Posts

Showing posts from July, 2011

What bothers me about Keynesians

I keep reading these blogs talking about Keynesian economics and NGDP, etc...What bothers me most is that it seems like Keynesian solutions can be be applied regardless of the underlying reality. That is, the solution is always more spending and more inflation, without regard to what is actually going on.
For instance Matt Yglesias talks about Italy's debt issue: Since your debt is denominated in nominal terms in your own currency, all you need is for your nominal GDP to grow fast enough to ensure that your debt:GDP ratio shrinks. And since shrinking debt:GDP ratio reduces the interest burden on your budget, if you can hold that primary surplus flat soon enough you’ll be making enormous progress. Alternatively, your central bank might be so stingy as to insist on NGDP growing so slowly that your debt:GDP ratio rises despite the primary surplus. That means your interest burden rises and your situation spirals into disaster. Except no country’s central bank would be that insane. If…