Tuesday, August 30, 2016

Deficit spending destroys capital


Deficit spending is tightening.  It is like monetary tightening where liquidity in the system is reduced.  But with deficit spending it is capital that is reduced.


The money going into bonds could be going into productive investment.  Instead, it is creating debt for consumption.  Yes, the government spends the money into the economy creating demand.  Aggregate demand - that false idol.  And the money gets recycled back to the ownership class but different owners.  It is a redistribution of wealth to different owners with interest expense in between.  And it is inefficient.  The inefficiency of government is way understated.

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