This post is meant to refer to a knol Ihave written in response to a recent question posed on the Institute for New Economic Thinking (INET) community website : “Will public deficit reduction encourage private sector growth, or undermine a needed stimulus to recovery & lead to Japan-style stagnation?” This lead me, in view of my work on BICs, to wonder whether the deficit is really the right metric to focus on and analyze the extent to which it could be misleading.
I argue that the government balance sheet, rather than its cash flow position -from which the deficit is computed - should really be what eyes are focused on. The focus on balance would have and should better focus minds on stimulating high returns investments for sustainable recovery and expansion, some of which I discuss.
BICs enter in the picture because using their methodological prescription would make reliable and practical the complex and almost canutian task of computing the values of the different items on the government balance sheet.
I am gratified that the debate INET moderating team has picked on some of my suggestions and highlighted them in the debate summary(http://ineteconomics.org/blog/inet-community-responds-deficit-debate) as: "As far as new, creative solutions to the debate, a few users, such as kongtcheu, have urged governments to invest in entrepreneurship and clean energy projects, suggesting that these investments will create jobs and growth in the future."" I meant to say more than that.
References
Kongtcheu, Phil. The Deficit Debate - BICs:Is the deficit the right metric to focus on ? And what prescriptions does this leads to? [Internet]. Version 45. Basis Instruments Contracts (BICs). 2010 Aug 25. Available from: http://knol.google.com/k/phil-kongtcheu/the-deficit-debate-bics/24v2kgtuvzk2v/30.
http://ineteconomics.org/blog/inet-community-responds-deficit-debate
