There were six references to the the government deficit in President Biden’s state of the union address on Tuesday night. Two of them were about blaming Republicans for adding to the deficit with past tax cuts: But that trickle-down theory led to weaker economic growth, lower wages, bigger
Should we also understand and recognize the basic accounting system of the federal government? The "books" are an annual statement of income and expenses, no recognition of investment or assets. How would corporations work in that accounting system?
I'm a big fan of your work; keep it up. That said, I don't think that you do justice to your perspective with your G-T analysis. Bond purchase removes money from the economy. In fact, it removes an amount closely correlated with G-T. Deficits are not necessarily inflationary; whether they are financed by borrowing or printing makes all the difference.
You want MMT to be acknowledged as true? Well then, shut the mouth of every deficit demagogue forever by macro-economically integrating beneficial price and asset DEFLATION into profit making economic systems with a 50% Discount/Rebate policy at the point of retail sale. Then, in addition to doubling everyone's purchasing power and supercharging the economy from the bottom up there will be no reason for fiscal austerity and we can begin to run the kind of deficits necessary to fund the mega projects to confront climate change. Change the monetary paradigm with a basic accounting function...and change the world.
I'm a huge fan Dr.Kelton ,an 88 yr old average Joe.or Ron, and attracted to MMT primarily because it makes "common sense" to me and not from any study of economics. Other things that make common sense is Medicare for all and for me ALMOST as important, is a Government Guaranteed Job Program with a living wage and benefits.I hear a lot of discussion about National Health and almost nothing about the GGJP. Would appreciate you addressing GGJP in a future post if you would please--many thanks-keep up the great work !! Average Ron
Just a heads up that the link in the sentence "The reality is that government deficits play a vital role in supporting aggregate income, business profits, and employment" is broken.
In your quote from Randy Wray, he refers to the "debt ratio" and discusses the impact of deficit reduction on GDP growth. This appears to imply that there is some validity to the Debt to GDP ratio. There isn't, but maybe I misunderstand his position.
The ratio is stock/flow inconsistent, which is a basic premise of the MMT framework.
The "debt" is a stock and GDP is a flow. Comparing them is not even as valid as apples to oranges. Those are both round fruits, at least.
I am the person thinking, “Yeah, but they’re also the reason we have an inflation mess on our hands…”
I am under the belief that real resources are the constraint within the descriptive lens of MMT. If that is true, then it seems like a logical step to then make the claim: smaller deficits decrease the probability of hitting the real resource limit of an economy. And vice versa, large deficits will increase the probability of hitting the real resource limit of an economy. Is that over simplified assumption wrong?
I also think that MMT describes inflation as the byproduct of too much currency chasing not enough real resources. Am I right here?
So using my understanding of the descriptive framework of MMT I get, “the larger a government deficit becomes the larger probability there is to inflation?”
Genuinely would like to learn about the nuances I must be missing.
I appreciate this offering of The Lens to followers outside the academic and political realms.
I've followed MMT and debt forgiveness for several years. Immediately and fully on board.
I believe MMT as currently discussed is the Special Theory of MMT. I believe that a General Theory of MMT is needed. The current theory is doing better than nibbling at the edges but it can never come home without a more encompassing theory.
Are you working on such? Would you care to discuss? I believe your positioning yourself within academia, politics, and the reading public makes you the person best able to marshal your fellow economists in delivering it to these audiences.
What does MMT framework reason and conclude regarding financialized predatory (disproductive) corporate "behaviors", adding to GDP calculations? I recall Greenspan's infamous apology for thinking that "free markets" could regulate themselves. Where do rules-of-the-road matter (to society) within the MMT framework? Does MMT advocate or even address tapping the brakes on calcified calamity? Seemingly, MMT has been captured or coopted for those sorts of purposes. It would also require getting off a neutral posture. After all, if we cannot acknowledge accelerating and corresponding crisis, how is it possible that any economic framework could be of assistance going forward?
Have you ever been invited to lecture Congress on your views of deficits and MMT? I would think you could get your Representative or one of your Senators to invite you to speak with a small group, perhaps a Budget/Finance Committee? It’s pretty obvious they need educating about deficits.
PLEASE convince the Democrats to adopt the MMT understanding as the foundation of the DNC platform. It’s past time. What approach exists to make that happen?
Did exiting the war in Afghanistan directly impact deficit reduction? In the guns vs. butter model dollars are shifted from wars to domestic investments like infrastructure? Emphasis on a shift from wars to domestic rebuilding seems like a better couch for his rhetoric/argument? (instead of mentioning the deficit) Access to his speechwriters and/or White House staff could refine his approach possibly?
Appreciate your "like" No I'm out here in Arizona where all the MMT folks could ride on one horse. I don't expect I'll be having an adult beverage with or lecturing Gosar or Sinema anytime soon !!
MMT wins the economic argument. But it doesn't win the political argument because the deficit myth has been so thoroughly pounded into the collective American belief system it will take even more than a pandemic to dislodge it. That's why Biden & Co. need to resort to deficit-lowering projections to sell his economic proposals regardless of his own or his cabinet's belief in the wisdom of deficit spending. Bernie Sanders and Elizabeth Warren are stuck in the same political quandary, having to mouth assurances that their tax proposals will lower the deficit as a selling point. They are forced to stay in the MMT closet in order to win a political argument. (I assume that the two are in, if not a strictly MMT closet, then something very similar. As are of course many Republicans who are perfectly happy to inflate the deficit with huge tax cuts for the rich, then turn around and denounce Democrats' spending as irresponsible. They all know the deficit paradigm is a myth but they cannot say so out loud to the electorate.)
Yesterday’s man has demonstrated to be willfully ignorant about MMT ideas regarding federal government deficits and more likely to continue depending on misguided economic advice from neoliberal circles eager to maintain the status quo. Politicians will be last on the list of those willing to learn the meaning of a balanced and healthy economy that works for all of us.
Biden's SOTU Mentioned the Deficit Six Times :(
Should we also understand and recognize the basic accounting system of the federal government? The "books" are an annual statement of income and expenses, no recognition of investment or assets. How would corporations work in that accounting system?
I'm a big fan of your work; keep it up. That said, I don't think that you do justice to your perspective with your G-T analysis. Bond purchase removes money from the economy. In fact, it removes an amount closely correlated with G-T. Deficits are not necessarily inflationary; whether they are financed by borrowing or printing makes all the difference.
Keep up the great work, Art Williams
You want MMT to be acknowledged as true? Well then, shut the mouth of every deficit demagogue forever by macro-economically integrating beneficial price and asset DEFLATION into profit making economic systems with a 50% Discount/Rebate policy at the point of retail sale. Then, in addition to doubling everyone's purchasing power and supercharging the economy from the bottom up there will be no reason for fiscal austerity and we can begin to run the kind of deficits necessary to fund the mega projects to confront climate change. Change the monetary paradigm with a basic accounting function...and change the world.
I'm a huge fan Dr.Kelton ,an 88 yr old average Joe.or Ron, and attracted to MMT primarily because it makes "common sense" to me and not from any study of economics. Other things that make common sense is Medicare for all and for me ALMOST as important, is a Government Guaranteed Job Program with a living wage and benefits.I hear a lot of discussion about National Health and almost nothing about the GGJP. Would appreciate you addressing GGJP in a future post if you would please--many thanks-keep up the great work !! Average Ron
Just a heads up that the link in the sentence "The reality is that government deficits play a vital role in supporting aggregate income, business profits, and employment" is broken.
Great piece, Prof. Kelton.
In your quote from Randy Wray, he refers to the "debt ratio" and discusses the impact of deficit reduction on GDP growth. This appears to imply that there is some validity to the Debt to GDP ratio. There isn't, but maybe I misunderstand his position.
The ratio is stock/flow inconsistent, which is a basic premise of the MMT framework.
The "debt" is a stock and GDP is a flow. Comparing them is not even as valid as apples to oranges. Those are both round fruits, at least.
Please correct me if I'm missing something.
I am the person thinking, “Yeah, but they’re also the reason we have an inflation mess on our hands…”
I am under the belief that real resources are the constraint within the descriptive lens of MMT. If that is true, then it seems like a logical step to then make the claim: smaller deficits decrease the probability of hitting the real resource limit of an economy. And vice versa, large deficits will increase the probability of hitting the real resource limit of an economy. Is that over simplified assumption wrong?
I also think that MMT describes inflation as the byproduct of too much currency chasing not enough real resources. Am I right here?
So using my understanding of the descriptive framework of MMT I get, “the larger a government deficit becomes the larger probability there is to inflation?”
Genuinely would like to learn about the nuances I must be missing.
I appreciate this offering of The Lens to followers outside the academic and political realms.
I've followed MMT and debt forgiveness for several years. Immediately and fully on board.
I believe MMT as currently discussed is the Special Theory of MMT. I believe that a General Theory of MMT is needed. The current theory is doing better than nibbling at the edges but it can never come home without a more encompassing theory.
Are you working on such? Would you care to discuss? I believe your positioning yourself within academia, politics, and the reading public makes you the person best able to marshal your fellow economists in delivering it to these audiences.
Arliss Bunny here.
What does MMT framework reason and conclude regarding financialized predatory (disproductive) corporate "behaviors", adding to GDP calculations? I recall Greenspan's infamous apology for thinking that "free markets" could regulate themselves. Where do rules-of-the-road matter (to society) within the MMT framework? Does MMT advocate or even address tapping the brakes on calcified calamity? Seemingly, MMT has been captured or coopted for those sorts of purposes. It would also require getting off a neutral posture. After all, if we cannot acknowledge accelerating and corresponding crisis, how is it possible that any economic framework could be of assistance going forward?
Have you ever been invited to lecture Congress on your views of deficits and MMT? I would think you could get your Representative or one of your Senators to invite you to speak with a small group, perhaps a Budget/Finance Committee? It’s pretty obvious they need educating about deficits.
We need to call deficits investments.
PLEASE convince the Democrats to adopt the MMT understanding as the foundation of the DNC platform. It’s past time. What approach exists to make that happen?
Did exiting the war in Afghanistan directly impact deficit reduction? In the guns vs. butter model dollars are shifted from wars to domestic investments like infrastructure? Emphasis on a shift from wars to domestic rebuilding seems like a better couch for his rhetoric/argument? (instead of mentioning the deficit) Access to his speechwriters and/or White House staff could refine his approach possibly?
Appreciate your "like" No I'm out here in Arizona where all the MMT folks could ride on one horse. I don't expect I'll be having an adult beverage with or lecturing Gosar or Sinema anytime soon !!
MMT wins the economic argument. But it doesn't win the political argument because the deficit myth has been so thoroughly pounded into the collective American belief system it will take even more than a pandemic to dislodge it. That's why Biden & Co. need to resort to deficit-lowering projections to sell his economic proposals regardless of his own or his cabinet's belief in the wisdom of deficit spending. Bernie Sanders and Elizabeth Warren are stuck in the same political quandary, having to mouth assurances that their tax proposals will lower the deficit as a selling point. They are forced to stay in the MMT closet in order to win a political argument. (I assume that the two are in, if not a strictly MMT closet, then something very similar. As are of course many Republicans who are perfectly happy to inflate the deficit with huge tax cuts for the rich, then turn around and denounce Democrats' spending as irresponsible. They all know the deficit paradigm is a myth but they cannot say so out loud to the electorate.)
Yesterday’s man has demonstrated to be willfully ignorant about MMT ideas regarding federal government deficits and more likely to continue depending on misguided economic advice from neoliberal circles eager to maintain the status quo. Politicians will be last on the list of those willing to learn the meaning of a balanced and healthy economy that works for all of us.