On Sun, 18 Jul 2010, Barry Brooks wrote:
>> The only way to reduce a deficit caused by unemployment is to reduce
>> unemployment.
>
> The only way, or the only way he will consider?
>
> Deficits can be cut by increased revenue too. Couldn't the money
> borrowed by the government be taxed instead?
Your post seems orthogonal to mine.
The section I excepted from Galbraith's testimony is entirely about spending (and transfers). He makes no stipulations as to income. And most importantly, he doesn't limit himself to government spending. His point is that if a deficit is caused by unemployment -- aka a GDP fall, or a utilization gap -- than spending will have to be increased to solve it *whether that spending increase comes from the government or the private sector.* It's an application of the sector-balance approach. But without an increase in spending, no increase in GDP, and no decrease in deficits. And if the private sector spending has fallen because of a financial crisis, as here; and private sector de-leveraging still has a ways to run; then the sine non qua of increasing private sector spending (aka investment) is a structurally remade financial system.
Your idea that tax rises on the rich have zero deflationary impact is novel. I don't know of any economist who takes that position, but if I'm ignorant on that point, I'm eager to learn. But if you can sustain it, I don't know of anything Galbraith has written that would suggest it would be against it. I'm sure he'd be for it.
> Here's a Krugman Galbraith exchange about the limits to government debt.
This is doubly irrelevant to my post because (a) it refers to the part I snipped (on purpose); and (b) what they are discussing in that section is an alternative reality where we are not in a liquidity trap. As Krugman is careful to emphasize several times in those two posts, in the present situation, where we are in a liquidity trap, he and Galbraith are in complete agreement.
Michael