Young Research & Publishing Inc.

Investment Research Since 1978

Disclosure

  • About Us
    • Contributors
    • Archives
    • Dick Young’s Safe America
    • The Final Richard C. Young’s Intelligence Report
    • You’ve Read The Last Issue of Intelligence Report, Now What?
    • Dick Young’s Research Key: Anecdotal Evidence Gathering
    • Crisis at Vanguard
  • Investment Analysis
    • Bonds
    • Currencies and Gold
    • Dividend Investing
    • ETFs & Funds
    • Investment Strategy
    • Retirement Investing
    • Stocks
    • The Efficient Frontier
  • Investment Counsel
  • Dynamic Maximizers®
  • Retirement Compounders®
  • Free Email Signup

Fed Economist Smacks Down Keynesian Blinder on Deficit

October 25, 2017 By Young Research

After Alan Blinder recently wrote a spectacularly Keynesian piece in the Wall Street Journal op-ed section arguing for more deficit spending, VP and Economic Advisor of the St. Louis Fed, Daniel Thornton eviscerated Blinder’s claims in a short report. Below are some quotes from Thornton in response to Blinder’s claims that short term deficit spending increases will increase output without affecting long term growth.

  1. Additional deficit spending need not increase output for two reasons. First, increased deficit spending increases the supply of bonds, which reduces bond prices and increases real bond yields. Higher real bond yields reduce consumption and investment spending.
  2. Second, deficit spending may not affect private spending because of Ricardian equivalence, named after the classical economist, David Ricardo. The basic premise is that current tax cuts must be paid for with future tax increases in order to repay the additional debt incurred today.
  3. Increased deficit spending can have no permanent effect on output. In short, government debt cannot be considered net wealth by all U.S. households. If it could be, then we could all become infinitely wealthy simply by incurring an infinite amount of debt. Just as with fiat money, you cannot simply print your way to long-run prosperity.
  4. Additional deficit spending reduces economic growth by crowding out capital investment. A smaller stock of capital means less future output. This is an intergenerational transfer: People today get more output, while those in the future get less. It seems likely that such a loss of future output could easily swamp any (temporary) increase in current output.
  5. The positive effect on output is problematic and temporary, while the negative effect on economic growth is long-lived.
  6. The idea that more will be produced if more is demanded is easy to understand. The belief that additional deficit spending will somehow cure the current problems—an unusually slow rate of output growth and an unusually high rate of unemployment—by stimulating innovation and capital spending is not.

Share this:

  • Email
  • Twitter
  • Facebook

You Might Also Like:

  • This is What Terrorizes the Fed
  • A Failed Fed Tightening
  • Surging Exports Drive Down Trade Deficit
  • Author
  • Recent Posts
Young Research
Latest posts by Young Research (see all)
  • Federal Reserve Governor Signals MORE Big Rate Hikes - August 8, 2022
  • BIDEN UNCONVINCING: Saudis Holding Fire on Spare Capacity - August 5, 2022
  • Just 21 Countries Account for 80% of World Energy Consumption - August 3, 2022

Search Young Research

Most Popular

  • The Key Ingredient to an $8 Million Estate Is This
  • SCHUMER-MANCHIN: An "Inflation" Bill that Doesn't Fight Inflation
  • The Power of a Compound Interest Table
  • NO GO ZONES: The Wealthy Protected, the Rest Left to Rot
  • Vanguard Wellesley (VWINX) vs. Wellington (VWELX): Which Fund is Best?
  • Do Governments Cause Recessions On Purpose?
  • Do You Have $500,000 in Savings? Avoid This Nightmare
  • American Manufacturers ALARMED by Schumer-Manchin Tax Hike Plan
  • Corporate Bond Yields: What You Can Earn Today
  • Field of Dreams: You Too Can Live Like a Billionaire

Don’t Miss

Default Risk Among the Many Concerns with Annuities

Risk and Reward: An Efficient Frontier

How to be a Billionaire: Proven Strategies from the Titans of Wealth

Could this Be the Vanguard GNMA Winning Edge?

Cryptocosm and Life After Google

Warning: Avoid Mutual Fund Year End Distributions

Is Gold a Good Long-term Investment?

How to Invest in Gold

Vanguard Wellington (VWELX): The Original Balanced Fund

What is the Best Gold ETF for Investing and Trading?

Procter & Gamble (PG) Stock: The Only True Dividend King

The Dividend King of the North

You’ll Love This if You’re Dreaming of an Active Retirement Life

RSS The Latest at Richardcyoung.com

  • Pelosi’s Trip a “Pointless Gesture That Brought Us Closer to Military Conflict”
  • RIP David McCullough
  • Your Retirement Life: Let the Slow and Steady Be Your Way of LIFE
  • Who Benefits from and Orchestrated the Trump Raid?
  • California’s Progressive Liberals Have Created a Monster
  • DeSantis Leadership: Good Government and Smart Politics
  • The Most Vulnerable Will Suffer at the Hands of Anthony Fauci
  • If the Phone Doesn’t Ring…It’s Me
  • REGION AT RISK? Chaos of War Surrounds Ukrainian Nuclear Plant
  • Did China Buy Land in North Dakota to Spy on Air Force Base?

About Us

  • About Young Research
  • Archives
  • Contributors

Our Partners

  • Richard C. Young & Co.
  • Richardcyoung.com

Copyright © 2022 | Terms & Conditions

loading Cancel
Post was not sent - check your email addresses!
Email check failed, please try again
Sorry, your blog cannot share posts by email.