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"Unfortunately, several eurozone countries allowed fiscal deficits to grow in good times, rather than only when demand was weak. In other words, these countries’ national debt grew because of “structural” as well as “cyclical” budget deficits."
Matt, I believe that it's true in the context of the EZ where the members of the EMU are revenue constrained and must either tax or borrow; hence, have to observed fiscal discipline. In fact, this is the way the neoliberal architects of the EMU purposely set it up in order to control inflation — at the insistence of Germany.
But I look at Feldstein from the right here as more or less taking the "deficit owl" position and your post of the Jeffrey Sachs article at HuffPo I interpret as a "deficit owl" or "taxpayer on the hook" type of approach; where Sachs advocates taxing "the rich" to redistribute to "the poor" as if "money" is provided to the govt from the non-govt.
Both of these orthodox economists are really out of the MMT paradigm imo. They cant fully commit to it.
Why? I think this may at core get back to what PeterC blogged about ie "the Chartalist view of State Money".
As we have seen, many cannot let themselves believe this view. Cullen, the FDO15 person at PeterC's, perhaps all "deficit owls", when faced with this "fact" seem to mentally rebel against accepting it. They look at it as "big government" on the right, and perhaps "too authoritarian" on the left.
Maybe this is what is also holding Prof Galbraith back as far as full MMT paradigm; and we witness his repeated obsession with getting the deficit down ("deficit owl"). He still doesnt really get MMT either imo; maybe this is why.
I think once you have reached full MMT paradigm, the fiscal deficit takes a backseat to real outcomes, you dont even want to discuss it anymore, you become dismissive of the deficit as a primary subject of policy discussions. You become fully focused on real outcomes, not the accounting numbers (which is what the deficit is).
This may even be the root cause of people wanting to use the gold standard. These gold people would rather be at the mercy of the gold miners and sellers rather than coerced by the government.
Looks like a lot of people dont want to feel that they are being coerced by the government both on left and right. This could be a big mental block in the population as far as gaining wide acceptance of MMT.
Btw, Martin Feldstein had an article in 1992 arguing against the EMU.
http://www.nber.org/feldstein/economistmf.pdf
"Nothing comparable to America's fiscal system exists in Europe, where virtually all taxes are paid to national and local governments. There is no fiscal transfer from the EC as a whole to countries that experience a relative cyclical decline. Without such a centralised fiscal system, shocks to aggregate demand that are geographically focused, or shifts in the real equilibrium values of national exchange rates, have a bigger impact on regional income and employment."
Matt, I think you're confusing deficit dove (the category Feldstein probably falls in) with deficit dove (Galbraith, Paul Davidson, YOU). :o) (h/t Joe Firestone)
The deficit owl prescription is to increase Government spending on programs directed toward the public purpose, until all excess productive capacity in the US economy is used, and then cut back on less valuable spending, or raise taxes as necessary to avoid inflation. Deficit owls also believe that there is no need to worry about deficits as long as Government spending hasn’t helped to created enough aggregate demand to use excess productive capacity, and that thereafter, aggregate demand needs to be cut either by reducing spending, raising taxes or both, not in order to reach some arbitrary deficit or surplus number, but rather to achieve the specific goal of avoiding inflation. http://kmci.org/alllifeisproblemsolving/archives/deficit-doves-vs-deficit-owls-at-nd20/
Beo yes you are right, Deficit OWL for Prof J. Galbraith... sorry got my "birds" mixed up...
But I would still say that when you move into a full understanding of the MMT, even an "owl" position is not really needed any more... you would probably want to watch something else like employment levels or certain price levels to determine whether to adjust fiscal policy vice "the deficit".
The deficit becomes of little importance once you reach a full understanding of MMT is perhaps a larger point I was trying to make, the focus can turn solely to real outcomes.
Warren always says that the unemployment number is the figure to look at. As long as the economy is not running at "loose" full employment, then the deficit is not large enough.
After that, acceleration of price level becomes the issue.
But even there, it is important to be aware of the difference between monetary inflation and price rises due to supply shortage, e..g,, with a petroleum monopolist controlling oil price.
9 comments:
Excellent piece, thank for linking.
"Unfortunately, several eurozone countries allowed fiscal deficits to grow in good times, rather than only when demand was weak. In other words, these countries’ national debt grew because of “structural” as well as “cyclical” budget deficits."
This is out of paradigm.
Matt, I believe that it's true in the context of the EZ where the members of the EMU are revenue constrained and must either tax or borrow; hence, have to observed fiscal discipline. In fact, this is the way the neoliberal architects of the EMU purposely set it up in order to control inflation — at the insistence of Germany.
Forced depression to take over assets
Right Tom,
I guess for the EZ it's a bit different.
But I look at Feldstein from the right here as more or less taking the "deficit owl" position and your post of the Jeffrey Sachs article at HuffPo I interpret as a "deficit owl" or "taxpayer on the hook" type of approach; where Sachs advocates taxing "the rich" to redistribute to "the poor" as if "money" is provided to the govt from the non-govt.
Both of these orthodox economists are really out of the MMT paradigm imo. They cant fully commit to it.
Why? I think this may at core get back to what PeterC blogged about ie "the Chartalist view of State Money".
As we have seen, many cannot let themselves believe this view. Cullen, the FDO15 person at PeterC's, perhaps all "deficit owls", when faced with this "fact" seem to mentally rebel against accepting it. They look at it as "big government" on the right, and perhaps "too authoritarian" on the left.
Maybe this is what is also holding Prof Galbraith back as far as full MMT paradigm; and we witness his repeated obsession with getting the deficit down ("deficit owl"). He still doesnt really get MMT either imo; maybe this is why.
I think once you have reached full MMT paradigm, the fiscal deficit takes a backseat to real outcomes, you dont even want to discuss it anymore, you become dismissive of the deficit as a primary subject of policy discussions. You become fully focused on real outcomes, not the accounting numbers (which is what the deficit is).
This may even be the root cause of people wanting to use the gold standard. These gold people would rather be at the mercy of the gold miners and sellers rather than coerced by the government.
Looks like a lot of people dont want to feel that they are being coerced by the government both on left and right. This could be a big mental block in the population as far as gaining wide acceptance of MMT.
Btw, Martin Feldstein had an article in 1992 arguing against the EMU.
http://www.nber.org/feldstein/economistmf.pdf
"Nothing comparable to America's fiscal system exists in Europe, where virtually all taxes are paid to national and local governments. There is no fiscal transfer from the EC as a whole to countries that experience a relative cyclical decline. Without such a centralised fiscal system, shocks to aggregate demand that are geographically focused, or shifts in the real equilibrium values of national exchange rates, have a bigger impact on regional income and employment."
Matt, I think you're confusing deficit dove (the category Feldstein probably falls in) with deficit dove (Galbraith, Paul Davidson, YOU).
:o) (h/t Joe Firestone)
The deficit owl prescription is to increase Government spending on programs directed toward the public purpose, until all excess productive capacity in the US economy is used, and then cut back on less valuable spending, or raise taxes as necessary to avoid inflation. Deficit owls also believe that there is no need to worry about deficits as long as Government spending hasn’t helped to created enough aggregate demand to use excess productive capacity, and that thereafter, aggregate demand needs to be cut either by reducing spending, raising taxes or both, not in order to reach some arbitrary deficit or surplus number, but rather to achieve the specific goal of avoiding inflation.
http://kmci.org/alllifeisproblemsolving/archives/deficit-doves-vs-deficit-owls-at-nd20/
Beo yes you are right, Deficit OWL for Prof J. Galbraith... sorry got my "birds" mixed up...
But I would still say that when you move into a full understanding of the MMT, even an "owl" position is not really needed any more... you would probably want to watch something else like employment levels or certain price levels to determine whether to adjust fiscal policy vice "the deficit".
The deficit becomes of little importance once you reach a full understanding of MMT is perhaps a larger point I was trying to make, the focus can turn solely to real outcomes.
Resp,
Warren always says that the unemployment number is the figure to look at. As long as the economy is not running at "loose" full employment, then the deficit is not large enough.
After that, acceleration of price level becomes the issue.
But even there, it is important to be aware of the difference between monetary inflation and price rises due to supply shortage, e..g,, with a petroleum monopolist controlling oil price.
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