Nathan Newman wrote:
>Deficits only increase demand in the US economy if the
>money distributed - whether in spending or taxes - is spent on goods made
in
>the US. Given global imports, the impact of deficit spending is unlikely
to
>have the multiplier effects on growth promised by Keynes, at least in the
US
>context.
-U.S. imports are equal to about 15% of GDP, so about 85% of the -stimulus would stay within these glorious borders.
Fair enough, but it does depend on what the deficits are spent on - since consumer income transfers by the government might go disproportionately to such imports in consumer goods - excepting likely housing spending increases - while other government spending such as transportation spending might be more likely to stay domestic.
The key here is that while 85% of all spending may be domestic, that does not mean that 85% of all marginal increases in consumer income would follow the same proportion. It can be argued that since the basic necessities of life in the US are overwhelmingly domestic goods - food and housing - while increases in disposable income may end up going to imports.
Kuttner argued early on that he thought Clinton's spending proposals were quite discriminating in targetting the areas that would increase domestic growth, instead of following blunderbuss Keynesianism that Kuttner thought was outmoded in the global context. Not that Clinton was able to follow that spending blueprint, but this does argue that the microeconomics of government transfers may matter more than the gross transfer dollar amounts.
-- Nathan Newman