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Immutable laws of debt dynamics

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  • Martin Watts
  • Timothy Sharpe

Abstract

In the aftermath of the global financial crisis (GFC), the ostensible focus of medium-term macroeconomic policy in most advanced sovereign and nonsovereign countries has been the pursuit of fiscal sustainability through fiscal consolidation, which is often justified by reference to the algebra of debt and deficit dynamics (Blanchard et al., 1990; Buiter, 2010a; Escalano, 2010; Ley, 2010). On the other hand, modern monetary theorists, including Fullwiler (2006), reject the necessity of fiscal austerity in sovereign economies. In this paper, we revisit the algebra underpinning debt and deficit dynamics and critically assess the arguments for the imposition of austerity measures across all advanced economies that have experienced increases in deficit and debt ratios, since the advent of the GFC.

Suggested Citation

  • Martin Watts & Timothy Sharpe, 2013. "Immutable laws of debt dynamics," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 36(1), pages 59-84.
    • Handle: RePEc:mes:postke:v:36:y:2013:i:1:p:59-84
    DOI: 10.2753/PKE0160-3477360104
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    Cited by:

    1. Tanaka, Yasuhito, 2019. "Fiscal policy for full-employment and debt dynamics: An attempt of mathematical analysis of MMT," MPRA Paper 95769, University Library of Munich, Germany.
    2. Tanaka, Yasuhito, 2019. "Tax reduction for full-employment and debt dynamics: A Keynesian analysis by mathematics and simulation," MPRA Paper 95912, University Library of Munich, Germany.
    3. Tanaka, Yasuhito, 2019. "Continuous time debt dynamics and fiscal policy for full-employment: A Keynesian approach by mathematics and simulation," MPRA Paper 95878, University Library of Munich, Germany.
    4. Tanaka Yasuhito, 2020. "A Keynesian Approach to Fiscal Policy for Full Employment and Continuous Time Debt Dynamics," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 65(1), pages 20-38, April.
    5. Timothy P. Sharpe, 2013. "Institutional arrangements and public debt threshold limits," International Review of Applied Economics, Taylor & Francis Journals, vol. 27(6), pages 707-728, November.
    6. Martin Watts & Timothy Sharpe & James Juniper, 2014. "Reformation or exodus: Assessing the future of the Euro," The Economic and Labour Relations Review, , vol. 25(3), pages 465-483, September.
    7. Scott Fullwiler, 2020. "When the Interest Rate on the National Debt Is a Policy Variable (and “Printing Money” Does Not Apply)," Public Budgeting & Finance, Wiley Blackwell, vol. 40(3), pages 72-94, September.

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