While we tend to look at these issues as the consequence of micro-level decision-making, it is important to understand the macro constraints that drive the process. If Covid-19 has caused businesses to cut back on investment, and it seems it has, there...
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...are only three ways, or some combination, that the US economy can accommodate this: with an increase in government investment, with a reduction in US savings, and with a reduction in the current account deficit. Given that the US cannot control the last of these three, and...
...is in fact likely to see an increase in its current account deficit as other countries stimulate exports relative to imports, the US can only respond with some combination of the first two.
This means that if government investment in infrastructure doesn’t rise, US savings...
This means that if government investment in infrastructure doesn’t rise, US savings...
...will decline, and there are basically two ways this can happen quickly. One way is with a rise in debt – whether household, business or government – and the other way is with a rise in unemployment. There is another way, and that is if income is redistributed downward to...
...boost consumption, and so reduce savings that way, but I think it will be impossible to do this quickly.
Given the panic about the pandemic, American households seem to be reducing their debt, so that absent some form of government spending, the only alternative to rising...
Given the panic about the pandemic, American households seem to be reducing their debt, so that absent some form of government spending, the only alternative to rising...
...business debt is rising unemployment. Needless to say we are seeing both.
The point I would make is that if we don’t want to see unemployment rise, and if we don’t want business debt to rise, and if we cannot reduce the current account deficit, then by default the only...
The point I would make is that if we don’t want to see unemployment rise, and if we don’t want business debt to rise, and if we cannot reduce the current account deficit, then by default the only...
...alternative is to increase government spending, preferably on productive infrastructure. Those who oppose an increase in government spending will have to argue that the long term costs of a rise in government spending – even productive spending on needed...
...infrastructure – are worse than the long-term costs of higher unemployment today or higher business debt. This may indeed be the case, as hard-core market fundamentalists will undoubtedly argue, but it needs to be explicit.
