In the previous three posts in this series, I have argued that large fiscal deficits are a more or less inevitable concomitant of post-financial crisis deleveraging by the private sector. Moreover, I have argued, substituting a solvent debtor (the government or taxpayers, in general) for insolvent (or illiquid) private ones is feasible and desirable in an economy going through a balance-sheet recession. It is therefore quite possible to get out of debt by going into it, because they are not the same debtors. And the distribution of the debt, not its level, is what matters.
Needless to say, arguments can be made against this point of view and alternative policies considered. But, before considering those arguments and alternatives, it is crucial to stress one point: no pain-free escapes from the consequences of a huge credit boom and consequent private sector debt overhang exist. We are trading off bad alternatives. Read more