But is should be. That’s my conclusion after seeing liberal blogger Ezra Klein’s tweet about his interview with James Galbraith:
James Galbraith weighs in with a very uncommon take on the deficit.
The headline he puts on the story:
Galbraith: The danger posed by the deficit ‘is zero’
Here’s are some excerpts from Galbraith in their exchange:
At this point, the whole thing is completely incoherent. You cannot write checks to 20 percent to anybody without that money entering the economy and increasing employment and inflation. And if it does that, then debt-to-GDP has to be lower, because inflation figures into how much debt we have. These numbers need to come together in a coherent story, and the CBO’s forecast does not give us a coherent story. So everything that is said that is based on the CBO’s baseline is, strictly speaking, nonsense…
What people worry about is that the federal government won’t be able to buy bonds. But there can never be a problem for the federal government selling bonds. It goes the other way. The government’s spending creates the bank’s demand for bonds, because they want a higher return on the money that the government is putting into the economy. My father said this process is so simple that the mind recoils from it…
Since the 1790s, how often has the federal government not run a deficit? Six short periods, all leading to recession. Why? Because the government needs to run a deficit, it’s the only way to inject financial resources into the economy. If you’re not running a deficit, it’s draining the pockets of the private sector.
Nothing groundbreaking here, at least for this blog’s commenters and folks who read billyblog. The reason Ezra brands this take “uncommon” is because among “respected voices” (pardon my use of scare quotes), it really is uncommon. It’s very difficult to be a respected liberal or progressive if you don’t cow at least a little to deficit hawkery. The good news is that Ezra has a lot of readers in the mainstream, and Galbraith did an excellent job making digestable the sensible view on deficits.
“But there can never be a problem for the federal government selling bonds.”
And . . .
The government doesn’t even need to sell bonds, nor should it. The government creates T-securities out of thin air, then sells them. It just as easily and just as prudently could create money directly, also out of thin air. That’s what it should do, for that would end federal “debt” and all the misguided, misleading nonsense written about it.
The debt hawks are so obviously wrong, I can’t understand why they, the media, the politicians and the economists don’t get it. I’m going to study that question a bit.
Rodger Malcolm Mitchell
Jamie is well aware of MMT and has attended MMT events, but he has not yet tipped over the edge publicly. He walks up to it, but always covers himself.
BTW, deficit doves refers to those who hold that government should run a deficits in the troughs of business cycles and them “counter” them in during the peaks by running surpluses.
MMT holds that deficit doves are also misguided, although not quite as much as the deficit hawks. As Jamie points out, the monetary sovereign should be running deficits most of the time, since government deficits equal nongovernment surpluses, and vice versa. Virtually the only time that the government should be running a surplus to draw down nongovernment net financial assets is in the case of strong net positive exports.
Rodger, I suspect that it has a lot to do with what President OBama said about single-payer in health care, namely, that if we were starting from scratch, it is clearly the best system. Debt issuance to offset deficits (the national debt represents accumulated deficits) was a feature of the convertible fixed rate regime, and like much other thinking and many other institutions, it has tagged along even though it serves no useful function and delivers a lot of free money to the wealthy, effectively providing them with a risk-free parking place that needlessly pays them to park there. Now that this institution is in place, no one is willing to go up against the bankers to challenge it for fear of what their reaction will be in a world where wealth bestows power and influence.
Tom,
I can’t think of a single reason ever to run a federal surplus. Randy Wray and the rest of the neo Chartalists, have told me the government should moderate inflation by raising taxes and/or reduced spending (a position with which I disagree), but I’ve not heard even them favoring surpluses.
I don’t see how an economy would benefit from a “draw down (in) nongovernment net financial assets.”
The inflation bogeyman, has so dominated thinking, it has caused a loss in logic. Inflation easily can be controlled with interest rate control, so why kill the economy?
Rodger Malcolm Mitchell
Rodger, The MMT’ers do make room for the case of predominantly export nations like Norway, adding that this is not foreseeable for the US anytime soon. Bill Mitchell has mentioned this on several occasions, for example.
http://bilbo.economicoutlook.net/blog/?p=6035
Commenting further on the sectoral balances, Bill Mitchell says:
http://bilbo.economicoutlook.net/blog/?p=9643
Apologies for the dovery malapropism. Maxine Udall calls it deficit falconry:
http://www.maxineudall.com/2010/05/deficit-falconry.html
. . . assuming inflation and population growth were zero. If inflation were anything above zero, the real, per capita money supply in the economy would decline by the amount of inflation and population growth, which would cause a recession.
Rodger Malcolm Mitchell
Tom,
“[...]The MMT’ers do make room for the case of predominantly export nations like Norway [...]”
Yes, export countries temporarily can get away with running surpluses, just as US states, counties and cities can. But what is the value for a monitarily sovereign nation for doing so?
The incoming money is of no value to the nation, and it takes money from the citizens’ pockets. Is this supposed to be some sort of inflation preventer? If so, it’s a poor one, if only because all tax systems are unfair. (See: http://www.rodgermitchell.com/FairTaxes.html )
Rodger Malcolm Mitchell