David Dayen: The Left Is Taking Aim at Pelosi’s Deficit Obsession

David Dayen writing over at The New Republic: The Left Is Taking Aim at Pelosi’s Deficit Obsession,

There’s also one major hurdle left to topple: the “pay as you go” rule, commonly known as “pay-go,” which demands that all new spending get offset with budget cuts or tax increases. Progressive critics argue that this creates an unlevel playing field, where Republicans blow giant holes in the tax code, as they did last year, while Democrats must pay fealty to the deficit. These critics are now mounting a fight to unshackle a future activist government.

[. . .] Obviously, Pelosi and her allies on pay-go consider the rule good politics, allowing them to rebut charges about “tax and spend” liberals by insisting that every new program is fully paid for. If anybody actually cared about the deficit, instead of habitually using it as a weapon to rein in the opposition party, maybe that logic would be compelling. But even if the politics make sense, the rule leads to bad policy, …

Democrats have fallen for deficit-scare politics for too long. Republicans understand money, and understand that they can spend (or cut taxes) to deliver for their constituents. And they understand that they can trick Democrats into not delivering for their constituents (We the People.) It is time for that nonsense to stop.

Everything in it’s place. For now.

This site concentrates on the contributions of the current principal architects of Modern Monetary Theory: the economists and academics who have done and continue to do the heavy lifting. When Dave and I launched the site shortly after I returned from the first international MMT conference last year, we set up some basic categories for the  purposes of sorting material into  categories that we expected would be intuitively sensible to journalists and commentators (like him) who would be interested in becoming MMT literate and then widening that circle of literacy; and to ordinary people (like me) who, drawn in by curiosity or chance, determined to learn more.  

These folks, mainly the academic teachers of macroeconomics, are nothing if not prolific.

After returning home from the second international conference, having fallen even further behind in adding content, it seemed necessary to further refine our organization. The earlier set of categories were beginning to resemble overfull closets. Time for additional closets. Accordingly, in the past few months, we’ve:

  • Moved “Primary Sources” up from the Resources drop-down menu to the top level of the menu and later created a “Teachers Teach” page for each of experts, our primary sources. Entries in “Teachers Teach” consist primarily of videos but also link to websites where they contribute their less formal thinking, and the occasional Twitter thread.
  • Under Resources,  podcasts are now separate from videos. 
  • Also under Resources, we have Nice Things We Can Have or Applied MMT. Under it, we’ve created separate pages for content related to the federal Job Guarantee, Student Loan cancellation, Medicare for All, Social Security, and Green New Deal.

This is the very definition of work in progress. Nothing is finished. I encourage our dozen readers to browse around. Suggestions are welcome.

MMT is Both Descriptive and Prescriptive

Harvested from Twitter. Because I needed it spelled out.

“It’s weird how people sometimes talk about MMT’s prescriptive side as if it’s not customary for a macro framework to have both descriptive and prescriptive elements. 1/x

Milton Friedman gave us the expectations-augmented Phillips Curve (descriptive, in his mind) as well as a (prescriptive policy) monetary growth rule. 2/x

New Classical economists gave us models rooted in rational expectations and then insisted on the importance of announced (vs. unannounced) changed in the money supply. 3/x

Real Business Cycle models emphasize technological shocks as drivers of macro fluctuations but advocate laissez faire, which *is itself a policy prescription*! 4/x

The point is, one’s understanding of the behavior of the macro system naturally invites a policy stance to complement the analysis and optimize performance. 5/5”

Never Forget

As a person who was first socially identified as white while a sophomore in college in the ’60s (for more on that, see Karen Brodkin, author of “How Jews Became White Folks and What That Says About Race in America”) I was struck by Raúl Carrillo’s recent Facebook post:

“With just one month until the MMT conference, I want to share some personal notes with people of color (and people of flavor ;)) interested in participating, but anxious about the typical bullshit. Perhaps, especially, I’m speaking to Black, Latinx, and Native folks from the U.S., because that’s most of my personal friends, and I have an embedded sense of how our time and energy are precious. So…I want to humbly encourage everyone to join us in NYC, but also let you know….why.

With so much going down, why should we give a shit about learning about *money,* specifically, as opposed to, say, economics, broadly? How does the struggle against racial capitalism — and other modes of oppression — benefit from monetary analysis (and specifically MMT)?

To put it bluntly: money is a central feature of society, but one of the least understood features. Plenty of folks study taxation, banking, finance, and macro, but few study money itself. I happen to think this is a mistake: Money must be a fundamental unit of power analysis. To borrow a crude analogy, studying economics with a bad grasp of money is like studying biology with a bad grasp of physics. Really understanding money deepens us and helps us protect ourselves from getting swindled.

Continue reading “Never Forget”

Remembering FDR

We have always known that heedless self-interest was bad morals; we know now that it is bad economics. Out of the collapse of a prosperity whose builders boasted their practicality has come the conviction that in the long run economic morality pays. We are beginning to wipe out the line that divides the practical from the ideal; and in so doing we are fashioning an instrument of unimagined power for the establishment of a morally better world.”
– Franklin D. Roosevelt, “Second Inaugural Address,” January 11, 1944

“We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. “Necessitous men are not free men.” People who are hungry and out of a job are the stuff of which dictatorships are made.

In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all—regardless of station, race, or creed.

Among these are:

● The right to a useful and remunerative job in the industries or shops or farms or mines of the nation;

● The right to earn enough to provide adequate food and clothing and recreation;

● The right of every farmer to raise and sell his products at a return which will give him and his family a decent living;

● The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;

● The right of every family to a decent home;

● The right to adequate medical care and the opportunity to achieve and enjoy good health;

● The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;

● The right to a good education.

All of these rights spell security. And after this war is won we must be prepared to move forward, in the implementation of these rights, to new goals of human happiness and well-being.

America’s own rightful place in the world depends in large part upon how fully these and similar rights have been carried into practice for all our citizens. For unless there is security here at home there cannot be lasting peace in the world.”
– Franklin D. Roosevelt, “Second Bill of Rights,” January 11, 1944

Why Health Care Matters and the Current Debt Does Not

After taking note of a slide in this 2012 Randy Wray video, I chased down the source for this much quoted statement from the Federal Reserve Bank of St. Louis, from Why Health Care Matters and the Current Debt Does Not Oct, 2011

As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bill. In this sense, the government is not dependent on credit markets to remain operational. Moreover, there will always be a market for U.S. government debt at home because the U.S. government has the only means of creating risk-free dollar denominated assets.

After a lifetime of feeling vaguely gaslighted, it’s a relief when economists help me understand how things work. In looking for the source, I came across a group of interesting quotes in this post from economist John Harvey (@John_T_Harvey):

“The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.”
— Alan Greenspan

“In the case of United States, default is absolutely impossible. All U.S. government debt is denominated in U.S. dollar assets.”
— Peter Zeihan, Vice President of Analysis for STRATFOR

“In the case of governments boasting monetary sovereignty and debt denominated in its own currency, like the United States (but also Japan and the UK), it is technically impossible to fall into debt default.”
— Erwan Mahe, European asset allocation and options strategies adviser

“There is never a risk of default for a sovereign nation that issues its own free-floating currency and where its debts are denominated in that currency.”
— Mike Norman, Chief Economist for John Thomas Financial

“There is no inherent limit on federal expenses and therefore on federal spending…When the U.S. government decides to spend fiat money, it adds to its banking reserve system and when it taxes or borrows (issues Treasury securities) it drains reserves from its banking system. These reserve operations are done solely to maintain the target Federal Funds rate.”
— Monty Agarwal , managing partner and chief investment officer of MA Managed Futures Fund

Our growing collection of quotes are here.

Gleaned from Twitter and Facebook

“The core MMT (Modern Monetary Theory – ed) academics have all been tenured (many of us more than once) based on strength of peer-reviewed publications, including heavy empirical/theoretical work. Please rise above this dismissive rhetoric.”
Stephanie Kelton

“First they ignore you, then they laugh at you, then they fight you, then you win”
— unknown, though often attributed to Ghandi

“The US government doesn’t use income. It generates government “money” when it spends, which becomes income for the private sector.

The federal budget goes through a lengthy process: In general, the President submits a budget to Congress which goes to the budget committees of the House and Senate, then on to budget resolutions. Congress can propose its own budget prior to the President’s. Whether or not spending must be constructed as a bill (legislation) depends on if spending is discretionary, or mandatory.

If spending is discretionary, this requires annual legislation passed by Congress and submitted to the President for signature or veto. If mandatory, spending simply occurs.”
Ellis Winningham

MMT Online University

Finally! Bill Mitchell announces the launch of MMT University: “online, interactive instruction in Modern Monetary Theory in partnership with the leading proponents of MMT from across the Globe.” A widely accessible, structured opportunity to #LearnMMT. Details in September.

“Government Can’t Run Out Of Money”

The crazy idea that We the People can have nice things is reaching a wider audience.

Over at HuffPo, in Stephanie Kelton Has The Biggest Idea In Washington, Zach Carter writes about how “MMT” is catching on,

“Modern monetary theorists believe that confusion around money has distracted economists from the real things that affect the economic health of society ― natural resources, technology, available labor. Money is a tool governments use to manage these variables and solve social problems. It is not a scarce resource that governments have to track down in order to pay for projects.”

Please go read. It’s worth it.

“The basic idea is that the government can’t run out of money,” Kelton said. “It creates money just by spending.”

There Are No Real Republican “Deficit Hawks.” Here’s Why. Part 2

This posts changes a few words from a previous post.

Democrats are making a terrible mistake fighting the Republican tax cuts spending increases by saying they add to the deficit, that they will “blow a hole in the budget,” etc.

Why are Democrats saying this? They are using the “increase deficits” line because they think they can appeal to a few “deficit hawk” Republicans who spent the Obama years complaining about government sending and “deficits.”

It is a mistake for Democrats to think they can “get Republican votes” by mouthing Republican deficit-fear rhetoric without understanding the strategy behind their rhetoric.

Strategy: Republicans Create Deficits, Stoke Deficit Fear, Then Campaign Against Government Spending

Here’s the thing. There are no real Republican “deficit hawks.” Republicans stoke deficit fear, and then say they are opposed to budget deficits. But they always, always increase deficits. On purpose. There’s a reason.

Continue reading “There Are No Real Republican “Deficit Hawks.” Here’s Why. Part 2″