Public debt financing through political processes: a review essay of Olivier Blanchard’s Fiscal Policy under Low Interest Rates
Search for other papers by Jonathan W. Plante in
Current site
Google Scholar
In his recent book Fiscal Policy under Low Interest Rates, Olivier Blanchard argues that when interest rates are low, policymakers can use public debt finance to increase the welfare of a nation. I argue that Blanchard’s model suffers from the “organismic theory of the State” and, as such, reaches dubious conclusions. At its core, an organismic model presumes that politicians can and do make transfers that maximize the welfare of all individuals. While this is, of course, plausible, an individualistic view states that whether government transfers increase welfare for all individuals depends on the political decision-making process of time and place. While some political processes redistribute funds equally, others redistribute unequally—that is, they increase welfare for some but decrease the welfare of others. Blanchard’s organismic model takes this fact for granted. I use the individualistic view to argue that even if interest rates are low, if a political process is one that redistributes unequally, transfers under public debt financing can result in or exacerbate income inequality. To illustrate this point, I show that in the US, increases in public debt financing have increased welfare for some individuals—the low- and upper-income quintiles—but have decreased it for others—the middle-income quintiles.
-
Auclert, A., Rognlie, M. and Straub, L. (2023) The trickling up of excess savings, The American Economic Review, 113: 70–5.
-
Blanchard, O. (2023) Fiscal Policy under Low Interest Rates, Cambridge: MIT Press.
-
Boettke, P.J. (2014) What should classical political economists do?, Constitutional Political Economy, 25: 110–24. doi: 10.1007/s10602-014-9155-1
-
Brennan, G. (2002) Notes on Buchanan on methodological individualism, in G. Brennan, H. Kliemt and R. Tollison (eds) Methods and Morals in Constitutional Economics, Verlag: Springer.
-
Brennan, G. and Buchanan, J.M. (1988) Is public choice immoral? The case for the “Nobel” lie, Virginia Law Review, 74(2): 179–89. doi: 10.2307/1073142
-
Buchanan, J.M. (1949) The pure theory of government finance: a suggested approach, Journal of Political Economy, 57(6): 496–505. doi: 10.1086/256880
-
Buchanan, J.M. (1964) What should economists do?, Southern Economic Journal, 30(3): 213–22. doi: 10.2307/1055931
-
Buchanan, J.M. (2000 [1979]) Politics without romance: a sketch of positive public choice theory and its normative implications, in J.M. Buchanan (ed) The Collected Works of James M. Buchanan, Vol 1: The Logical Foundations of Constitutional Liberty, Indianapolis, IN: Liberty Fund.
-
Buchanan, J.M. (2003) Public choice: politics without romance, Policy, 19(3): 13–18.
-
Buchanan, J.M. and Congleton, R.D. (2003 [1998]) Politics by Principle, Not Interest: Towards Non-discriminatory Democracy, Indianapolis, IN: Liberty Fund.
-
Buchanan, J.M. and Tullock, G. (1999 [1962]) The Calculus of Consent: Logical Foundations of Constitutional Democracy. Indianapolis: Liberty Fund.
-
Congressional Budget Office (2022) The distribution of household income, 2019, www.cbo.gov/publication/58353.
-
Congressional Budget Office (2023) The 2023 long-term budget outlook, www.cbo.gov/system/files/2023-06/59014-LTBO.pdf.
-
Diamond, P. (1965) National debt in a neoclassical growth model, The American Economic Review, 55(5): 1126–50.
-
Federal Reserve Economic Data (2023) Federal debt: total public debt as a percentage of gross domestic product, https://fred.stlouisfed.org/series/GFDEGDQ188S, (Accessed: 30 Apr 2023).
-
Holcombe, R.G. (2019) Political Capitalism: How Economic and Political Power is Made and Maintained, Cambridge: Cambridge University Press.
-
Lindsey, B. and Telles, S.M. (2017) The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality, Oxford: Oxford University Press.
-
Mena, B. (2023) The Fed holds rates steady, pausing its rate-hiking campaign, CNN, www.cnn.com/2023/06/14/economy/fed-rate-decision-meeting-june/index.html#:~:text=Since%20March%202022%2C%20Fed%20officials,still%20double%20the%20Fed’s%20target.
-
Munger, M.C. (2018) 30 years after the Nobel: James Buchanan’s political philosophy, The Review of Austrian Economics, 31: 151–67. doi: 10.1007/s11138-018-0418-3
-
Pennington, M. (2011) Robust Political Economy: Classical Liberalism and the Future of Public Policy, Cheltenham: Edward Elgar.
-
Phelps, E. (1961) The golden rule of accumulation: a fable for growthmen, The American Economic Review, 51(4): 638–43.
-
Stigler, G.J. (1983) Nobel lecture: the process and progress of economics, Journal of Political Economy, 91(4): 529–45. doi: 10.1086/261165
-
Stiglitz, J.F. (2012) The Price of Inequality: How Today’s Divided Society Endangers Our Future, New York: W.W. Norton & Company.
-
Wagner, R.E. (2017) James M. Buchanan and Liberal Political Economy: A Rational Reconstruction, Lanham, MD: Lexington Books.
-
World Bank (2023) Gini index – United States, https://data.worldbank.org/indicator/SI.POV.GINI?locations=US (Accessed: 30 April 2023).
Search for other papers by Jonathan W. Plante in
Current site
Google Scholar
| May 2022 onwards | Past Year | Past 30 Days | |
|---|---|---|---|
| Abstract Views | 601 | 499 | 59 |
| Full Text Views | 404 | 388 | 31 |
| PDF Downloads | 259 | 236 | 18 |
Institutional librarians can find more information about free trials here
We are a leading social science publisher
committed to making a difference.
Bristol University Press and
Policy Press
bristoluniversitypress.co.uk