Because the economy seems to have the property that when you change a bunch of things at once it takes a while to reach a new equilibrium.
As you’ve noted, the people reducing their consumption (due to higher taxes) and different from the people increasing their consumption (due to buying fewer bonds). I expect the people lowering their consumption will react more quickly due to loss aversion leading to a short-term drop in aggregate demand.
The question is, can we find a mechanism to produce this adjustment instantly and painlessly.
As an example of the sort of thing, I’m thinking off: normally deflation causes unemployment in an economy due to phillips-curve effects. But if a country simply “crosses off zeros” from their currency, this has basically no effect on the real economy despite technically causing massive deflation.
The question is, might there be a “crosses off zeros” equivalent for lowering the national deficit.
Because the economy seems to have the property that when you change a bunch of things at once it takes a while to reach a new equilibrium.
As you’ve noted, the people reducing their consumption (due to higher taxes) and different from the people increasing their consumption (due to buying fewer bonds). I expect the people lowering their consumption will react more quickly due to loss aversion leading to a short-term drop in aggregate demand.
The question is, can we find a mechanism to produce this adjustment instantly and painlessly.
As an example of the sort of thing, I’m thinking off: normally deflation causes unemployment in an economy due to phillips-curve effects. But if a country simply “crosses off zeros” from their currency, this has basically no effect on the real economy despite technically causing massive deflation.
The question is, might there be a “crosses off zeros” equivalent for lowering the national deficit.