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Cycles and Trends in U.S. Net Borrowing Flows: Pro-Cyclical Household Net Borrowing, Counter-Cyclical Government, Consumption and the Current Account, and Elusive Twin Deficits

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Trend and cyclical patterns of household, business, government, and foreign net borrowing shares of GDP are reviewed using diagrams and covariance decompositions of the identity stating that the sum of the shares equals zero. Household and business net borrowing shares and thereby those sectors' contributions to effective demand are pro-cyclical. Household borrowing is led by residential investment. Household consumption varies counter-cyclically but it is offset by rising taxes as opposed to saving, suggesting that the “consumption-smoothing†featured in much macro theory is not empirically important. Pro-cyclicality of private net borrowing is countered by a counter-cyclical government deficit along traditional lines. In terms of trends, “twin†fiscal and foreign deficits appear infrequently, with the household and external deficits much more closely related. The former is linked to a strong upward trend in health care spending as a share of disposable income.

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  • Nelson H. Barbosa-Filho & Cordina Rada & Lance Taylor & Luca Zamparelli, 2007. "Cycles and Trends in U.S. Net Borrowing Flows: Pro-Cyclical Household Net Borrowing, Counter-Cyclical Government, Consumption and the Current Account, and Elusive Twin Deficits," SCEPA working paper series. 2007-5, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    • Handle: RePEc:epa:cepawp:2007-5
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    1. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
    2. Chiarella,Carl & Flaschel,Peter & Franke,Reiner, 2011. "Foundations for a Disequilibrium Theory of the Business Cycle," Cambridge Books, Cambridge University Press, number 9780521369923.
    3. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, March.
    4. Nelson H. Barbosa‐Filho & Lance Taylor, 2006. "Distributive And Demand Cycles In The Us Economy—A Structuralist Goodwin Model," Metroeconomica, Wiley Blackwell, vol. 57(3), pages 389-411, July.
    5. William G. Gale & Peter R. Orszag, 2004. "Budget Deficits, National Saving, and Interest Rates," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(2), pages 101-210.
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    Cited by:

    1. Rudiger von Arnim, 2007. "WP 2007-7 Short-Run Adjustment in a Global Model of Current Account Imbalances," SCEPA working paper series. 2007-7, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    2. Dilip M. Nachane, 2018. "The Global Crisis According to Post-Keynesians," India Studies in Business and Economics, in: Critique of the New Consensus Macroeconomics and Implications for India, chapter 0, pages 205-220, Springer.

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