To me, it sure looks like Summers/Delong just riffed off Scott Fullwiler‘s 2006 piece.
Here is a key paragraph from Scott F’s incredible piece “Interest Rates and Fiscal Sustainablility”:
It is entirely possible I may have read that paper by Scott more carefully and more times than anyone else in the world except for Scott. I dove into it with the work I did on the no-Ponzi assumption.
So when I read the Summers/Delong piece, well, it sure seemed like I’d seen much of the work before. It’s so close to what Scott did in his paper. I mean really close and they should have referenced his paper. They do make an assumption which Scott shreds, g < r (long run real growth is less then the long run real rate) when the empirics show the opposite is the quite frequently true and is true right now.
So a quick Summary:
1. Fullwiler 2006 shows as long as g >r, we can run deficits and we’re fine
2. Summers/Delong 2012 even when g <r we’re fine under many, many circumstances.
Then I should point out Godley’s Theorem: We need to run ever increasing deficits for our economy to grow. We need better exposition on how Godley’s theorem relates to Fullwiler 2006 and Summers/Delong 2012.
I suspect this Summers/Delong model will turn out to be useful. I think we’re going to be able to construct a model for government deficits as a percentage of GDP using their math.