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Part of the Problem | Corrente

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Part of the Problem

letsgetitdone's picture

By

Warren Mosler and Joseph M. Firestone

Paul Krugman agrees that “We're Not Greece.” But he only appears to have a glimmer of an understanding of the most important reason why this is so. We hope this commentary on his op-ed piece improves his understanding, and that of other deficit doves who appear to disagree with the deficit terrorists, but who in the end share their false basic assumptions about deficits, national debts, fiscal responsibility, and fiscal sustainability.

It’s an ill wind that blows nobody good, and the crisis in Greece is making some people — people who opposed health care reform and are itching for an excuse to dismantle Social Security — very, very happy. Everywhere you look there are editorials and commentaries, some posing as objective reporting, asserting that Greece today will be America tomorrow unless we abandon all that nonsense about taking care of those in need.

True. One of us just finished a week in D.C. fighting back against the bipartisan move to cut Social Security. And both of us are part of a coordinated effort to generate a counter-narrative to the Administration's and the Peter G. Peterson Foundation's austerity message.

The truth, however, is that America isn’t Greece — and, in any case, the message from Greece isn’t what these people would have you believe.

So, how do America and Greece compare?

Both nations have lately been running large budget deficits, roughly comparable as a percentage of G.D.P. Markets, however, treat them very differently: The interest rate on Greek government bonds is more than twice the rate on U.S. bonds, because investors see a high risk that Greece will eventually default on its debt, while seeing virtually no risk that America will do the same. Why?

One answer is that we have a much lower level of debt — the amount we already owe, as opposed to new borrowing — relative to G.D.P.

The level of the GDP to Debt ratio has nothing, by itself, to do with interest rates. Japan's debt is near triple ours, and their 10 year rates are about 1.3% for example. So, Krugman's assumption that the debt-to-GDP ratio is causing high interest rates for Greece and his implication that it would cause such rates for us is refuted by the Japanese case.

True, our debt should have been even lower. We’d be better positioned to deal with the current emergency if so much money hadn’t been squandered on tax cuts for the rich and an unfunded war.

Not true. with U.S. Govt spending not operationally constrained by available revenues the way Greece's is, we are always able to spend (or cut taxes) however much we want to, because all U.S. Government spending is operationally nothing more than the Fed using its computer to credit member bank accounts -- what can be called ‘the creation of new dollars.’ That is, the U.S. can always (and necessarily does) create more dollars when and if needed. whether we spend or not is a political decision without external financial constraints. In other words, even if we hadn't had tax cuts for the rich and unfunded wars, we'd still be in the same position as we are now to deal with our emergency. That position is that we have a Government that is sovereign in its own currency and can always pay for whatever it needs to pay for. We have no greater solvency risk due to foolish spending than wise spending. In any case the ability of the U.S. government to make payment in dollars is limited only by political will, not by variations in financial ability to pay at different times.

But we still entered the crisis in much better shape than the Greeks.

Yes, because we are the issuer of the Dollar and Greece is not the issuer of the Euro. Greece is like a U.S. state in that regard. And so is every other Eurozone member, including the so-called fiscally strong members such as Germany and France.

Even more important, however, is the fact that we have a clear path to economic recovery, while Greece doesn’t.

We have that clear path for the same reason. We can manage our aggregate demand because our fiscal policy is not operationally constrained by revenue the way Greece's is. We can sustain full employment. We can adjust policy to facilitate greater aggregate demand, and we can do other things we need to do, as well, because we have no solvency risk; we are not dependent on borrowing to be able to spend, and WE cannot run out of money.

The U.S. economy has been growing since last summer, thanks to fiscal stimulus. , ,

Yes, mostly the automatic stabilizers with some help from the proactive measures congress has taken, however misguided and inadequate they may have been to restore full employment.

. . . and expansionary policies by the Federal Reserve.

We don't agree with the idea that the Federal Reserve's policies have had a major impact on the return to economic growth, but that's another story.

I wish that growth were faster; still, it’s finally producing job gains — and it’s also showing up in revenues.

True. however the output gap -- the gap between potential and actual output, which is evidenced by unemployment remains tragically and destructively wide.

Right now we’re on track to match Congressional Budget Office projections of a substantial rise in tax receipts. Put those projections together with the Obama Administration’s policies, and they imply a sharp fall in the budget deficit over the next few years.

Yes, with our only hope for lower unemployment being an increase in private sector debt that exceeds the fall in the Government's deficit. Not our first choice for mending what ails us, and also an unlikely event. So we may be looking at years of high unemployment and many ruined lives, unless the Government once again recognizes that it its responsibility to sustain full employment through fiscal adjustment.

Greece, on the other hand, is caught in a trap. During the good years, when capital was flooding in, Greek costs and prices got far out of line with the rest of Europe. If Greece still had its own currency, it could restore competitiveness through devaluation.

Krugman should have said it this way -- 'if Greece had its own currency and was running its deficits in that currency, market forces would have caused its currency to depreciate.' With floating exchange rates, market forces adjust currencies on a continuous basis to reflect ‘indifference levels.’

But since it doesn’t, and since leaving the Euro is still considered unthinkable, Greece faces years of grinding deflation and low or zero economic growth. So the only way to reduce deficits is through savage budget cuts, and investors are skeptical about whether those cuts will actually happen.

True. And worse, the proactive cuts and tax hikes can slow the economy to the point that the deficit doesn't come down, and might even increase, making matters even worse.

It’s worth noting, by the way, that Britain — which is in worse fiscal shape than we are, but which, unlike Greece, hasn’t adopted the Euro — remains able to borrow at fairly low interest rates. Having your own currency, it seems, makes a big difference.

It is all the difference.

And it's hard to see why that isn't obvious. In nations like the US, UK, Japan, etc. etc. each with their own non-convertible currency and floating exchange rates, interest rates are necessarily set by the central bank, and not by markets. The reason is that the Government makes payments and collects taxes in its own currency through its payment system operated by its own central bank. Member banks and foreign governments have accounts at the central bank called ‘reserve accounts.’ these reserve accounts, in aggregate, can get dollars only from the government, and, in the case of excess balances, the government alone can set the interest rate. Likewise, if there is a shortage of balances, they can only come from the government. Therefore, it is necessarily up to the government to set the rate at which member banks can borrow from the Fed as well as the rate earned on excess balances.

In fact, the FOMC (Federal Open Market Committee) announces its target interest rate by voice vote at its regular meetings. and U.S. Treasury Securities, which are also accounts at the federal reserve bank, thereby function to provide interest bearing alternatives to reserve balances and are used by the Fed to achieve the target interest rate set by the FOMC. So, the level of short-term interest rates is determined by political decisions and not as Krugman implies by the market. And Government securities function to support interest rates and not to fund expenditures.

In short, we’re not Greece. We may currently be running deficits of comparable size, but our economic position — and, as a result, our fiscal outlook — is vastly better.

This is the wrong reason why “we're not Greece.” The right reason is that we are the issuer of our own currency, the Dollar, while Greece is the user of the Euro and not the issuer.

That said, we do have a long-run budget problem. But what’s the root of that problem? “We demand more than we’re willing to pay for,” is the usual line. Yet that line is deeply misleading.

First of all, who is this “we” of whom people speak? Bear in mind that the drive to cut taxes largely benefited a small minority of Americans: 39 percent of the benefits of making the Bush tax cuts permanent would go to the richest 1 percent of the population.

Tax cuts for the richest Americans, certainly weren't our first choice of which tax to cut to support the private sector. We'd have cut FICA taxes and had a payroll tax holiday; and one of us, Warren Mosler, continues to propose that in a vigorous way.

And bear in mind, also, that taxes have lagged behind spending, partly, thanks to a deliberate political strategy of “starve the beast”: conservatives have deliberately deprived the government of revenue in an attempt to force the spending cuts they now insist are necessary.

And liberals and progressives have artificially constrained their policy proposals, and failed to pursue effective but nominally costly solutions to problems, because they hold the misguided neo-liberal notion that spending is operationally constrained by revenues, and fail to understand that the 'right sized' deficit is the one that coincides with full employment and desired price stability.

Meanwhile, when you look under the hood of those troubling long-run budget projections, you discover that they’re not driven by some generalized problem of overspending. Instead, they largely reflect just one thing: . .

An understanding of national income account and monetary operations shows deficits are driven by non-Government sector 'savings desires' and Government's willingness to compensate for those savings desires with greater levels of spending or lower taxes, and it is proactive attempts to increase deficits beyond savings desires that results in inflation.

In addition, however, “troubling” deficit projections such as the CBO's are driven by assumptions of historically low growth rates for the next decade. If economic growth more closely approaches historical norms since 1940, then CBO's deficit projection melts away. But, the very likely error in CBO and other projections by deficit terrorist budget analysts is entirely beside the point, anyway, because the real question is why Krugman refers to such budget projections as “troubling?” Even if CBO's projections were correct, there would be no threat to U.S. fiscal solvency, or to real fiscal sustainability relating to the Government's ability to spend to achieve public purposes. So, these budget projections are “troubling” only to Krugman, other deficit doves like him, and also deficit hawks, who don't understand that there is no solvency risk for the U.S. Government in continuing budget deficits.

. . . the assumption that health care costs will rise in the future as they have in the past. This tells us that the key to our fiscal future is improving the efficiency of our health care system — which is, you may recall, something the Obama administration has been trying to do, even as many of the same people now warning about the evils of deficits cried “Death panels!”

Krugman has the wrong causation, since he seems to think that rising health care costs if not cut, will be the cause of future Government solvency and financial problems he associates with Government deficits. And, make no mistake, what he calls our 'fiscal future' is the size of future deficits. But they will always reflect future 'savings desires,' and the extent to which savings behavior reduces aggregate demand. If demand is too low, deficits will be driven higher by automatic stabilizers, regardless of whether health care costs have been cut. In fact, if we proactively cut Government spending of any kind to make the amount of it smaller than the level we need to compensate for the loss of demand to savings desires, the evidence of this will always be unemployment.

So while cutting health care costs is certainly a 'good thing,' as long as the quality of health care improves, when the time comes, future deficits need to reflect future (net) savings desires, if they are to keep us fully employed. So, if health care costs are cut, other Government spending may have to increase, and/or taxes cut, to achieve the required level of deficits to compensate for savings desires so we can sustain full employment.

So here’s the reality:

That is, Paul Krugman's mistaken, political reality.

America’s fiscal outlook over the next few years isn’t bad. We do have a serious long-run budget problem, . . .

Unfortunately, this kind of talk makes him part of the problem, not part of the solution, since he doesn't understand that fiscal responsibility and fiscal sustainability are unrelated to budget deficits because these carry no solvency risk for the United States.

. . . which will have to be resolved with a combination of health care reform and other measures, probably including a moderate rise in taxes.

Wonderful, with a screaming shortfall in aggregate demand as evidenced by tragic levels of unemployment, the celebrity voice from the left is calling for spending cuts and tax hikes not to cool an over-heating economy, but to reduce non-government savings of financial assets and make the unemployment problem worse. (The Government deficit = non -- Government savings of financial assets, to the penny, as a matter of national income accounting, etc)

But we should ignore those who pretend to be concerned with fiscal responsibility, but whose real goal is to dismantle the welfare state — and are trying to use crises elsewhere to frighten us into giving them what they want.

While we tend to agree with that statement, unfortunately it is made in the context of one of the current iterations of the 'deficit dove' position.

It does not cut it.

It is part of the problem, not part of the solution.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

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Submitted by gob on

I'm still not confident - as an economic ignoramus - about where the truth lies. But after transcribing (and thus paying close attention to) part of the "fiscal sustainability" talks, my internal commentary while reading Krugman's column tracked the main points of this post pretty closely.

So keep up the good work, expand the discourse, and teach us how to discern the real issues!

We will push and push and push until some larger force makes us stop.

letsgetitdone's picture
Submitted by letsgetitdone on

both for the kind words and for your transcription work. I'm sure Warren and I will keep on truckin'.

par4's picture
Submitted by par4 on

is starting to sound crazy lately. I believe he's in denial that his beloved Democrats are so totally corrupted that the majority of them are indistinguishable from the Republicans.

par4

letsgetitdone's picture
Submitted by letsgetitdone on

But a lot of economists have won the Nobel prize without any broad understanding of macro-economics. The truth is that Krugman may have done some brilliant work in macroeconomics, but that doesn't mean that he has gone beyond Keynesian Theory to an understanding of how money works in fiat currency systems. The evidence is that he has not studied that and he is unwilling to start now. That's why he and Jamie Galbraith seem to disagree so often.

Walter Wit Man's picture
Submitted by Walter Wit Man on

First, thanks for doing what you're doing.

But here's where I am not getting MMT. I understand the basic foundational concept that the U.S. is not restrained by debt and can simply print money. I think I get it at least.

But the printing does have consequence, no? Through inflation from printing or through interest payments on debt service?

Also, by deficiet spending now on certain things, aren't we prioritizing that spending over future spending on other things? Say we wanted to stimulate aggregate demand and we spend $10 Trillion on war and we have to borrow that money via treasuries to pay for it (or I guess simply print the money up and hand it out). So assume that deed is done. And of course that $10 Trillion goes largely to the top 5% of the population (via the MIC).

But my problem is that deficits would matter in that case, right? We would all pay the price, via inflation or interest on the debt, for the allocation of resources towards war. If the negative effects of this war spending are greater than the positive then I don't see how deficit spending now is anything other than a net negative. Doesn't it bake inefficiencies in the cake by agreeing to deficit spend now? Say we adopt MMT in 10 years time but we've spent 500% of our GDP on war and now owe it as a debt. That 10 years will cost us via debasement of our dollar when we finally print the money to pay it off, no?

On the other hand, if deficient spending is for things that are good for the majority of the people, say health care or pensions, then I can see how deficient spending and debasing the currency is a net positive.

But shouldn't the focus be on spending on the "good" things rather than the idea that deficit spending is never a problem?

Submitted by lambert on

That doesn't mean, as you say, that having the Federal government credit any account with unlimited amounts of money is a good thing. But the United States is sovereign in its own currency, so that's exactly what it can do (and, in fact does: the real issue is whether its being done for a public purpose or not).

First they ignore you, then they ridicule you, then they fight you, then you win. -- Mahatma Gandhi

Walter Wit Man's picture
Submitted by Walter Wit Man on

limited by politics. The unfortunate reality of deficit spending right now is that it would go to the bankers or go to war. Look were the deficit spending has gone in the past--especially the last 10 years. War. Finance.

This may boost aggregate demand but it will mostly boost it for the top 1-5% and not so much the rest of us.

I understand deficit spending could be used for good. But it doesn't appear bloody likely.

For instance, I would be fine with living within a government balanced budget--if I can pick what's cut. Let's cut the military by 75% and spend half of the savings on transfer payments to the middle class. Let's raise taxes on the top 5% (at say a 50% marginal rate) and "give" that money to the bottom 50% of people.

Because of the money multiplier wouldn't a more equal distribution of the money create more bang for our buck in the private sector (by encouraging investment) than if the money was given to the top 5%? Isn't that a better way to boost demand? I would rather have a balanced budget in that case than to deficit spend on war, for instance.

letsgetitdone's picture
Submitted by letsgetitdone on

It does no good to reason from a set of false choices. In a democracy, we have to reason from a truth. The truth is that there's no solvency risk. So excuses for not doing things based on the notion that we can't afford it are lies, and they are corrosive to democracy if we tell them.

If it's bad to bail out the banksters, carry on these wars, and have have giveaways to the health insurance and energy industries, then we have to argue those issues on the merits and not say that the problem is that the Government has no money.

As for a balanced budget, we can't have that. The reason is that when the Government balances the budget at less than full employment, it causes further recession and deflation. And if the Government runs a surplus at full employment it will cause a recession or a depression. Six times in the history of the US we have balanced the budget, and each time, there was a depression or a recession soon thereafter. Government surpluses cause recession and create unemployment.

Why? Because a Government surplus implies that the non-Government sector is running a deficit. This is an accounting identity as we stated above. The non-government sector cannot sustain deficit spending for very long without cutting back, and that is what causes recession/depression and unemployment. For more on sectoral balances in the economy, see here.

Walter Wit Man's picture
Submitted by Walter Wit Man on

a few weeks ago when one of you previously linked to it. It does a good job of describing the accounting treatment.

I get that. I get there is no technical "solvency" crisis when the debt is held in one's own currency. My problem, and maybe I'll raise it in a different way if/when responding to your comment below, is that as a practical matter you are one of the few heretics in a room of true believers. The true believers of the church of capitalism are in charge and what if you can't convince them that they can print money to pay off the debt? Are you sure the consequences are minimal? Say you tell them to go ahead and run up the tab, it doesn't matter. So of course they take the opening to alter the economy even more towards the oligarchs and towards an economy geared towards War, FIRE, and health care shakedowns.

Say we doubled the national debt to $26 Trillion in 2015. And say our economy shrinks to a GDP of $10 Trillion because of the inefficiencies of a society geared for pretty much only war and finance (with 30% unemployment).

It's 2015, and all of a sudden the U.S. switches to MMT. I guess your argument is that the government just simply pays all the outstanding "debt" with conjured money and then creates money for other more "fair" resources. How does that work? [yes I agree-jobs--that's the easy one] But haven't you just monetized all that debt? That debt that wasn't entering the economy and causing inflation before because it was just being gambled between the big banks but but all of a sudden does enter the economy?

It doesn't seem as easy as you imply it will be because I don't think the conjuring of money alone will be able to cure the efficiencies of the economy. Or at least it would take time and assumes an able government. If we're geared for war and the rich 1% have the vast share of the wealth how quickly would a government be able to rectify these inequalities and inefficiencies through printing money? They own the friggin government. What about the savers? If people are foregoing now only to save up a nest egg (let's presume $250,000 for a retiree in 2015 with a median income of $50,000) what happens when the government creates 50 million $250,000/year jobs? How does fairness work in?

The past preferences for allocating resources towards war and FIRE would have an impact on the MMT magician to rectify things in 2015, I would think.

You'll pardon me for working this through out "loud"--these concepts do fly in the face of conventional wisdom and I sometimes need to work it through on my own terms before I can accept something like this.

Submitted by hipparchia on

It's 2015, and all of a sudden the U.S. switches to MMT.

you could [successfully, i think] argue that we 'suddenly switched to mmt' in 1971, or even 1933:

The gold standard effectively came to an end in 1933 when President Franklin D. Roosevelt outlawed private gold ownership (except for the purposes of jewelery). The Bretton Woods System, enacted in 1946 created a system of fixed exchange rates that allowed governments to sell their gold to the United States treasury at the price of $35/ounce. "The Bretton Woods system ended on August 15, 1971, when President Richard Nixon ended trading of gold at the fixed price of $35/ounce. At that point for the first time in history, formal links between the major world currencies and real commodities were severed". The gold standard has not been used in any major economy since that time.

I guess your argument is that the government just simply pays all the outstanding "debt" with conjured money ...

yes, the govt conjures money

... and then creates money for other more "fair" resources.

it's true, the govt can conjure more money for this. or it can take some money away from the rich [via taxes] and give it to the less rich [via welfare, or medicare, or ...], or it can take some money from [war budget, eg] and use it to pay for [medicare, welfare, ...]. these are political decisions.

Say we doubled the national debt to $26 Trillion in 2015. And say our economy shrinks to a GDP of $10 Trillion because of the inefficiencies of a society geared for pretty much only war and finance (with 30% unemployment).

another great depression would mean that we'd have to hope for another fdr. but you don't even have to buy mmt here, you could rely on old-fashioned keynesianism--

Keynes visited the White House in 1934 to urge President Roosevelt to increase deficit spending. Roosevelt afterwards complained that, "he left a whole rigmarole of figures — he must be a mathematician rather than a political economist."

The true believers of the church of capitalism are in charge and what if you can't convince them that they can print money to pay off the debt?

they don't really care about the debt and deficits [in fact, they already know that we can just print money], they are just talking it up to spook ordinary people into being willing to accept more cuts in social spending.

Submitted by lambert on

What you said, Hipparchia:

they don't really care about the debt and deficits [in fact, they already know that we can just print money], they are just talking it up to spook ordinary people into being willing to accept more cuts in social spending.

And then there's the sort of peasant mentality that accepts whatever the Lord says.

First they ignore you, then they ridicule you, then they fight you, then you win. -- Mahatma Gandhi

Submitted by hipparchia on

the lords [and their enforcers] do everything they can to keep the peasants from realizing they have options.

letsgetitdone's picture
Submitted by letsgetitdone on

I'm not telling them to "run up the tab." And I'm also not telling them that it doesn't matter how they run up the tab. I'm telling them that there is no solvency risk. I'm also telling them to spend/create money to create non-Government sector assets that will increase aggregate demand, and I'm also telling them to spend on the public purpose while doing that.

Now, in your scenario they screw this up by spending on things that have negative value and by continuing to screw people, so that things get really, really bad by 2015. Well that can certainly happen, but if it does it won't be because they know that there's no risk of insolvency, it will be because they are bloody-minded. If the public knowing that there is no solvency risk allows them to get away with that anyway, then the public will be getting what it deserves, but I don't see that the possibility of such an outcome is a justification for my not telling people that there's no solvency risk and that the Government ought to be spending on the right things.

Now let's say 2015 comes and things are really bad as in your scenario, then I don't see why this is an argument against using MMT at that point. We put people to work, create real value, and when full employment is reached we begin to tax away the ill-gotten gains of the rich, what's bad about that. And as for giving $250,000 jobs to 50 million people, that won't happen because it would create too much demand and cause inflation and would go against MMT principles.

In fact, MMT FJG proposals posit wages that are lower than private sector wages. The reason for this is to create an automatic stabilizer, so that when the economy goes into recession Government spending automatically expands to provide jobs for people, and when the private sector begins to recover from recession, it can hire the FJG workers back, and decrease the FJG rolls and Federal spending.

Walter Wit Man's picture
Submitted by Walter Wit Man on

You can only argue the truth as you see it and can't help if others misuse your position. Any lefty in America is accustomed to that reality I guess.

Thanks for your replies. If I were in charge I would go with your system.

But you do admit there is inflationary concerns so it is not valid to say there is "no" impact for deficit spending. Because that debt has to be monetized at some point. You are probably very correct that the politicians exaggerate the concern but it exists. And it is quantifiable. In my scenario, $26 Trillion dollars of debt would enter the economy pretty rapidly. At what level would it spiral out of control? I understand it's less of a worry than Zimbabwe or Weimar Germany because we have domestic capacity not being utilized. But isn't it possible to spiral out of control? Especially if the conjured money is going to the elite and not going to enter the economy until some even in the future (say the future MMT Sec. of Treasury decides to redeem all treasuries early for cash--in 2015).

Plus, there's the fairness. It's not like it's fair now, but what about savers? If someone has $250,000 saved now and we were to rapidly monetize say $25 Trillion, or $50 Trillion, won't their lifetime of saving be wiped out? I understand that may be the most fair thing to do at the time and we would rather provide employment for the masses rather than protect some savings, but it won't seem fair to the savers?

I'm not opposed to your arguments. I'm just playing devil's advocate to figure it out.

But I do think fairness is more important right now than deficit spending. A tax on the top 5% above a 50% marginal rate would solve a lot of our "problems" either real or imagined (like it would come closer to balancing the budget--but who cares about that--the real benefit is a more fair distribution).

letsgetitdone's picture
Submitted by letsgetitdone on

You say:

But you do admit there is inflationary concerns so it is not valid to say there is "no" impact for deficit spending.

Right, but in context, I think I was saying that there is "no" inflationary impact until we reach full employment. Sure, after we reach that point there would be such an impact so Government has to stop spending and raise taxes to avoid inflation. If the Government injected your $26 Trillion into the economy, there would certainly be inflation. Not because of the deficit per se, but because the Government was creating money, beyond the capacity of the economy to meet increased demand with new supply. However, I don't think that would cause things to "spiral out of control." The reason, of course, is that the Government can stop the spending and start taxing to lessen demand at any time. In other words, it is under their control. It is not like the Zimbabwe or Weimar situations where the situation was beyond Government control because of the external debt.

You next said:

If someone has $250,000 saved now and we were to rapidly monetize say $25 Trillion, or $50 Trillion, won't their lifetime of saving be wiped out? I understand that may be the most fair thing to do at the time and we would rather provide employment for the masses rather than protect some savings, but it won't seem fair to the savers?

I guess I don't understand why the Government would create 25 trillion in spending if much less would cause us to reach full employment Pavlina Tcherneva, one of the MMT economists, who spoke at our fiscal sustainability conference, estimates that even now a Federal Jobs Guarantee program wouldn't cost more than $500 Billion per year in additional Federal spending. That guarantees full employment, right there.

Beyond that point though, there's the larger one that MMT-based policy would entail beginning to raise taxes at the point of full employment. Assuming that happens, there would be no inflation and no "unfairness" to the person who had saved $250,000.

Next you say:

But I do think fairness is more important right now than deficit spending. A tax on the top 5% above a 50% marginal rate would solve a lot of our "problems" either real or imagined (like it would come closer to balancing the budget--but who cares about that--the real benefit is a more fair distribution).

I agree with you about fairness and think more explicitly that we need to restore a more equal distribution of wealth if we are to save our Democracy. However, I also think that a very basic unfairness is the one that leaves between 10 and 20% of the workforce unemployed when they want to work. I think that's the first bit of unfairness we have to tackle. The next bit is Medicare for All, After these two accomplishments, we can move on to the myriad other injustices that we see every day, among them the fact that so many high-placed criminals from our financial, insurance, defense, and political industries still walk free and have not been brought to account.

Walter Wit Man's picture
Submitted by Walter Wit Man on

I agree with your goals and see that we could finance full employment, socialized medicine, as well as social security and pension guarantees by going into deficit when needed and it would have minimal effect on inflation.

But I am worried we already spent $10 Trillion or so in bank bailouts and the government simply hasn't accounted for it yet and is slowly monetizing it (who knows what the number really is). Then add another $6 Trillion in deficits over the next 5 years, to pick a low-ball number, (and if it's like the last 10 years of deficits it will go primarily to war, tax cuts, and giveaways to a few large corporations and industries). Finally, add the current $13 Trillion in government debt, and that takes us close to $30 Trillion. Heck, my $26 Trillion dollar by 2015 hypo above might be conservative.

Then the banks come back for another round and say oh, we let our private debt get out of control and gambled over $200 Trillion on derivatives, and we need $5 Trillion more or we blow this sucker up. Then what?

And the banker bailouts are monetized into the economy differently than say a $500 Billion full employment jobs bill, right? Doesn't it take longer since it's just sitting on the bank's balance sheet whereas people spend their money in the community? But can't that money be monetized abruptly later?

Anyway, color me pessimistic about the future I guess.

Submitted by hipparchia on

But I am worried .... and we need $5 Trillion more or we blow this sucker up. Then what?

this - everything you list in your post - is exactly what the deficit hawks want us all to worry about. they want to spook us all into believing that we have no other options except to give up social spending. they are lying, and they are evil.

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Submitted by Walter Wit Man on

whether we spent $2 Trillion or $10 Trillion on bailing out bankers? It has ZERO meaning? Whether we have a debt of 50% of GDP or 1000% of GDP it's entirely irrelevant? Entirely?

I'm sorry. I see the accounting treatment and how this "imbalances" between the 3 sectors need not always balance perfectly--but there certainly are consequences for fundamental imbalances.

Hey, I'm board, like I say, with the argument that the threat is exaggerated. But as noted, you have a hard enough time to convince the body politic that 1) spending on jobs, pensions, socialized medicine, and other "good" things, is, well, good, let alone of convincing people that 2) deficits don't matter (at all! Ever!).

To me the important thing is #1 and focusing on #2 doesn't necessarily get us to #1. In fact, I see a focus on "deficits don't matter" simply leading to no new taxes for the rich and unlimited war spending. Fine, they will say, we'll do a piddly little stimulus bill, throw in some "jobs" money to a Dem pet industry, and then continue with their neoliberal agenda X 10.

Submitted by hipparchia on

i. wildly unlimited spending is bad
ii. reasonable spending, even spending that looks like a lot of spending, is good, but not if it's only spent on the wrong things

spending lots of money on the wrong things, such as bailing out the banksters and the warmongers, means: we've spent a lot of money; we've spent that money on things that aren't really going to help the rest of us or the economy in general; we've given that money to a small group of people who now have even more power over the govt than they did before. all bad. yes, we need to stop giving them money [and we need to institute 'confiscatory' taxes to take some of it away from them, to boot].

we are at a point where we still need to spend lots of money on the right things - jobs, health care, education, social security, etc - to turn the economy around, even though we have already spent lots of money on the wrong things.

the numbers that are being thrown around all look doomsday big, and the various ratios that we're being all being told to worry about all look doomsday scary, but the reality is that even if we throw lots of money at the things we need to spend on but aren't, even with all the money we've spent on things that are bad, we're still not up to the 'wild' spending levels of the depression and ww2.

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Submitted by letsgetitdone on

Walt and hipparchia, thanks for a great exchange. I think what I'm saying is that deficits, debts, and debt-to-GDP ratios are not by themselves relevant. They are the results of lack of utilization of productive capacity, coupled with excessive non-Government Sector savings. Of course, it's bad for the Government to spend excessively when full utilization including full employment is reached, but not because there may a deficit associated with that spending, but rather because the signs of inflation or inflation itself may be there.

When inflation is imminent, or is starting, the Government must then respond very quickly by raising taxes. In my view, it ought to first raise taxes on the wealthy to correct the mal-distributional effects of the past 40 years of neo-liberalism. But if the non-Government sector is really over-heated, it may have to start raising taxes on the middle class as well.

In any event, what I am saying is that Government spending and/or taxation should be increased or reduced depending on whether the non-Government sector needs greater utilization of productive capacity, or needs "cooling off." But the deficit, national debt, and public debt-to-GDP ratio numbers are irrelevant to whether or not it should spend or tax because these numbers are not themselves causes of anything, such that if they are targeted by policy those policies will produce desired results. Put simply, deficits, debts, and debt-to-GDP ratios are not relevant as policy outcome variables that measure the success or failure of Government economic policy.

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Submitted by letsgetitdone on

The Real Issue.

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Submitted by letsgetitdone on

Walter Wit Man,

Here are my replies

But the printing does have consequence, no? Through inflation from printing or through interest payments on debt service?

First it's not "printing." it's mostly spending/creating non-Government sector financial assets through marking up bank accounts, or in the case of Government job programs it's spending/creating salaries for people performing valuable work that the United States badly needs and that the private sector won't pay for. Second, whether inflation results from such spending is an empirical question. It doesn't logically follow that inflation will result from creating money. Inflation certainly won't result from Government spending until full employment is reached, in theory. And we know from earlier periods in American history that unemployment can fall to as low as 3% without having inflation, so why are obsessing about this when we have between 10 and 20% unemployment depending on how one wants to measure it?

And third, as we pointed out in the above post with links to other pieces, the Government can control short-term interest rates and drive them down to near zero if it wants to. So, debt service cost can also be driven down as low as we want it to be to control the costs of debt service. As we said above, the market need not control the costs of debt service; what those costs are is a political choice of the Government's. Next:

Also, by deficit spending now on certain things, aren't we prioritizing that spending over future spending on other things?

Only to the extent that our present spending creates full employment. If it does, then we would get inflation and would have to restrict spending. But if we spend on valueless things that do not produce full employment, then the Government still has room for speding in the future.

Say we wanted to stimulate aggregate demand and we spend $10 Trillion on war and we have to borrow that money via treasuries to pay for it (or I guess simply print the money up and hand it out). So assume that deed is done. And of course that $10 Trillion goes largely to the top 5% of the population (via the MIC).

First, we don't have to issue treasuries to pay for the War. We can just spend the money. Second, if it goes to the top 5% and the remaining 95% remain impoverished, then the Government can just spend another $10 trillion on them while it takes back as much of the first $10 trillion as it cares to take care of the distributional questions.

But my problem is that deficits would matter in that case, right? We would all pay the price, via inflation or interest on the debt, for the allocation of resources towards war.

It's not the deficits that matter per se. It's the spending itself, deficit or not. If you spend on things that have no value or negative value then you will be poorer. It's not about the money, and it's not about the deficit, and it;s not about solvency. It's about failing to use your resources, human and material to make worthwhile outcomes.

If the negative effects of this war spending are greater than the positive then I don't see how deficit spending now is anything other than a net negative. Doesn't it bake inefficiencies in the cake by agreeing to deficit spend now? Say we adopt MMT in 10 years time but we've spent 500% of our GDP on war and now owe it as a debt. That 10 years will cost us via debasement of our dollar when we finally print the money to pay it off, no?

Again, whether we owe a debt to anyone depends on whether we issue treasuries. We don't need to issue treasuries because we don't need to buy USD from the non-Governmental sector when we can create/make as much money as we want. So if MMT is followed, we won't have that debt.

On the point of inefficiencies. The inefficiencies don't come from the deficit, and can't be viewed as an argument or a reason against running deficits. They come from the decisions we've made about Government spending. We've spent to go to needless wars and to bailout the banksters. the fact that we've wasted money on that is an argument for stopping those activities. Not because we can't afford them and other things too, but because they are activities that are not working for us. They have negative value, so we need to stop them.

On the other hand, we need to start spending money on Federal Jobs programs, on Medicare for All, on Education, on Infrastructure, on re-inventing the energy foundations of our countries, on protecting the environment, on new science, on climate change, because this kind of spending is more likely to produce outcomes that will add value to the United States.

So, it's not about deficits. Whether we have deficits or not is something that will be determined by the course of our economy when we manage that economy to produce value. So that's our job, and that's the job of Government: producing value, not worrying about fiscal solvency, which with a fiat currency is an entirely irrelevant concern.

On the other hand, if deficient spending is for things that are good for the majority of the people, say health care or pensions, then I can see how deficient spending and debasing the currency is a net positive.

You're buying into the other world view. You don't debase a fiat currency by spending it to create real value. Rather, if you do that, you add to the value underlying the fiat currency, because that currency is based on all the real value you've created in your society and not some silly commodity like gold or silver.

But shouldn't the focus be on spending on the "good" things rather than the idea that deficit spending is never a problem?

It should. But we can't have that focus until we've made clear that the deficit schmucks: Peterson, Samuelson, Fred Hiatt, Alice Rivlin, Judd gregg, Mike Pence, Evan Bayh, Barack Obama, and the various loudmouth hypocritical members of the Hooverite austerity chorus, are scare-mongering about something that is a false issue.

They're trying to tell us that Government spending on worthwhile things must be avoided or severely limited because there is a solvency risk, i.e. because we are running out of money. However, as I said in another recent post:

“. . . how Are We Going To Pay For It” is not a legitimate question, when the “We” in question is the scorekeeper in a fiat money system with the authority to make however many “points” are needed to pay for available or potentially available goods and services.

So, in short, I don't want to hear “How Are We Going To Pay For It,” anymore. That question is nonsense for the United States. And discussions of it are pure distractions from the real issues. Let's debate, instead what the consequences are likely to be of paying for “it,” whatever “it” is. And let's compare those consequences with the likely consequences of not paying for it, or paying for something else, or paying for yet other alternatives. And then let's decide what the best thing to do is. But let's not, like the President, pretend that we don't have the money to pay for it; for a bigger lie has never been told than that one.

Hookfan's picture
Submitted by Hookfan on

If this is true:

Not true. with U.S. Govt spending not operationally constrained by available revenues the way Greece's is, we are always able to spend (or cut taxes) however much we want to, because all U.S. Government spending is operationally nothing more than the Fed using its computer to credit member bank accounts -- what can be called ‘the creation of new dollars.’ That is, the U.S. can always (and necessarily does) create more dollars when and if needed. whether we spend or not is a political decision without external financial constraints.

Then why make the populace pay taxes at all? Why not just have the Fed transfer the magic numbers and voila! all spending problems are solved? Politically both the stereotypical Republicans should be elated (No taxes, yeah!), and the stereotypical Democrats should be elated (More government spending, Yeah!), and Obama would have the perfect bipartisan solution. So, what's the problem?

Submitted by lambert on

... but if the government didn't demand tax payments in dollars:

1. The demand for the dollar would crash, and that would be bad; and

2. We would not have the fiscal tool of increasing taxes (moving money from the private to the public sector) if and when the economy overheats [and that, I'm sure I've got wrong, so please correct!]

First they ignore you, then they ridicule you, then they fight you, then you win. -- Mahatma Gandhi

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Submitted by Hookfan on

does not seem to compute with this:

whether we spend or not is a political decision without external financial constraints.

Submitted by lambert on

Fiscal constraints aren't the same as financial constraints, no? (If I have this right; I'm using a lot of these tools for the first time myself.)

First they ignore you, then they ridicule you, then they fight you, then you win. -- Mahatma Gandhi

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Submitted by Hookfan on

However, the fiscal tool of raising taxes would certainly lead to my financial constraint, and millions of others. But I can't legally print money like the fed can. So why doesn't the Fed just print more money to give to themselves, rather than require me to labor for it?
I think (but I'm not sure) there is a confusion between the perceived value of "dollars" related to tangible values like labor or property, and perceived value attributed to numbers given by the fed to somebodies account unrelated to any other value. Mixing these would lead to monetary problems like inflation etc., no?
If not, then print away--but quit taking my labor in taxes. Heck, if it's true, then have the best of both worlds and print money for both our domestic and militaristic needs. The debt doesn't matter, we are not financially constrained.
By the way, if the government quit taking my money in taxes, I would still value the dollar for what it would buy. In fact, I would have more of it. What's not to like? Let the government print its own money for itself-- they don't have to give me any. Free service provision, that the government makes its own money for payment with no monetary requirements on me, I could go for. See? I can be financially responsible =).

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Submitted by letsgetitdone on

Hookfan, You say:

But I can't legally print money like the fed can. So why doesn't the Fed just print more money to give to themselves, rather than require me to labor for it?

No you can't create money like the Government does when it spends by marking up non-Government accounts. That's why we say that you're operationally constrained while the Government is not.

As to why the Government doesn't just make more rather than requiring you to labor to get money to give them. I answered that earlier. There are three good reasons for taxation; but taxation should not be so high that it depresses aggregate demand enough that unemployment is the result.

I think (but I'm not sure) there is a confusion between the perceived value of "dollars" related to tangible values like labor or property, and perceived value attributed to numbers given by the fed to somebodies account unrelated to any other value. Mixing these would lead to monetary problems like inflation etc., no?

I think the Government spends money in the same way operationally whatever the purpose of its spending, and the value of its currency is also the same at any point, whether it's spending for valuable things or worthless things, or things that have a negative value. At any point the value of a dollar is what it is. What will cause inflation is the presence of more purchasing power and desire to purchase than there is a supply of goods and services to satisfy it. But conversely when there is more supply than there is purchasing power, we either need to increase purchasing power, or we will increase unemployment, and over time, see the deterioration in our ability produce wealth.

Then you say"

By the way, if the government quit taking my money in taxes, I would still value the dollar for what it would buy. In fact, I would have more of it. What's not to like?

If others didn't value it, then you would not value it, and many others value it because they must use it to pay taxes. Remember the US has a fiat currency system. The money has no intrinsic value. Its value must be created by its place in the economic system. That place is grounded in the fact that everyone must use only US money to pay taxes of all kinds. If that requirement didn't exist, people could choose to not use fiat money as the medium of exchange but to use "a real commodity" instead. That would give us a commodity money system and not a fiat money system, and would subject us to variations in the market price of that real commodity.

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Submitted by letsgetitdone on

You're too diffident.

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Submitted by letsgetitdone on

When we say no external financial constraints we mean things like:

1) No constraints on creating currency as there are in the Eurozone nations including Greece, and in the American states;

2) No agreements with external parties to pay debts to them in any currency not one's own

3) No agreements to peg the value of one's currency to some external currency one does not control.

We do not mean to say that there are no economic consequences of the decision to spend/create money to fill the gap in aggregate demand created by the decline in private sector spending just before or during a recession or depression.

And when we say it is a political decision to decide whether or not Government ought to spend in order create full employment, we mean that there are no economic laws "forcing" politicians not to do that. It is wholly their choice as to whether they want to prioritize an irrational fear of inflation over the lives of the 10-20% of the labor force whose lives are being blighted by unemployment. They've been doing that since the Carter Administration. It's time we prioritized full employment for a change.

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Submitted by letsgetitdone on

You had it right.

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Submitted by letsgetitdone on

Hi Hookfan, You asked:

Then why make the populace pay taxes at all? Why not just have the Fed transfer the magic numbers and voila! all spending problems are solved? Politically both the stereotypical Republicans should be elated (No taxes, yeah!), and the stereotypical Democrats should be elated (More government spending, Yeah!), and Obama would have the perfect bipartisan solution. So, what's the problem?

There are three reasons for taxation:

1) Taxation requires payment in the Government's legal tender, namely its sovereign currency. That means people require that currency to pay taxes and that, in turn, makes the currency valuable, and gives the Government the ability to buy goods and services, by offering that currency in exchange;

2) As Lambert says below, taxes are the primary tool the Government can use to cool the economy when inflation occurs. Since inflation will occur when demand succeeds the capacity to supply (produce) in an appropriate time frame, we need to have a powerful tool to counteract it.

3) Taxation is also needed for wealth distribution. wealth inequality in the United States is now worse than its been since the 1920s. And the extent of inequality is a danger to democracy and one of the important reasons why there's so much buying of politicians these days. If we allow the continued growth of inequality, we will transform our democracy into a plutocracy. In fact, some argue that has already occurred. So we need a tool to reverse that trend. Taxation is it. We need to re-impose inheritance taxes and much higher marginal tax rates without the loopholes that used to exist to make those rates ineffective.

Hookfan's picture
Submitted by Hookfan on

Thank you for taking the time for the thoughtful reply.
However, I remain in darkness as to how your three reasons answer my question.

#1 tells me why the government requires that monetary exchange (like paying taxes)is done through the designated currency. But it does not explain why the populace, rather than the government itself (through the fed's ability to supply endless numbers through their computers to someone's account) is the target for taxes, or even why taxes are necessary at all as the government can produce its own revenue through the Fed's number supply.

#2 If the Fed's number supply functions exactly as supply defined by goods and services, then how can inflation be a problem at all? The Fed's capacity to supply is endless-- it just adds more numbers. How can demand exceed an endless capacity to supply?

#3 Why is Taxation the designated tool for wealth redistribution, and especially taxation targeting the populace (including corporations) when the fed can just create numbers and distribute them to whomever it pleases? In fact why is redistribution necessary at all? The fed can just generate its own revenue and equalize wealth however it pleases, without taxing the rich or middle class at all.

I'm not just being a smart ass. The assertion of a fiat economy is intriguing, but I remain confused. There's gotta be consequences for those numbers not tied to anything. . .

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Submitted by letsgetitdone on

Hookfan

#1 tells me why the government requires that monetary exchange (like paying taxes)is done through the designated currency. But it does not explain why the populace, rather than the government itself (through the fed's ability to supply endless numbers through their computers to someone's account) is the target for taxes, or even why taxes are necessary at all as the government can produce its own revenue through the Fed's number supply.

Sorry. I thought I was clear. It's not about revenue. The Government needs to tax so that the non-Government sector will need the Government-generated currency, and will accept that currency in return for goods and services it performs for the Government sector. Is that confusing? the Government needs to employ people. It needs to buy uniforms, arms, paper, computers. People won't exchange these things for currency unless they need the currency. And, in the first instance, they need it to pay taxes.

#2 If the Fed's number supply functions exactly as supply defined by goods and services, then how can inflation be a problem at all? The Fed's capacity to supply is endless-- it just adds more numbers. How can demand exceed an endless capacity to supply?

Whose demand? Whose capacity to supply? If the Government supplies money to the non-Government sector in amounts that exceed the Non-Government sector's capacity to supply goods and services to the holders of currency, then inflation can well be a problem. This won't happen until the economy reaches full employment, but at that point, assuming productivity remains reasonably constant in the short run, further spending by the Government will result in increasing demand outrunning the ability to supply goods and services and we will have inflation.

#3 Why is Taxation the designated tool for wealth redistribution, and especially taxation targeting the populace (including corporations) when the fed can just create numbers and distribute them to whomever it pleases? In fact why is redistribution necessary at all? The fed can just generate its own revenue and equalize wealth however it pleases, without taxing the rich or middle class at all.

Because creating greater demand through Government spending will cause inflationary consequences when full employment is reached. At that point, higher taxes will be needed to lower demand,. Since they'll be needed anyway for that purpose, they also may as well be concentrated at the higher income levels to create greater equality.

Nothing too radical I think, just the kind of reasonable distribution of wealth we had during the 50s and 60s of the last century, while also introducing enough of a social safety net to eliminate poverty and give everyone educational opportunities sufficient to end the drift we're seeing now toward the formation of a hereditary wealth-based aristocracy here in America.

Hookfan's picture
Submitted by Hookfan on

from Walter's pursuit from knowledge and my pursuit from ignorance we get:
1) the government is not financially constrained (by your definition of financial constraint) in its ability to spend however much it wants, or on what it wants
2)thus "solvency" is not and cannot be an real issue in our fiat economy
3) thus debt in itself is not a real issue because the government has a limitless capacity to spend in a fiat economy-- the government always has enough money
4)inflation is not a real concern until we reach" full employment" (I'm uncertain what that means as we can hire international workers, and have many undocumented immigrants that also seek employment but I won't quibble as I don't know what you mean, nor do I know how to determine with much accuracy unemployment either, but that's another issue to be explored ignorantly)
5) Taxation on the populace is necessary as: a) it establishes the currency (decreed by the sovereign government as the only acceptable means of payment ) as valuable, and 2) it is a tool to prevent or lower inflation.

However, there are "constraints" (you just don't define them as financial) resultant from government spending (maybe more accurate to say "on what the government spends" but I'm not certain), i.e., potential result of inflation as employment increases (or attains?) full capacity, and loss of "value" if the government doesn't spend on what increases the value or the creation of greater value in the economy.

From this (assuming it is a correct statement of your premises) there are several implications:
1)Since there is no present risk of inflation (we are at around 10% unemployment, or more depending on what criteria is chosen), and the reason for taxation is prevention of inflation, then it follows that the only reason to not reduce my taxes to 0 until inflation is a risk is political, i.e., THEY DON'T WANT TOO. Why they don't want too is a fruitful question to explore and NONE of the answers make me very happy-- especially when one views taxation as a potential tool of social oppression. And I'm even more unhappy when it's clear WHO in the private sector is being taxed, and who is not (iirc GE and several other corporations have paid no taxes this year).
2)Since the government is not constrained on how much it spends, or where it spends in the private sector, whom the government supports, and whom they don't support shows its priorities as well as what type of society the government wishes to develop, or maintain. Clearly, just looking at whom the government has thrown money at, the average populace (i.e., most of us) is not its priority, but corporate hegemony is.
3)A final (but potential discouraging one for many) implication is there is no way to "starve the beast" and prevent the corporate hijacking of government programs ostensibly established for the populace's wellbeing because the beast creates its own food. And the corporations through its bought congresspeople and its bought president can unendingly lend to themselves, or at least until the underlying value in the economy is depleted. . .

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Submitted by letsgetitdone on

you might think, Hookfan, that except for some semantic disagreements, I agree with everything you've said up to item:

3)A final (but potential discouraging one for many) implication is there is no way to "starve the beast" and prevent the corporate hijacking of government programs ostensibly established for the populace's wellbeing because the beast creates its own food. And the corporations through its bought congresspeople and its bought president can unendingly lend to themselves, or at least until the underlying value in the economy is depleted. . .

The reason why I don't agree with this, is that I still think it is possible to prevent corporate hijacking of Government programs. We need to get very mad, and we need movements, and we need to take our Government back. And I think we will develop those movements and that we will have a democratic (small d) renewal in our country which will allow us to use Government spending for the public purpose.

Walter Wit Man's picture
Submitted by Walter Wit Man on

when it buys treasuries from itself when there are no other bidders, from what I understand. Who knows how much this is.

The only other way I can think that our government "creates" money is by creating "loans" to the Banksters at below-market rates.

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Submitted by cenobite on

Inflation happens when there's too many dollars chasing too few goods, so prices for goods goes up. You can't really have it unless people are spending money. And in a savage recession, people are saving money and not buying goods and services. They're paying down debt and saving in case they lose employment.

In this statement:

the 'right sized' deficit is the one that coincides with full employment and desired price stability.

"desired price stability" means "the inflation rate we want" -- deflation is economic death so we don't want prices steadily going down y/y.

Walter Wit Man's picture
Submitted by Walter Wit Man on

I can't help but wonder if the solution to Greece's problems would be for it to simply default, drop the Euro, and go back to a Greek sovereign currency. That would solve the problem of not being like the U.S.

I guess not many people would buy any new debt issuance, but so what? If they get to wipe the slate clean seems to me the would be able to operate just fine without the Euro.

I guess I don't understand why most sovereigns issue debt rather than print money. Is it beneficial to allow the people (as well as foreigners) to invest in a safe product like treasuries? But why is that tool preferable to issuing more currency? This is still my main conceptual conundrum with MMT. And I thought sovereigns of yore simply printed money so I guess there must have been a reason for the switch to issuing debt instruments.

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Submitted by letsgetitdone on

Walter,

I can't help but wonder if the solution to Greece's problems would be for it to simply default, drop the Euro, and go back to a Greek sovereign currency. That would solve the problem of not being like the U.S.

For answers to that question see here and here.

I guess not many people would buy any new debt issuance, but so what? If they get to wipe the slate clean seems to me the would be able to operate just fine without the Euro.

See above and also note the history of Argentina's recent default, which shows you do still get to issue new debt as well as get a recovering economy after default.

I guess I don't understand why most sovereigns issue debt rather than print money. Is it beneficial to allow the people (as well as foreigners) to invest in a safe product like treasuries? But why is that tool preferable to issuing more currency? This is still my main conceptual conundrum with MMT. And I thought sovereigns of yore simply printed money so I guess there must have been a reason for the switch to issuing debt instruments.

Well, I think they issue debt for two reasons. First, they still think as if they were still on the gold standard and further think that they are financing government spending through taxing and borrowing. And second, they tend to act in the interests of people who want to buy debt instruments as safe investments rather than in the interests of their citizens. I think this last is a very important reason why they still do that. it's elites acting on behalf of elites.

Submitted by libbyliberal on

You remind me of that sane Jimmy Stewart in It's A Wonderful Life, keeping the old savings and loan going, despite the run on the bank and hysteria. Protecting us from Pottersville and I thank you.

I need to read through again and check out comments but wanted to touch base. Good going!

This may be left field but didn't US freak because Saddham was messing around with switching away from US dollar in transactions? One more reason to depose him, or maybe THE reason?

And didn't the rating agencies commit mischief to weaken the Euro in order to protect the dollar?

Re health care. I can't stop using the words rat bastards re the deficit-mongerers. deficit-mongrels.

Keep up the good fight. The Krugmans and the Kuttners ... you wanna trust them so badly ...but they toy with our liberal perspectives and then often betray. Is that a kind of cronyism with the powers in power? I keep wondering. That electric fence I think Dr. Flowers spoke about with Frontline when they betrayed with Single Payer. Just couldn't go that far. Or with Kucinich and Wiener and Sanders and Conyers.

God, Greenspan still pontificating on MTP. What a world!

Vision without action is a daydream. Action without vision is a nightmare. (Japanese proverb)

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Submitted by letsgetitdone on

Thanks lib, I just wonder about Krugman, Baker, Kuttner et al too. I guess it's just that disposition not to want to seem too far out there for fear of losing all access. That's what was behind the progressive move to the PO. Somehow it wasn't as far out as HR 676.

On this issue too, they just don't feel comfortable telling people that the deficit is not important at all and that they should just fuhgeddaboudit!

Submitted by lambert on

Missed that one from Flowers. Can you quote and link?

First they ignore you, then they ridicule you, then they fight you, then you win. -- Mahatma Gandhi

Submitted by hipparchia on

i didn't find anything about electric fences and margaret flowers, but i did find this:

Editor’s Note: In a U.S. news media that often seems to follow either the Right’s ideological dictates or Corporate America’s financial interests, there is at times hope for something better from PBS and its documentary series, Frontline.

Though Frontline does produce some quality content, the series often appears to stay within some invisible border, like a dog that gets shocked if it ventures over an electronic fence, a behavior on display in a recent Frontline show on health reform, as Dr. Margaret Flowers notes in this guest essay:

Submitted by libbyliberal on

was that from consortium, hipparchia? I see your link and it is coming back to me. I will go over my Flowers links. I thought she said it, but hipp's quote above is where I probably read it and assumed Flowers said it, too, in her Frontline criticizing piece.

Vision without action is a daydream. Action without vision is a nightmare. (Japanese proverb)

Submitted by libbyliberal on

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Vision without action is a daydream. Action without vision is a nightmare. (Japanese proverb)