Stephanie Kelton: This Is The Lesson Of The $2 Trillion Virus Stimulus Bill….
By Stephanie Kelton
Throughout the primary debates, Democrats missed a huge opportunity to talk with people about what it means to "pay for" your spending proposals. Now that Congress is preparing to spend ~$2 trillion without "paying for" it, we should talk about what that means.
First, what does it mean to say that Congress is "paying for" its spending? I worked in the Senate, and the phrase has a concrete meaning in the budget world. When a member of Congress drafts a bill, staffers often s
Doesn’t seeing UST yields go up in March at least hint at limits to investor appetite for UST?
Even Stephanie knows that this works only as long as other currencies/ economies are doing the same thing– and the US does not get “too far over its skis” (I am from Colorado) relative to other printing presses.
Damn straight Dr. K.
$2tln for corona virus relief? We have that. It’s in the private sector.
The US is a financial debtor nation, with $23tln in national debt and a rapidly growing debt to GDP ratio. I haven’t looked at our NET indebtedness, but presumably the parks, the military, our wonderful infrastructure are worth SOMETHING, so NET debt is less.
But from a sovereign credit analysis point of view, the best you can say about US credit quality is that we the US can print, inflate and debase as much as we need to pay back whatever we borrow.
Where are the RESERVES? Many countries, both democracies and dictatorships. have substantial reserve. They run surpluses in good times. Counter-cyclical fiscal policy reduces debt or adds to reserves during growth years. Their citizens either trust and elect politicians who can do this sensibly, or they live in tyrannies where there is no choice. But smart countries are run like smart households, putting something away for a rain day. Even the FuckWadis, and many other oil producing countries. have huge Sovereign Wealth Funds. It’s a countercyclical strategy of prudence, which gives countries greater flexibility during times of stress.
Under our election finance system, politicians have no incentive to run counter-cyclical fiscal policy. In order to be elected, you have to keep the fiscal and monetary spigots open. We’re just another banana republic.
Although we historically don’t tax extravagant levels of income when it is earned, the US creates wealth year in and year out. The “reserves” are there, but our reserves are in the private sector. The nation’s wealth is owned by some of its citizens, but not by most of them.
US News (not a progressive source) says the private sector has $107tln in wealth…. Five times annual GDP, we are not a poor country! There is an average of $881k per household, with a median net worth of $94k. That’s a lot of skew, but you knew that.
The top 1% of wealth holders own $34tln of assets. The next 19% have $50 tln, so $84tln, or 78% of all wealth, is held by top 20% of the population.
Recent wealth destruction has probably reduced inequality for most asset holders. Ugh.
The government may be “broke”. But the country isn’t. God knows I love private property and earned every nickel I have made. But I made them because I lived in a country that provided the opportunity for me do well.
There is a saying among policy makers- “You should never waste a good crisis”.
Monetary policy appears to be a responsive, effective kitchen sink of solutions to the crisis right now. Kudos!
But fiscal solutions are probably far more relevant to relieving the corona crisis.
We live in a time when $15tln of investment grade sovereign investment grade debt has negative notional interest rates. The idea of a federal government running a surplus and paying down debt or adding to reserves shouldn’t be anathema.
In a time of crisis. perhaps a sober re-thinking how the US wealth is held and utilized should be part of the national conversation.
Some Democratic candidates are proposing wealth taxes. Here’s what wealth in the U.S. looks like.
If you look at the wealth of the average US senator (even Bernie!), you know that dog won’t hunt.
“The reality is that there is almost always enough slack in the economy to allow for an expansion of federal spending (or tax cuts) without offsets. Think of it as our fiscal space.”
Why can’t the Germans grok this? Are they not intelligent? Are they not educated? Do they have no “fiscal space”, and if not, why not?
Dr. K loves her MMT!
“And when we get through this crisis—and we will—let’s come out with a new-and-improved understanding of the spending capacities of a currency-issuing government. We’re going to need it.”
Not hard. Just hire some Zimbabwean experts and they will explain everything to us.
We have a massive underutilized ability to produce the products and services for consumers demanding more of them. That’s why Kelton is right. Before we get high inflation we have to close the gap to optimal output that’s here right now. MMT uses the same thinking about supply/demand that its critics use but without the myth that increasing spending that boosts production automatically causes unwanted inflation. Before you get to “too much” you have to get closer to “enough” than we usually do, and much closer than we are doing now.
Hyperinflation results from a disastrous fall in the ability of an economy to produce essential goods. The US is unlikely to ever experience such a fall, and it makes no sense to run the economy as though we were. We should plan on the basis of the economy we have and will have going forward, and put our resources to work. It’s more costly not to do that than to do it.