There is a popular theme in the media these days that the Trump administration is leaving us poorly prepared for the next recession. The basic story is that high deficits and debt will leave us less room to have a large stimulus when the next recession hits. This is wrong, at least if we are talking about the economics.
Before laying out the argument, let me first say that I do not see a recession as imminent. The recent plunge in the stock market means that the rich have less wealth, not that we will have a recession.
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The complainers in this picture say that because Trump's tax cuts mean the deficits are large even when the economy is near full employment, we won't be able to have even larger deficits when we are in a recession. They also say that high debt levels are leaving us near our borrowing limits. Both claims are just plain wrong.
I wasn't too keen on this, though, as it sounds like more privatisation:
But apart from this empirical counter-example, there is also a problem with the basic logic. Why would a high debt to GDP ratio be a problem? Suppose we decided to sell off the right to tax in specific areas in order to reduce the debt. We could, for example, sell off the right to tax gas, perhaps raising $100 billion a year or more. (If this sounds strange, imagine selling off toll roads, as some states have done. It would be a similar story, except instead of selling the right to charge tolls on the highway, we would be selling off the right to tax gasoline.)
That should be able to knock at least $1 trillion off the debt. Are we now better able to deal with our debt burden now that it is $1 trillion lower? I hope fans of arithmetic and economics would say no, but let's move on.
It’s nice to see that Dean Baker is finally getting the basics of MMT. He had been confused for years.
ReplyDeleteHis comment about “knocking off at least $1 trillion off the debt” is meant to show that this is irrelevant and unnecessary.
I like this . . .
In the case of prescription drugs alone, we will spend close to $440 billion this year on drugs that would likely cost less than $80 billion in a free market. This is a gap of $360 billion that we can think of as a privately imposed tax.
Exactly.
Neoliberal champions of “free markets” are opposed to free markets. For neoliberals, a “free market” is free from competition and regulation. It is free for neoliberals to own and control.
It rankles me to see so many critics of neoliberalism buy into today’s “free market” garbage. Critics say that neoliberals prefer “market-based solutions.” WRONG. Neoliberals seek to own markets.
When classical economists (Ricardo, Adam Smith, etc.) spoke of free markets, they meant markets that were free of oligarch control. Today, “free markets” means the opposite.
I perused the reader comments at the bottom of Dean Baker’s article. None has a clue about economics. Not a single one. Many suffer from Trump derangement syndrome.
ReplyDeleteI constantly see this in reader comments. (I don’t mean here in this blog.) People try to seem “sophisticated” while having no idea what they are talking about.
This happens because people are lied to all their lives, such that truth in economics becomes too simple to for them to accept.
When you head is full of lies, the simplest truths elude your grasp.
"It’s nice to see that Dean Baker is finally getting the basics of MMT. He had been confused for years." - Agreed. I used to read his blog until I learned some MMT, maybe I'll take a look again.
ReplyDeleteIs Dean serious when he suggests paying for Americans to fly to other countries to use their healthcare system or is he just being facetious? Sometimes my sarcasm meter needs re-calibrated. It's tough to think of a worse idea...
Konrad, Re your claim that Baker "has been confused for years" (about the basics of MMT) do you have any links to back up that claim? I'm not questioning your point: I'd just like to make a note of relevant links for future reference.
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