I'll join you in that beer. Reading Jem's comment it strikes me that Republicans changed the meaning of the world "entitlements" to a pejorative term. In doing so they have robbed their followers of the ability comprehend how the economy works.
I'll have a... can of pre-mixed Gordon's gin an tonic, the beer went to a birthday last week.
I was able to think more clearly after that beer. I think what Greenspan was getting at when he said
"What I don't think is going to be happening over time is GDP that stays close to the 3 percent," Greenspan added. "Entitlements are crowding out gross domestic savings."
is the old-school economist line government borrowing -- he's assuming government will have to borrow to cover entitlement obligations -- may "crowd-out" private private borrowing. Government borrowing is thought to add to the demand for available funds thus driving up interest rates and competing for the same money with interest sensitive private borrowing. In other words he is thinking that if the government borrows to cover entitlements it will cause money for private investment to be less attractive due to higher interest rates and thus reduce private investment. Over the longer run it is thought (was thought!) 'crowding-out' could depress aggregate supply (less investment --> less supply) and could result in what economists' call 'cost-push' inflation.
This was a standard line 50 years ago, and it seems Greenspan never returned to graduate school in economics after he graduated from NYU, so his thinking is more or less stuck in 1970s economics. In a gold standard world where the price of gold was fixed and not allowed to rise, I think there may have been some truth in this argument. (I'm not convinced it was ever true, however, after 1934. But I can't go into that here.)
You may know I'm a student of economics, and for the past several years I have been studying the MMT economists. We are now on fiat money of course, and the MMT economists would say that these old ideas, such as Greenspan's "completely misunderstand" (i'm quoting Randall Wray here) the nature of government spending, taxing, deficits, and government bonds. I studied first classical macroeconomics and bought into it more or less completely until I begin to study the work of the MMT economists. I Think there is tremendous interest currently in MMT and current academic economists are gradually coming around to the MMT way of thinking. They would just dismiss Greenspan's remark as wrong.
By the way I said somewhere in this forum that deficits equal saving (or more or less words to that effect.) What I failed to point out was my definition of savings. I was referring to what economists call net nominal savings, which is the more general aggregate savings* minus investments. I apologize if I confused anyone by not making it clear I was talking about net nominal savings and not aggregate overall saving which includes investments. If we are in an open economy then net nominal saving would include foreign liabilities as well. That's the only difference if you go from closed to open economy, and the general conclusions are not affected at all. The important conclusion is that if the public wants positive net nominal savings this requires that either the government run a deficit and/or the economy runs a trade surplus. If you ignore the foreign sector, then we are down to, 'the government must run a deficit if positive net nominal savings are desired.' In a modern fiat economy, deficits are the norm and if they are at or near the optimum level they can be sustained indefinitely. This is sometimes difficult for one trained in pre-1970s macro economics to accept.
If deficits are too small, actual savings fall short of the desired level, and if they are too large, they exceed the desired level. Savings too low cause deflationary forces and recession and savings too high cause inflationary pressure. Either with savings too high or too low, nominal income will eventually adjust until the desired saving level equals the actual saving. But the latter is not the best route to the desired level of savings. We want to avoid having to go through a recession (depression) or inflation to reach the desired level of savings.
And to anyone this gives a headache to, you have my sympathy. It sometimes gives me a headache too.
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*Aggregate savings is identical with investment + deficit. And for an open economy, add net exports to that.
