MMT got a bit of a boost from Donald Trump’s recent comment that the U.S. government will never have to default on its debts, since the U.S. government can always print more money.
I wish that Trump had gone a bit further and admitted that no federal program can ever become “insolvent” or “unsustainable” (e.g. Social Security), and that Universal Health Care would not require any tax increases.
In discussing Trump, the VOX blog calls MMT “leftist,” perhaps because the truth is automatically leftist when it is spoken in a world of neoliberal lies. For example, it is “leftist” to admit that the U.S. government creates dollars out of thin air.
MMT emphasizes the fact that countries that print their own money can never really “run out of money.” They can just print more.
Let’s be clear. Monetarily sovereign governments can never run out of money to pay expenses that occur in their own money. However in some cases, monetarily sovereign governments can run out of foreign currency. (This doesn’t apply to the USA, since U.S. dollars are accepted everywhere.)
Thus you really don’t need to balance the budget over any time horizon, and attempts to do so will hurt the economy. This is very much a minority view in economics — even among liberals. For instance, Paul Krugman has argued that MMT gets this all wrong.
Krugman is a right-wing huckster who calls himself a “liberal.” He is paid to deny the facts of MMT.
For Krugman, we need a balanced federal budget, otherwise known as austerity for the masses, plus endless giveaways to the rich and to Wall Street.
Joe Gagnon, an economist at the Peterson Institute, notes that Australia and Canada ran surpluses for years without suffering economically as a consequence.
Ah yes, the Peterson Institute. Dedicated to neoliberalism, inequality, and the privatization of Social Security. Liars one and all.
Regarding Joe Gagnon’s claim that Australian and Canada “ran surpluses for years without suffering economically,” he said that in 2012 when Australian and Canada were enjoying a commodities boom, caused by demand from China. The commodities boom created countless jobs, plus a housing bubble — but it ended when China’s economy cooled off. This end caused the economies of Canada and Australia (and Brazil) to plunge. Jobs evaporated. People became “underwater” in their mortgages. Then came austerity, which made the recession even worse.
Sooner or later, federal budget surpluses always cause recessions. Always. Since Australia and Canada have massive trade deficits, they would be in severe trouble if their currencies were not widely accepted outside their borders. They would not be able to buy imports that they desperately need.
That quote from Joe Gagnon was from the Washington Post, which goes on to say:
When the government deficit-spends, it issues bonds to be bought on the open market. If its debt load grows too large, mainstream economists say, bond purchasers will demand higher interest rates, and the government will have to pay more in interest payments, which in turn adds to the debt load.
Wrong. The U.S. government has no “debt load,” since the U.S. government can “print” limitless dollars, as the Washington Post admits. Would you personally have a “debt load” if you could create limitless dollars in your home?
Moreover the “national debt” is simply money that investors have deposited in Fed savings accounts. The amount of these deposits has nothing to do with whether purchasers of T-securities can demand higher interest rates. And even if the Fed decides to raise interest rates on T-securities, this still does not create a “debt load.”
“You can’t just fund any level of government that you want from spending money, because you’ll get runaway inflation and eventually the rate of inflation will increase faster than the rate that you’re extracting resources from the economy,” says Karl Smith, an economist at the University of North Carolina. “This is the classic hyperinflation problem that happened in Zimbabwe and the Weimar Republic.”
Translation: without austerity (which causes ever-increasing poverty and inequality) we will become Zimbabwe and the Weimar Republic.
Such nonsense has become as common as referring to anyone we don’t like as “Hitler.”
In April 2000, Two hundred fifty of James K. Galbraith’s fellow economists laughed at him to his face in the White House. President Bill Clinton had invited Galbraith to speak on a panel about Clinton’s budget surplus.
Most economists viewed the budget surplus as a chance to pay down the national debt, cut taxes, shore up entitlements, or pursue new spending programs. Galbraith, however, viewed it as a danger: If the government is running a surplus, money is accruing in government coffers rather than in the hands of ordinary people and companies, where it might be spent and help the economy.
Exactly. The economists who ridiculed Galbraith knew that the U.S. government’s deficit is the economy’s surplus, and the U.S. government’s surplus is the economy’s deficit. However, in order to keep their jobs, economists must continually praise the emperor’s new clothes, and ridicule anyone who notes that the emperor is naked.
Galbraith says the 2001 recession — which followed a few years of surpluses — proves he was right.
Of course Galbraith was right.
Then the Washington Post article repeats the MMT fallacy that taxes are necessary to make monetary systems work. “The need to pay taxes compels people to use the currency printed by the government.”
Wrong. The “taxes drive money” nonsense is one of several fairy tales that MMT people cling to. Taxes are only one factor that makes monetary systems function. Other factors are habit, custom, convenience, and federal law. Dollars would be just as valuable if taxes were totally eliminated.
Mike Norman weighs in…
In one comment, Donald Trump has done more to expose the truth than what any of us have done in over a decade. Trump said the U.S. can never become insolvent or go bankrupt or default because we print our own currency. Stated another way, the U.S., in fact, really has no debt.
Not quite. When people deposit money in Fed savings accounts, the Fed owes them interest on it. That interest is a debt, but it’s no big deal, since the Fed creates money out of thin air to pay the interest.
This means the government is not dependent on tax revenue or borrowing to take on the spending and investment it needs to make. The government spends in dollars, and those dollars flow to people and firms who then swap them for Treasuries so they can earn a little interest. When it comes time to “pay those people back” the government simply takes the Treasuries back and issues dollars to the holders once again. There is never an inability to do this. You would think by now people would know this, but they seemingly don’t. Hopefully, the fact that Donald Trump stated the obvious will sink in for some.
Most people already know this, but they pretend they don’t know. It’s like knowing that most of what they’ve been told about World War II is lies, but pretending that the lies are true so they can condemn each other “Hitler.”
They say that printing money causes inflation. Well, it doesn’t. If the chart below doesn’t clear up this myth, I don’t know what will. You might as well believe in alien abductions and the Loch Ness monster. (Oh yes, those are real, too. I forgot.)
From the chart you can see that the government has “printed” nearly $20 trillion, and inflation went down. Not up, down. You can’t simply keep saying, well, it’s going to happen someday. It won’t.
The only inflationary threat we would face is if we ran out of the physical resources and labor to produce the things that the spending was employed to purchase. I’m not saying that can’t happen, but at the moment it is not even something close to a reality. Furthermore, with the global economy so interlinked, there are plenty of resources and labor that can be tapped in other parts of the world pretty easily.
Plus, the USA can buy things abroad with dollars, so there is no conceivable shortage of things. In short, hyper-inflation won’t happen.
Trump exposed the lie that the government must “save money.” You don’t need to save what you can create without limit.
Elsewhere on the Internet there are plenty of articles that attack Trump’s comment, but all of them are garbage. According to Reuters, Trump would destroy the world…
Any way that you look at what Trump is inclined to do, the result could lead to unprecedented disaster on a global scale.
The International Business Times says that after the Republican convention, Trump will need to seek donations from rich Republicans for the general election. And since rich Republicans want cuts in Medicare, Social Security, and so on, Trump will have to satisfy those donors by becoming more neoliberal.
Wealthy Americans are much likelier to want cuts than the population at large. And while Trump made it through primary season without the support of the 1 percent, he needs their money to compete in the general election. The wealthier someone is, the likelier that person is to favor entitlement reductions.
Why is that? The International Business Times doesn’t say, but the answer is that rich people want you to suffer. Their sensation of “wealth” does not depend on how much money they have, but how much more money they have than others have. Thus, the more that rich people can grind you into the dirt, the richer they feel. This is why they want “entitlements” to be cut, even though “entitlements” do not cost them one penny.
There’s no question that anti-entitlement fervor animates many of the most active Republican mega-donors. For example, the billionaire Koch brothers have poured hundreds of millions into advocacy groups that prioritize shrinking the safety net.
Exactly. The rich are not happy unless you are miserable. They want wages to keep falling and the cost of living to keep rising. To justify this, they spout pure bullshit. “Social Security, Medicare and Medicaid are unfunded sinkholes that will wreck the national budget and lay waste to society!”
The USA is on a neoliberal track. Today the Associated Press-NORC Center for Public Affairs Research released a poll which showed that two-thirds of Americans would have trouble immediately paying an unanticipated bill of $1,000.
This is the price of mass stupidity.