from hell's heart, I STaB at thee
October 10, 2017 1:11 AM   Subscribe

Stephanie Kelton: How We Think About the Deficit Is Mostly Wrong - "Unfortunately, budgetary effects are the sun around which everything revolves in Washington. Should we invest a trillion dollars in our crumbling infrastructure, offer Medicare for All or pass the biggest tax cut in the country's history? ... In a more rational world, lawmakers would abandon the crude C.B.O. scoring model and recognize that the risk of overspending is inflation, not bankruptcy. They would avoid fruitless battles over the debt ceiling, and they would acknowledge that the deficit itself could be deployed as a potent weapon in the fights against inequality, poverty and economic stagnation."

Congress can give every American a pony (if it breeds enough ponies) - "What if it turned out that the government really could give everyone a pony — and a chicken and car? That is, so long as we could breed enough ponies and chickens and manufacture enough cars. The cars and the food have to come from somewhere; the money is conjured out of thin air, more or less. Let me explain."
Since none of us learned any differently, most of us accept the idea that taxes and borrowing precede spending – TABS. And because the government has to “find the money” before it can spend in this sequence, everyone wants to know who’s picking up the tab.

There’s just one catch. The big secret in Washington is that the federal government abandoned TABS back when it dropped the gold standard. Here’s how things really work:
  1. Congress approves the spending and the money gets spent (S)
  2. Government collects some of that money in the form of taxes (T)
  3. If 1 > 2, Treasury allows the difference to be swapped for government bonds (B)
In other words, the government spends money and then collects some money back as people pay their taxes and buy bonds. Spending precedes taxing and borrowing – STAB. It takes votes and vocal interest groups, not tax revenue, to start the ball rolling... Are you telling me that the government can just make money appear out of nowhere, like magic? Absolutely... Now... our economy has internal limits. If the government tries to buy too much of something, it will drive up prices as the economy struggles to keep up with the demand. Inflation can spiral out of control. There are plenty of ways for the government to get a handle on inflation, though. For example, it can take money out of the economy through taxation.
also btw...
MMT: school of thought or set of personalities? - "The only budget constraint the government faces is inflation, because (in theory) governments can finance themselves by issuing bonds or by printing money. If bond markets were to go on strike, the central bank can finance the government. This simple observation is extremely important and powerful. It immediately shows that simultaneously worrying about inflation being too low and engaging in 'austerity' is inconsistent, or less politely, dangerous and stupid."
posted by kliuless (30 comments total) 55 users marked this as a favorite
 


I'm not smart enough to grapple with these ideas head-on, but I do know that there's a strong streak in Canadian socialist thought - from people like J.S. Woodsworth and (Greatest Canadian) Tommy Douglas - that greater debt gives bankers and financiers greater leverage over your government, and that's bad for socialist governments.

That's why balanced budgets have historically been left-wing territory in Canada, with provincial NDP governments balancing the budget more often than any other party.

You aren't moving to the left when you borrow money. You're moving to the left when you raise taxes on the rich.
posted by clawsoon at 3:52 AM on October 10 [7 favorites]


that greater debt gives bankers and financiers greater leverage over your government
In the USA, having bankers and financiers in control of the government is considered a feature, not a bug.
posted by JohnFromGR at 4:23 AM on October 10 [4 favorites]


> The only budget constraint the government faces is inflation, because (in theory) governments can finance themselves by issuing bonds or by printing money. If bond markets were to go on strike, the central bank can finance the government.
This kind of linear thinking is OK when you consider local economies and fairly short time-scales. I don't think it's OK to extrapolate. When the government injects public debt (hence asset) into the markets, they will be used as collaterals to finance more investment. It really depends on whether those investments are productive. In the extreme case when the government takes on massive, too much public debt, it will be almost certain that those investments will not pay out, and the levers will only serve to make the economy more brittle, more volatile, with everyone less able to pay debts. This effect will be deflationary.

I'll point to (again) this post by Michael Pettis on public finance and demand creation: Thin Air’s Money Isn’t Created Out of Thin Air. You need to jump directly to the section titled "Creating demand 'out of thin air'" towards the end of the Appendix, and spare the preceding sections (very long derails for the purpose here). The take-away points are (by my own summary):

* Public debt-financing may not always be inflationary. It can be disinflationary by suppressing consumption or investment, if total employment and production utilization is high.
* In the other extreme, when employment is low and too much capacity remains idle, debt-financing will create production to meet its own demand.
* The real world is a mixed case, so it really depends, not just on economic reasoning but also policy. "What this exercise shows is that fiscal deficits or credit creation are good for the economy when there is enough slack in the economy that Thin Air’s expenditures do not suppress investment or consumption elsewhere in the economy, and they are good for the economy if and when Thin Air’s spending is more productive than private sector spending. Otherwise they are bad for the economy and are not sustainable."

The following observation is worth consideration:
... [In] a world without an infinite amount of slack, monetizing the debt is no different than paying taxes, except that the tax is borne by those who are long monetary assets.
In a society with large household saving rate, those will be mom and pop holding bank deposits, and the inflationary tax robs them to pay the massively leveraged and indebted state-owned entities (e.g. in China). In the US, where most have no savings, I believe the situation is more like that "the poor owes debt and the rich own assets"), so I expect the rich to be very resistant to the idea of debt financing.
posted by runcifex at 4:39 AM on October 10 [1 favorite]


That’s why you don’t borrow the money. You just issue it. Then tax those with a surplus. Then those concerns on the left vanish and so do the concerns about confiscatory taxation on the right. You only need to tax the abnormally high income levels at high rates, not to collect revenue but to take surplus money supply out of circulation to control inflation. Then it all squares economically and both political extremes get what they want: if the public spending was designed to replace and cover routine operational state spending, with strict rules to make sure the spending isn’t being captured by a small number of individual owners but distributed broadly and fairly throughout the economy for maximum immediate benefit. Maybe a whole new set of terms for that would help. It’s not about taxation in the way we usually think but about balancing and controlling the flow of money supply. Instead of calling it taxation maybe we should call it a wealth hoarding fee or penalty or something less politically threatening. Point is, it’s not about stealing wealth, but smoothing out bottlenecks and emptying out pools where money supply ends up taken out of broader circulation and gets dumped back in at levels that cause inflation. If money supply weren’t ever allowed to pool up where it’s doing less good in the first place, we wouldn’t even need taxation as we usually think of it, we could just penalize hoarding and use the commonwealth and welfare state to provide the kinds of long term security and health care services people usually think of savings as being necessary to enjoy. As long as those benefits, too, were fairly and universally distributed, you’d have no problems long term. But people love to think they’re pulling one over on the man by bilking the state for money.
posted by saulgoodman at 4:53 AM on October 10 [10 favorites]


But people love to think they’re pulling one over on the man by bilking the state for money.

Perhaps more importantly people love having control of massively more resources than other people and are willing to employ some of those resources, when they have them, to shape the beliefs of other people towards the end of maintaining control over those resources.

If you financialize the cost of a UBI it's that much more threatening.
posted by PMdixon at 5:12 AM on October 10 [4 favorites]


I mean, isn’t it clear yet that making capturing as much money supply as possible, without much cultural regard for the quality of the direct public good returned by the methods used to capture the excess wealth (e.g. complex financing and investment schemes) is just as destructive to real, sustainable innovation and economic stability as any risk of people becoming too lazy if they aren’t encouraged to contribute by threat of starvation or destitution. People generally do their best work when the work they’re doing matters more to them than making money. That fact has to be balanced by rules and norms that discourage exploitation of those public interest minded motives by third parties seeking only to use them to capture excessively large, economically counterproductive shares of money supply, but otherwise, making accumulating surplus money the goal of our economic lives shifts all the cultural and social values toward gaming the system rather than making and doing things that provide a public good or bringing anything nonmonetarily valuable into the world.

Actually, on preview, what PMDixon just wrote, that becomes the goal of everything the way we think about and organize our economy now, winning, not doing good or living decent fulfilling lives, but p0wning the other players and racking up big high scores.
posted by saulgoodman at 5:19 AM on October 10 [5 favorites]


tell me how in the end these objections boil down to something other than "a UBI via printing money is not possible because it doesn't maintain extant power relationships."

Like if you take (objections to ubi) % (desire to maintain extant power relationships), what do you get?
posted by You Can't Tip a Buick at 5:26 AM on October 10 [4 favorites]


"It's time for some economic theory!"
posted by srboisvert at 5:33 AM on October 10 [4 favorites]


Like if you take (objections to ubi) % (desire to maintain extant power relationships), what do you get?

Implementation details probably simpler than those involved in universal healthcare provision, I think.

Also leftist misconceptions about the housing market that can in some small part can be traced to demonization of finance and anything related to the point of silliness, and probably in a much larger one by regulatory distortions in high productivity areas that unfortunately cause those misconceptions to shed their prefix. Height restrictions driven solely by grounds of preserving property values in particular.
posted by PMdixon at 5:53 AM on October 10 [2 favorites]


> Implementation details probably simpler than those involved in universal healthcare provision, I think.

Basically what I'm getting at here is that the institution of a UBI is less about solving those implementation details, or about demonstrating that it works in practice, and more about by whatever means producing a situation wherein the upending of power relations is possible.

If promoting a UBI helps get us to that point — if, to use trotskyist jargon, it's effective as a transitional demand — then it's helpful. If not, then not.
posted by You Can't Tip a Buick at 5:58 AM on October 10 [6 favorites]


also, though, back in the day I totally was a liberal urbanist who thought that the lifting of height restrictions would remove regulatory distortions and unleash the power of the market to produce sufficient supply to provide housing for all, etc. etc. etc.

Then I came to realize that the market tends toward undersupply of housing, even when it can't arrange a regulatory regime that ensures undersupply of housing, and that lowering the cost of housing is less about fixing the market and more about, insofar as is possible, getting the market out of housing.

Ways to get the market out of housing include but are not limited to: the widespread provision of public housing, government-imposed caps on rents, widespread community support for the practice of squatting, straightforward seizure and redistribution of buildings.

The thing linking my suspicion of liberal urbanist approaches to the housing crisis and (milder) suspicion of the UBI is that we can't proceed from the assumption that everyone prefers universal prosperity for all. As such, we can't trick ourselves into thinking that if someone finds a scheme that can demonstrably lead to universal prosperity for all, everyone will support it. There exist a good number of people — you can find them among our current ruling class and among the lickspittles who support our current ruling class — who very strongly prefer prosperity for some and servitude for others.
posted by You Can't Tip a Buick at 6:14 AM on October 10 [15 favorites]


Whether or not you think debt is a problem, it's what we are going to have to live with in in the US. Politicians learned that they lose elections when raise taxes, and they also learned that they lose when they cut spending.
posted by 445supermag at 7:35 AM on October 10


Then I came to realize that the market tends toward undersupply of housing, even when it can't arrange a regulatory regime that ensures undersupply of housing, and that lowering the cost of housing is less about fixing the market and more about, insofar as is possible, getting the market out of housing.

In much of the US you can buy a house for next to nothing as long as you are willing to live next to nothing.
posted by srboisvert at 8:14 AM on October 10 [5 favorites]


The thing I don't get about MMT is simply that it seems like it's already widely accepted. Politicians happily spend massive amounts of money without worrying about the deficit; that's why we have a large deficit! We didn't raise taxes to pay for the $2 trillion war in Iraq or the $1 trillion bailout in 2008, on hurricane relief bills or for rising Social Security and Medicare costs. If Trump gets his tax cuts, there certainly won't be spending cuts to match. Only when it comes to unusual edge cases like reconciliation bills for relatively small amounts of money does the government actually take the deficit into account. The MMT theorists have already won, so what else is there to talk about?
posted by miyabo at 8:15 AM on October 10 [2 favorites]


The MMT theorists have already won, so what else is there to talk about?

First, full employment via a job guarantee. Second, an end to farcical and misleading accounting practices like projecting the Social Security trust fund and USPS pension fund balances out to 70 years in the future. Third, rewriting the budgetary process to make it easy for Congress to adjust taxation to hit an inflation target. Et cetera, et cetera, et cetera…
posted by Ptrin at 8:25 AM on October 10 [2 favorites]


fiscal deficits or credit creation are good for the economy when there is enough slack in the economy that Thin Air’s expenditures do not suppress investment or consumption elsewhere in the economy, and they are good for the economy if and when Thin Air’s spending is more productive than private sector spending. Otherwise they are bad for the economy and are not sustainable

There's the real rub. Some private investment is productive and some isn't. Building new factories and hiring more workers can be productive. But just buying land or patents so you can make money by charging rent isn't productive. The government needs to target the money that isn't "working" hard enough, tax it, and spend it more productively.
posted by straight at 8:28 AM on October 10 [6 favorites]


probably in a much larger one by regulatory distortions in high productivity areas that unfortunately cause those misconceptions to shed their prefix

When they come true, you really kind of have to stop calling them "misconceptions." If your theory doesn't predict outcomes in reality, it's not reality that's wrong. (Also perhaps you might want to reconsider whether it's really "regulatory distortions" causing them.)

Politicians happily spend massive amounts of money without worrying about the deficit; that's why we have a large deficit!

Can you truly have been so fortunate as to miss all the Republican rhetoric regarding the need for a balanced budget, for the government to budget like a business, etc.? If so, I envy you. It's not Trump's natural line, but it sure is every traditional Republican's, and it's the standard excuse for why people have to starve, die of preventable diseases, and live in squalor while others dine off gold plate. Politicians may not actually conform their conduct to these rules, but they sure do talk them up.

greater debt gives bankers and financiers greater leverage over your government

Only up to a certain point. The classic line is that if you owe the bank enough, you effectively own the bank, as it's dependent on your repayment to stay afloat. This applies to governments as well as to private parties. Further, historically, at least in the West, governments have perpetually run deficits, borrowed, and devalued their currencies. This has not resulted in bankers inheriting thrones, because governments have guns and bankers don't. Governments always have the ultimate resort of default. I would recommend reading Reinhart and Rogoff's This Time Is Different for a mini-history of this dynamic.

The thing is, by lending to the private sector at extremely low rates for the past ten years, we've basically been giving this power to them instead, and, while it was probably necessary in 2007-09, what we've seen since then is misallocation and hoarding on a massive scale. Just not significant inflation. Hooray?
posted by praemunire at 8:41 AM on October 10 [1 favorite]


I've no strong opinions on national debts per se, but they do enable disastrous wastes of resources, especially military spending. We need a way to reign in corrupt miss-appropriation of resources, like maybe a well designed referendum component to budgetary allocation.
posted by jeffburdges at 8:57 AM on October 10


The thing I don't get about MMT is simply that it seems like it's already widely accepted.

Adam Johnson and Nima Shirazi interviewed Stephanie Kelton on the Citations Needed podcast to talk about this. Yes, they are aware of this and you can see it in things like the recent decision to increase the military budget by something like $70 billion dollars next year without adding tax income to pay for it. The misleading "family sitting around the kitchen table making a budget" trope only gets trotted out for killing social programs.
posted by indubitable at 8:57 AM on October 10 [4 favorites]


Can you truly have been so fortunate as to miss all the Republican rhetoric regarding the need for a balanced budget

Yes I've heard the rhetoric, but their actions don't match it. They started two decade-long wars while lowering taxes! And to the extent that the government hired lots of people to fight those wars and build weapons for then, they did lower unemployment, at least temporarily. I don't agree with those actions, but I think they show that Republicans are very willing to borrow and spend large amounts of money without regard to balancing the budget. They don't spend the money on projects I agree with, but that's a different discussion.
posted by miyabo at 9:00 AM on October 10 [3 favorites]


also, though, back in the day I totally was a liberal urbanist who thought that the lifting of height restrictions would remove regulatory distortions and unleash the power of the market to produce sufficient supply to provide housing for all, etc. etc. etc.

Indeed. At the risk of a derail, it seems to me that the natural consequence of lifting height restrictions is merely that the luxury condos that nobody living in the city (or, frequently, living in the country) can afford will get taller.
posted by tobascodagama at 9:23 AM on October 10 [1 favorite]


w/r/t to housing: theres a great episode of the podcast Delete Your Account from a couple months back that deals with gentrification as a factor of the international financialization of housing.
posted by The Horse You Rode In On at 9:58 AM on October 10 [4 favorites]


When they come true, you really kind of have to stop calling them "misconceptions." If your theory doesn't predict outcomes in reality, it's not reality that's wrong. (Also perhaps you might want to reconsider whether it's really "regulatory distortions" causing them.)

I don't think this is a place to get into the weeds on this so I'll just cop to still possessing tendencies towards the technocratic fantasy that certainly bias my reasoning and leave it at that.

Then I came to realize that the market tends toward undersupply of housing, even when it can't arrange a regulatory regime that ensures undersupply of housing, and that lowering the cost of housing is less about fixing the market and more about, insofar as is possible, getting the market out of housing

Because housing is also driven by credit accessibility. You have massively front weighted costs and artificially suppressed demand *for new supply at the low end* by lack of access to credit by the people who would be living in it. So instead they rent from landlords who obtain their housing stock from aged upscale housing.

A UBI makes everyone a really good person to make a secured loan to.

To YCTAB's point about power dynamics - yes, at the point a UBI is possible, power dynamics are massively different from current. A UBI comes after some kind of singularity in social structure such that, as I've said before, we can't really generalize from our society to one in which a UBI is *possible*, let alone actual.

So I agree completely with YCTAB's macro point that the question is whether a UBI is a useful vehicle for overturning the present hierarchy. I tend to think it is because it plays into people's preexisting intuitions about desert pretty easily.
posted by PMdixon at 10:04 AM on October 10 [2 favorites]


tl;dr trying to do partial equilibrium analysis to figure out micro effects of a UBI is unlikely to be useful except rhetorically
posted by PMdixon at 10:11 AM on October 10 [1 favorite]


> First, full employment via a job guarantee. Second, an end to farcical and misleading accounting practices like projecting the Social Security trust fund and USPS pension fund balances out to 70 years in the future. Third, rewriting the budgetary process to make it easy for Congress to adjust taxation to hit an inflation target.

Fourth, establishing democratically elected workers' councils. Fifth, seizing all productive property in the name of the councils, thereby establishing a condition of dual power wherein both the councils and the bourgeois government have legitimate claims to rule. Sixth, arming the workers and transferring all power to the councils etc. etc.

sorry couldn't resist
posted by You Can't Tip a Buick at 12:12 PM on October 10 [5 favorites]


seventh, automated gay luxury space communism, now with a well armed proletariat. Can I get cookies with that future?
posted by thebotanyofsouls at 1:35 PM on October 10


North Dakota has a state bank and gets a lot more out of its money than similar states. Previously.
posted by ethansr at 2:57 PM on October 10 [2 favorites]


Obligatory contribution to economics discussion: Free PDF of Debt: The First 5,000 Years, by David Graeber.

I'm going to try to read all the links involved in this post, because the more I look at economics, the more surreal and nonsensical it gets, and yet a lot of very frightening men are trying to ruin my life based on their understanding of what seems to me a bizarre fantasy of "imagine a unicorn with super-healing powers, in the shape of a 6" long rectangle of green paper."
posted by ErisLordFreedom at 4:48 PM on October 10


also btw...
-previously
-MMT part II: a synthesis, an olive branch, and a defence of Twitter
-"fiat money is very effective" (pdf)
-"Meanwhile there's that set-piece talking point about whether we should have a people's bank. Well here's the thing: we already do."
posted by kliuless at 12:56 AM on October 14


« Older Play as an AI who makes paperclips   |   How to Be a Know-It-All Newer »


This thread has been archived and is closed to new comments