True, Yes. But it takes courage to say the King wears no clothes. We really have to talk about these things. Get it out there. Once the public buys into it, politicians will follow
Most of the heavy lifting of fiscal contraction is already automatic.
When the economy is more active tax receipts rise, and welfare outlays fall.
Inflation also increases tax receipts, not just in nominal, but also in real terms. Capital Gains Taxes are based on nominal values, taxes on interest rates are on nominal payments, and tax brackets lag inflation.
Just about the only new MMT policy, a Job Guarantee, makes the automatic stabilisers stronger.
There is much historic precedent for legislated fiscal contraction around the world, much or it wrong headed, based on deficit, rather than the needs of the economy.
The conservative government in Australia introduced a deficit levy which was rather uncontroversial.
I listened to your book with great interest, but I felt that you never fully described the policy choices in an inflationary period. (Maybe you have more recently, but I am new to this blog,) Isn't the policy choice to raise taxes in an inflationary environment? Doesn't reduced spending in turn reduce inflationary pressures? Inquiring minds want to know!!
It depends on what the private sector is sending the money on. If the private sector is not spending to increase the supply to meet the demand, then it would be possible for the federal government to spend money that will increase the supply (or fix a disrupted supply chain). Finally the 99% in the private sector who spend their money on consumer goods got some financial relief from the federal government to ease the burden of the Covid epidemic. However, the supply wasn't there to meet that spending. The federal government should have had plans for the supply problem. Sanctioning Russia to worsen the supply problem may have been one of the dumbest mistakes the federal government could have made. If they fight China with more economic sanctions, they will be compounding the problem rather than fixing it.
Sending billions to the Ukraine to buy things that destroy is certainly not helping boost the supply of consumer goods. Paying people to make thes weapons gives them money to spend on consumer goods, but it adds nothing to the supply of consumer goods.
Thanks, that is a good point. As an observer and an engineer I would say we need better control of our economy as it seems to overheat and crash regularly. It would be negative feedback in a electronic control device. Our automatic stabilizers seem to need help the economy on an even keel and proper heading.
I still have questions about the effectiveness and unintended consequences of a Federal Job guarantee: inflation impact, productivity, and political headwind.
I have wondered if anyone has proposed a variable income tax that would be keyed to inflation as an economic stabilizer. They could adjust personal and corporate taxes within a range (say + or - 4% or so) around a neutral base tax rate set by congress.
the work of Scott T. Fulwhiler or Pavelina Tcherneva discusses FJG in detail. According to them FJG, designed properly would be counter-cyclical and would cost about 2% of GDP on the high side in the US.
Thanks for your references. I've read Tcherneva's book on Federal Job Guarantee and using Fulwiler's name I've found a report from the Levy Institute that I will read. I still have questions on the programs administration, its productivity and effects on inflation. I don't se how a program designed to not compete or contribute goods and services in the core economy can inject that much money into the economy and not have an effect on inflation. There are contradictions for me in having these jobs not compete with the private sector, while being meaningful and productive.
My thinking at this point is that we should expand the already existing counter-cyclical (un)employment assistance and job training. Our aim should be to get people employed in ways that will add to the economy providing needed good and services in the private sector. If the private sector fails to provide needed goods and services, such as low income housing, carbon sequestration, medical research then I would favor a Public Sector program to fill these needs with an emphasis on entrepreneurial approaches.
"...fiscal policy has become a major drag on economic growth."
OK, but what's so great about "economic growth" if it's always vertical and not horizontal? In other words, there's nothing intuitively moral or sensible about the economy growing when only the top 1% reaps all the benefits. A more sensible measure would calculate the change in the fortunes of each quartile below that 1%. "Economic growth," in and of itself, is merely a fetish. Think of true societal wealth as being "wide," not "tall."
The part of her writings that she sells explain a lot of things. The part she gives away for free inflames. Is Kelton being a net benefit to the public discussion? I understand the reason why a professional economist needs to get paid for her work, but what she is doing needs some deep personal reflection on her part.
You’ve got me curious - was there something in this post that inflamed?
Full disclosure: In my opinion, Professor Kelton is most definitely a net benefit to the public discussion of economics and politics. I feel like I understand economics better than I ever have, thanks to her writings and talks, and thanks to the other MMT economists discovering her led me to.
So Ken, I have some understanding of MMT, and although I have some way to go before I really understand it all, let me offer this.
You ask about what in Kelton’s post has inflamed some folks. In general, whether we talk about a deficit or surplus, it is from the perspective of the federal government. If in a given time, the government spends $100 in to the economy and taxes back $20, then the government has a deficit of $80. But at the same time the economy has a surplus of $80.
The myth that the main stream has which Kelton is trying to bring into focus is that the deficit is always bad. Even though she says that the deficit is not simply either good or bad, but depends on the context and the situation overall, she’s taking aim at the giant decease in the deficit as being great news. She titled this piece: The Shrinking Deficit AND the Shrinking Economy” (My emphasis.)
What seems to have inflamed some is indeed the context and the situation we have/have had with this inflation. That is, the general idea is to cool down the economy by raising interest rates by the Fed, or getting the energy -- the money -- out of the public hands through increased taxes.
We’ll, the news of a shrinking government deficit indicates -- exactly means -- that the economy is also shrinking. So some are asking, why is she complaining and saying that it’s silly to say that this is “...great news because it puts the U.S. in a strong fiscal position.”
Excellent point! And, of course, Stephanie is one of the good guys. But we should all of us, whenever we talk about "economic growth," take the opportunity to place it the context of just who benefits (an increase in GDP that's always scarfed up by the 1% is no "benefit" at all!).
It would take a lot of explaining of Modern Money Theory to make sense of this post. I have that understanding, but I know that most people don't Since Kelton puts her complete posts behind a paywall, I don't know if she explained this in the part that I was not able to read.
If Kelton is putting the justification behind a paywall, the parts of her posts that the public can read are certainly not helping the public discussion.
“from an MMT perspective, that’s a silly thing to say...”. thank god it is. if it wasn’t silly from an MMT perspective, i’d be questioning basic logic.
The powers that be are seeing rising costs for public debt, so they are shifting out of debt and into raising taxes. Yes, the effect is quite deflationary as the taxes increase the fines and penalties on worthy economic activity.
The government, the great wastrel, the corp that can make trillion$ disappear each year into a pit of waste, is now pushing greater expenditures and greater waste. If the government were to curb their atrocious spending habits, leaving funds in the hands of those that earned and conserved them, how much wealthier and more productive the nation would be.
But big government expenditure is all you advocate under your socialist MMT tenets. You never query what we get for our money, and never will. You only care that government is out and spending vast sums of money. It's the great socialist MMT way that thankfully shall soon end up on the dunghill of history.
Part of the answer is to incentivize spending towards public policy goals. The so called inflation bill that just got signed into law is a great example. By giving tax subsidies to expenditures that will benefit society as a whole, consumers will tend to spend more money on these items and have less to spend on others, driving down inflation in the unincentivized sectors. However, what is missing is adequate price regulation to prevent electric cars, solar panels and mini split heat pumps from becoming so expensive that the tax incentives are fully absorbed by increased costs because of over stimulated consumer demand. One great benefit that needs education, particularly in the South, is that Republicans can learn that clean renewable energy can save them money.
True, Yes. But it takes courage to say the King wears no clothes. We really have to talk about these things. Get it out there. Once the public buys into it, politicians will follow
thanks
yes that would be nice ! I have never seen it happen in Real Politics... even among conservative Republicans .
afterall politicians get elected by taking money from one person and giving it to a different person... and calking that Economic Development
Most of the heavy lifting of fiscal contraction is already automatic.
When the economy is more active tax receipts rise, and welfare outlays fall.
Inflation also increases tax receipts, not just in nominal, but also in real terms. Capital Gains Taxes are based on nominal values, taxes on interest rates are on nominal payments, and tax brackets lag inflation.
Just about the only new MMT policy, a Job Guarantee, makes the automatic stabilisers stronger.
There is much historic precedent for legislated fiscal contraction around the world, much or it wrong headed, based on deficit, rather than the needs of the economy.
The conservative government in Australia introduced a deficit levy which was rather uncontroversial.
https://www.theguardian.com/australia-news/2017/mar/26/labor-attacks-coalitions-abolition-of-deficit-levy-as-a-tax-cut-for-millionaires
You could even legislate these kinds of things in advance to automatically apply when needed.
Why would we want surpluses? Do you not like saving money? 🤔
I listened to your book with great interest, but I felt that you never fully described the policy choices in an inflationary period. (Maybe you have more recently, but I am new to this blog,) Isn't the policy choice to raise taxes in an inflationary environment? Doesn't reduced spending in turn reduce inflationary pressures? Inquiring minds want to know!!
It depends on what the private sector is sending the money on. If the private sector is not spending to increase the supply to meet the demand, then it would be possible for the federal government to spend money that will increase the supply (or fix a disrupted supply chain). Finally the 99% in the private sector who spend their money on consumer goods got some financial relief from the federal government to ease the burden of the Covid epidemic. However, the supply wasn't there to meet that spending. The federal government should have had plans for the supply problem. Sanctioning Russia to worsen the supply problem may have been one of the dumbest mistakes the federal government could have made. If they fight China with more economic sanctions, they will be compounding the problem rather than fixing it.
Sending billions to the Ukraine to buy things that destroy is certainly not helping boost the supply of consumer goods. Paying people to make thes weapons gives them money to spend on consumer goods, but it adds nothing to the supply of consumer goods.
Thanks, that is a good point. As an observer and an engineer I would say we need better control of our economy as it seems to overheat and crash regularly. It would be negative feedback in a electronic control device. Our automatic stabilizers seem to need help the economy on an even keel and proper heading.
I still have questions about the effectiveness and unintended consequences of a Federal Job guarantee: inflation impact, productivity, and political headwind.
I have wondered if anyone has proposed a variable income tax that would be keyed to inflation as an economic stabilizer. They could adjust personal and corporate taxes within a range (say + or - 4% or so) around a neutral base tax rate set by congress.
the work of Scott T. Fulwhiler or Pavelina Tcherneva discusses FJG in detail. According to them FJG, designed properly would be counter-cyclical and would cost about 2% of GDP on the high side in the US.
https://pavlina-tcherneva.net/job-guarantee-faq/
Thanks for your references. I've read Tcherneva's book on Federal Job Guarantee and using Fulwiler's name I've found a report from the Levy Institute that I will read. I still have questions on the programs administration, its productivity and effects on inflation. I don't se how a program designed to not compete or contribute goods and services in the core economy can inject that much money into the economy and not have an effect on inflation. There are contradictions for me in having these jobs not compete with the private sector, while being meaningful and productive.
My thinking at this point is that we should expand the already existing counter-cyclical (un)employment assistance and job training. Our aim should be to get people employed in ways that will add to the economy providing needed good and services in the private sector. If the private sector fails to provide needed goods and services, such as low income housing, carbon sequestration, medical research then I would favor a Public Sector program to fill these needs with an emphasis on entrepreneurial approaches.
"...fiscal policy has become a major drag on economic growth."
OK, but what's so great about "economic growth" if it's always vertical and not horizontal? In other words, there's nothing intuitively moral or sensible about the economy growing when only the top 1% reaps all the benefits. A more sensible measure would calculate the change in the fortunes of each quartile below that 1%. "Economic growth," in and of itself, is merely a fetish. Think of true societal wealth as being "wide," not "tall."
Which is why her book has "and the Birth of the People's Economy" in the subtitle.
The part of her writings that she sells explain a lot of things. The part she gives away for free inflames. Is Kelton being a net benefit to the public discussion? I understand the reason why a professional economist needs to get paid for her work, but what she is doing needs some deep personal reflection on her part.
You’ve got me curious - was there something in this post that inflamed?
Full disclosure: In my opinion, Professor Kelton is most definitely a net benefit to the public discussion of economics and politics. I feel like I understand economics better than I ever have, thanks to her writings and talks, and thanks to the other MMT economists discovering her led me to.
So Ken, I have some understanding of MMT, and although I have some way to go before I really understand it all, let me offer this.
You ask about what in Kelton’s post has inflamed some folks. In general, whether we talk about a deficit or surplus, it is from the perspective of the federal government. If in a given time, the government spends $100 in to the economy and taxes back $20, then the government has a deficit of $80. But at the same time the economy has a surplus of $80.
The myth that the main stream has which Kelton is trying to bring into focus is that the deficit is always bad. Even though she says that the deficit is not simply either good or bad, but depends on the context and the situation overall, she’s taking aim at the giant decease in the deficit as being great news. She titled this piece: The Shrinking Deficit AND the Shrinking Economy” (My emphasis.)
What seems to have inflamed some is indeed the context and the situation we have/have had with this inflation. That is, the general idea is to cool down the economy by raising interest rates by the Fed, or getting the energy -- the money -- out of the public hands through increased taxes.
We’ll, the news of a shrinking government deficit indicates -- exactly means -- that the economy is also shrinking. So some are asking, why is she complaining and saying that it’s silly to say that this is “...great news because it puts the U.S. in a strong fiscal position.”
Excellent point! And, of course, Stephanie is one of the good guys. But we should all of us, whenever we talk about "economic growth," take the opportunity to place it the context of just who benefits (an increase in GDP that's always scarfed up by the 1% is no "benefit" at all!).
It would take a lot of explaining of Modern Money Theory to make sense of this post. I have that understanding, but I know that most people don't Since Kelton puts her complete posts behind a paywall, I don't know if she explained this in the part that I was not able to read.
If Kelton is putting the justification behind a paywall, the parts of her posts that the public can read are certainly not helping the public discussion.
“from an MMT perspective, that’s a silly thing to say...”. thank god it is. if it wasn’t silly from an MMT perspective, i’d be questioning basic logic.
The powers that be are seeing rising costs for public debt, so they are shifting out of debt and into raising taxes. Yes, the effect is quite deflationary as the taxes increase the fines and penalties on worthy economic activity.
The government, the great wastrel, the corp that can make trillion$ disappear each year into a pit of waste, is now pushing greater expenditures and greater waste. If the government were to curb their atrocious spending habits, leaving funds in the hands of those that earned and conserved them, how much wealthier and more productive the nation would be.
But big government expenditure is all you advocate under your socialist MMT tenets. You never query what we get for our money, and never will. You only care that government is out and spending vast sums of money. It's the great socialist MMT way that thankfully shall soon end up on the dunghill of history.
Part of the answer is to incentivize spending towards public policy goals. The so called inflation bill that just got signed into law is a great example. By giving tax subsidies to expenditures that will benefit society as a whole, consumers will tend to spend more money on these items and have less to spend on others, driving down inflation in the unincentivized sectors. However, what is missing is adequate price regulation to prevent electric cars, solar panels and mini split heat pumps from becoming so expensive that the tax incentives are fully absorbed by increased costs because of over stimulated consumer demand. One great benefit that needs education, particularly in the South, is that Republicans can learn that clean renewable energy can save them money.