The long-run dynamics of public deficits and debt are modeled, assuming that public debt competes with capital for limited private savings. The interest costs of the debt are endogenously determined inthis market, and the deficit in other budget transactions is a constant fraction of Gross National Product. Simulations with parameter values suggested by recent United States experience show the likelihood of unstable paths, along which debt grows faster than GNP indefinitely.
The long-run dynamics of public deficits and debt are modeled, assuming that public debt competes with capital for limited private savings. The interest costs of the debt are endogenously determined inthis market, and the deficit in other budget transactions is a constant fraction of Gross National Product. Simulations with parameter values suggested by recent United States experience show the likelihood of unstable paths, along which debt grows faster than GNP indefinitely.
JEL Classification: 023, 321
Keywords: Monetary-fiscal mix, public deficits, public debt
The intellectual breakthroughs that mark the neoclassical revolution in economic analysis occurred in Europe around 1870. The next two decades witnessed lively debates in which the new theory more or less absorbed or was absorbed in the classical tradition that preceded and provoked it. In the 1890s, according to Joseph A. Schumpeter (1954, p. 754) there emerged “a large expanse of common ground and … a feeling of repose, both of which created, in the superficial observer, an impression of finality — the finality of a Greek temple that spreads its perfect lines against a cloudless sky.” Of course the temple was by no means complete. Its building and decoration continue to this day, even while its faithful throngs worship within. American economists were not present at the creation. To a considerable extent they built their own edifice independently, designing some new architecture in the process. They participated actively in the international controversies and syntheses of the period 1870-1914. At least two Americans were prominent builders of the “temple,” John Bates Clark and Irving Fisher. They and others brought neoclassical theory into American journals, classrooms, and textbooks, and its analytical tools into the kits of researchers and practitioners. Eventually, for better or worse, their paradigm would dominate economic science in this country. This paper discusses their contribution.
The intellectual breakthroughs that mark the neoclassical revolution in economic analysis occurred in Europe around 1870. The next two decades witnessed lively debates in which the new theory more or less absorbed or was absorbed in the classical tradition that preceded and provoked it. In the 1890s, according to Joseph A. Schumpeter (1954, p. 754) there emerged “a large expanse of common ground and … a feeling of repose, both of which created, in the superficial observer, an impression of finality — the finality of a Greek temple that spreads its perfect lines against a cloudless sky.” Of course the temple was by no means complete. Its building and decoration continue to this day, even while its faithful throngs worship within. American economists were not present at the creation. To a considerable extent they built their own edifice independently, designing some new architecture in the process. They participated actively in the international controversies and syntheses of the period 1870-1914. At least two Americans were prominent builders of the “temple,” John Bates Clark and Irving Fisher. They and others brought neoclassical theory into American journals, classrooms, and textbooks, and its analytical tools into the kits of researchers and practitioners. Eventually, for better or worse, their paradigm would dominate economic science in this country. This paper discusses their contribution.
JEL Classification: 031
Keywords: Neoclassical economics, J. B. Clark, Irving Fisher
(Editor) Collection of essays by Martin N. Bailey; Robert J. Gordon, John Taylor, Edmund Phelps, Guillermo Calvo, Benjamin Friedman, Lawrence Summers, William D. Nordhaus, Robert Mundell, and James Tobin.