A Reconstruction of Macroeconomics

This short essay by a leading economist contends that larger budget deficits increase household savings rates while surpluses push private savings down. “This makes absolute gibberish of both conservative and liberal versions of Keynesian policy. However, I do not agree at all [with Robert Barro] that reducing household savings by reducing government borrowing is ‘neutral’ in its effects, even if national savings remained unchanged relative to national income (which may rise or fall). On the contrary, substituting public savings for private savings has considerable impact on whether such savings will be invested at all, and whether they will be invested efficiently.”