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Politics : President Barack Obama -- Ignore unavailable to you. Want to Upgrade?

To: Road Walker who wrote (81206)	8/18/2010 4:24:47 PM
From: TimF	Respond to of 149317

Short term it certainly isn't silly, as virtually every economist would confirm. Even short term you get crowding out. But I agree, short term it would just be something that clearly doesn't always apply, and whether it normally applies in a significant way, or applies now would be disputed. Disputed is far short of being silly. The later implies no reasonable dispute, which isn't the case here. So if your only considering the short term, it isn't silly. The two situations where it might not apply to a very large degree are both recent occurrences. First when your being showered with easy money from the rest of the world, that would allow you to have high deficits without crowding out private investment (but then when the money stops being so easy you have problems, a lot of the investments that looked like good ideas, turn out not to be so good, and both the public and the private sector have large debts to deal with, but short term it works before the bubbles pop). Secondly (and not as clearly) when times are really bad, the borrowing may not crowd out private investment and consumption, since there may be very low demand for the private investment and consumption. That's clearly something of a factor in bad times, but how big of one and how long it lasts isn't so clear. I'm not a believe in any strong form of Ricardian equivalence, with all or even most people treating 100% of extra government debt as it is just money they will have to pay out in taxes later, causing them to want to save more now, and to save it in fairly liquid and safe ways, rather than making new business investments. OTOH I don't think the extra debt is totally ignored either. The deficits have gone beyond large, in a declared war (really to record amounts outside of WWII). If we get an unexpectedly severe "double dip" we might even pass WWII.