When the US government borrows more, it crowds out the private sector
in Japan - not in the USA.
It is universally agreed that governments have at least two critical
economic roles. The first is to provide a "level playing field" for all
economic players. It is supposed to foster competition, enforce the
rule of law and, in particular, property rights, encourage free trade,
avoid distorting fiscal incentives and disincentives, and so on. Its
second role is to cope with market failures and the provision of public
goods. It is expected to step in when markets fail to deliver goods and
services, when asset bubbles inflate, or when economic resources are
blatantly misallocated.
Yet, there is a third role. In our post-Keynesian world, it is a
heresy. It flies in the face of the "Washington Consensus" propagated
by the Bretton-Woods institutions and by development banks the world
over. It is the government's obligation to foster growth.
In most countries of the world - definitely in Africa, the Middle East,
the bulk of Latin America, central and eastern Europe, and central and
east Asia - savings do not translate to investments, either in the form
of corporate debt or in the form of corporate equity.
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