Well, if it had turned out the other way, I certainly would have blogged it, so I feel compelled to report that frequent commenter and MMT defender “AP Lerner” poked a big hole in the comments of my previous post.
Recall that I had posted a chart showing that Gross Private Domestic Investment tracked the (inverse of the) government budget deficit very closely. So it seemed to support the standard “crowding out” argument, whereby a government deficit siphons off resources from private-sector investment.
AP Lerner thought this was a bogus interpretation of the chart, saying:
If crowding out was occurring today, then why aren’t rates higher? Why is there such demand for corporate AND treasury bonds are oversubscribed by 3x?
All your chart above shows is private sector investment falls when tax revenue falls, which makes perfect sense since tax revenues always fall during a recession.
I looked into his latter claim, and yeah it seems he is right:
To be sure, one doesn’t need to abandon the “crowding out” hypothesis on the basis of the chart above. But AP Lerner is right that the tight correlation between government surpluses and private investment, can in turn be explained by a relatively constant trend of rising government expenditures amidst volatile revenues that are tightly correlated with private investment.