A fairly common misonception involves thinking that the constraints on government spending are like that of a business or household.
But there's another less discussed misconception, which that the objectives for government spending are similar to a private enterprise.
But there's another less discussed misconception, which that the objectives for government spending are similar to a private enterprise.
Earlier I tweeted that the Fed should give Treasury overdraft protection, and I got several responses that the Treasury would just spend even more. But that's nonsense. There's no evidence that Congress would suddenly desire to spend more, and Congress is the limiting factor.
If a business were given an infinite overdraft, then you would expect the business to spend more on investment, stock buybacks and so on
But the motivations for politicians -- even in a country like the UK where the government is less divided -- isn't to spend to full potential.
But the motivations for politicians -- even in a country like the UK where the government is less divided -- isn't to spend to full potential.
And in a country like the US, where there's often divided government, and the motivations of the out-of-White House party may not be to juice the economy, it's virtually impossible to imagine a technical change at the Fed inducing more spending.
But because people think governments are like households or businesses, they think they must also be profit maximizers in some way, seeking to take advantage of any extra extension in credit.
This is a great example. Why hasn't the Federal government done a UBI? Why isn't there national high speed rail? Why isn't there free college? Because each of these things faces a political constraint
If, suddenly, the Fed were to tell the Treasury that they could overdraft their account their infinitely, do people really think that there would be a wellspring of support for these things in Congress?
