SUBSCRIBERS ONLY: Does Not þe U.S. Government Right Now Have a Free Lunch Before It, via Debt Issue, as Long as g > r?

Are our economic models intuition pumps, or filing systems? Not-yet-ready-for-primetime thoughts...

One of our standard workhorse models—the Diamond OLG model, the one I learned in the second week of my first class from Olivier Blanchard—says this:

  1. Suppose the real interest rate on government debt r is less than the proportional rate of growth of per capita income g (or, possibly, g+n, the sum of that growth rate g and the population growth rate n—it d…

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