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The Republican party is generally claimed to be the party of fiscal responsibility. Note the term "claimed" here; I do not think the record of Republican governance proves this claim at all well, but nonetheless the default expectation seems persistent. When I was younger, this was certainly a selling-point of the party to me, and I voted for Bush II in the hope that he'd get government spending under control. Then 9/11 happened, and he wasted trillions wandering our military through the middle east.
Now the debt is very bad, and people are once more raising the banner of Fiscal Responsibility. Is it in Republicans' interest to enforce "fiscal responsibility", and if so, how? If we were to seriously cut spending and raise taxes, as people claim the fiscal situation demands, this would almost certainly cost us the next election. In the best possible case that I can see, we would be expending our political power to create stable economic conditions for our opponents to then rule. The more likely case would be us expending our political power to ameliorate spending that our opponents increase to gain power for themselves, resulting in a much shakier economy and our complete political irrelevance.
Why not offer the Fiscal Responsibility mantel to the Democrats? The economy is very complicated after all, and they are at this point clearly the party of Expert Opinion: who better to determine and implement the hard-nosed measures necessary to right our economic vessel? When I was younger, the obvious rejoinder would have been that they would do a bad job of it and disaster would result, but it seems to me that we have not done all that much better, and disaster seems likely in any case. If disaster cannot be meaningfully avoided, then why expend limited resources demanded by a serious political conflict on an unfixable resource-sink of a problem? What's the actual plan, here?
I've said this before, but I'm pretty sure a lot of members of congress have learned at least some MMT stuff about banking & government finance accounting. They pretty much all still use the deficit, debt, and fear of large numbers as rhetorical weapons against their opponents when out of power. But we seem to see fewer people than ever signing up for the mistaken sucker play of being in power and actually crashing the economy with austerity. Maybe more senators than house members understand the reality; surely more democrats than republicans have been incentivized; and definitely more congressional aides and rank&file treasury/fed people know how the financial plumbing works compared to elected & appointed officials (but in the US in particular, these types seem to effectively be able to get the word out to stop politicians from wrecking things usually). This time around, Trump even potentially had Elon as a perfect fall guy to take any blame, if Trump actually wanted to cut the deficit (luckily he didn't).
To be economically literate, one would have to know that saying the government deficit should be cut is identical to saying the non-government surplus should be cut. Or that the government's debt is not "our" debt, it's our asset: the government is just a balance sheet entity we made up, which we use to emit IOUs that we (the actual people) get to hold & use. It's much more akin to a scorekeeper, tracking the points everyone has. The national debt is essentially the net money supply, and that money is being created by running a deficit (constantly for hundreds of years, with no reason to stop if the people keep wanting to accumulate monetary savings). Government deficit & debt are good things, and the only problem is along the lines of 'too much of a good thing' (inflation, which is the self-correction mechanism).
I think MMT was especially catching on amongst politicians around like 2018-2019. The inflation of 2022 probably put it on the backburner for awhile. But even back in 2012, here they are talking about how a load of congress members understand things but just can't say anything publicly: https://youtube.com/watch?v=ba8XdDqZ-Jg&t=1h4m25s
MMT is propably not a popular position here. Your comment mostly assumes its true, and your very long quote is entirely about why the reactionaries wont see the light. The justification is essentially this:
The rest is the same thing in different words. And as for that.
Why is inflation correcting it? We have over the last few years heard from many left-leaning economists that inflation is actually fine, the lower classes are just irrationally afraid of it, go right ahead Mr Biden. In a mostly cashless economy like the US, even the logistical problems of hyperinflation can be handled pretty well.
That is definitely the case, but I would be surprised if anyone could do the t-accounts for various government & banking accounting operations and actually put the liabilities & assets on the correct sides, etc. Even most economists mess it up completely. It's just not something most people learn or care about. My guess was definitely about US officials and how their actions may be explained by their private knowledge, rather than an estimation about our forum members' beliefs.
Identities are a basic check to make sure you're not getting something totally wrong. If you think the government deficit is a bad thing that should be reduced, you have to explain why you think that of the non-government surplus as well. It is quite literally the same thing. As Kelton said in that presentation, people goof up on this all the time. The WSJ in the late clinton years proudly proclaiming in one column "isn't this wonderful? This is the longest sustained budget surplus since 1929!" while the next column over is hand-wringing "this is very worrying, the private sector savings are plummeting!".
When collectively the private sector has more monetary savings than we want, we will value money less and increasingly try to spend it away - the hot potato effect. Prices will get bid up high enough from this economic activity (falling value of a dollar) until we have the correct/desired amount of savings again. Or before that, the increased economic activity will cause the excess monetary savings to get shed off in increased tax payments (monetary destruction, IOUs returning to their issuer).
So taxes being set at rates instead of flat amounts is therefore one of our main automatic stabilizer policies (the other being safety net spending): the government deficit automatically shrinks & grows depending on the state of the economy. Demand-pull inflation is the final relief valve after that, re-valuing money downward until we have the amount we want.
The point of me saying this was that in that situation you should put more effort on justification.
None of this describes an actual problem with inflation. It says that inflation will automatically regulate away any excess borrowings. Why then not set taxes to 0, and just let the inflation run its course?
Is there any reason this is unique to the government? Or is my deficit also literally the same thing as rest-of-the-economy surplus? Because if it is, then it seems noone else should have objections to me borrowing indefinitely, either - it just makes you better of!
Why would they not want more? You demand that I explain why we would ever want non-government surplus to be less, but now you just assert that it will be the case.
Yep fair enough, my initial 2nd paragraph was kind of declaring things outside the point of the rest of it. That was trying to punch up what people might 'know' which I think are incontrovertible, without going into subjective policy implications.
Having some amount of taxes is what gives the currency an initial anchor value. Those taxes being levied broadly and reoccurring every year is what makes the money universally accepted and used even in the private economy. The currency is an IOU where the only thing 'owed' upon redemption is tax relief. If you levy no taxes, then inflation definitely will regulate the value automatically to the desired savings amount of 0 (give or take some inertia).
The only thing unique to government is the ability to levy taxes (backed up by force). That's what allows them to indefinitely print up IOUs that promise to pay nothing but an abstract amount of value in a unit of measurement they make up, and people will still line up to earn those IOUs (working in the army or wherever).
The generalized logic is: "you will always value your creditor's own debt". Because you can cancel out the debts with each other. The government can decree that it's a universal creditor to everyone (everyone owes taxes, abstract amounts of value payable in nothing). Thus enabling it to actually simultaneously be a universal debtor to everyone (issuing IOUs far exceeding the tax liabilities, if people are willing to save some for a rainy day).
You can write any number of IOUs that say "I owe the bearer of this note 1 apple", and use that new money to pay for things. Maybe only people in your neighborhood will accept it (also helps if they know you have an apple tree in your yard, and that there aren't too many outstanding notes to enable a run on your apples). If you write "I owe the bearer of this note $1", then some people (particularly banks) may accept it as valuable if they trust your creditworthiness. Your deficit is indeed definitely everyone else's surplus, if splitting the economy into those 2 sectors is useful to any analysis. So we (in the non-Lykurg sector of the economy) do benefit. The only problem is you run out of creditworthiness before we get very stimulated.
Well, would you be happy holding millions/billions in checking/saving/bond accounts, or would you be tempted at some point to start buying stocks, yachts, and islands instead? It seems that most people tend to have savings targets to hit, after which they feel more free to spend any excess income. And their preferred asset allocation of savings maxes out at some desired amount of monetary savings.
But indeed, the government deficit could certainly be eleventy zillion dollars, if it were to end up in someone's account that has an infinite savings desire who wouldn't touch it. In the MV=PQ identity, that would be money increasing but velocity falling off a cliff, causing no effect on output or price level.
And I didn't say that there's no reason to want to shrink the government deficit, just that it does take an explanation. I could say that I do want to shrink the non-government surplus in hypothetical situations, if we're having obnoxious levels of inflation, maybe caused by too much government spending being indexed against the price level (causing a positive feedback loop that prevents automatic stabilization).
Finally, we indeed have basically never had much demand-pull inflation in the modern era of democracies with proper central banks using fiat currency (since the early 20th century at least). The bouts of inflation are usually better explained as cost-push, often from energy price shocks. The central bankers take credit for being wizards and steering the economies well, but it's probably those fiscal automatic stabilizers doing the work.
Ill note that you still havent explained why too much inflation is bad, or how we would know what "too much" is.
Transitioning out of just questions, I agree that the taxes give value to the IOUs, but I dont think the made up unit gives you all that much long-term. You can inflate away your debt, but expectations of inflation are built into the interest rate you are offered. Unless you can somehow inflate above expectations indefinitely, in the long term you need to tax back what you borrowed plus interest in real terms. There is no reason to borrow unless your position as the government gives you investment opportunities above market returns, youd just pay interest for no good reason.
I assume you're not asking for the various downsides of inflation in general and why people find it annoying when it's above some small amount like 1-2%? My original statement was that people should have the properly oriented mindset, where the problem of 'too much government debt' is along the lines of 'too much of a good thing'. The 'good thing' here is the money in the private sector, not inflation, if that was the confusion. This is all in contrast to most peoples' gut notion that "deficit" and "debt" sound negative and bad and worth minimizing on their own.
You don't think the US making up their own 'dollar' unit of measurement is too important? You must be on some kind of galactic time scale here for what long term means. This is surely one of the most important things about being a sovereign nation, creating and issuing your own currency.
Again, maybe I'm not thinking long term enough. But in the US, we went into millions, then billions, now trillions. Should we find the tens of trillions a special number, such that we wouldn't expect to see quadrillions? When and why would they ever need to 'tax back' this amount? The IOUs just roll over indefinitely.
Yeah once you recognize that all money is just transferable credit, you will notice that there is basically no economic difference between central bank reserves and treasury securities. So rather than one being 'money' and the other being 'borrowing', they are actually not 'borrowing' at all. They are just creating money in different forms. This fact has dawned on people like Larry Summers a decade after central bank reserves started paying interest just like treasury securities.
As for paying interest, it's purely a policy choice to pay anything other than 0% on any of these IOUs. It's a government subsidy to savers: they will give you more money for having money. There are various macroeconomic effects for any chosen rate. Currently the policymakers in charge think choosing to pay a higher interest rate is on balance more constrictive than stimulative, and think that low rates are on balance more stimulative.
Im asking for some kind of real economic cost; "Its annoying when the prices are different than I remember" doesnt count, no.
If you dont pay enough interest, people will stop lending you money.
Well, you said that the difference between me and the state is that the state can tax. If it doesnt actually need to do that, then whats the difference? Why cant I have ever-increasing amounts of debt that I service by taking on new debt?
What youre proposing here is "The Ponzi scheme that actually works". Because Ponzi schemes do work so long as the investors dont take out their money, ie stop letting you roll over your debt.
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