Tell Obama, everyone: there is #nodeficitproblem because we are #sovereign in our own currency
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Over the past year, in an attempt to head off the austerity program gaining steam in Washington, DC, I've blogged the truth about the deficit/debt problem on many occasions. That truth is that there is no deficit/debt problem, and that deficits and debts, no matter how large they may be, don't affect the ability of the United States to create more money.
So, there is not and cannot be a solvency problem, unless Congress refuses to do its duty and appropriate dollars to pay the Government's bills. Of course, if the Government spends beyond what's necessary to add enough aggregate demand for the US to get to full employment, then demand-pull inflation will result from the excess spending. But 1) we've got a long way to go until we reach that point; and 2) the inflation issue not a debt/deficit/solvency issue.
So, the solvency issue needs to be taken off the table for discussion, and certainly as a basis for action, and austerity programs and long-term deficit reduction plans like those of Paul Ryan and the Administration. In addition, our erstwhile leaders need to all get off their high horses about fiscal responsibility, fiscal sustainability, "biting bullets," "having adult conversations," and other such nonsense, and face up to their real responsibility which is spending enough, in the right way, to give every American who wants to work a job at a living wage with decent fringe benefits. Until they do that, they are the ones who are being fiscally as well as morally irresponsible.
So far, my efforts to send this message to our politicians don't appear to have gotten through. So, I want to try again. This time by trying a twitter campaign. A little while ago, I tweeted:
The US can't run out of money, unless Congress refuses to make it! #nodeficitproblem
I'm going to continue this effort by tweeting all the reasons I can think of why the US has “#nodeficitproblem.” If you agree with me, please hep me tweet the truth. Let's get “#nodeficitproblem,” trending!
(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).
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You can support MMT and Joe if you have a twitter account...
.... by clicking on the twitter icon at the bottom of the post, which will tweet it, complete with tiny URL and hash tags.
You do need a Twitter account, but you don't even need to be logged in to Corrente.
Thanks!
done!
:)
is there a way to make the shortened url into a hyperlink. people don't click on links all the time anyway, and having to c&p to a browser bar is a disincentive.
Done
I needed to add the "http://" protocol and delimiters in front of the tiny URL.
If wishes were horses beggars would ride
Just by repeating over and over again that the US does bot have a debt/deficit problem, does not make the problem go away. And the problem is that we are approaching debt levels that historically have had the effect of decreasing growth (read Rogoff and Reinhart on that). If growth slows, so does employment, which means less consumption, less production, leading to less employment, etc. A vicious circle is created.
Your idea of the government just printing more money to pay its debts leads to two linked things inflation, and a declining dollar. If we inflate away (or try to) our debt, we will lose credibility in the debt markets, making it much harder for the US to borrow in the future, and increasing the costs of borrowing. It is a horrible solution.
I agree with you that the US can indefinitely run deficits and can be a debtor forever. as long as the dollar is the reserve currency. Once it loses that status - and your plan to just print more will accelerate that process - then you become just like any other nation with a huge debt load and no way to repay it. You become Greece.
1. rogoff/reinhardt "just
1. rogoff/reinhardt "just isn’t careful work." [link fixed]
2. ... making it much harder for the US to borrow in the future, ...
except that the us doesn't have to borrow
Hipparchia link above
goes to a page not found.
argh
and i was so sure i checked all the links too. will attempt to fix.
I'm very sorry, nudik
But please do a little homework. What you've just stated above is neo-liberal clap-trap refuted a thousand times here in more than a hundred blog posts. Try reading a few here: http://www.correntewire.com/blog/letsget...
Among them is a blog by Warren Mosler and myself, explaining why the US can never be the next Greece. Hint: it involves the fact, that Greece is no longer sovereign in its own currency. Reinhart and Rogoff's work also cuts no ice, here. Nor, does any work from either the IMF or the OECD, both of whose economists subscribe to false and frequently refuted economic theories.
Here are some links explaining why we don't think any of these sources produce work that can serve as the basis of fiscal policy:
http://www.newdeal20.org/2010/03/02/goin...
http://bilbo.economicoutlook.net/blog/?p...
http://neweconomicperspectives.blogspot....
http://neweconomicperspectives.blogspot....
http://neweconomicperspectives.blogspot....
http://neweconomicperspectives.blogspot....
http://bilbo.economicoutlook.net/blog/?p...
http://bilbo.economicoutlook.net/blog/?p...
http://bilbo.economicoutlook.net/blog/?p...
http://bilbo.economicoutlook.net/blog/?p...
I know you won't read these, but I'm citing the links to let you and other readers that there's a substantial body of work that is very critical of Reinhart and Rogoff and other IMF and OECD conventional wisdom, and unlike their work, this MMT research both explains the Great Recession and also predicted it prior to its occurrence.
Next, our ability to avoid insolvency has nothing to do with the fact that the US is the reserve currency. Australia has the same capability, as does Japan and a number of other nations. None but the US has the reserve currency.
Finally, your assumption that we advocate indiscriminate printing of money is wrong. See: http://www.newdeal20.org/2010/07/20/defi... and also:
http://www.correntewire.com/paul_takes_a...
http://bilbo.economicoutlook.net/blog/?p...
http://bilbo.economicoutlook.net/blog/?p...
What we advocate is Government spending to achieve public purposes. We don't think there are limits on such spending short of a full employment economy, and whether spending must be curtailed to manage inflation at that point has nothing to do with fiscal solvency or "running out of money."
Next, your assumption that the bond markets can determine whether or not we can run deficits forever is wrong. the bond markets don't control our interest rates. We do. See: http://www.correntewire.com/moodys_bring_it
Also, the notion that we need to incur debt to "fund" our deficit spending is also not correct. See:
http://www.correntewire.com/once_again_n...
http://www.correntewire.com/use_coin_sei...
Finally, the neo-liberal narrative you've provided here is essentially the same as the President gave us a few days ago in his speech on the budget. I analyzed his assumptions here:
http://www.correntewire.com/its_all_fram...
His narrative is flat out wrong, and also criminally so considering the vast number of Americans who will suffer because of Hooverian Economic policies.
Traction
It's great news that our rightwing troll is monitoring us, and moreover, feels the need to weigh in on this issue.
Sounds more
like an Obama troll to me. Now that the campaign is starting up in earnest, we'll be seeing a lot more of them. Pretty soon they'll be playing the fear and guilt cards again.
Interesting but problematic
Thanks for all those links on MMT. I took a look at a few of them and did some more research on this theory, and while it is interesting as a thought experiment and description of our monetary system, it has a number of mistakes/problems, and as policy is impossible.
What it seems to advocate is a centrally planned economic system, where the government would choose what to spend on and thereby create employment and wealth. This has been tried a number of times in the past (USSR, Cuba, etc), and did not work out very well.
Other issues with the theory:
-Government spending does not just add financial assets to the economy, it spends on goods, services and employees. And while it may add spending power, it also absorbs resources. Thinking of govt in only financial terms is a mistake.
-The central bank may not have direct control of government spending, but it uses already issued bonds to regulate the money supply by raising the cost of borrowing, which does have an impact on government conduct. This has been proven in the past, and will again when bond rates go up.
-Ignoring the money multiplier is simply wrong. It is a real thing, and the reason that this recession was so bad is because banks held such high reserves, making the multiplier very small.
On the practical side, using taxes to control the money supply is simply not possible in our government system. If government overspends (under MMT) the way to take back that money would be in the form of taxation. But taxes are sticky, as opposed to interest rates. The Fed changes interest rates whenever it wants to, it takes us months of debates to change tax rates.
Basically, if this theory were ever put into practice, it would mean a huge misallocation of resources leading to bubbles and shortages, and it would mean hyperinflation.
Huh?
Nudnik, Where did you get the idea that MMT advocates a centrally planned economy? This isn't so! Please provide some quotes, or withdraw this silly statement.
You also said:
Who said anything about seeing the Government only in financial terms. Not I, surely. And not MMT either. The Government does use resources. But how much in resources we want the Government to use is a political question, not just an economic one. the size of it should be determined by our public purposes. I'm afraid I don't see the relevance of your comment about the Fed. The Fed is the Government. The regional Fed banks may be privately owned but they are strictly regulated by the Fed system, administered by the Fed Board of Governors in Washington, which is an agency of the Federal Government.
There's no evidence at all that "the money multiplier' exists, or that reserves are important in increasing lending. See here.
Next, you said:
Interest rate manipulations don't work to moderate inflation in the short run. They're too blunt an instrument. Raising them has the initial effect of feeding inflation, and it can take a long time for them to break the inflation they exacerbate. Finally, the cure is worse than the disease, because when that expedient finally does work it will cause a recession that is more costly than the inflation was. All this was illustrated by Volcker's antics during the late 70s and early 80s. So yes, it's easy to change interest rates, but that doesn't work. So, who cares?
On raising taxes, I think you're projecting the present political situation on a future one that will be entirely different. If people begin to believe in MMT, then the view that the ability to easily raise and lower taxes is essential to control demand-pull inflation will also spread. If an MMT-recovery is generated, in part, through a payroll tax holiday, then it will be very easy to provide authority to the President, in whole or in part to raise those taxes again when the need to regulate inflation presents itself. manipulating payroll taxes is a very good way to regulate inflation. Another way of doing this that would be very easy to manage would be to enact a property tax on Houses based on square footage. This is a progressive tax of course. Then the President could be given authority to back off this tax in tough times and re-impose to cool the economy.
This statement is totally unexplained by you. It is pure BS! Why should anyone believe it? Why would MMT policies lead to a misallocation of resources? Why would it lead to bubbles? And, if it did, why would those be any worse than the horrendous bubbles we have under the neo-liberal regime? Why should it lead to shortages? Shortages of what? And hyperinflation, what's your reasoning here? Do you have any idea what causes hyperinflation? Hint: printing currency isn't enough to do that. See the Bill Mitchell link above.
Time to either get serious, or stop being a nudnik
thanks Lambert and Hipparchia
for your timely and very good support.
thank you for writing
and writing... and writing... and writing... and writing...
Thanks for that
I've been learning a bunch a I go along. The MMT crowd is a great bunch. Considering all the slings and arrows morale is very high.
You do a very good job translating it into plain language
and that's necessary to boil MMT down to a politically feasible legislative agenda.
I'm reading Drew Weston's book the Political Brain now. It does make me think MMT has to be framed with a simple narrative (a parable if you will) explaining the problem in terms that people get emotionally while offering a solution that Congress could enact with a short bill with a pithy title. I figure an MMT bill has to tie to the bank bailouts and combined it with a big revenue-neutral (Paris is worth a mass and all that) tax cut for the rest of economy (public interest plus huge tax cut will get you farther than public interest alone)
To that end, RSJ wrote a recent piece that's pretty fascinating, it explores how Congress could reclaim seigniorage profits from banks. Option 1 is ban it with only the govt allowed to create money (much like Kucinich's bank reform bill). Option 2 is to tax it, and that's interesting. If I followed him correctly, once debt free money issued, instead Fed Fund rate being anchored with interest on reserve payments, there'd be a tax on bank assets, the tax rate matching the Fed Fund target. So whenever the Fed raised interest rates, it would also automatically drain more reserves in taxes.
http://windyanabasis.wordpress.com/2011/...
That's
a brilliant post by RSJ. Thanks for calling it to my attention. I have to think about it awhile.
There is now a new blogroll section for MMT...
.... here, so I encourage readers to comment on them in support of lets's #nodeficitproblem campaign.
Too bad
we are no longer 'sovereign' in our oil consumption.
Good one
We lost the ability to set oil prices in the 70s to the Saudis.
lets, is there any interest
lets, is there any interest among MMTers in analyzing the economy as a kleptocracy? I have the feeling that they haven't yet kleptocracy creates distortions which I don't think they take into account.
this is probably the closest
this is probably the closest i've seen on that.
MMT and Kleptocracy
MMT writers tend to focus on the macroeconomy and how the monetary system works and on dispelling the myths of neo-liberalism. But there are some MMT-associated writers who frequently right about the frauds and bank corruption. Randy Wray does and has co-authored articles with Bill Black. Michael Hudson also writes on fraud from time to time. Bill Black, of course, is always writing on accounting control fraud and very often on the MMT UMKC site. His latest effort is here. Finally, Jamie Galbraith writes a good deal on fraud and the housing market, and relates the frauds, the housing, bubble and the collapse of aggregate demand.