Randall Wray AEB-ko Kongresuan

Wray Appearing Before Congress


L. Randall Wray will be providing testimony for Congress on November 20 at 10 am. The topic is the government debt and deficits. His full statement will be available at 10:30AM at the Levy Institute. His goal is to explain a) why we needn’t fear sovereign government deficits and debt; b) why in some important sense, deficits and rising debt are “normal”; c) the deficit is in any case largely outside the control of Congress; d) deficits and rising debt ratios will not lead to government insolvency or bankruptcy; e) all government payments can be made on time, unless f) Congress forces a default (due to the debt ceiling it imposes). The statement will provide a lot of new data related to these topics.

The link to the webcast is: https://budget.house.gov/legislation/hearings/reexamining-economic-costs-debt


Scott Ferguson@videotroph

#ModernMonetaryTheory economist L. Randall Wray will be speaking to the House Budget Committee (@HouseBudgetDems/@housebudgetGOP) about the disaster of austerity and misplaced fears about the national debt at 10 am (EST) on November 20th. #MMT

Reexamining the Economic Costs of Debt

On November 20th, the House Budget Committee will hear testimony from a variety of perspectives on this fresh debate and its implications for budget policy going forward.


2019 aza. 18


Deficit Owls @DeficitOwls

From our library: A Balanced Budget Amendment Would Be Disastrous.

MMT: A Balanced Budget Amendment Would Be Disastrous

Professor L. Randall Wray and Steve Grumbine of Real Progressives discussing the proposed Balance Budget Amendment (BBA) to the US Constitution. Such an amen…

Bideoa: https://www.youtube.com/watch?list=PLZJAgo9FgHWajc5BdOP8e75eddFmWhtzh&v=8HmoA0zRAhs&feature=emb_logo

2019 aza. 16

DTM (Ingelesezko Modern Money Theory), gure inguruan:

(i) Frantziako Kongresuan, around 2.059,

(ii) Espainiako Kongresuan, around 2.119 eta

(iii) Euskal Herriko Kongresuan (ala Kongresuetan?) around 2.219…

Lasai, ez dago presarik, jendea nekatuta (sic) dago, guk mandanga eta status berria – alegia estatutu berria(k) – hurrengo hamarkadaren bukaeran edo lortzeko!


Iruzkinak (5)

  • joseba

    Randall Wray: Appendix

    Questions for the Record Congresswoman Ilhan Omar “Reexamining the Economic Costs of Debt” House Budget Committee November 20, 2019
    (1 Ikus http://www.levyinstitute.org/publications/statement-of-senior-scholar-l-randall-wray-to-the-house-budget-committee)

    For Dr. Randall Wray: You note in your testimony that a government deficit is equivalent to a private-sector surplus. Increasing government deficits, then, has the effect of increasing economic growth and wealth. My Republican colleagues either decide to take the complete opposite of this view with severe austerity in deficit spending or will argue that broad tax cuts for corporations and the wealthy will trickle down to spur economic growth for all. However, the US now has the largest wealth gap in almost a century, and multi-billion-dollar corporations like FedEx and Amazon have reported $0 in taxes for 2018, with reports emerging and citing a lack of sustained investment in their workers. Could you expand upon why more spending should be prioritized on directly impacting working families, instead of corporations and the wealthy few? Do we then have the fiscal space to pursue bold reforms like the Green New Deal to better prepare our workforce, economy, and greater society for the devastating effects of climate change being felt today?

    Response by L. Randall Wray: Thank you for your questions. My original testimony did not directly address the important question of the potential impact of fiscal policy on inequality. I will discuss that issue as well as the implications for financing the Green New Deal reforms.

    As I argued, at the level of the economy as a whole, spending equals income by identity. It is useful to divide the economy into sectors for the purposes of analyzing the balance of spendingand income within each sector. We often use three sectors for such purposes: the domestic private sector (households and firms), the government sector (federal, state, and local governments), and the foreign sector (the rest of the world). See Figure 7 in my testimony for a graphical display. While income equals spending at the aggregate level, each of these sectors can run a deficit (spending is greater than income), a surplus (spending is less than income), or a balanced budget (spending equals income). In the case of the US, the typical outcome since the early 1980s has been for the domestic private sector to run a surplus (income is greater than spending, so that saving is positive) and the government sector runs a deficit (tax revenues are less than spending—with the federal government’s budget driving the deficit). By identity, the foreign sector balance equals the government sector’s deficit minus the domestic private sector’s surplus.

    Or, to rephrase it, given the US current account deficit (which is looking at the foreign sector’s surplus from the point of view of the US), the government’s deficit determines the size of the domestic private sector’s surplus. It is in that sense that “a government deficit is equivalent to a private sector surplus.” Generally, private sector surpluses are desirable as they represent accumulation of private savings that strengthen the financial positions of our households and firms. Moreover, federal government deficits lead to the issue of US Treasury bonds that are accumulated by savers (domestically and abroad) and are recognized as the safest financial assets in the world.

    A fiscal policy stimulus—either a spending initiative or a tax cut—can increase the size of the federal deficit, at least initially. If the spending or tax cut is well targeted, this can boost economic growth and increase the nation’s productivity. When that happens, the higher growth rate will quickly increase tax revenue and naturally reduce the budget deficit.

    However, I also showed in my testimony that larger federal deficits can be generated in the “bad” way: as the economy slows and moves into a recession, tax receipts fall quickly and the budget deficit grows. This can go on for a few years, with the deficit growing until the economy turns around. The growing deficit helps to put a floor to aggregate demand, acting as an automatic stabilizer to get the economy growing again. That will reduce the size of the deficit because resumption of growth generates growing tax receipts.

    Poorly targeted spending and tax cuts can also produce “bad” deficits. For example, economists have long understood that tax cuts for high-income and high-wealth individuals are not likely to boost aggregate demand, hence, are unlikely to generate much growth. This is because the propensity to consume of rich households is considered to be quite low. Such households do not face binding financial constraints, so are not likely to increase spending merely because a tax cut has marginally increased their net income. We could extend this argument to cash-rich corporations that are accumulating net profits in excess of perceived investment opportunities. If a firm is purchasing its own stock because it cannot find a better investment option, it is highly unlikely that a tax reduction will cause it to start investing in plant, equipment, or innovations.

    If we look at the recent tax cuts—which were targeted to high income and high wealth households and corporations—it would have been quite surprising to find that these boosted growth of consumption or investment. While it is too early to provide a definitive statement, it does not look like the growth rate has picked up significantly. However, the budget deficit has grown—and is projected to reach a trillion dollars. In my testimony I showed that tax revenue growth has fallen essentially to zero. This is very unusual for an expansionary period—and we are entering the eleventh year of what is said to be the longest expansion ever. This increase of the deficit seems to be an example of a “bad” deficit that resulted from a badly targeted tax cut. Tax revenue growth plummeted to zero without boosting growth of GDP.

    Spending must also be targeted to ensure it is efficient. Spending on interest is not efficient in terms of promoting employment and growth. Half of the Treasury’s debt is held outside the US, so interest payments on that debt go abroad. That would boost US growth only if foreigners increased their purchases of US exports. That did not seem to happen, and the administration’s new tariffs were probably counterproductive if the goal was to increase US exports.

    Domestic bondholders include financial institutions, pension and insurance funds, nonfinancial corporations, and higher income and wealth households. While interest payments to domestic holders likely do have some positive effects on growth and employment, the “bang for the buck” is smaller than for government spending directly targeted to job creation and investment.

    In particular, federal government spending that benefits low income and wealth households is likely to provide the biggest boost to growth because their propensity to spend out of income is high. Further, increasing income security and reducing debt burdens of those of limited means helps to relieve stress and encourage investments in what economists euphemistically call human capital.

    Our nation’s most valuable resource is its labor force. For far too long, it has been neglected and even maltreated. Even after a decade of recovery, millions of people remain either unemployed or underemployed, working far fewer hours than they desire in part-time, contingent, “gig economy” jobs that do not make use of their skills and that pay them far too little to support a family. As we at the Levy Economics Institute estimated in 2018, there were still 15 million people who would take a full-time job if one were offered. Our nation desperately needs more jobs, better wages, better benefits, and better working conditions. We need a federal job guarantee that offers a good job to all at a living wage of $15 per hour (2. See: Wray, L. Randall, Flavia Dantas, Scott Fullwiler, Pavlina R. Tcherneva, and Stephanie A. Kelton. 2018. “Public Service Employment: A Path to Full Employment.” Levy Economics Institute Research Project Report, April. Available at: http://www.levyinstitute.org/publications/public-service-employment-a-path-to-full-employment.) That would boost economic growth in a sustainable manner.

    Finally, let me address the issue of fiscal policy space and sustainability of federal government deficits and debt, before turning to the topics of inequality and bold reforms such as the Green New Deal. While deficit hawks claim that the federal government is just like a household or a firm that needs to balance its spending against its income, such an analogy is false and dangerous for several reasons. First, as I have argued above, at the level of the economy as a whole, spending equals income. It is prudent for households and firms to accumulate net financial wealth, but this would be impossible at the aggregate level if the federal government balanced its spending against its tax revenues. The federal government deficit by identity equals the sum of the surpluses run by the other sectors—firms, households, local and state governments, and foreigners.

    Second, the claim that a firm or household needs to continually balance spending and income is not correct. Households borrow to purchase homes or to go to college. What is important is that they can service the debt out of income flows—debt, by itself, is not something that must always3 be avoided. Issuing debt is also normal practice for firms. At my testimony one of the Republican congressmen asserted that his father’s firm was well run because he repaid all of his debt. But well-run firms may well increase their debt year after year while expanding their business. Again, what matters is whether gross revenues are sufficient to service the debt, cover other costs, and generate net profits. Well-run corporations may have continually rising debt ratios (debt-to-gross revenues) if their business is expanding.

    This becomes even more obvious if we look at households and firms taken as a whole. Over the entire postwar period, the total amount of debt of the private sector has grown on trend—and this is sustainable so long as incomes rise on a pace to allow them to service the growing debt. The ratio of private sector debt to GDP has also grown on trend over the whole period—sometimes faster, sometimes slower, as the following graph shows. While everyone seems to focus on federal government debt, the private sector’s debt is about four times greater—and most of the growth of the total debt ratio has been due to private sector debt, not because of Federal government debt.

    Total Liabilities Relative to GDP (L5 Table)

    As I show in my testimony, the ratio of federal government debt to GDP has grown at an average pace of nearly 2 percent per year since 1791 (see Table 1). For 229 years, federal debt has increased faster than GDP. If something can continue over such a long period, one might begin to think that it is normal.

    And here is the final point. The federal government is the issuer of the currency, while households and firms are users of the currency. That makes a difference. The issuer cannot run out of its own currency. Modern governments spend through keystrokes that take the form of a central bank credit to a private bank’s reserves. The private bank credits the account of the recipient of the government’s spending. Whatever is budgeted by Congress can be spent. I realize that many view such a statement as exceedingly scary because they jump to the conclusion that this is a call for the government to spend without limit. Instead, it is a recognition that government is not financially constrained—except by the budgeting process—but it does face real resource constraints. Spending too much takes resources away from other uses and can generate inflation.

    An array of data indicate that inequality of income and wealth today is as extreme as it was on the eve of the Great Depression. This causes a variety of social and economic problems and even threatens democracy—as a handful of billionaires wield outsized political influence. Achieving significant reduction of inequality will require a range of coordinated policies: raising tax rates on high incomes and wealth; new rules on maximum compensation permitted for top management of public corporations; a universal job guarantee that pays $15 per hour with good benefits (establishing an effective minimum compensation package that all other employers have to meet in order to retain employees); Medicare for All; free public education through college and trade schools; free childcare for all; huge investment in public housing; reform of Social Security to raise retirement incomes for those who had the lowest wages over their working lives; a child allowance; and a stronger social safety net for those who cannot or should not work. Some of these reforms will release resources to be used for higher priorities; some will require more resources; and some will increase the supply of resources. It is appropriate to ask whether the net demand on our nation’s available resources would be too great.

    When we raise the question of adequate fiscal space, what we are referring to is a sufficient supply of resources that can be mobilized in the public interest. Normally the economy operates with substantial excess capacity—of labor, of plant and equipment, and of produced inputs to further production processes. If we were to undertake a huge new project—say, tackling climate change, providing free higher education for all, eliminating poverty, implementing a universal job guarantee program paying living wages, or providing Medicare for All—it is possible that we would exhaust that excess capacity. In that case, we would need to shift resources from inefficient and low priority uses to our new high priority programs. There are a variety of methods of accomplishing this. We can impose new taxes on activities, income, and wealth to free up resources. As we do this, we want to ensure that the new tax really will release resources and that the tax burden falls on those best able to bear it (those with higher incomes and wealth).

    We can also use regulations and prohibitions to reduce undesired use of resources (such as banning fracking). And in extreme situations we might adopt the strategies used during WWII: rationing, wage and price controls, patriotic saving (war bonds), and postponed consumption. Again, the goal is to release resources to tackle the new priorities, while ensuring that the burden does not fall on low-income people.

    In conclusion, the question is not really about financial affordability—Uncle Sam cannot run out of money. It is whether we have the technical know-how as well as the human, natural, and capital resources that will be required to implement a Green New Deal. At the Levy Institute we have taken a first step at estimating the resource requirements and availability—and we have discussed how we can go about mobilizing resources for a Green New Deal without sparking inflation (3. Nersisyan, Yeva, and L. R. Wray. 2019. “How To Pay For The Green New Deal.” Levy Economics Institute Working Paper No. 931, May. Available at: http://www.levyinstitute.org/publications/how-to-pay-for-the-green-new-deal).

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