Garth Brazelton takes a Mosler quote and assumes that MMT is agnostic to public v. private debt in offsetting demand leakage. What Warren said is that as fiscal policy, it is a political choice, which is correct. However, MMT economists are very clear that private debt growth is unsustainable since borrowers are revenue constrained, whereas tsys issuance by the currency issuer is not operationally constrained. At the margin, public financing of demand is clearly superior in safety to private borrowing, even though the bulk of total debt is private.
For example, Steve Keen indicated recently that in his view the ratio of public to private debt should be on the order of 35%-65% instead of the present 15%-85%. Scott Fullwiler responded in a comment that MMT economists are in agreement with this.
Read it at Reviving Economics
Mosler - Keen Connection
by Garth Brazelton
5 comments:
Hi Tom,
I don't recall ever seeing that point from Steve. I don't know that I have a view on that ratio (perhaps I will after more thought---very interesting point from Steve) because (a) functional finance says the deficit should be whatever is necessary for full employment with price stability, and the debt just follows, and (b) one needs to factor in the trade balance over the long run--for US govt debt relative to pvt sector debt might reasonably be a lot bigger than same ratio for perennial trade surplus nation. Other mitigating factors, too, perhaps. Really interesting point from Steve though, particularly when one considers numerator and denominator both move a lot and often in opposite directions.
Hi Scott,
Your comment is at this post in this thread.
The post doesn't mention the % and I am relying on memory for that since I don't recall Steve's exact post about it. It is entirely possible that I have misremembered the ratios he gave.
What is you view of an appropriate ratio, if you have one?
OK, yes, as stated there we'd be in agreement. Basic Minsky stuff. As I noted, the specific ranges for the percentages I'd have to think more carefully about, though, given all the moving parts involved.
Agreed on the size of the deficit being non-discretionary, since it is set by offsetting saving desire, ideal as automatically as possible though variable tax rate and automatic stabilization.
But it seems that Steve as a good point about a ratio for safety, too. That coud be accomplished by restricting creation of credit money in some way, I suppose, since the problem usually results from an explosion of private debt that becomes unsustainable based on income level to service it.
Here we encounter two questions about setting the interest rate to zero and issuing only short term T-bills. If monetary policy is not used to restrict demand for credit by raising rates, then how could that be accomplished, and if there is no tsy issuance, then there is no ratio between the stock of non-govt net savings and total private debt.
Somethings to think about anyway.
OK, but note that at least in theory (again, too many moving parts for me to say with certainty right now) you could have a country with perennially large trade surpluses, and in that case the size of the govt deficit on an ongoing basis, and thus the govt debt, for that country could be smaller relative to pvt sector debt than for a country without such a trade position. Again, just in theory for now.
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