How Should We Think About Fiscal Sustainability?
Yesterday, the Clinton Global Initiative announced that they’re partnering (again) with Net Impact for the Up to Us Campus Competition. The e-mail included the following attachment, along with a request to “share this material widely on your campus or with any students you know who may be interested in this opportunity.”
It inspired me to write a Twitter thread (or a Xitter thread or whatever we’re calling them these days), which I’ve decided to reproduce (with some additional commentary) here for those of you who aren’t on X (see how dumb that sounds) or who don’t follow me on that platform.
So here goes….
You may recognize the image of the three buckets from my book, The Deficit Myth. It presents a macro accounting identity that you can use to think through the balance sheet implications of the Clinton surpluses (or any other fiscal outcome) and the interplay between the different parts of the economy. If you want see how MMT uses the sector financial balance framework to do macro analysis using models, see here. OK, back to the thread.
Click here to read the once-secret document.
Quoting from The Washington Post article:
But if Galbraith stood out on the panel, it was because of his offbeat message. Most viewed the budget surplus as opportune: a chance to pay down the national debt, cut taxes, shore up entitlements or pursue new spending programs.
He viewed it as a danger: If the government is running a surplus, money is accruing in government coffers rather than in the hands of ordinary people and companies, where it might be spent and help the economy.
“I said economists used to understand that the running of a surplus was fiscal (economic) drag,” he said, “and with 250 economists, they giggled.”
Galbraith says the 2001 recession — which followed a few years of surpluses — proves he was right.
Galbraith was right to worry. Wynne Godley (who pioneered the sector financial balances framework) and L. Randall Wray were also right to worry that the government’s fiscal stance had become too restrictive and that the Clinton surpluses posed a threat to the broader economy.
Here’s the link to the Policy Note.
And then Warren Mosler dropped in to share some additional links to prior work .
MMT economists have been at this for the better part of three decades, and there is a mountain of literature out there—books, articles, book chapters, opEd, textbooks, white papers, blogs, etc. It’s good to have so much material to point to when things like the Clinton Global Initiative competition come up, but it would be even better to elevate the discourse by encouraging young people to think more carefully about what it really means to run “fiscally sustainable” policies.