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• Stephanie Kelton’s excellent work on the budget deficit can be seen here in full:
  http://neweconomicperspectives.blogspot.com/search/label/Stephanie%20Kelton

  Posted by Marshall Auerback | February 1st, 2010 at 12:11 pm

• What about the relative value of the dollar in a globalized economy, is that not important? Trading partners will not be happy about their haircut.

  Also, if you could explain why Reinhardt and Rogoff’s groundbreaking research (not speculation) contradicts what you are saying, that would be helpful!

  Posted by Pete | February 1st, 2010 at 2:19 pm

• Our trading partners might not be happy with their haircut. But they choose to export their output to us. As I’ve said in earlier pieces, simply responding to a weaker currency via raising rates might not do the trick.

  Posted by Marshall Auerback | February 1st, 2010 at 4:10 pm

• Marshall,

  This is your best yet, with great links. I hope many more of your associates here at ND 2.0 take the time to read and understand the operational details of what you have written.

  The Concord Coalition does not allow comments on their blog, I really wish they would, what are they afraid of? (My hunch is Sen Judd Gregg of NH is running for a position with the Concord Coalition when he retires from the Senate this year…based on his repeated deficit demogoguery in the media.)

  Keep up the good work. Resp,

  Posted by Matt Franko | February 2nd, 2010 at 8:24 am

• Marshall,

  I think Obama is putting on his deficit hawk hat for political purposes to protect a flank that he left exposed. His proposals are relatively inconsequential and contain more bark than bite.

  I wouldn’t be surprised if he agreed with your logic. But the communication effort required to explain the logic you cited in your article is too daunting a task. It simply too counter-intuitive. I’ve read your other articles on this topic and I still find it hard believe that you can wantonly run deficits without long-term detrimental effects.

  Posted by Bob | February 2nd, 2010 at 7:10 pm

• You should pick up a copy of “This Time is Different” by Ken Rogoff. Although the US does enjoy the privilege of being able to borrow in its own currency, that does not render us permanently immune from currency crisis risk or an interest rate spike or a hyperinflation. The current path is unsustainable. The US is dependent upon continuing capital inflows from abroad to maintain the deficit. If demand for debt does not keep up with supply, long term interest rates will rise and the economy will stagnate.

  Posted by David G | February 2nd, 2010 at 11:58 pm

• Marshall,

  Last year, you wrote for JPRI about the ’super strong’ yen and about the BoJ’s ‘malign neglect’ of the currency. (Feb 2009: Land of the Setting Sun?). Yet, you have a much more benign view of Japan’s debt/deficit than the mainstream so why should the yen weaken, and isn’t any attempt to weaken it more about MOF policy than any malign neglect on the part of the BoJ?

  Thanks,
  Leo

  Posted by leo | February 3rd, 2010 at 9:13 am

• From OpportuniTV.com/many-jobs/:

  Popular online markets for customized education (CE) can be expected to catalyze the creation of many jobs.

  From a November 6, 2009 article in the Wall Street Journal:

  “According to the Census Bureau, nearly all net job creation in the U.S. since 1980 occurred in firms less than five years old. A Kauffman Foundation report released yesterday shows that as recently as 2007, two-thirds of the jobs created were in such firms. Put more starkly, without new businesses, job creation in the American economy would have been negative for many years.”

  From a 2005 report by The Nielsen Company:

  “By enabling entrepreneurs to start a business online and immediately reach a market of 157.3 million registered users worldwide, eBay has become the best place to start, grow and operate a small business.”

  Harvard Business School professor Clayton Christensen is the originator of the canonical Model of Disruptive Innovation, and a co-author of the 2008 book Disrupting Class: How Disruptive Innovation Will Change the Way the World Learns. From Disrupting Class:

  “Students need customized pathways and paces to learn.

  …The second [phase of the disruption of standardized education] will be the emergence of a user network, whose analogues in other industries would be eBay…”

  Stanford economist Paul Romer is the originator of New Growth Theory, which updates growth economics for the information age. From Romer’s entry on Economic Growth in the 2007 edition of The Concise Encyclopedia of Economics:

  “The country that takes the lead in the twenty-first century will be the one that implements an innovation that more effectively supports the production of new ideas in the private sector.”

  “Perhaps the most important ideas of all are…ideas about how to support the production and transmission of other ideas…North Americans invented the modern research university…As national markets for talent and education merge into unified global markets, opportunities for important policy innovation will surely emerge.”

  From The Mystery of Economic Growth, a 2004 book by Harvard economist Elhanan Helpman:

  “Interest in growth theory abruptly revived…in the 1980s. The two key papers were by Romer (1986) and Lucas (1988).

  …Romer (1990) also initiated the second wave of research on the “new” growth theory.

  …A more detailed study of the U.S. economy is provided by Jones (2002). He found that between 1950 and 1993 improvements in educational attainments, which amounted to an increase of four years of schooling on average, explain about 30 percent of growth of output per hour. The remaining 70 percent is attributable to the rise in the stock of ideas that was produced in the United States, France, West Germany, the United Kingdom, and Japan.”

  In particular, CE markets can be expected to attract many buyers and sellers of corporate training.

  From a May 20, 2004 article in The Economist:

  ““There has been a huge swing to custom programmes,” says Fiona van Haeringen of IESE, who attended a recent annual conference of business-education providers in America…Looking to this year, most saw growth coming mainly from customised education.”

  From Seeing What’s Next: Using the Theories of Innovation to Predict Industry Change, a 2004 book co-authored by Christensen:

  “Modular, customizable corporate training has an advantage that interdependent M.B.A. programs can’t match — a product specifically designed for each employee’s needs.

  …In contrast to the leading schools’ integrated structure, the on-the-job management education industry is a disintegrated one. Hundreds of specialized firms develop materials, others design courses, and others produce and teach them.”

  …Companies that introduce a CE market will race to:

  1. provide loans to CE consumers
  2. become a bank, as a means of increasing the amount of money that
  the company can lend
  3. introduce more loan programs and financial services that
  complement the market (e.g., loans to small businesses, so more
  jobs are available to CE consumers)

  Posted by Frank Ruscica | February 3rd, 2010 at 7:13 pm

• Just because there are individuals who would advocate taking a loaded gun with only one bullet and spinning the barrel and placing it to one’s temple and pulling the trigger, does not mean that it is an intellegent thing to do. In reality you could do it 100 times with no adverse consequences, but statistically after five tries, you stand a very high chance of very severe consequences. So is the agruement for unlimited deficit spending. It doesn’t matter until the bullet fires into your temple and then it is too late to change your mind.

  Posted by Sam Houston VII | February 6th, 2010 at 7:09 pm

• Dear Marshall;

  firstly, sorry for the length of my posts, and their ‘edge’, no disrespect is intended, I’m glad you realise this, I would like to trash out a few more points that are bothering me about ‘QE’ and large deficit spending though.

  –

  I spent considerable time during the past year using a spreadsheet to try and realistically estimate the MAXIMUM public-debt repayment rate the US economy could SUSTAINABLY afford, per annum. I attempted that because I wanted to determine if the US really had a problem, or whether the whole issue was being vastly overstated. I discovered that if anything it was being understated.

  To cut a long story short, the MAXIMUM repayment rate the US economy could SUSTAINABLY afford came out at about $246 billion USD per annum. This currently equates to about 51 years to repay the current 2010 US NET public debt. But by 2019 it blows out to 89 years, to repay the projected public debt level (in 2010 dollars). This does not include the effect of compounding interest over that timeframe.

  In a non-MMT real-world public debt repayment requires Govt budget surpluses-sorry, that’s just a fact. But since the mid-1950s the US’s budget supluses can be counted on one hand. So the best case 51 years in 2010 and 89 years in 2019 to repay debt, are extremely optimistic, to say the least.

  That’s a requirment for 89 years of continuous large budget surpluses to zero US public debt.

  And despite your aversion to balanced budgets, regular large budget surpluses TOTALLY ELIMINATE debt-servicing costs (i.e. what Australia thus acheived by 2006). That’s a simple and undeniable fact, one which most MMT deficit-spend zealots seem unable to grasp, process, or admit to, but instead make excuses for why it only causes higher private debt growth, as though one were the direct product of the other.

  Which is utter bollocks, for example;

  Austalia had strongly rising private debt levels (exponentially rising in fact, and still has) during the early 1980s to mid-1990s, at the very same time Australia was running a persistent and politically extremely contentious budget deficit. That is a FACT, so the notion that deficit spending reduces private debt growth is clearly not true in that case.

  This is because private debt growth is NOT the inverse of deficit spending cutting at all.

  It’s an insideous and quite absurd myth that the two are inversely closely related. I don’t know where this nonsense came from, but in the real world, it definitely is not true. Private debt growth is indisputably independent of public deficit spending and public debt growth.

  Another undeniable example;

  The US from 1980 to 2009, and especially from 2003 to 2009! There was concurrent extremely rapid private-debt growth right alongside massive US budget deficit growth, and rapid public-debt accrual.

  You could not get a more clear refutation of that particular pillar of MMT deficit-spending theory/argumentation.

  To assert or to presume insufficient deficit spending produces a private debt explosion is utter gibberish. Who came up with this drivel? Did anyone reality-check this?

  Apparently not, as it’s still repeated ad-neauseum as an article of faith within MMT theory circles as a major justification for the alledged clear need for continuous high deficit spending to maintain fiat-backed GDP levels with growth.

  It’s baloney Marshall, quit pretending its true.

  –

  I’m curious if you fully understand and accept that a budget surplus is the inseparable flipside of the debt-growth coin that you are so eager to spend? Budget surpluses are in fact crucial and utterly essential to the structure and function of public finance, within any Soverign system, where NET public debt accrual routinely occurs.

  Otherwise it simply means that Govt has absolutely no intension of repaying its public debts-ever!

  And that is the very meaning of a soverign default.

  No surplus equals no principle debt repayments-OK?

  And don’t just shrug and pretend that foreign denominated debt is minor issue and that mouse-clicks can solve anything, that foreign debt it’s a vast component of NET US public debt, and that is not changing much.

  So, within the monetary fiat wonder-theory, do you see ANY period at which budget surpluses are actually necessary and desirable to repay debt? Or are you seriously asserting that 22 trillion mouse-clicks by about 2019 will fully resolve the US balance sheet and satisfy foreign creditors and negate any need for tax rises?

  If you are saying that, then you better stop calling using the word ‘budget’ and start calling it ‘making-it-up-with-fiat-as-we-go-along’. Because for as long as you call it a ‘budget’, the US public are going to insist those ‘budgets’ require balancing, and paying for. And not via public debt growth, tax rises, inflation and general currency debasement of buying power, but via sustainable trade with actual jobs.

  Very old fashioned, I know, but it’s what actually works once all the ‘economic’ BS, such as money printing, and over financialisation are stripped away.

  So quit disparaging public protesters for merely being rational and circumspect and demanding what really works.

  –

  If the public is investing in national bonds, the liability has to be repaid, and if you simply debase or inflate to repay them with de-valued buying power (short-changing them), then don’t expect the public to keep buying your bonds as ‘investments’-so what then?

  The $246.7 billion USD maximum repayment rate, I calculated, is a ballpark figure (which of course presumed in an idealised stable growing world economy), but it elucidated the level of how much a $14.1 trillion dollar USD economy could realistically afford to sustainably repay public debt, per year (i.e. without undemining its own growth and investment and without smashing public services or welfare.)

  i.e. The US deficit should be no larger than $246 billion USD, on an ongoing basis, in fact, there should now be a surplus of about that size. The immediate problem for the US is to neutralise debt-servicing growth to about 0% per annum.

  Presently it’s nowhere near a neutral debt servicing level, as the last, current and next deficits are each almost 550% to 600% greater than the long-term sustainable public debt repayment rate. And incredible state of affairs!

  Obama vastly expanded the US budget, $2.6 to $3.8 trillion USD, in just two years, even as tax revenues are dramatically shrinking. It’s ludicrous to even call this a ‘budget’ as it’s really just radical spending with no attempt at all to actually budget, with respect to total revenue and debt load.

  This is in fact the exact opposite of a budget, as it’s indistinguishable from what you get when you don’t budget at all.

  i.e. You run out of money and ask a creditor for their money to get you through to your next alledged ‘budget’. The best thing that can happen to Washington is for the bond market to say, “get stuffed, pay your own way or go without, and no we don’t want your IOUs (bonds) because you’re not good for it any more”.

  Then the US will again produce a genuine budget-as will everyone else.

  If in 2019 you can’t repay debt for at least 89 years, and you NEVER have surpluses, and you never repay ANY of the principle, then you are simply debasing and inflating to service debt, as aggregate demand steadily falls away - so why would anyone trust the IOUs?

  My current favourite US political quote, which perfectly demonstrates the degree of lying, spinelessness, denial and rank hypocracy, with regard to US ‘budgets’ and deficit spending is the following;

  “We are not here to heap mountains of debt on our children and our grandchildren. That is what was done in the last eight years in the Bush administration. This budget calls a halt to that, and says NO! Says no more debt - we are going in the OPPOSITE direction.” Source: Democratic Congressional Speaker of the House Nancy Pelossi on 29th April 2009, as Obama’s first Budget passed Congress.

  That says it all.

  The woman is a brazen (i.e. visibly obvious and utterly shameless) pathological liar. Obama’s own 2009 budget projections which she presided over passing show that US public debt will DOUBLE the amount of growth that occurred under G.W. Bush’s final term, by the end of Obama’s first term! Doddering old manicly-grimmacing Nancy thinks she’s “going in the opposite direction”-poor old dear, someone should assist her to a nursing home.

  The Democrat Congressional circus, plus Orszag are in the process of destroying what very little remained of actual US ‘budgets’, after 8 years of disgraceful Bush Republican budget destruction. Given the remorseless lack of honesty or forthrightness about the debt-increasing choices of each party its politically impossible for the situation to be rectified, or for spending policy to be appropriately reviewed and adjusted sharply downward.

  i.e. towards a debt-servicing NEUTRAL spending level, that negates further need to raise taxes.

  Sorry Marshall, but it actually does matter if you don’t balance a federal Govt budget, and you better start realistically facing up to what this means within your MMT world-view. And I know you theoretically don’t believe tax matters but actually, in the real world, it matters, as will become apparent this year, and this decade, and especially after 2020. Taxation levels will become the very essence of US politics for the next 25 years-minimum!

  It’s pure theoretical fantasy to imagine that spending can continually increase in just the same way it was pure fantasy to imagine that house prices would continually rise, or that triple-AAA rated derivatives had redeemable resale value when the music stopped.

  Before Obama came to office he promised many times to “halve the deficit by 2012″-I’m not even an American yet I distinctly remember that. We can only presume he meant Bush’s final budget then projected to be $1.02 trillion USD, in which case the deficit in 2012-13 should be no more than about $500 billion. i.e. closer to a DEBT-SERVICING NEUTRAL level but still well above it.

  Obama knew he would not be keeping that promise and I see no potential for him to reduce US deficits below $1 trillion per year until forced to by events beyond control. Indeed, just the EXTRA unexpected deficit growth, above the rises that were already planned for obama’s first term, are already adding about $1 trillion USD of debt on top.

  1 million seconds = 11.5 days
  1 billion seconds = 32 years
  1 trillion seconds = 32,000 years

  And you want more of these giant budgets? Next time a TBTF bank anounces a “record profit” just take note of how tiny that profit is with respect to the scale of the public debt growth within the same financial year.

  That’s $1 trillion dollars, plus interest (over about 30 years), paid via tax. Money that will no longer be available for future spending, either by the govt, or from the disposable incomes of the general public, because BRUTAL tax rises are now unavoidable, which will eat disposable incomes, via tax revenue growth needed to service interest payments.

  And when do you suppose some of the principle will be repaid? Ever? Not with this scandalous ‘budget’ situation mate! Want to buy some cheap bonds?

  Marshall you seem to theoretically believe (with extraordinary zeal) that this sort of thing is really not a problem. That deficit spending is actually necessary, to make up for some double entry book keeping ‘deficit spending gap’, that simply MUST be bridged. But you never tell the whole story of that.

  The fact is that doing it would only produce a massive run-up in public debt growth, and to massive debt-servicing growth, and to historic taxation growth. You don’t mention this, as that would immediately dampen the QE deficit-spending ardour, that you wish to push along.

  It’s hardly what I would call an acceptable solution to mere weak near-term aggregate demand.

  And you totally avoid facing WHY aggregate demand is weak, and WHY unemployment is high - that deleveraging is actually essential, when people and businesses can no longer afford their debt loads, because they also did not balance their budgets, or were not financially conservative enough to guard against such conditions.

  A public spending band-aide is NOT a solution to this as it just makes it easier to be a wasteful fool rather than to make the most of what little you have available, which is what is actually needed.

  Private debt growth is voluntary, and able to be dealt within an orderly bankruptcy, liquidation and write-down process, i.e. an appropriate lesson to not be so ‘effing stupid, for both creditor and lender.

  While public debt growth is largely involuntary and leads to chronic national impoverishment and atrophy via the same but delayed mechanisms, with even more severe Govt deleveraging with an aggregate demand fall from long-term heavy taxation.

  The private debt deleveraging option at least has a definable end-point, either as a writedown or as a clear payback end-point within a formal agreement. So after maybe 10 years it’s mostly over. But the public debt servicing and ‘deleveraging’, via taxation, could go on for the best part of a century in the US case, especially if the aim were to spend via QE to try and entirely avoid explicit Soverign default of a $14 trillion economy.

  Given the US record with deficits since about 1955, I think its fair to say none of the principle will be repaid before 2050, and the more the interest compounds, the less and less likely principle repayment becomes.

  There’s only one end to that cycle-soverign default and depressionary austerity.

  Govt debt servicing in the real world is being paid for by a combination of tax rises, surcharges and ever increasing fines, public asset salea, falling public service provision, falling Welfare affordability, ever-larger deficit spending and chronic damage to state financial credibility, and to currency stablity.

  Which will at some point generate various forms of unaffordable inflation pressures (even at single digit rates). The past 800 years of depressionary crisis shows clearly that inflation, interest rates and commodity price presures, ALWAYS emerge to finish off speculative credit-driven super-cycles leading to soverign default and depression.

  You can not keep raising the tax burden (which is currently EXTREMELY LOW, near 19% to 20% GDP in the US, but close to 26% of GDP in the more ’sustainable’ low public debt Australian case) and draining citizen’s pockets of disposable dollars, then expect them to spend.

  And they will crucify politicians for this-because they can. I can not see any free-lunch here for a fiat-driven deficit spend-up and quite soon US political processes will deem that untenable as US citizens make it very clear that this way of ‘paying’ for public debt-servicing is unaffordable, for their day to day personal budgeting cost.

  You see, someone does actually have to balance the budget at some point.

  And if the US Govt won’t, then the US public must, and when they do, it will be political death for those who have recently proposed increased deficit spending. That’s when this ultimate version of ‘extend-and-pretend’, an onslaught on the individual household budget, will finally cease.

  Such deficit spending really is “drinking poison to quench your thirst”.

  This time is exactly the same regardless of fiat currency or gold-backed currency, and the result will be exactly the same as always.

  It’s a scented-garland of superficially attractive nonsense, similar in blindness and assurance to the US Fed’s assertion that it has developed “new tools”, that can now avoid a fall into depressionary conditions. I’m sure the needy residents of Michigan and California will feel very relieved by all these “new tools” of fiat monetary apparatus as they ponder their steadily worsening situation and future prospects.

  If mouse-clicking fiat currency could really do what is suggested, the US would have the R&D budget and hardware to go to Alpha-Centaui by 2050. Instead, the reality is the taxpayer can’t afford the debt servicing increases so US astronaughts aren’t going back to the moon.

  Fiat-powered deficit spending is the final desperate act of extend-and-pretend economics. MMT deficit spending is not some magic safety net that somehow circumvents debt-servicing growth-precisely the opposite. The proposition that even larger deficits are a genuine solution, or that they will serve ‘public purpose’, in the prevailing circumstances, can not be taken seriously.

  And this summary ignores the reality that ~90% of the deficit spending would be wasted and so-called ‘public-purpose’ spending would be usurped by the super-wealthy and legally unaccountable (like last time) who are no longer able to be prosecuted nor deterrable.

  Most of the US’s budget ‘problems’ are entirely the result of grand wastage on an absurd scale. Change that and the deficits and debt-servicing cost growth dilemma evaporates neutral debt-servicing proportions. Not the answer any one wants, but it is actually the real answer.

  –

  Aand imagine what will happen once a resurgent Rep Congress and Senate refuse ‘on principle’ to pass Obama’s 2011-12 and 2012-13 budgets. This Political burlesque is yet to come - and don’t doubt it will.

  If there’s one good thing to come out of Bush, Obama, Palin succession it would demonstrate to US citizens how hopelessly irrelevant and actually extremely damaging the White House’s Presidential politics are to addressing consequential matters of the average citizen. Perhaps then US voters might realise that the US Presidential office is a sterile, vastly over-indulged and over-rated constitutional figurehead, and not the seat of actual constructive or consequential governance, or of credible policy development and administration. Professional Congressional lobbyists worked this out decades ago and have been distracting everyone with presidential politics and mere TV figureheads ever since.

  In this political environment where tax rise is an effective motion to public rebellion and electoral incineration then MMT deficit spending is dead as a dodo. If you can’t see that Marshall you’ll continue up the theoretical Primrose path.

  Presently I can only see potential for MMT in the sense of eventually easing the social damage and pain after a general economic collapse has already well progressed, i.e. an act of economic and political desperation rather than a politico-economic paradigm shift into a new economic gear.

  Marshall, some excepts - SOCIETE GENERALE - 12th Jan 2010:

  “…It would be nice to think that these deficits are just emergency measures which will be neatly removed as soon as the recovery is safely established, which seems to be the policy making consensus today. In last week’s Financial Times, John Podesta and Michael Ettlinger concluded their op-ed with the following thought: “…we should not jeopardise recovery by exercising fiscal retrenchment in the near term. Instead, policymakers must build a pathway that will facilitate the hard decisions required in the coming years to bring the federal budget back into balance.”

  That’s the high-minded but vague theoretical ‘justification’ for much higher taxes to come.

  “… removing the stimulus will involve pain; lower growth, higher unemployment and political unpopularity. But policy makers don’t like lower growth, higher unemployment and political unpopularity. They enacted the stimulus in the first place to avoid it! … At what point will they decide that they do want lower growth, higher unemployment and political unpopularity? Given the choice they won’t, ever. So it will be imposed on them (and therefore us) by a suddenly less generous bond market via a government funding crisis. …”

  And that’s the reality.

  “…The following chart shows the ratio of revenues generated from bond issuance to that generated by tax collection. Next year, the MoF expects that ratio to rise above 100% i.e. tax revenues will be less important than borrowing as a source of income. So I doubt there is any yield international capital markets can find acceptable that will not bankrupt the Japanese government. …”

  And that’s the foreseeable implication and outcome.

  “…But after they’ve sold all their foreign assets, yet still have no access to capital markets, how then do they continue to fund their schools, their courts, and their heath system or their bureaucracy? Japan could simply cut its spending to fit its cloth. But bond issuance is currently around 10% of annual GDP and such a cut would cause a sharp and painful depression. If history is any guide, and I sincerely hope it isn’t, the BoJ will step in and let their printing presses roll. Of course, this will ultimately cause a depression, but it will be a depression tomorrow whereas draconian spending cuts would be a depression today. … Like banks in 2007, developed market governments today rely on sustained capital markets more than any time in their history. What if they shut? …”

  Source: Popular Delusions - A Global Fiasco Is Brewing In Japan - Societe Generale, Jan 12 2010. (Google the 8 page PDF)

  –

  Govts will ‘crowd-out’ other Govts in the demand for bond buyers. It’s all mouse-clicking dollars after that while Mark Faber says, “Now the real crisis begins”.

  There’s really nothing any Govt can do once that gets rolling. At some point the angry and desperate will give up on the idea of Govt-managed affairs as they are patently incapable and not interested in the public and even their number one function and justification for being, serving public health, security and public order, is eroding fast. Govts will be left to provide rations and state jobs to stem lawlessness and un-taxed black-markets, while trying and convince everyone that even a dysfunctional corrupt or generally incompetent Govt, is still their best bet.

  Obama has already blown a mountain of political capital and is very close to lame-duck status and will be by end of 2010 for all major legislation will be blocked or disembowelled until Jan 2013 (and possibly much longer). During the week a media commentator very glibly stated, “the market does not respond to fundamentals, it reacts to sentiment”. And that really sums it up. Equity markets are divorced from underlaying facts just as the politicians are divorced from the underlaying electoral sentiment.

  “well the deficit [2009], this is a figure that just absolutely blew me away, the deficit of the United States is bigger than the budget, the total budget, of all the countries in the world, except Japan, and Germany, and the United Kingdom. Other than that, every other country has a smaller budget, than we have a deficit! China, India, … any of the others!” - Mark Sheilds, Syndicated Columnist on PBS Newshour - Jan 30th 2010.

  If the US can’t sustain a ‘recovery’ to full employment on the basis of such gigantic deficits it won’t do any better with substantially larger deficits and implied taxation and debt-servicing growth. There can only be far greater corruption Plutocracy, Kleptocracy and compatriot anger.

  We live in this world, not some future idealic MMT fantasy. Welcome to the New-Japan, or more appropriately the ‘New-Mexico’.

  I think we are soon to see how really MMT works, and not the way theorists and proponents recommend, or intend. Govts will create such a mess that MMT-style QE-funded uber-deficits will never again be trusted by the public. And that will be the predominent sentiment by 2020.

  But no, I don’t think MMT is ‘wrong’ as a theory framework, it’s weakness is real-world application during an economic disaster, for when else would it ever be adopted? And this will create an even greater disaster, that will rightly or wrongly discredit the already damaged QE deficit-spending notion creating massive national sovereign default, rather than mere technical or theoretical avoidance of them.

  But either way, the results will be EXACTLY THE SAME.

  Namely, most individuals and countries will be insolvent and routinely defaulting on each other and mistrusting each other’s claims, statements, currencies and intents, at every level-for decades.

  The public is thoroughly sick of being ‘educated’ about the complex issues and concerns of Wall Street and Washington and that’s the bit they don’t get. Arguing rationally for more of the same is exactly what ordinary people don’t want to hear any more, they are sick of the endless excuses and explanations for why they are constantly getting smashed.

  GDP growth has become irrelevant, it’s political noise within an ocean of horrible economic realities. ‘Forward indicators’ in this situation are about as reliable as those very detailed IMF economic forecasts in 2008 for FY 2008-09.

  Posted by Element | February 11th, 2010 at 11:45 pm

• Element, you analysis is upside down. The public does not pay off government debt. The government is not funded by the people. The government funds the people and the people create goods and services with that funding. Goto http://www.moslereonomics.com for background on MMT. Also, the forum there has lots of traffic.

  Posted by bubbleRefuge | February 25th, 2010 at 10:33 am

• Let the government pay all of our salaries, end world hunger, world poverty, and give us the endless summer.

  Posted by Spencer Hall | April 7th, 2010 at 8:33 pm

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