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Pragmatic Capitalism

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“Crowding Out” of the Private Sector

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Cullen, correct me if I’m wrong, but under MR there is no “crowding out of the private sector” when the Treasury borrows or is that merely only relative to when the Fed monetizes the debt issued by the Treasury? Under MMT we know its all a rigged game between the triumvirate and there will never be an auction failure, though my reading of history is that this is due to a major, embarassing failure in the early 70’s, not because of MMT.

Most, if not all, of the left-wing budget projection models I’ve seen ignore measuring supply side effects (i.e. dynamic scoring) and — incredibly — use the fiscally conservative “crowding out of the private sector” excuse for why revenues will decrease and the national debt will skyrocket. That all reeks very much of finding the ideologically-correct answer you want (i.e. anti-Trump or anti-Republican) by manipulating or omitting the data you don’t like.

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Posted by MachineGhost
Posted on 01/01/2017 4:47 PM
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P.S. The “crowding out of the private sector” excuse also includes “slowing the economy” and — again incredibly — that “budget deficits will cause higher interest rates”. Did I wake up on the other side of the looking glass???

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Posted by MachineGhost
Answered on 01/01/2017 4:52 PM
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    It depends on what you mean by “crowding out”. The mainstream econ view here is that the govt competes for a pool of money with the private sector and by competing for this pool they can drive up the cost of funding. This is obviously wrong to anyone who understands banking and knows that money is endogenously created.

    But that does not mean the govt doesn’t compete for a limited pool of resources. In this sense the govt could definitely crowd out the private sector. For instance, let’s say that I want to hire a coder to work for Orcam and the govt comes in and bids up his labor by $1 over what I was willing to pay. You could say that the govt “crowded” me out.

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    Cullen Roche Posted by Cullen Roche
    Answered on 01/02/2017 2:46 PM
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