Sunday, March 24, 2013

"Deficits do matter, but not how you think" — Interview with Stephanie Kelton

InvestmentNews: Does the federal government ever need to cut its deficit?
Ms. Kelton: The private sector should decide that. The public sector is the partner in the dance. The government should let the private sector lead. When the private sector wants to increase its holding of dollars and net financial assets, and save less and spend more, the only way that can happen is for another sector to spend less. If the government doesn't play ball and run a deficit, it will cause a recession. The proper role of government is to be responsive. When there's an increased private appetite, you accommodate that by running a deficit. It's irresponsible not to.
The deficit will come down by itself. I don't think policy makers should actively manage the deficit. Right now, the deficit is falling at the fastest rate since World War II. No one talks about that.
While the folks in Washington are falling all over themselves to come up with a plan to cut the deficit, it is quietly plummeting at its fastest pace in two generations because the economy has been adding jobs. Deficits rise when unemployment rises and they fall when unemployment falls.
Investment News
Deficits do matter, but not how you think, economist says
Interview with Stephanie Kelton, Professor of Economics, UMKC
(h/t Clonal Antibody via mail)

7 comments:

Matt Franko said...

" it is quietly plummeting at its fastest pace in two generations because the economy has been adding jobs."

I hope this doesnt give any morons the impression that "everything is back on track..." ... at least any employment gains have not been the only (short term) reason for the deficit having a decreasing result...

We have had the Jan 1 Payroll tax increase (increases deposits short term) and a drop in Net Withdrawals over the last few months prior to February...

February was a month that posted an extremely high rate of deficit growth in fact... mostly due to IRS Tax Refunds on the Withdrawal side...

December results were a 20B SURPLUS, January a 30B deficit, then February the deficit blew out to 228B on a blowout 443B of Net Withdrawals so (ultra short term) the deficit result has been back to an increasing trend.

rsp,

Ralph Musgrave said...

Keynes put Stephanie’s point in ten words: “Look after unemployment and the budget will look after itself”.

Unfortunately the morons in power, and in many university economics departments don’t understand that point.

Joe said...

The paragraph where Stephanie said "When the private sector wants to increase its holding of dollars and net financial assets, and save less and spend more, the only way that can happen is for another sector to spend less. If the government doesn't play ball and run a deficit, it will cause a recession."
- is mangled, I think. Maybe it was transcribed wrong? Shouldn't it read,

"if the private sector wants to increase its holding of dollars and financial assets, save *more* and spend *less*, the only way that can happen is for another sector to spend *more*. If the government doesn't play ball and run a deficit, it will cause a recession."

Stephanie Kelton said...

One word -- butchered.

Dan Kervick said...

Yeah, unfortunately the writer's botch substituting "spend less" for "spend more" makes it sound like Stephanie is making a crowding out point there.

Stephanie Kelton said...

He's been making corrections (slowly). I just sent another big batch. Incredible.

Tom Hickey said...

Learning curve.