Stephanie Kelton-ek eta Noah Smith-ek defizitaz

(i) Noiz kezkatu defizitak direla eta?

Just When Should We Start Worrying About Deficits?


The U.S. is racking up record debt. It feels great now, but someday the tab will come due.

Stephanie Kelton is a professor of public policy and economics at Stony Brook University. She was the Democrats’ chief economist on the staff of the U.S. Senate Budget Committee and an economic adviser to the 2016 presidential campaign of Senator Bernie Sanders.

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

The U.S. deficit is rising again, a lot. The Congressional Budget Office just said it expects the deficit to top $1 trillion1 in 2019. Some economists say that at some point, debt becomes a drag on growth. Is the U.S. approaching that threshold? Should we be worried? Bloomberg Opinion columnists Stephanie Kelton and Noah Smith met recently online to debate.

Stephanie Kelton: I don’t find the projections particularly interesting, nor do I find them disturbing — at least not in the “OMG trillion-dollar deficits are coming! Run for the caves!” sort of way. What I find interesting is not the budget forecast itself but the fact that Republicans added roughly $2 trillion in stimulus at a time when nearly everyone said it shouldn’t be done, citing proximity to full employment. “You don’t do stimulus at full employment,” was basically the argument. Well, here we are well into the experiment and … what’s the problem? Inflation remains in check, unemployment has ticked down a bit further, small business confidence is at a 45-year high and growth has accelerated. So that’s interesting.

Noah Smith: Here’s the problem. If you have a basic aggregate demand, Phillips-curve sort of view of the economy, then if stimulus is giving the economy a boost, it should also be raising inflation. Core inflation hasn’t accelerated and is right around the 2 percent target, even as unemployment has dropped, which raises the question of whether the tax cuts are really delivering much stimulus to the economy. We have reason to think that tax-cut multipliers are lower than spending multipliers, and that multipliers during booms are lower than multipliers during recessions, which tends to back up the notion that the tax cut probably isn’t doing much in the way of stimulus — the economy is recovering for other reasons. So really we’re just racking up debt in order to make the tax system more regressive. Is that wise?

SK: I agree that there were better ways to use the $2 trillion or so in fiscal space that we clearly had available at the start of the year. And, yes, the Republicans mostly used deficits to deliver a windfall to big corporations and the richest people in America, dishing out crumbs across the rest of the income distribution.

Here’s who benefited from the last round of tax cuts:

No one knows exactly how much of the pickup in economic activity is due to the tax cuts, but it ain’t zero. So they helped. And, as you note, they helped without raising inflation, which tells me they didn’t overstimulate, which further tells me there may be room to do even more. Tax Cuts 2.0, anyone?

Here’s who would benefit from the next round:

(ii) Gobernu federalaren defizita eta ez-gobernuko superabita

But here’s the thing Republicans seem to understand really well: The federal government’s deficit shows up as a surplus in some other part of the economy. And so while critics use terms like, “blowing up the deficit” or “drowning in red ink” to describe what’s happening to the government’s finances, Republicans seem more interested in the fact that their deficits will improve the private sector’s finances, especially the biggest corporations and wealthiest people in America. In other words, the GOP seems to understand that the government’s red ink is our black ink! It’s a point Goldman Sachs’ chief economist, Jan Hatzius, has made emphatically. And, of course, modern monetary theory folks routinely make the same point.

Instead of saying, “The 2018 budget deficit is expected to be $804 billion2, rising to $1 trillion in 2019,” we could say, “The surplus in the non-government sector is expected to be $804 billion, rising to $1 trillion in 2019.” Is that disturbing?

NS: Why should we care about the private sector’s net surplus? According to the theory of balance sheet recessions, and to the theory of debt deflation, and also to the theory of the leverage cycle, it’s the private sector’s gross debt that poses a danger to the economy. In other words, what matters is how much companies and private individuals owe to each other, not how much the government owes them. So the point about the private sector’s net surplus is a bit lost on me. Who cares?

SK: Debt is only part of it. The other issue is the servicing of debts; if you moved everyone from 15-year mortgages to 30-year mortgages, you’d likely end up with higher debt-to-income and higher assets, since more people can handle the payments, and those that could already handle the payments can now afford the payment on more house. But the ability to service the debt is likely greater, all else equal. Even standard neoclassical macroeconomics on sustainable finance emphasizes the debt-service ratio over the debt ratio, even as the debt ratio obviously plays a role. 

Setting aside the debate about the relative importance of debt-to-income or assets, or debt service, a government deficit adds to private-sector incomes (relative to debt or debt service) whereas a government surplus has the opposite effect. The most intuitive way to show this is through the sector financial balances. This becomes clear if you listen to Hatzius explain why he thinks sector-balance analysis can send a signal when the private sector’s financial positions are becoming overly fragile. And because it’s nothing more than accounting, it also tells us that the crowding-out story is 100 percent wrong — a government deficit raises private sector incomes; it doesn’t crowd out private finance.

NS: Putting aside the argument over financial crowding out, I still don’t see the relevance of all this. Let’s think in terms of real resources — not dollars, surpluses and deficits, but cars, pizzas, hours of labor. It seems clear to me that unless we have unused resources in the economy — idle workers and idle factories — that a government deficit can’t increase real output. At the end of the day, real output is what we care about — you can’t eat dollars, but you can eat pizzas. And if the U.S. economy is indeed nearing full employment, it means that there aren’t many unused resources lying around — and hence, the real benefit from deficits seems low. This is just standard Keynesian economics.

As for the financing side of things, the reason government debt matters is because of how government finances its borrowing. If it uses tax financing — including future tax financing — that can hamper the economy. If it uses monetary financing — getting the central bank to print money to finance the Treasury’s deficits — that could at some point explode into uncontrollable inflation. What do you have to say to those worries?

(iii) DTM eta defizitak

SK: This actually isn’t right. If the government were to finance itself by so-called money printing, that would mean either (a) the government runs an overdraft at the Federal Reserve, or (b) the Fed buys the government’s bonds, which leaves reserve balances in the Fed accounts of private banks instead. But, for the Fed to achieve a positive interest-rate target, it would have to pay interest on reserve balances at its target rate. In other words, printing money simply means that overnight central bank liabilities earning the central bank’s target rate replace, say, three-month government liabilities earning roughly the central bank’s target rate. And if the Fed doesn’t pay interest on these reserve balances, then that simply means it wants its target rate at zero. Overall, there’s little difference in terms of macroeconomic impact whether the government sells its securities or prints money because the latter isn’t actually a thing in the real world. And while this is something MMT has been saying for 20 years, it’s basically what Narayana Kocherlakota, former president of the Federal Reserve Bank of Minneapolis, said a few years ago, too.

So the point is that deficits, per se, are not disturbing. Is there a limit to how big the deficit can safely climb? Absolutely! Deficits matter. They can be too big — risking accelerating inflation. But they can also be too small, robbing the economy of a critical source of income, sales and profits. At some point, something will happen to undermine the strength of demand in the U.S. economy, and the expansion will end. Given the current inflation outlook, I see no reason to believe that trillion-dollar deficits pose a risk to the expansion. If anything, it will be the Fed’s reaction to those projected deficits that brings the expansion to an end.

NS: It seems like you’re agreeing with me that accelerating inflation is a risk of deficits. The question is whether that would come slowly or quickly. If deficit-induced inflation comes slowly, we don’t have much to worry about, because we can see it coming and adjust policy accordingly. But if it comes quickly — if the economy switches suddenly between a low-inflation equilibrium and a high-inflation equilibrium — then the dangers of deficits wouldn’t become apparent until it was too late. Of course, we can never know where that breaking point is, so it’s hard to decide just how much precaution to take. But with the labor market looking very strong, it seems like the potential benefit of large deficits at this point in time is small. So it seems like an unknown risk in exchange for only a small potential gain — not the most enticing of gambles.

(Corrects introduction to indicate that 2019 will not be a record deficit.)

Gogoratu ondoko hauek:

Defizita, marmarka, desafioa eta erantzunak

Defizita: marmarka, etengabe

1 Amerikar trilioi bat = Europar bilioi bat.

Amerikar bilioi bat = mila milioi europar.

Iruzkinak (4)

  • joseba

    Stephanie Kelton
    Five Questions With Stephanie Kelton
    Stephanie Kelton is a professor of public policy and economics at Stony Brook University. Before joining Stony Brook, she chaired the Economics Department at the University of Missouri—Kansas City, where she taught for seventeen years. She served as chief economist on the U.S. Senate Budget Committee (Democratic staff) in 2015 and as a senior economic adviser to Bernie Sanders’s 2016 presidential campaign. She is a former editor-in-chief of the top-ranked blog New Economic Perspectives and member of the TopWonks network of the nation’s best thinkers. In 2016, POLITICO named her one of the 50 people most influencing the public public debate in America. She is a contributing writer at Bloomberg View and a Founding Fellow of the Sanders’Institute. She is Chair of the Board at Economists for Peace & Security. Her forthcoming book, The Deficit Myth: Modern Monetary Theory and the Birth of a New Economy, will be published by Public Affairs in 2020. Stony Brook University’s “Five Questions With …” video series showcases leaders from every field, sharing ambitious ideas and imaginative solutions for education and the global future.
    Stephanie Kelton: “One Tweet At A Time”
    When I was at Stony Brook, I was the head of the Student Activities Board for several years. I booked Jimi Hendrix, Otis Redding, The Doors, the Grateful Dead, the Jefferson Airplane, Muddy Waters, The Who, The Temptations, Joni Mitchell, Ravi Shankar, Jackson Browne, Pink Floyd, The Fugs, The Byrds, Tim Buckley… to play there. I would have booked Stephanie Kelton for sure. But she was in kindergarten then. A top economist, she’s now the head of Center for the Study of Inequality and Social Justice at Stony Brook. I feel like I was cheated that she was teaching when I went there. Now I get her to talk with the Blue America candidates who want a better grounding in “how do you pay for it?” and in the intricacies of Medicare-for-All, Job Guarantee and free public education right through college. Anyway, I’m glad to see someone else booked her to give a public talk:

    Promoting the event Liza N. Burby noted that Kelton teaches that We’re Asking the Wrong Questions About Money.
    When she’s not juggling bookings with NPR, Barron’s, Fox News, MSNBC and Bloomberg TV, Stephanie Kelton might be found picking up and dropping off her two school-aged children and the family Samoyed– not to mention teaching classes in economics and public policy at Stony Brook University. Then there’s her book deadline.

    Other days might include speaking engagements in Australia, Milan or the House of Lords in London. Also on her calendar: the Oct. 15 Presidential Lecture, “But How Will We Pay for It? Making Public Money Work for Us,” which happens to be the title of her upcoming book. In this lecture she’ll discuss why the conversation about good policy falls apart when politicians ask how government programs will be paid for.

    Her husband of 14 years, Paul Kelton, a leading historian and professor and the first Gardiner Chair in American History at Stony Brook, said the family has become used to Stephanie’s schedule. After all, from 2015-2016 when they still lived in Lawrence, Kansas, Kelton had to be present in the Capitol where she was a chief economist on the U.S. Senate Budget Committee minority party, commuting home when she could. She then served as an economic advisor to Sen. Bernie Sanders’ presidential campaign.

    The Keltons moved to Setauket [home of neo-fascist crackpot Robert Mercer] in 2017 when they were recruited to teach at Stony Brook. Michael A. Bernstein, provost and senior vice president for Academic Affairs, said this was “one of those serendipitous moments when we could undertake a dual recruitment that worked dramatically for the institution as a whole.”

    …“Stephanie is the rare combination of teacher, innovator and thought leader,” said President Samuel L. Stanley Jr., MD, who invited Kelton to speak at his Presidential Lecture Series. “Her ideas and approach to economics are changing the game at the highest levels and so it makes perfect sense to ask her to share some of her powerful perspective with our community in this forum.”

    Beltway heavyweights say Kelton– who was named by Politico as as one of 50 “thinkers, doers and visionaries transforming American politics in 2016”– is a rising star not only in financial and economic circles, but political ones as well.

    Congressman Ro Khanna (D-CA) said that if a Democrat is elected president in 2020, Kelton will likely be chosen as a senior advisor.

    “She’s not just a brilliant thinker,” he said. “She’s going to be a force in the next 15 years in shaping economic policy.”

    Senator Sanders described her as an outstanding and innovative thinker who was extremely helpful to him while they worked together.

    “Stephanie is one of the leading economists in our country who is fighting to create an economy that works for all and not just the few,” he added. “We need more economists like her.”

    Robert Reich, former U.S. Secretary of Labor, also weighed in. “There are few if any economists able to jump into the fray and come up with such original and compelling ideas as Stephanie Kelton– and able to communicate them with such clarity and aplomb. A national treasure.”

    …Kelton, a macroeconomist, said her early training was conventional and included Cambridge University for her masters. Before earning her PhD at the New School in New York City– which she selected for its diverse perspectives– she spent a year at the Levy Economics Institute of Bard College, a nonprofit, nonpartisan, public policy think tank. That’s when she first encountered the work of Warren Mosler, a Wall Street financier who was challenging the way economists think about money. He reached out to economists who follow Keynes, Kelton among them. She and several peers researched ideas she said had been lost in history and they pieced together Modern Monetary Theory, a burgeoning school of thought in economics.

    Kelton said MMT is hard to define, but it’s “probably the greatest group project in the history of economics, a brand name that refers to the scholarship that was developed by around half a dozen people over 20-plus years.”

    “It’s an enormous body of literature that has as its underpinning attention to the monetary system, the nature of money and why governments that operate with their own non-convertible fiat currencies can use their own budgets to maintain a full employment economy and low inflation,” she continued. “MMT is about pulling back the curtains so that we can see clearly what options are available instead of focusing on imagined barriers/obstructions that hamstring good policy.”

    Among Kelton’s big ideas is the job guarantee, a public option that would be federally funded but locally administered– a concept she said is at least as old as the Second Bill of Rights proposed by President Franklin D. Roosevelt in 1944, and that was part of the Civil Rights Movement and the Democratic platform until the 1980s.

    “It says if you want to work and you can’t find a job anywhere else in the economy, there’s a job for you,” she explained. “The Federal Government has to pay for it and it can be housed under the Department of Labor. They can set broad parameters that all jobs have to be oriented to criteria like a care economy: caring for people, communities and the planet.”

    “I’ve always considered this the unfinished business of the Democratic Party,” she said. “But now you have Senators Cory Booker, Kamala Harris, Elizabeth Warren, Kirsten Gillibrand and Sanders all talking in terms of finding a way to guaranteed employment, which is pretty remarkable.”

    Kelton believes she is having an impact on the current policy debates, but absent the financial crisis of 2008 she’s not sure that her ideas would have gotten as much attention and respect. The blog she started in 2009 in response to the crisis was an unconventional way to get her economic ideas out into the mainstream, and she got real-time responses. By 2013 she was being invited to make the rounds of more than 100 financial planning events, and she was gaining thousands of Twitter followers. In 2017, she had opinion pieces published in the Los Angeles Times and the New York Times.

    She continues to gain respect both nationally and abroad. Currently she’s a subject of a documentary by London-based filmmaker Paul Thomas about the MMT theory, and Netflix wants to talk to her for a documentary based on her research about the macroeconomic effects of student debt cancellation.

    “She’s still on an upward trajectory and will be for a long time,” said her colleague Robert Hockett, Edward Cornell professor of law and finance at Cornell University. “It’s not just academic economists who know who she is. People who work in the financial markets, political figures and people interested in public policy are all wild about her. All the journalists bring her on their shows so she’s becoming more well-known to the lay public as well as the specialists.”

    …[S]he hopes to inspire her Stony Brook students to become future economists– or at least get excited by the ideas.

    “I love teaching courses that are policy-oriented around the economy,” Kelton said. “I like being able to bring a range of experiences that are diverse and have real-world applications that bring excitement into my classroom.”

  • joseba

    Stephanie Kelton irratian

    Stephanie Kelton‏@StephanieKelton
    Many thanks for the opportunity to talk #MMT with the fabulous hosts of @planetmoney 

    Some ideas seem too good to be true. Like this one. It comes from a 13-year-old listener named Amy. She says she knows the government has trouble finding enough money to pay for stuff like schools and hospitals. And she wondered if it has considered just printing more money. She asked us: Can the government do that? Just make more money to pay for stuff?
    Planet Money
    #866: Modern Monetary Theory

    Fiscal hawks say, ‘no way!’ We’d have crazy inflation! But there’s a group of economists that says, ‘yes, we can create way more money, without disaster. And pay for lots of stuff we want.’ They are the proponents of what’s called Modern Monetary Theory, or MMT. Their ideas are getting out there, they have the memes to prove it.
    Today, we try to understand a school of thought that is flipping economic theory on its head. If you buy it, the whole idea of government spending, taxes, the nature of money changes, and, according to the theory, all we have to do is just open our eyes. It’s a bit like staring at those optical illusions: First you see the faces, then, suddenly it’s the goblet.
    September 26, 2018
    #866: Modern Monetary Theory
    We rethink everything we know about government spending, taxes, the nature of money… All of it.


  • joseba

    Bond Vigilantes Won’t Corral Stampeding Budget Deficits
    Debt markets have lost the power to rein in reckless economic policies.
    By Brian Chappatta

    “There’s a growing school of thought that federal budget deficits in the U.S. don’t matter. Just last week, Stony Brook University’s Stephanie Kelton and my Bloomberg Opinion colleague Noah Smith debated that very question: When — if ever — should we start worrying about the growing national debt?
    Building upon that idea, Bloomberg News reported recently that the consensus among Washington politicians is that trillion-dollar deficits are considered “whatever” now that Republicans have moved away from the Tea Party movement and embraced the Trump administration’s fiscal freewheeling. Supporting this general ambivalence, the writers and others have said, is the fact that bond traders aren’t sending Treasury yields through the roof in anticipation of widespread inflation.
    That way of thinking is outdated. It goes back to the notion of “bond vigilantes,” a term coined in the 1980s to describe how debt markets could could punish governments for economically irresponsible policies. That kind of power is long gone. The game has changed. If it’s still historically cheap for the U.S. to borrow money, therefore proving that deficits don’t matter, what about Germany, where 10-year bunds yield 0.47 percent, or Japan, where the 10-year yield is just 0.13 percent? 
    A Different Time
    Historically low U.S. yields aren’t a defense for ignoring budget deficits
    The answer, of course, comes down to the post-financial crisis role of central banks. While the Federal Reserve is gradually reducing its balance sheet, the European Central Bank and the Bank of Japan are still very much juicing their economies. As I’ve written before, the idea of a “great unwind” of their extraordinary monetary stimulus is unlikely to come to fruition. By the time the main central banks are ready to tighten in unison, the world will probably need them to ease once again.
    This is why the old way of thinking about yields and deficits no longer applies. Just because they’re low by historical standards doesn’t mean there’s no fear in the market about America’s national debt. In fact, it may seem paradoxical, but some investors argue that lower yields are a logical byproduct of years of rampant spending. Massive government borrowing pulls forward economic growth and causes interest payments to make up a growing share of the federal budget. If interest rates reached double digits, as they did in the 1980s, it would only exacerbate the situation.
    One investor who remembers those days is Dan Fuss at Loomis Sayles & Co. Just a day after his 85th birthday, he told me about an “old memory I’ll never forget.” In 1981, the U.S. Treasury was offering debt with a 15.75 percent interest rate, and it was clear Wall Street was reluctant to buy it. The benchmark 10-year yield had soared from 9.5 percent in mid-1980 to almost 16 percent by the time of the sale. The feeling, Fuss said, was that rates could go even higher.
    Of course, it turned out to be the peak in U.S. yields. Fuss says that Treasury bond was possibly the single-best investment he’s ever made at Loomis. The lesson, he says, is that even in the most trying times, investors will finance America. “The U.S. has the strongest currency in the world,” he said. 
    But here’s the rub. “At what point — and I don’t know how to measure this — do you lose confidence in the currency?” Fuss asked. The dollar is the reserve currency of the world, and that doesn’t seem to be changing soon. But he shares the same concerns as my Bloomberg Opinion colleague Robert Burgess about whether America’s pullback from the global stage will threaten King Dollar.
    One of the key pillars of Modern Monetary Theory (championed by Kelton, among others) is that deficits are irrelevant when a sovereign nation can create as much money as needed to pay what it owes. This is an alluring premise, but it only works when you are a global superpower, or at least close to it. It’s why the U.S. and Japan can run up their debt without sweating, but Turkey and Argentina can’t without bouts of intense inflation. It’s why the prospect of a 2.4 percent budget deficit is roiling markets in Italy, with 10-year yields rising the most since May.
    There will come a point, too, when markets sound the alarm on the U.S. national debt. The Treasury market is now $15.3 trillion in size, compared with $4.9 trillion a decade ago. According to data from the Institute of International Finance, U.S. federal debt as a whole makes up more than 100 percent of gross domestic product.
    That day of reckoning is not coming soon. But if it ever does, I doubt yields will give anyone much of a heads-up. Too many factors are keeping them down, from an aging population demanding safe assets to slower productivity hampering economic growth. At least for now, the world has little choice but to keep America’s debt machine churning.”

Utzi erantzuna

Zure e-posta helbidea ez da argitaratuko. Beharrezko eremuak * markatuta daude