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Odd posts from Warren Mosler claiming “crowding out.”

Summary:
Investment boom, crowding out consumption.— Warren B. Mosler (@wbmosler) May 31, 2024 Odd "X" posts from Warren Mosler recently talking about "crowding out." He says business investment is "crowding out" personal consumption. This is an odd claim because crowding out is not a condition that would be claimed under MMT understanding, where money is a function of demand and where there is no theoretical limit to its creation. (Under a free-floating FX regime.)If business spending rises and personal consumption falls, so what? All that is, is a shift in the cohort doing the net spending. The economy may look a little different (factories getting built rather than expenditure on consumer goods, leisure, etc), but why is that a concern and how does he conclude, necessarily, that this is the

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Odd "X" posts from Warren Mosler recently talking about "crowding out." He says business investment is "crowding out" personal consumption. This is an odd claim because crowding out is not a condition that would be claimed under MMT understanding, where money is a function of demand and where there is no theoretical limit to its creation. (Under a free-floating FX regime.)

If business spending rises and personal consumption falls, so what? All that is, is a shift in the cohort doing the net spending. The economy may look a little different (factories getting built rather than expenditure on consumer goods, leisure, etc), but why is that a concern and how does he conclude, necessarily, that this is the reason for an economic slowdown?

It's wrong and it misses the main point which is the fact that the slowdown in the economy is coming from a decline in net government transfers (i.e. the "deficit") because "reverse stabilizers" are kicking in. (Tax deposits are rising faster than Treasury withdrawals.)

He ought to know this. 

Mike Norman
Mike Norman is an economist and veteran trader whose career has spanned over 30 years on Wall Street. He is a former member and trader on the CME, NYMEX, COMEX and NYFE and he managed money for one of the largest hedge funds and ran a prop trading desk for Credit Suisse.

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