Wednesday, November 28, 2012

How Can We Tell if Fiscal Policy is Sustainable? Three Views

As negotiations over fiscal policy heat up, one thing nearly everyone agrees on is that U.S. fiscal policy should be sustainable. The trouble is, there are sharp disagreements about just what sustainability means. This post explores three different meanings of fiscal policy sustainability and explores their significance for current budget debates.

Sustainability as solvency

 The first, and simplest, meaning of sustainability makes it a synonym for solvency. The proposition that we do not have to worry about debts and deficits because the government can never “run out of money” has become a mantra among followers of Modern Monetary Theory (MMT). >>>Read more

Follow this link to view or download a classroom-ready slideshow with simulations of debt dynamics under various fiscal policy assumptions

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