Lars P. Syll — Why so-called​ deficits​ are economic necessities

Vintage Bill Vickrey quote.

Lars P. Syll’s Blog
Why so-called​ deficits​ are economic necessities
Lars P. Syll | Professor, Malmo University

Meagan Day — The Democrats and the Deficit Con

Dick Cheney was right: deficits don’t matter. If only Democrats would learn.…

Attempting to balance a commitment to deficit reduction alongside a theoretical responsibility to protect and expand public programs, Democrats end up imposing false limitations on themselves and neutering their own supposed political agenda. One wonders if the party, increasingly reliant on an elite capitalist donor class, is actually using deficit reduction to weasel out of the responsibility to make life better for the working-class majority of their constituency. The GOP inevitably spends every penny the Democrats save; the difference is that they spend it advancing right-wing policies, not left-wing ones, and lining the pockets of the rich, not the rest of us. The Republicans may be hypocrites, but the Democrats are either suckers or they’re throwing the game. 

Not MMT, but useful.

Jacobin
The Democrats and the Deficit Con
Meagan Day

DownWithTyranny! — The Smartest Economist In America Explains What Deficits Really Mean

Who is the smartest economist in America? None other than — Stephanie Kelton.

DownWithTyranny!
The Smartest Economist In America Explains What Deficits Really Mean

Mike Kimel — The National Debt Disappeared

I commented there.

Angry Bear
The National Debt Disappeared
Mike Kimel

Bill Mitchell — Paul Krugman’s ideas are part of the problem

It was always going to happen. Several prominent New Keynesians both in the US and the UK have been hiding behind a smokescreen they erected during the Global Financial Crisis to allow their readers to form the view that they were not part of the problem. That they were different from the more rabid anti-deficit economists and that they had a deep understanding of why the crisis occurred and what the solutions were. For a while they masqueraded under the aegis of promoting the discretionary use of fiscal deficits (increasing them nonetheless) to stimulate growth in output and employment. They were seen by many who have a lesser understanding of economics as being progressive economists. The British Labour leader even had some of them on his inner advisory team. But the masks can only stay on so long. Yesterday, one of the most prominent of these characters, Paul Krugman came out! He is not progressive at all. He is a New Keynesian with all the IS-LM baggage that they cannot let go of. In his New York Times article (January 9, 2016) – Deficits Matter Again – he well and truly shows his colours. And they (to speak American) ain’t pretty!

Bill Mitchell – billy blog
Paul Krugman’s ideas are part of the problem
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — The roots of MMT do not lie in Keynes

I am currently working on an introductory chapter to a collection I have prepared for my publisher (Edward Elgar) which describes the evolution of Modern Monetary Theory (MMT). The task might appear to be straightforward but in fact is rather vexed. There is considerable dispute as to where the roots lie. A specific debate is the importance of the work of John Maynard Keynes. Many Post Keynesians, almost by definition, believe that Keynes was a central figure in the development of what we now call Post Keynesian economics, although that ‘school of thought’ evades precise identification and is certainly anything but homogenous. There are MMT proponents, who while sympathetic which much of Post Keynesian theory, disagree on key propositions – specifically relating to debt and deficits (as an example). But then they also point to Keynes’ work as seminal in the development of MMT. My own view is that many of the important insights in Keynes were already sketched out in some detail in Marx. Further, the work of the Polish economist Michał Kalecki was much deeper in insight than the work of his contemporary, Keynes. But for me the real sticking point against Keynes was his view that fiscal deficits should be balanced over the business cycle and that would allow governments to pay back debt incurred in the deficit years. That view has crippled progressive thought ever since and is antithetical to MMT. The debate also has resonance with the current leadership struggle within the British Labour Party about fiscal deficits and the claims by the ‘socialist’ candidate, Jeremy Corbyn that he will “balance the budget” when unemployment is low so as to avoid inflation. This view derives from the adoption by progressives of Keynes’ views, whether they know that or not. It is a mistaken view and retards progressive policy development.…

Bill Mitchell – billy blog
The roots of MMT do not lie in Keynes
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bob Veres — Why Deficits Don't Matter

Stephanie Kelton, Associate Professor of Economics at the University of Missouri/Kansas City, believes that the root of all these problems can be found in a fundamental misunderstanding – shared by Democrats, Republicans and mainstream voters alike – about the government's balance sheet. She argues, plausibly, that the whole idea that we should control the deficit at all is costing our nation trillions of dollars in lost output. The result is lost income, savings, wealth and prosperity.

"As a society, we don't understand government finance," says Kelton. "Most people – including most economists, think that it operates by the familiar rules of household finance. Therefore, we find it plausible when we hear politicians and government watchdogs urging us to balance the budget, control the urge to spend and pay down the debt."

The mantra on the right: the federal government has to stop spending money it doesn't have. The mantra on the left: we need higher taxes on "the rich" in order to balance the budget and pay down the federal deficit. Moderates call for a little bit of each.

"We act like there is some limited amount of money available," says Kelton, "and that government competes for savings with the rest of the economy, and that too much competition for savings drives up interest rates, and higher interest rates crowd out all productive private investment. We act like the federal government is walking a fine line between solvency and insolvency – that if the debt gets too big, our creditors may begin to get nervous, downgrade our debt, our interest rates go up, and suddenly we end up like Greece."

Yes. So? "That picture has no economic meaning whatsoever," says Kelton. "None."

Advisor Perpsectives

Why Deficits Don't Matter
Bob Veres
(h/t Stephanie Kelton on FB)

Stephanie Kelton — How to Talk About Debt and Deficits: Don’t Think of an Elephant*

Many economists (perhaps even those who agree with us) refuse to talk about the national debt and government deficits the way we do on this blog. Instead of boldly challenging the assertion that the U.S. faces a long-run debt (or deficit) problem, headline progressives typically do what Jared Bernstein did in his column today — i.e. they pay “obligatory” tribute to the Balanced Budget Gods, thereby reinforcing the case for austerity at some point in the not-so-distant future when we will be forced to to deal with this very bad thing called the government deficit. Followers of my work here and on Twitter know that I refuse to pay homage to the Balanced Budget Gods. Instead, I prefer to shift the burden of proof onto those who contend that the U.S. faces a long-term debt or deficit problem....

Charles Hayden: "God Bless our Warrior-Queen."

Amen to that.

New Economic Perspective
How to Talk About Debt and Deficits: Don’t Think of an Elephant*
Stephanie Kelton | Associate Professor of Economic and Department Chair, University of Missouri at Kansas City

Lynn Stuart Parramore — Did You Know the Deficit Is Shrinking? Most Americans Don't, Thanks to Shameless Deficit Hawk Propaganda

The deficit is down 37.6 percent for the first 10 months of 2013. But half of Americans think it’s growing.

AlterNet
Did You Know the Deficit Is Shrinking? Most Americans Don't, Thanks to Shameless Deficit Hawk Propaganda
Lynn Stuart Parramore

I thought Lynn Parramore got it. Not.

Ryan Grim — Bill Clinton At Deficit Summit: 'Paul Krugman Is Right In The Short Run'

Former President Bill Clinton began his appearance at Pete Peterson's annual fiscal summit Tuesday by approvingly invoking the name of the movement's arch ideological enemy.

Paul Krugman, The New York Times columnist and Nobel Prize-winning economist, has been the leading opponent of deficit hysteria and austerity, while Peterson has spent some $500 million since 2007 encouraging deficit reduction.Clinton, interviewed on a keynote panel by MSNBC's Tamron Hall, began by saying he wanted to address "one factual dispute."

"I think everybody in this debate has an obligation to say what they believe," said Clinton. "I think Paul Krugman's right in the short run, and Pete Peterson and Simpson-Bowles and all those guys, everybody's right in the long run. And the question is timing." 

By raising the specter of Krugman, the bane of the deficit-hawk movement, Clinton is sending another signal that the politics of austerity are waning. "It's obvious that if you overdo austerity, you get Europe," he said, noting 12 percent unemployment on the continent.

Clinton's very appearance at the summit, however, testifies to the movement's enduring strength. Clinton was sure to speak out Tuesday against the problem of long-term debt. He warned that if interest rates spiked unexpectedly, the resulting increase in debt costs would "make the sequester look like a Sunday afternoon walk in the park."

The Huffington Post

Bill Clinton At Deficit Summit: 'Paul Krugman Is Right In The Short Run'

Ryan Grim

OK, Clinton is either a moron or subversive of public interest, being in the pocket of the elite. But, to come out in favor of Paul Krugman at a Pete Peterson event is a huge step forward. Count it a win for MMT to the degree it influenced Krugman.

Clinton was sure to speak out Tuesday against the problem of long-term debt. He warned that if interest rates spiked unexpectedly, the resulting increase in debt costs would "make the sequester look like a Sunday afternoon walk in the park."

Now that insolvency has been buried, inflation, interest rates, and the yield curve is the next area that needs to be tackled. This is where the push back is coming from. While Scott Fullwiler dealt with this issue in Interest Rates and Fiscal Sustainability, it needs to be broken down so that non-economists can easily grasp it and repeated widely. There's already a lot of work done on this, for example, the MMT Fiscal Sustainability Teach-In and Counter-Conference.

But apparently word hasn't spread sufficiently yet.

Ezra Klein — Our deficits aren’t as bad as Washington thinks

Ezra is still a deficit dove like Krugman, but he is moving left.

Today’s deficits are, if anything, too small. Yes, I said it. Too. Small. We’ve seen real, clear damage from spending cutbacks — if public employment had remained steady since 2008, unemployment would be down to about 7.1 percent — and the world is begging us to borrow more money. In fact, they’re paying us to borrow more money; real interest rates on Treasury debt have, amazingly, turned negative. We should accept the world’s generous, limited-time offer.

This is the moment to pass a big tax cut for employers who hire new workers, to rebuild our infrastructure at bargain- basement rates, and to help state and local governments reverse the deep cuts they’ve made in recent years. It’s not the moment to begin sequestration. 

Future deficits are a legitimate concern. But as either Yogi Berra or Niels Bohr said, predictions are very difficult, especially about the future. And future deficits are, annoyingly, situated entirely in the future.

The Washington Post | Wonkblog
Our deficits aren’t as bad as Washington thinks
Ezra Klein

Dean Baker — Deficit Delusions: Putting to Rest the Clinton Legacy

Not the whole story, but at least it is a start in breaking through the myth about the virtue of budget surpluses that is hamstringing progressives.

CEPR
Deficit Delusions: Putting to Rest the Clinton Legacy
Dean Baker
(h/t Stephanie Kelton via Twitter)

News from the front — civil war front, that is.

Liberalism has returned in force, Senate Minority Leader Mitch McConnell (R-Ky.) said on Tuesday, reviewing the president's Inaugural Address.

"One thing is clear from the president's speech: The era of liberalism is back. His unabashedly far-left-of-center inaugural speech certainly brings back memories of the Democratic Party in ages past," he said. "If the president pursued that kind of agenda, obviously it's not designed to bring us together, and certainly not designed to deal with the transcendent issue of our era, which is deficits and debt."

The Huffington Post
Mitch McConnell On Obama Inauguration Speech: 'The Era Of Liberalism Is Back'
Ryan Grim

******************

At a Ways and Means Committee hearing on Tuesday, Rep. Jim McDermott (D-WA) blasted Republicans for refusing to raising the federal debt ceiling unless Democrats agreed to budget cuts.“I have to tell you, listening to this hearing is like we are living in Alice in Wonderland,” McDermott said. “Here we are hearing from witnesses telling us how to use default creatively or use it to get some leverage or something — and the simple talking about it here is destructive.

“The whole world is watching this hearing. It is the first hearing on this issue. The whole point of a society is to create and run a government to make order for people. People don’t like chaos and this hearing is about how to create chaos to get what you can’t get politically with votes....

“They want everyone who is lucky and doing well to just do well,” McDermott continued. “And if you aren’t doing well, well you’ve got to deal with it, it’s your problem. It is social Darwinism. It is survival of the fittest put into public policy.”

The Raw Story
Rep. McDermott slams GOP for using debt ceiling to push ‘social Darwinism’ 
Eric W. Dolan

******************

Are Governors Scott Walker, Rick Scott, Jan Brewer, John Kasich, Rick Perry, Rick Snyder, Nikki Haley and others conspiring to hijack our Constitution on July 4th, 2013? The conservative think-tank, Goldwater Institute, is moving lobbyists into position to mobilize legislatures throughout our nation with a Compact for America devised by their lead attorney Nick Dranias.

The Compact for America has set a timetable to convene a single issue constitutional convention this summer using Article V of the US Constitution to railroad the revised Balanced Budget Amendment in to the Constitution.

Article V of the Constitution allows states to assemble and propose amendments. It takes 34 states to request an Article V convention. The proposals that pass are then sent through Congress for a majority support. Then the amendment or amendments are sent out to the states for ratification. If 38 states agree, the amendment becomes part of the Constitution.

The Compact for America guarantees that the process will exclude the input of the other states and restricts the delegates to the Balanced Budget Amendment discussion under threat of pre-written instructions to state Attorney Generals.

The Compact for America defines that the states will choose the governor of that state as the only delegate to the convention. The number of red states gives the Goldwater Institute a much easier path to victory. There is no election or presidential action that will stop this effort. The campaign relies on the cooperation of state legislatures and governors, not popular support. Popular opposition will have little effect as well. There is no way to stop the governors and other delegates from passing the amendment. The Compact for America makes sure they collectively use their power to impose their will on the Constitution without debate of any other issue or consideration of any language changes in the amendment itself. It is all rigged in advance.

FireDogLake
Is THIS Grounds for Revolution?
Daniel Marks

Nick Dranias responds to Daniel Marks piece in the comments at FDL. When I posted a link to Compact for American previously here at MNE, Nick also came by and the record is in the comments there. He is polite, articulate, persistent, and presents his case well, but he is wrong when it comes to the monetary economics and understanding of public finance. We disagreed about the economic implications of a balanced budget approach in comparison with a sectoral balance approach to the appropriate fiscal stance and functional finance approach to fiscal policy.

References:
Fiscal Policy in a Stock-Flow Consistent (SFC) Model by Wynne Godley and Marc Lavoie (Levy Institute, April 2007)

Functional Finance and the Federal Debt by Abba P.Lerner (Social Research,  Vol. 10, No. 1, February 1943)

The Seven Deadly Innocent Frauds of Monetary Policy by Warren Mosler (2010)

Soft Currency Economics II by Warren Mosler (1994, 2012)

Understanding Modern Money: The Key to Full Employment and Price Stability by L. Randall Wray (1999)

Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems by L. Randall Wray (2012)

Randy Wray — Let’s Leap the Fiscal Cliff: Who’s Afraid of Deficits, Anyhow?

OK, did you leap last night? Aren’t you glad that the President and Congress bargained last night to increase your payroll taxes in order to take away 2% of your income for all of 2013? I guess that at least our “progressive” deficit doves are now happy that with higher payroll taxes, Social Security is on “firmer” ground. Yes, right. Just you wait–more bargains are coming. Spending will be cut next.

Oh, and what did we get in return for the bargain? Some breathing space? Wrong again. We’ve reached the debt limit so the Congress gets to start all over from square one. Remember–the Cliff was created by Congress in order to move foward on the debt limit. And here we are with deja vu all over again.

Anyway, lets take a deeper look in the next few posts at the issue of the US “running out of money”.

Economonitor |Great Leap Forward
Let’s Leap the Fiscal Cliff: Who’s Afraid of Deficits, Anyhow?
L. Randall Wray | Professor of Economics, UMKC

Michael Sankowski — The Importance of Being Godley

Short post on fiscal stance and necessity for deficits based on understanding of the account. Good quotes worth filing for future use, too.

Monetary Realism
The Importance of Being Godley
Michael Sankowski