Redefining Fiscal Sustainability

Update: As I hit post, I realized that billyblog has links to video, running transcripts, et al. from the conference. Soak it up.

I got to attend the first discussion session at the Fiscal Sustainability Counter-Conference today, which was led by Bill Mitchell, who blogs at billyblog. If you read the comment threads here, then you’ll be familiar with the arguments. Basically, because governments issue fiat currency and collect taxes in that currency, they can afford to deficit spend as much as they please. The goal, the panelists argued, is full employment. Deficits are not costly- instead, allowing a key productive asset (labor) to go underutilized is an unrecognized huge opportunity cost. The government can spend and hire so long as there are enough resources to tap into. The government must balance the private sector, which does not always do its job.

I find these arguments compelling. They stem from the growing field of modern monetary theory, about which I’m learning more with every passing week. It’s becoming clearer to me that deficit and debt hysteria, is exactly that. Of course, the dialogue in our country is so far to the right in this debate that these ideas find little airing. “Serious” economists are required to sabre-rattle about deficits, and propose solutions for decreasing them- full employment is an utter afterthought.

Mitchell pointed to Australia, his home country, as an example of the opportunities that exist. By pursuing what amounted to full employment policies in the 1950s, the government grew the economy, and budget deficits did not strangle anything. The OPEC scare brought an end to these policies, but under false pretenses, as the supply constraints were completely exogenous to the budget situations of governments. Nevertheless, fears of inflation, which Mitchell and others argued is only a threat under full employment, have prevailed such that decades later, the rhetoric of deficit hysteria still dominates.

Mitchell and others argued that a real marketing campaign needs to occur- I suppose this is my contribution to it. Possible memes to spread the word: we don’t owe the debt, we own it; for the non-government sector to run a surplus (or save), the government must run deficits. At the country level, clearly some, if not most countries, must run deficits. I think the opportunity cost line of thinking may be another way to reach economists.

So, this is the agenda for full employment. I know there are counter-arguments to this line of thinking from both the left and the center, but those are for another day. As hard as it is to reason with neoclassical economists on these issues, it will be even harder to reason with politicians. However, that’s a fight I don’t really want to think about right now.