusing on bank financial soundness. We should talk more about this shift.

      The details of that public purpose mandate are critical when assessing the proposed zero rate model.

      But still you would see incomes rise as borrowing increased, so this would not solve all of the problem.

      There is no easy solution other than constantly monitoring household credit growth, and being willing to clamp down on it even if loans are being repaid and profits are flowing to banks.

      The details of that decision tree should also be spelled out.

      All of that and more will make a difference in assessing the outcome of the zero rate model.

      As for interpreting the gov abdicating its fiscal responsibility for not letting debt grow more, that’s not going to foray much into mainstream soon…

      Heh, no. The mainstream view is that households should lever up on housing, and then when the crisis comes, the government can deficit spend all at once, with interest, or face deflation. That is supposedly a better model than deficit spending a little bit along the way.

      But you wouldn’t need to deficit spend a whole lot with high marginal rates, generous social safety nets, and pro-labor policies. In that case, you would probably be more concerned with slowing inflation than deficit spending. I would like to live in that world, even though asset holders generally might not.

    15. Dear Bill,

      I had a read through the Exec. Summary and Conclusion of your Treasury submission and their CGS Statement and also linked to Warren Mosler on Fox News and watched the interview. The communication woes of Kevin Rudd also spring to mind.

      The look on the Fox News interviewer’s face read: “Oh my God – this guy is both a fool and a lunatic!”. The look on Warren’s face read: “Oh my God – this guy thinks I am both a fool and a lunatic!”. Only in a circus act is there any point sticking your head in the lion’s (media) mouth – it’s dangerous entertainment and to what end? There are plenty of inquiring minds out there and do they watch Fox News? Or the MSM in general? Reaching the intelligentsia and reaching the masses are two entirely different tasks, agreed. But what criteria should one establish in selecting media? The Treasury response to your submission Bill, held no clue that they had actually read it? How are minds with such dissimilar colourings ever going to communicate – better to go back to basics!

      When I write I see myself reflected in what I write – but I know that if I am truly trying to communicate a message, it is most certainly not about jrbarch! (Many people strive to establish their own image, rather than communicate)! It’s communication of the message that actually matters.

      So, MMT is a relative truth that belongs to everyone (if they could only see it) and is much bigger than its proponents, as gifted and as likeable as they all are! It is like a lamp in a dark room illuminating what is there: it’s light is the simple realisation that in a sovereign fiat economy, revenue is unconstrained. Hold that light aloft and let it stream around the room of any economy for awhile, and things are illumined in light and shadow – as they are. It’s that simple. And of course, people have lived in their dark room with all of their theoretical imaginings for so long you just can’t wander in and flip a switch. They will immediately stick their books and papers over their heads and wail! It’s why they argue a lot; nobody can actually see beyond the pages covering their eyes let alone appreciate what is around! Obviously, in that room, you need to talk to the right people first, in the right way, and not scare the bejesus out of everybody! It’s a beautiful challenge!

      Similarly, the message can be expressed in any media as long as that media is supportive of the message (reflects the understanding faithfully). The murky waters of Fox News doesn’t really do it! I notice Michael Hudson for example, generally chooses a broad range of media that present his (radical) message undiluted. MMT needs to be targeted to both a mass and select audience which I notice is part of your amazing efforts Bill. But also one-on-one. People are always the hands and feet of any good message.

      So, I must accord to everybody in the MMT camp the wisdom to use their own energy as they see best, but cannot help wonder sometimes?

      Cheers ,


    16. Charles J: I suggest the whole concept “structural deficit” is nonsense. The SD is defined as the deficit that remains once the economy returns to normal (say two years time). But suppose that in 2012 households are still deleveraging and hoarding cash: in this instance the deficit, or much of it, needs to be left in place.

      Alternatively, if in 2012 the private sector is exhibiting irrational exuberance, the deficit needs to be cut drastically, or even turned into a surplus. So what’s the use of the SD concept? Not much!

      The above is simply another way of saying that the founding fathers of MMT were right: the deficit (surplus) in any year needs to be whatever looks like optimising the unemployment / inflation relationship. If that happens to be a whapping great deficit, so be it. And if it happens to be a surplus, so be it.

    17. Ralph,
      I agree that the term ‘Structural Deficit/Surplus’ seems misleading, as it implies that it is on a par with the other sectoral balances. As far as I can see, the sectoral balances are a matter of accounting certainty, whereas any ‘Structural Balance’ is purely theoretical estimation, and perhaps should not be expressed as a ‘balance’ for reasons of clarity. Bill’s description of ‘Discretionary Fiscal Stance’ seems to remove any chance of comparrison with the sectoral balances which are ‘known’. Again I hope I’m not talkng rubbish here!

      I do use the term ‘Structural’ however simply because the public are increasingly aware of the term, and as an ordinary punter (talking to other ordinary punters) we have to use a shared lexicon. So by suggesting to others that many macro-economists believe that the ‘Structural Deficit’ is not a deficit at all, but a surplus, I think that helps them to understand.

      Kind Regards,

    18. Ralph,
      Looking again at what you said, yes it seems ‘Structural’ anything seems nonsense, and to even talk in those terms is pandering to the neo-liberal view. I’ll figure it out eventually.

      Kind Regards

    19. «‘Structural’ anything seems nonsense,»

      It is not quite nonsense, it is just an estimate of the seasonally (cyclically) adjusted difference between revenue and spending. What is neo-liberal nonsense is to fetishize it.

      A better concept may be the Non-Accelerating Inflation Unfunded Gap, that is the percentage of GDP spent that is not covered by taxes that maintains inflation stable. It can be positive if there is a decelerating inflation (recession) and negative if there is accelerating inflation (bubbles).

      Anyhow all these discussions seem to me very neo-liberal in nature, because the distributional impacts (between workers and stakeholders, between small and large property owners, between young and old) are almost always left unsaid.

      Neoliberals as a rule talk their bulls*t not because they really think it is right or wrong in itself, but because they reckon those talking points help achieving what they think is the right distributional impact (less resources to undeserving exploiters on low incomes who don’t own property and businesses, more resources to hero producers who create vast wealth out of their massive property and business interests).

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