The US is broke. Government deficits are de facto evidence of a government gone wild. We’re careening toward Greece. Entitlements are the root cause of our fiscal woes, and the Chinese are coming for our grandchildren. How many Americans believe this garbage? My guess? Most of them.
The Fiscal Summit Counter-Narrative: Part Eight, Narrative and Counter-Narrative For Fiscal Sustainability
I started this lengthy series by saying:
Well, it's Springtime in DC. Time for the Peter G. Peterson Foundation's annual event. The Fiscal Summit, to be held on May 15, better named the Fiscal Cesspool of distortions, half-truths and lies, is a propaganda extravaganza designed to maintain and strengthen the Washington and national elite consensuses on the existence of a debt crisis, the long-term ravages of entitlement spending on America's fiscal well-being, and the need for long-term deficit reductions plans to combat this truly phantom menace. The purpose of maintaining that consensus is to keep an impenetrable screen of fantasy intact in order to justify policies of economic austerity. that have been impoverishing people and transferring financial and real wealth to the globalizing elite comprised of the 1% or far less of the population, depending on which nation one is talking about.
I then pointed to the first two Fiscal Summit Conferences in 2010 and 2011, identified some of the featured participants in both of these, and the then pending 2012 conference, and identified the primary myths used to form the neoliberal-based deficit hawk/austerian “fiscal sustainability”/”fiscal responsibility” narrative driving the politics of fiscal policy towards debate, discussion and passage of a long-term fiscal policy plan focused primarily on deficit reduction and long-term “fiscal responsibility” and “fiscal sustainability.” I then set out to present a detailed account of the five sessions of the April 2010 Fiscal Sustainability Teach-In Counter-Conference along with comments and references (links) to posts appearing since the Teach-In. The five sessions and accompanying Q & A, covered in posts 2-7 of this series, supplemented by additional post-conference work provide a fiscal sustainability/fiscal responsibility counter-narrative based on the Modern Monetary Theory (MMT) approach to economics.
In this final post of the series, I'll juxtapose the primary claims underlying the neoliberal austerian fiscal sustainability/fiscal responsibility narrative, and the MMT answers to them. The austerian claims all link to MMT-based posts that critique them. The paragraphs following each austerian claim summarize the MMT answers, and the counter-narrative. Read more about The Fiscal Summit Counter-Narrative: Part Eight, Narrative and Counter-Narrative For Fiscal Sustainability
The Fiscal Summit Counter-Narrative: Part Seven, Policy Proposals for Fiscal Sustainability, the Q & A
The way we designed the program of the Fiscal Sustainability Teach-In Counter-Conference, was to introduce the fundamental ideas of Modern Monetary Theory (MMT) in the first three presentations on defining fiscal sustainability, whether or not there are spending constraints on governments sovereign in their currency, and whether deficits, debts, and debt-to-GDP ratios are really a problem for entitlement programs and our grandchildren. Then Presentation Four, by Marshall Auerback, was given to consider the main critique of MMT's stance on deficit spending, the possibility of inflation or hyperinflation.
Finally, Presentation Five, which we'll cover in this post was designed to highlight the proposals for full recovery favored by the MMT economists. These proposals are the counter to the austerity proposals of Paul Ryan, Pete Peterson, Erskine Bowles and Alan Simpson, David Walker, Barack Obama, and the rest of those convinced that the US Government has solvency/debt/deficit problems that must be solved by some combination of spending cuts and tax increases. Read more about The Fiscal Summit Counter-Narrative: Part Six, Policy Proposals for Fiscal Sustainability
One of the raps on deficit spending in neoliberal circles is that it will trigger substantial inflation or hyper-inflation. Even when mainstream economists grant the MMT point about the impossibility of the US becoming involuntarily insolvent, they will still insist that sustained deficit spending is a bad idea because it will inevitably lead to unmanageable inflation. A variant of their critique is that especially “pure deficit spending,” I.e. deficit spending without issuing debt instruments to absorb the increase in the money supply created by deficit spending, will be an inflation trigger. Read more about The Fiscal Summit Counter-Narrative: Part Five, Inflation and Hyper-inflation
The Fiscal Summit Counter-Narrative: Part Four, The Deficit, the Debt, the Debt-To-GDP Ratio, the Grandchildren, & Fiscal Policy
The neoliberal austerian ideology often emphasizes the consequences of excessive deficit levels, a high national debt, and a debt-to-GDP ratio. Among those supposed consequences are rapidly increasing and high interest rates in the bond markets, inability to “borrow” to pay for imports, inability to maintain spending levels on entitlements like Social Security, Medicare, and Unemployment Insurance, an increasing threat to government solvency, and a growing national debt burden that will have to someday be repaid by heavily taxed children and grandchildren. Read more about The Fiscal Summit Counter-Narrative: Part Four, The Deficit, the Debt, the Debt-To-GDP Ratio, the Grandchildren, & Fiscal Policy
The Fiscal Summit Counter-Narrative: Part Three, Are There Spending Constraints On Governments Sovereign in Their Currencies?
[This is an important series of posts. As the elite tees up for Grand Bargain™-brand catfood, it's important to understand that the entire ZOMG!!!!! Teh debt!!!! narrative is not merely fakery, but fakery that's funded by those who will benefit from the looting, and that's not you. --lambert]
An issue at the core of all the fuss about fiscal sustainability is Government solvency. The deficit hawks and doves believe that Governments sovereign in their own currency can run out of money if they keep deficit spending, and keep borrowing to do it. They believe that if deficit/debt levels are high enough, then Government insolvency can occur, because eventually the burden of interest on the public debt will crowd out all other public spending and investments. So, they are for working towards debt/deficit reduction, “reforming” (i.e. cutting) entitlement spending, and raising taxes, though not necessarily on the rich. Read more about The Fiscal Summit Counter-Narrative: Part Three, Are There Spending Constraints On Governments Sovereign in Their Currencies?
After reading one of my rants about the stupidity of policies aiming at a balanced budget, somebody in my Facebook environment, commented by saying: “1 + 1 = 2.” Here's my answer.
Yes, 1+1 = 2.
Now here's an accounting identity from macroeconomics, called the Sectoral Financial Balances (SFB) model:
Domestic Private Balance + Domestic Government Balance + Foreign Balance = 0.
It's like 1 + 1 = 2. But just slightly more "wonkish." Read more about One + One = Two (Not Too Wonkish)
A few weeks ago I called for a technocratic debate on the merits of the JG, relative to other fiscal policies. A number of bloggers took the charge but the debate was not immune to ideological biases, which proved the starting point of my piece that one cannot separate fact from theory or ideology (and by ideology I do not mean the derogatory use of the word, but that which signifies ‘ontology’ or a ‘world view’). What I didn’t expect is for friends and sympathizers to resurrect one particularly invidious charge we have long heard from MMT deniers, namely that MMT is pushing authoritarian policies.
Oh, boy. How did we even get here? I thought this was going to be a technocratic debate. Read more about Alternative Fiscal Policies: Why the Job Guarantee is Superior (Wonkish)
Cullen Roche continued his extensive and multi-faceted critique of the Job Guarantee policy and the Modern Monetary Theory approach to economics with a piece attempting to distinguish “theory” and “fact.” His piece is based on the common sense idea that there's a distinction between them, and Cullen tries to use it in his argument. There is, but, unfortunately, the common sense notion of the distinction has long been put aside in the philosophy of science, and in most of the sciences a decade or so later, because of its incoherence. So, in using it, Cullen's argument shares this incoherence.
The “Theoretical” and Something Else Read more about The Job Guarantee and the MMT Core: Part Twelve, Theory and Fact
Is the JG a Price Anchor?
More on Cullen Roche's claims about the JG, this time a discussion of his price anchor vs. price buoy post.
A little time out from my critiques of the various posts contending that the MMT Job Guarantee (JG) proposal is not the core of MMT as an approach. Read more about The Job Guarantee and the MMT Core: Part Eight, The JG Rate
In a comment on another post of mine, Kelly Canfield, a blogger and commenter at FDL, asked me for the following.
What I would appreciate is a simple, 3,4 bullet point method as to why I should support, and more importantly, tell others that MMT is superior to the Keynes theories which I have pointed out and illustrated to others before this current situation.
I can easily explain that the private sector is not providing demand, and that the Fed sector should, and people would be better off with demand stimulus.
Explain to me how I EXPLAIN that MMT is superior to that basic premise, if it is?
Not sure I want to do that in three or 4 bullet points. But what I will do is to state what I think are some differences that are very significant for policy activism between a Keynesian approach employed by people like Paul Krugman, Brad DeLong, and Robert Reich and a Modern Monetary Theory (MMT) approach employed by people like Warren Mosler, L. Randall Wray, Bill Mitchell, Jamie Galbraith, Stephanie Kelton, Marshall Auerback, Scott Fullwiler, and Pavlina Tcherneva. So, here are some contrasts between the two approaches on seven important issues. Out of these contrasts, there should be much material for short explanations about why MMT is superior to Keynesian approaches. [Readers? -- lambert] Read more about Keynesian Deficit Doves vs. MMT Deficit Owls