> The explanation may involve at least as much psychology as politcal
> economy: there's some compelling fantasy lust for paying down the
> debt. The private sector can be as profligate as it likes (it's
> productive, after all), but that parasitical government sector has to
> keep its books in order. In the words of some damn hardcore song I
> heard once 10 years ago, "Pull your weight/stay straight/don't
> masturbate."
>
> But maybe the PE explanation is using the public sector to boost
> national savings rates, which is something that central bankers seem
> to worry about.
>
So far, the strategy of increasing public sector savings to boost national savings has not worked very well. Every reduction in the government deficit is matched by a bigger increase in the private sector deficit. I think the central bankers realize this, if not the politicians.
But what choice do they have? Jack up interest rates and kill the boom? Institute forced savings? Much easier just to glide down the path of least resistance: the conventional wisdom of debt paydown.
Seth