So if three MMTers (Warren Mosler, Dan Kervick and me) all say the same, namely that government borrowing is pointless – not to mention Milton Friedman - I challenge anyone to contradict us!!!!Read it at Ralphonomics
Three MMTers and Milton Friedman say government borrowing is pointless
by Ralph Musgrave
Add me to the list.
It's not pointless. If it were pointless they wouldn't do it.
ReplyDeleteThe point of borrowing is that borrowing allows the Treasury to spend more given a rate of inflation and given a rate of taxation.
By borrowing, the Treasury can spend MORE all else equal.
If the government did not borrow, if they financed their spending by only taxation and inflation, then either they would have to increase taxation, or increase inflation.
If taxation is at its politically feasible maximum, and if inflation is at its economically and politically feasible maximum, then borrowing represents an additional method for spending more.
That three MMTers say borrowing is pointless is as significant as the three stooges saying something about economics.
That Milton Friedman did not argue that borrowing is "pointless", in the way MMTers say it is pointless. He said the government should not borrow because he was an ideological pro-capitalist.
This comment:
"However a country that issues its own currency (a “monetarily sovereign” country / government), is totally different. This “entity” has a limitless supply of cash: it can print the stuff. Borrowing is totally pointless."
Is simply missing the forest for the trees. Yes, governments who print their own money can in principle finance their entire spending by inflation. But this ignores the fact that inflation has its limits. Do does taxation.
Since taxation has its limits, and since inflation has its limits, it follows that borrowing serves as an additional means of financing government spending. Without borrowing, the government could only tax and inflate, both of which have limits, both of which can be augmented by borrowing to facilitate MORE spending all else equal.
MMTers are simply ignoring the limits of inflation.