Category Fiscal policy
Relative supply shocks, Unobtainium, Walras’ Law, and the Coronavirus
Here's the basic idea: A temporary 100% output cut in 50% of the sectors (what the Coronavirus does) is very different from a 50% output cut in 100% of the sectors (what our intuitions might expect from supply shocks in aggregate macro models). The former can easily lead to deficient demand in the unaffected sectors; […]
Postmodern Economic Measurement: There is no number, only numbers
National income accounting distills a nation's economy into a single number: gross domestic product. GDP has been critiqued many times for its neglect of household production, environmental degradation, income distribution, and so on. Many alternatives have been proposed, such as genuine progress indicators, happiness measures, the Human Development Index, the Better Life Index, well-being indexes, […]
Hilbert’s Hotel and the National Debt when r < g
Hilbert's Hotel has infinitely many rooms. Even if every room is full, you can still make room for one more guest in room 1, by moving the guest currently in room 1 to room 2, moving the guest currently in room 2 to room 3, and so on forever. When the rate of interest r […]
The Federal Debt of the United States, 1791 to 2018: A Presidential Ranking
A recent story in the National Post by Tristan Hopper highlighted the “utterly unbelievable scale” of current US federal public debt levels. As is always the case, it is useful to get some historical perspective on the evolution of the U.S. federal debt over time – which under President Trump has become the biggest U.S. […]
Public Debt: A Global Perspective
There is much international preoccupation with debt at the public sector, household and corporate levels and the upward creep in interest rates does apparently keep central bankers – including our own Mr. Poloz – awake at night. Given the problem is an international one, sometimes it is useful to try and get a global perspective […]
Addressing Ontario’s Fiscal Challenges
While 2017-18 saw a surplus of $642 million after years of deficits, the 2018-19 Ontario budget now projects a deficit of $6.7 billion and a net provincial debt of $325 billion with deficits projected to continue for five years afterwards. If one considers the recent report of the Auditor-General, then Ontario’s deficit may be even […]
Another Picture That Will Define Ontario Politics for the Next Four Years
Ontario is getting a Throne Speech this week and a budget next week and these events will set the stage for the June election. In her recent post, Frances drew attention to the province's public finances via the public sector wage bill and the public-private sector wage differential and that cutting the public sector wage […]
Monetary and Fiscal Federalism, Debt, Canada, and the Eurozone.
A government that undertakes a commitment to target 2% CPI inflation does not, strictly speaking, "borrow in its own currency". Its bonds are an indirect promise to pay, via transversality transitivity (damn!), a specified quantity of CPI baskets of goods and services. In much the same way that bonds under the gold standard were an […]
The Sustainable Bond-Finance Laffer Curve
Imagine an economy growing at rate g, with an interest rate on government bonds r, and a constant debt/GDP ratio D/Y. The government gains revenue from issuing new bonds gD each year, and loses revenue from paying interest rD each year. If r<g then the government earns positive net revenue from having and maintaining a […]
Negative Average Cost but Positive Marginal Cost of Debt-Finance
If the rate of interest on government bonds is less than the growth rate of the economy (r<g), then the average cost of bond-finance is negative. A government that has issued bonds, and issues more bonds each year to keep the debt/GDP ratio (B/Y) constant (which is sustainable), can have permanently higher spending, or permanently […]
Worthwhile Canadian Initiative 
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