Did Delong/Summers riff off Fullwiler 2006?

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.




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38 Comments on "Did Delong/Summers riff off Fullwiler 2006?"

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5 years 1 month ago

Oops the comment removed something. I meant this in line 2:

The conditions r (less than) g (or r (greater than) g for saying for the opposite) are useful but by no means the only condition.

5 years 1 month ago

I have issues with such papers.

The conditions rr saying for the opposite) are useful but by no means the only condition.

For example, in a closed economy I can have r>g and still have the public debt/gdp ratio stabilizing in projections.

I can have r<g and public debt/gdp rising forever. For example take a case where the current account deficit keeps rising forever. Since by sectoral balances the fiscal deficit is related to this, and fiscal deficit also keeps rising and as a result, the public debt/gdp also keeps rising.

5 years 1 month ago

I mean, Fullwiler even wrote that this is “well known.” It’d be pretty terrible if they read it and decided not to cite it. I wonder if they read this, http://www.levyinstitute.org/publications/?docid=1379, in which Galbraith cites Fullwiler 2006.

5 years 1 month ago

following the theory that the economy needs new money when g>r , and it is gov’t monetary role to facilitate the economy & growth; there is justification for making the monetary tool (money) a national public asset by issuing debt-free money. Get rid of the US Treasury bond market, let private sector savors find alternative investments (stocks, CDs, corp bonds, muni bonds, etc). This would also eliminate the front running and backdoor banking subsidies due to the tremendous amount of money sloshing around the UStrsy “market”.

5 years 1 month ago

I agree that the Tsy market doesn’t provide all that much value added. But then even if we go to “debt-free money”, the Fed will still have to pay interest on bank reserves (the cost of which is passed through to Tsy) to peg short term interest rates. The IOR cost will come in about the same as what we’d otherwise spend on net interest.

It’d be better to cap interest rates (say at CPI so real 0% is the max rate for T-bonds). And of course if we issue perpetual T-bonds, what the Brits call consols, they wouldn’t fall under the debt ceiling (no principal is guaranteed to ever be repaid, and that happens to be how the public debt is calculated).