Dear Editor
Dear Editor Take Your Choice After Paul Davidson explains in the January 13 issue of The New Leader why it is that deficits really do not matter ("Can We Afford to Balance the Budget?"), Forrest...
...Thus, to feed a burgeoning population Mexico had to spend much of what it was gaining from rising oil prices on rising food prices...
...3. For a poor country that is also a net importer of food, such as Mexico, there is no free lunch...
...Sometimes one wonders about the extent to which economic theories reflect the personalities of the economists (optimist, pessimist, risk-taker, responsible provider...
...Improved employment immediately requires a huge increase in food imports—which can only be paid for by extra exports or by borrowing...
...Surely all the following propositions must be true: "Owing money to oneself isn't too serious...
...There is no free lunch...
...One cannot live beyond one's means...
...Investment to spur economic growth creates the resources to pay off the investment...
...Yet, since the breakdown of the Bret-ton Woods Agreement in 1972, the economies of all trading nations, not only Mexico, have "unraveled" compared with the miracle growth rates they experienced during the previous three decades...
...With excess capacity in a highly productive agricultural sector, as well as excess industrial capacity and unemployment among members of a skilled labor force, the choice facing the U.S...
...2. Mexico's population growth forced it to become a net importer of food in the 1970s—at the same time that natural disasters, combined with the food export embargoes by Presidents Richard M. Nixon and Jimmy Carter, were creating havoc in the international grain market...
...Deficit stimulated employment will encourage additional domestic consumption production (the Keynesian multiplier), so that we can have more butter (i.e., food and other consumer goods) and more guns and capital simultaneously...
...For the U.S., on the other hand, a free lunch has been a possibility since 1971...
...Like Keynes, I believe that economic policies must be tailored to specific circumstances if they are to be successful...
...In any case, these two adjacent articles in a single issue of The New Leader point out the problem, or is it the irony, or is it the paradox...
...When carried to an extreme all economic propositions are manifestly absurd...
...many economists argue as if economic principles have universal applicability independent of historical, institutional and cultural circumstances...
...Hence, Mexico's economy would have to have grown three times as rapidly as that of the United States merely to match the progress the U.S...
...has not been between butter and guns (or capital goods...
...Forrest D. Colburn explains why Mexico's economic crisis arose out of government deficits approaching 18 per cent of that country's GNP ("How 'La Crisis' Is Crippling Mexico...
...In economics—as in the law—there is no substitute for hard thinking about the specific aspects of every "case study...
...In this reply I cannot go into a detailed explanation of why the Mexican deficits appear to have created such a problem, while the U.S...
...Lawyer McAulay has discovered that the economic world is not as simple or neat as some purveyors of universal economic nostrums would have the public believe...
...When not carried to an extreme, seemingly contradictory economic propositions all make much sense...
...has shown...
...deficits appear to be the solution...
...But not this economist...
...I can only enumerate some differences in the two cases: 1. Since 1970, Mexico's population has grown by approximately 60 per cent, and the U.S.' has increased by 17.5 per cent...
...It almost appears as if all economic analysis is either anecdotal or so abstract as not to be able to fit any real world condition...
...A problem arises for those who eschew economic ideology but who do have the political ideology that sees value in economic growth...
...New York City Lloyd McAulay Paul Davidson replies: Lloyd McAuIay's irony is not misplaced...
Vol. 69 • February 1986 • No. 3
