Economist Stephanie Kelton on The Deficit Myth

[lpetrich]

Hear The Bern Episode 51 | The Deficit Myth (w/ Stephanie Kelton) - YouTube

Economist Stephanie Kelton gives Briahna a crash course in monetary policy and why the United States would actually benefit from increased deficit spending - so long as it flows toward working people, not stock buybacks. Stephanie makes the case that, in the midst of the historic economic crash that COVID-19 is causing, the federal government could go much farther than last week's stimulus package to ease economic pain and prevent mass layoffs.

Stephanie Kelton is the author of the upcoming book "The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy". She was interviewed by Briahna Joy Gray.

BJG introduced it with the issue of how we pay for universal coverage. SK then got into a common misconception about Federal-Gov't spending, that it works like a household, where one has to take money in to be able to send it out as spending. That is because the Federal Gov't can run up deficits. If an economy is running at capacity, then further deficit spending will cause inflation, and SK rightly recognized that that will happen, and that that is a bad thing.

But if an economy is not at productive capacity, then running deficits can be a good way of getting it going.

As to the Republicans running deficits with their tax cuts, SK points out that a deficit for one person can be a surplus for another person, so one might ask who is benefiting from the resulting surplus.

BJG then asked SK to explain what causes inflation, and she conceded that she has a hard time with such things. Then she mentioned a former Federal Reserve (US central bank) governor Daniel K. Tarullo, who concede that the Fed has no good model of inflation, even though it tries to keep inflation less than 2%/year. SK then got into theories of inflation. Two main theories. Supply-push and demand-pull. Both of them have in common supply less than demand. Oil shocks, with oil suddenly becoming less available, are supply-push, while too much money is demand-pull.

SK then stated that Western economies typically run with a lot of slack, like unemployed labor. For full employment, consider World War II, with its massive war-production effort.

Then she noted a study published by the Cato Institute about hyperinflation. Three researchers found 56 examples, and they tried to find the causes. No case of trying to achieve full employment. Zimbabwe - land redistributed to cronies who didn't know how to farm - they didn't produce enough food and food prices soared.

SK criticized the practice of letting unemployment happen rather than backstop employers' payrolls. BJG asked about what's on Republicans' minds, and SK noted Lindsey Graham's objection to paying people as much unemployment as they'd get for working. SK also suspects that some Republicans are afraid that their social inferiors will be able to have a good life, that it won't be an economic calamity if they do.

BJG then suspected that the elite wants everybody but them to have to live paycheck-to-paycheck to keep them working at jobs that they may dislike. Like need a lot of student-loan debt to get a high-paying job. Or be tied to one's job by one's medical insurance. SK then mentioned a Federal job guarantee.

Then they get into the national debt. Deficit spending is financed by selling Treasury bills. Gold standard = fixed price for gold, currency is convertible to it.

SK then got into the last years of the Clinton Presidency, when the Federal budget started running surpluses. The Congressional Budget Office predicted that the FedGov would keep on running surpluses and would eventually retire the Federal debt. The President's Council of Economic Advisers did a chapter of a report on what would happen if that was done, and it was made public with a Freedom of Information Act request. It would mean no more T-bills in circulation.

SK then talked about what it might take for politicians not to fear deficit spending so much - a lot of courage to defy the conventional wisdom about it.

 

[Harry Bosch]

Hear The Bern Episode 51 | The Deficit Myth (w/ Stephanie Kelton) - YouTube

Economist Stephanie Kelton gives Briahna a crash course in monetary policy and why the United States would actually benefit from increased deficit spending - so long as it flows toward working people, not stock buybacks. Stephanie makes the case that, in the midst of the historic economic crash that COVID-19 is causing, the federal government could go much farther than last week's stimulus package to ease economic pain and prevent mass layoffs.

Stephanie Kelton is the author of the upcoming book "The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy". She was interviewed by Briahna Joy Gray.

BJG introduced it with the issue of how we pay for universal coverage. SK then got into a common misconception about Federal-Gov't spending, that it works like a household, where one has to take money in to be able to send it out as spending. That is because the Federal Gov't can run up deficits. If an economy is running at capacity, then further deficit spending will cause inflation, and SK rightly recognized that that will happen, and that that is a bad thing.

But if an economy is not at productive capacity, then running deficits can be a good way of getting it going.

As to the Republicans running deficits with their tax cuts, SK points out that a deficit for one person can be a surplus for another person, so one might ask who is benefiting from the resulting surplus.

BJG then asked SK to explain what causes inflation, and she conceded that she has a hard time with such things. Then she mentioned a former Federal Reserve (US central bank) governor Daniel K. Tarullo, who concede that the Fed has no good model of inflation, even though it tries to keep inflation less than 2%/year. SK then got into theories of inflation. Two main theories. Supply-push and demand-pull. Both of them have in common supply less than demand. Oil shocks, with oil suddenly becoming less available, are supply-push, while too much money is demand-pull.

SK then stated that Western economies typically run with a lot of slack, like unemployed labor. For full employment, consider World War II, with its massive war-production effort.

Then she noted a study published by the Cato Institute about hyperinflation. Three researchers found 56 examples, and they tried to find the causes. No case of trying to achieve full employment. Zimbabwe - land redistributed to cronies who didn't know how to farm - they didn't produce enough food and food prices soared.

SK criticized the practice of letting unemployment happen rather than backstop employers' payrolls. BJG asked about what's on Republicans' minds, and SK noted Lindsey Graham's objection to paying people as much unemployment as they'd get for working. SK also suspects that some Republicans are afraid that their social inferiors will be able to have a good life, that it won't be an economic calamity if they do.

BJG then suspected that the elite wants everybody but them to have to live paycheck-to-paycheck to keep them working at jobs that they may dislike. Like need a lot of student-loan debt to get a high-paying job. Or be tied to one's job by one's medical insurance. SK then mentioned a Federal job guarantee.

Then they get into the national debt. Deficit spending is financed by selling Treasury bills. Gold standard = fixed price for gold, currency is convertible to it.

SK then got into the last years of the Clinton Presidency, when the Federal budget started running surpluses. The Congressional Budget Office predicted that the FedGov would keep on running surpluses and would eventually retire the Federal debt. The President's Council of Economic Advisers did a chapter of a report on what would happen if that was done, and it was made public with a Freedom of Information Act request. It would mean no more T-bills in circulation.

SK then talked about what it might take for politicians not to fear deficit spending so much - a lot of courage to defy the conventional wisdom about it.

She sounds like a kook. I roll my eyes make these charges that there is this evil kabul of rick people just plotting to have all the workers live paycheck to paycheck! This evil group isn't plotting to unemployment high by not backstopping employer's payrolls! I mean, what does that even mean? Good companies keep reserves to cover expenses and payroll during the bad times. Most companies hate to lay people off because finding good workers and training them is very expensive. Better to keep employees who have the company culture and training. Why isn't this evil group of meanies trying to stop the PPP act which allows loans to be converted to grants if the PPP funds are used for payroll? People who make such kooky claims should be relied upon.

 

[laughing dog]

The extend of the fear of deficit spending among politicians is pretty low as the actual evidence on deficit spending indicates. In the last 50 years or so, the US has had one federal surplus in a fiscal year.

While SK's observation about Western economies running with alot of slack is true if one includes Europe, it is not true for US.

While it is true that hyperinflation periods were not caused by policies meant to deal with full employment (or even employment), that does not mean that hyperinflation could not be the result of a policy designed to achieve or maintain full employment.

I happen to think that much of the expressed fear of deficit spending and/or government borrowing is not evidence based. But that does not mean that there are no possible dangers from deficit spending or gov't borrowing.

In my view, whether or not deficit spending or gov't borrowing has a negative effect on economic activity depends on the situation.

 

[Trausti]

The extend of the fear of deficit spending among politicians is pretty low as the actual evidence on deficit spending indicates. In the last 50 years or so, the US has had one federal surplus in a fiscal year.

While SK's observation about Western economies running with alot of slack is true if one includes Europe, it is not true for US.

While it is true that hyperinflation periods were not caused by policies meant to deal with full employment (or even employment), that does not mean that hyperinflation could not be the result of a policy designed to achieve or maintain full employment.

I happen to think that much of the expressed fear of deficit spending and/or government borrowing is not evidence based. But that does not mean that there are no possible dangers from deficit spending or gov't borrowing.

In my view, whether or not deficit spending or gov't borrowing has a negative effect on economic activity depends on the situation.

You can live on the credit card for only so long. It'll catch up with you eventually.

 

[laughing dog]

Analogies between personal or business finance and government finance fail for three reasons: 1) governments basically are infinitely lived while people and businesses are not,
2) governments can print money while people and businesses cannot, and
3) government can tax while people and businesses cannot.

Furthermore, there is no conceptual reason why an infinite-lived entity could not be in debt forever. Consider the case where one could borrow at x% and use the funds to earn x% = 4%. Every period, one could refinance one's debt and still come out ahead.

 

[Trausti]

Analogies between personal or business finance and government finance fail for three reasons: 1) governments basically are infinitely lived while people and businesses are not,
2) governments can print money while people and businesses cannot, and
3) government can tax while people and businesses cannot.

Tell that to the King of France.

 

[Trausti]

Argentina has defaulted on its debt how many times? No economic consequences whatsoever.

 

[laughing dog]

Babbling about the non-existent king of France is not a convincing argument.

 

[Trausti]

I mean, the only thing backing up the US dollar is the full faith and credit of the US government. Once that goes, Wiemar republic here we come.

 

[Trausti]

Babbling about the non-existent king of France is not a convincing argument.

Ignorance of history does not aid your position. You seem to want money for nothing and the checks for free.

 

[Trausti]

What gets me is how incredibly immoral it is for the present generation to benefit from spending the credit while leaving the payment of the debt to future generations.

 

[Trausti]

The USA gets to behave irresponsibly because it is like the 800 pound gorilla.

There is a Providence that protects idiots, drunkards, children and the United States of America. - Otto von Bismarck

But no country or empire gets to stay atop forever. The Mandate of Heaven is capricious.

 

[laughing dog]

Babbling about the non-existent king of France is not a convincing argument.

Ignorance of history does not aid your position. You seem to want money for nothing and the checks for free.

In post 3 I wrote

I happen to think that much of the expressed fear of deficit spending and/or government borrowing is not evidence based. But that does not mean that there are no possible dangers from deficit spending or gov't borrowing.

In my view, whether or not deficit spending or gov't borrowing has a negative effect on economic activity depends on the situation.

To anyone who is remotely literate, that indicates I do not think nor want "money for nothing and checks for free".

Your arguments are not based on sound reasoning. Providing examples where profligacy caused problems does not mean that profligacy necessarily causes problems.

 

[laughing dog]

What gets me is how incredibly immoral it is for the present generation to benefit from spending the credit while leaving the payment of the debt to future generations.

So it was immoral for the US to borrow to fight WWII and expect a future generation to pay off that debt?

You do realize that a future generation may actually benefit from the use of the earlier borrowed funds.

 

[Bomb#20]

SK also suspects that some Republicans are afraid that their social inferiors will be able to have a good life...

Theories based on the premise that people who disagree with you are cartoon villains rarely pan out.

 

[Bomb#20]

What gets me is how incredibly immoral it is for the present generation to benefit from spending the credit while leaving the payment of the debt to future generations.

We're richer than 20th-century Americans. 20th-century Americans were richer than 19th-century Americans. 19th-century Americans were richer than 18th-century Americans. 22nd-century Americans will most likely be richer than us, so generations putting their debts off onto future generations is simply redistribution from the rich to the poor, the same as welfare and the progressive income tax. It's what poor people always do when they can outvote rich people -- and there's nobody easier to outvote than the unborn. Maybe that's incredibly immoral and maybe it isn't, but if we're going to spend energy on bewailing immorality, why blow it on inevitabilities?

 

[Bomb#20]

Babbling about the non-existent king of France is not a convincing argument.

Ignorance of history does not aid your position. You seem to want money for nothing and the checks for free.

People deciding what money to accept for their goods and services grade on the curve.

The US can be quite irresponsible about how many dollars it prints, and will continue to get away with it, as long as the people of the world perceive that most other governments are being even more irresponsible. That perception provides the common reserve currency of the world with a reserve of good will that no one has yet plumbed the depths of.

 

[Trausti]

What gets me is how incredibly immoral it is for the present generation to benefit from spending the credit while leaving the payment of the debt to future generations.

We're richer than 20th-century Americans. 20th-century Americans were richer than 19th-century Americans. 19th-century Americans were richer than 18th-century Americans. 22nd-century Americans will most likely be richer than us, so generations putting their debts off onto future generations is simply redistribution from the rich to the poor, the same as welfare and the progressive income tax. It's what poor people always do when they can outvote rich people -- and there's nobody easier to outvote than the unborn. Maybe that's incredibly immoral and maybe it isn't, but if we're going to spend energy on bewailing immorality, why blow it on inevitabilities?

Ah, 19th century Americans and early 20th century Americans did not pass on huge debts to the unborn.

 

[Wiploc]

SK also suspects that some Republicans are afraid that their social inferiors will be able to have a good life...

Theories based on the premise that people who disagree with you are cartoon villains rarely pan out.

Unless, of course, they voted for someone who campaigned as a cartoon villain.

 

[Horatio Parker]

Argentina has defaulted on its debt how many times? No economic consequences whatsoever.

You realize of course that Argentina wasn't borrowing in its own currency. Or perhaps you don't, since borrowing foreign exchange is irrelevant to domestic deficits.