Len Burman of the Tax Policy Center responded yesterday to Jamie Galbraith’s deficit comments that I blogged about last week. Galbraith, in responding, has revealed more of his own views about how government deficits and debt operate. They sound a lot like MMT.
Understanding that the US Federal Government can never be forced to default on bonds issued in US dollars, they will never be in a position to “demand” a hefty risk premium. Efforts to move into other assets — as several commenters on Burman’s own site pointed out — merely move the dollars around. Eventually they will end up in Treasuries, if the US Government makes the Treasuries available.But the US Government doesn’t actually need to make new Treasuries available. It can simply leave the banks with free reserves — in which case, they will bid up the price of the Treasuries that are available in the system…
Next, Burman presents the reductio ad absurdam:
“Taken to its illogical extreme, Galbraith’s argument implies that there is no limit to government’s borrowing capacity (and that the money never really has to be paid back). If that’s the case, why not dispense with the annoyance of taxes altogether?”
It is entirely true that the Federal debt can — and will — go on rising, in dollar terms, year after year. It has done so for several centuries already. But it does not follow that cutting taxes to zero would be wise. Taxes control effective demand, and they are also the main reason why people hold dollars in the first place. We need them.
Burman finally suggests that I believe that “deficit hawks are all anti government kooks who want to dismantle the social safety net.” I deny this.
The part about taxes, in particular, sounds a lot like MMT. There was also some back and forth in there about inflation, which Galbraith said can be avoided by containing health care costs. He could also add that inflation is only a concern when economic resources are fully employed.