Wednesday, July 24, 2019

J. W. Mason — A Baker’s Dozen of Reasons Not to Worry about Government Debt

Good summary of the main points regarding public debt.

J. W. Mason's Blog
A Baker’s Dozen of Reasons Not to Worry about Government Debt
JW Mason | Assistant Professor of Economics, John Jay College, City University of New York


AXEC / E.K-H said...

The decisive reason to worry about government debt
Comment J. W. Mason on ‘A Baker’s Dozen of Reasons Not to Worry about Government Debt’

Arguments 1. to 8. and 11. boil down to unemployment is bad for multiple reasons and government deficit-spending can effectively reduce unemployment. This is widely accepted since Keynes but tacitly implies budget-balancing over the business cycle. So, there are two cases, temporary and permanent deficit spending. Not many people worry any longer about temporary deficit-spending. But the fact that the self-regulating and self-optimizing free market economy is on the permanent life support of the government tells one that the system is not sustainable over the long run. And this is the life-and-dead reason to worry about growing government debt. Permanently growing debt is an indicator that the system is dysfunctional.#1 This is the real problem to worry about.#2

Arguments 9. and 10. say that with low interest rates the growth of public debt is slower in relation to GDP growth. This is trivially true, of course, and suggests that the problem will go away by itself. This is pure optics, though, that crucially depends on the tacit assumption that GDP will grow. If it does not, the debt/GDP ratio explodes and low interest rates only dampen the process.

Argument 12 is circular. The macroeconomic Profit Law boils down to Public Deficit = Private Profit. So, the government continuously fills the coffers of the Oligarchy which, in turn, is looking out for some safe and juicy assets. Again, the government jumps in and offers Treasuries to consolidate its overdrafts at the central bank. This is a case of simultaneous supply/demand creation.#3

What J. W. Mason misses altogether is the distributional effects of a permanently growing public debt. Deficit-spending/money-creation benefits the Oligarchy because it increases macroeconomic profit according to the Profit Law. MMT is a free lunch program for the Oligarchy. Financial wealth and public debt grow in lockstep and the fabulous financial wealth in the USA is roughly equal to humongous public debt ($22 trillion and counting). The Profit Law explains how billionaires are able to accumulate that much money and why they can buy all the bonds the Treasury issues and cash in the ultra-safe interest that is reliably taxed from WeThePeople as long as the debt is rolled over which can be very long indeed. This Ponzi scheme creates the extremely skewed distribution of income and wealth and this works as long as public debt grows. But infinite growth is impossible on a finite planet. This holds also for public debt. Eventually, debt-growth slows down and even reverses and then macroeconomic profit turns into loss and the so-called free market economy breaks down.

This is the decisive reason to worry about government debt. What J. W. Mason is doing is doling out an overdose of argumentative placebos.

Egmont Kakarot-Handtke

#1 Just one more day: How MMT delays the breakdown of Capitalism

#2 How to pay for the war and to be bamboozled by economists

#3 Safe assets ― how the State pampers the Oligarchy

Matt Franko said...

“financial wealth in the USA is roughly equal to humongous public debt ($22 trillion and counting)”

There is $30T in just the ERISA accounts... try again...

Matt Franko said...

“Federal government debt offers an absolutely safe asset that can always be sold quickly and at a predictable price – something that is extremely valuable for banks”

It’s not “extremely valuable!” it’s a regulatory requirement...

“financial institutions were unwilling to make risky loans without holdings of ultrasafe assets to balance them. ”

It’s not that they are “unwilling!” they are prevented from doing so thru regulatory compliance...

Matt Franko said...

This is also a reification error: “financial institutions were unwilling to make risky loans without holdings of ultrasafe assets to balance them. ”

He thinks the regulatory accounting abstractions are REAL and they have to be “balanced!” ... he’s thinking of a real balance scale or something...

He doesn’t adequately understand the abstraction which then creates the reification error... needs more rigorous training in Accounting Science...

AXEC / E.K-H said...

Trump and MMT: Make profits great again
Comment on Matt Franko on ‘Must be a libertarian bad dream …’

The latest Donald J. Trump Tweet proclaims: “I am pleased to announce the House has passed our budget deal 284-149.”#1

Economically, Mr. Trump continues the long tradition of deficit-spending/money-creation.#2 Deficit-spending is said to be good for everything from employment, growth, education, health-care, to saving humanity and the planet.

The economic fact of the matter is that deficit-spending/money-creation is, and has always been, bad for WeThePeople and good for the Oligarchy.#3, #4

Since Adam Smith, the task of economists is to deliver some scientifically looking justification for already decided upon policies. Last time it was Friedrich Hayek who acted as a useful academic idiot for Prime Minister Thatcher/President Ronald Reagan, this time it is the MMTers Kelton/Mosler/Mitchell/etc.

Modern Monetary Theory is refuted on all counts.#5 Politically, this does not matter much because in the political realm it is not the scientific truth-vale that counts but the political use-value.#6

The macroeconomic Profit Law, i.e. Q=Qm+Qn with Qm=Yd+(I−Sm)+(G−T)+(X−M) entails Public Deficit = Private Profit which means that the central MMT policy recommendation of deficit-spending/money-creation benefits the Oligarchy and certainly not WeThePeople. In other words, MMTers attempt to convince people of policies that are not in their interest. Inside the political sphere, this counts as smart, outside the political sphere this counts as deception/fraud/corruption.

Permanently growing debt is an indicator that the system is broken. The economic fact of the matter is: so-called free-market economies like the USA have long been on the full life support of the State. The continuous creation of financial wealth has become the first and foremost economic task of the State. The Oligarchy is continuously fed by deficit-spending/money-creation. Roughly speaking, the Oligarchy’s financial wealth is equal to accumulated Public Debt (with WeThePeople as ultimate bag holders).#7

The very characteristic of Late Capitalism is that the so-called free-market economy is on the full life support of the State. Profit is produced by the government through deficit-spending/money-creation. The Oligarchy, in turn, uses the opulent free lunches to corrupt what remains of the State’s legislative, executive, and judiciary institutions.

What President Trump and Congress, with the propaganda support of MMT, have actually achieved is that the system survives until the next election in 2020.

Egmont Kakarot-Handtke

#1 Twitter

#2 Keynes, Lerner, MMT, Trump and exploding profit

#3 Is MMT good for WeThePeople or for the Oligarchy?

#4 MMTers are false Progressives and false Friends-of-the-People

#5 For the full-spectrum refutation of MMT see cross-references MMT

#6 MMT’s true program

#7 The decisive reason to worry about government debt