Category Archives: deficits

Intermediate Macro Exercise: How to Construct a Maximally Contractionary Budget Deficit Reduction

Consider an economy called Käseland, with gross output equal to approximately $475 billion, and unemployment rate of 7.5%, so considerable underemployment of factors of production exists; consistent with this interpretation, the general nonfarm wage rate has been relatively constant, growing at only 1.2% on a 12 month basis through 2010, and the price level has risen by about 1.5% from the second half of 2009 to second half of 2010.

 

Suppose there is a budget deficit, that you wish to close. How do you maximize the negative impact on output?

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Chicken**** Passes House

(That’s not my phrase, it’s Rep. Boehner’s). Or, tax cut extension for income less than $250,000 passes. From The Hill:

House passes middle-class tax bill with three Republicans supporting

By Vicki Needham – 12/02/10 04:00 PM ET

The House passed by a vote of 234-188 a measure that permanently extends expiring middle-class tax cuts and provides a patch for the alternative minimum tax.

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BCA, UI and EGTRRA/JGTRRA

Four Acronyms in a Very Depressing Play

Truly we are in a strange world where legislative extension of unemployment insurance payments, which is highly effective at maintaining aggregate demand, is stalled, while giving tax cuts to households with income in excess of $250K (a.k.a. the Todd Henderson households) moves forward despite having very little impact on employment and aggregate demand. In other words, on benefit-cost grounds we would want to do exactly the reverse. Given the sheer incoherence of some of the arguments being propounded, it might be useful to recap some findings.

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New database on the maturity structure of publicly-held debt

I have been working on a project with UCSD graduate student Cynthia Wu to try to assess the potential for the Federal Reserve to continue to influence long-term interest rates even when the short-term interest rate is essentially at zero. I’ll be relating the conclusions from that research in a few days. But first I’d like to call attention to a new data set that we developed on the maturity structure of publicly-held debt which may be of interest to other researchers. As Paul Krugman likes to warn, this one is just for the wonks.

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Financing U.S. Debt

Is There Enough Money in the World — and At What Cost?

From the abstract of a paper coauthored with John Kitchen:

This paper examines the potential role for foreign official holdings of U.S. Treasury securities and the associated implications for Treasury security interest rates, international portfolio allocations, net international income flows, and the U.S. net international debt position, using a baseline outlook of current and projected U.S. budget deficits and growing debt. …

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