On Saturday, after putting the finishing touches on “Something Crazy In The Air (Fried Egg),” I took a quick virtual stroll over to Pew to see how public opinion has evolved vis-à-vis the deficit.
Admittedly, I could have conducted a more extensive search, but what I turned up on a quick scan sufficed. The latest article from Pew when you filter for “government spending and the deficit” is dated August 13, two weeks after benefits from the massive virus relief package passed by Congress during the early days of the pandemic began to lapse.
The data cited in the piece was collected in June, when the economy was bouncing back, but still reeling from the largest hit since the Great Depression. At the time, just 47% of adults said the deficit was “a very big problem.” That was down eight percentage points from September of 2018, a period over which the deficit obviously ballooned.
Of course, you can make that red line look as dramatic or as boring as you like simply by adjusting the axis on which the Pew data is plotted. Clearly, had I made the minimum 10 or 20 instead of 44, the decline would appear less meaningful.
But it’s not about the absolute numbers. The number of Americans concerned about the deficit should be 0% given that deficits are basically meaningless for currency-issuing, advanced economies with sufficient monetary sovereignty. Rather, what’s notable is the decline in concern despite the larger shortfalls.
The June data was surely skewed by the “no atheists in foxholes” phenomenon. When the world is falling apart, the percentage of those who care about government red ink is likely to be lower. If you can’t afford to put food on the table or pay the mortgage, you generally don’t care about the gap between government revenue and outlays. All you care about is that your fixed costs remain, despite your revenue having collapsed into a pestilent abyss.
But Pew’s breakdown of the data reveals just how pernicious this myth really is. Consider that, as Pew wrote in August,
The deficit landed roughly in the middle of the pack among the 10 issues asked about in the June survey. The share of adults calling it a very big problem was higher than the share saying the same about climate change (40%) or illegal immigration (28%), but lower than the shares who called ethics in government and the pandemic very big problems (63% and 58%, respectively).
So, amid a pandemic which, by that time, had already decimated the US economy and killed scores of Americans, the deficit wasn’t all that far behind COVID-19 (relatively speaking, when you consider that 2020’s headlines were dominated by pandemic coverage) when it comes to what American adults considered to be “very big problems.”
Take a moment to wrap your head around that, if you can.
The partisan breakdown is astounding, especially in retrospect — i.e., with the US death toll from the pandemic near 350,000. In the survey, conducted from June 16 through June 22, just 37% of Republicans said the coronavirus was “a very big problem” in America. That figure (i.e., for GOP voters) was 49% for the deficit. That’s ludicrous. And it speaks to an almost pathological refusal to engage with reality. Similarly, just 13% of Republicans said climate change was a very big problem — 36 percentage points lower than the deficit.
There is some nuance. “For the most part, partisan differences are over the severity of these problems,” Pew was keen to note, adding that “large majorities in both parties — 95% of Democrats and Democratic-leaning independents and 72% of Republicans and Republican leaners — agree the coronavirus outbreak is either a very big or moderately big problem for the country.”
So, it’s not that Republican voters were totally oblivious, they just thought “moderate” was a better adjective when it came to describing the severity of the problem posed by a raging pandemic which, even by June, had established itself as the worst public health crisis in a century.
But the point here isn’t to lampoon Republicans for their propensity to put themselves on the wrong side of history (see the figure above). Rather, the point is that, of the five issues included in the chart, there’s bipartisan consensus in terms of the percentage of voters who see a “very big problem” on just one: The deficit.
And of the five problems shown in the figure, that is the only one that, in reality, isn’t really a problem.
“Older people and Republicans are more likely to call the deficit a very big problem, while Democrats — especially liberal Democrats — are less likely to do so,” Pew wrote, before observing that, insanely, “there are few or no differences among people of different education or income levels.”
That would suggest that unlike many other vexing issues facing the country, “education” (and the scare quotes are there for a reason) isn’t producing more nuanced, informed viewpoints when it comes to government finance.
That’s hardly surprising given the pushback among mainstream economists to viewing the world through an MMT lens. But it’s disconcerting nevertheless, because it means we can’t count on the education system to improve public awareness.
That leaves few avenues down which people can travel to pursue a better understanding of the situation. It doesn’t help that politicians leverage the national debt discussion and the deficit ghost story to explain to an anxious public, why the richest country on Earth can’t provide for its citizens.
Pew’s contention that income level is similarly not a factor when it comes to perceptions of the deficit is also potentially disturbing for a number of reasons, depending on how the figures break down.
Make of this what you will.
The idea that ‘money doesn’t grow on trees’ is a hugely important part of our daily lives. Is there a single resource on the web that clearly explains in simple layman’s terms how and why things are (counterintuitively) different for sovereign governments? The discussions in these pages are extremely lucid and have changed my mind, but not yet to the point where I am comfortable throwing away a lifetime’s worth of hard-won personal experience in favor of a logical theory I am not qualified to fully evaluate. A short and sweet ‘soundbite’ summary and FAQ that explain the theory would be welcome and valuable.
Just think of it this way. The common wisdom you are referring to was built throughout centuries when goods and resources were scarce. There weren’t enough base metals, spices, textiles, w/e, for everyone, so people had to be selective. That’s no longer the case. All advanced economies have excess food, production capacity, labour, etc. So why are some still poor?
The ‘American Dream’ initially ushered in a new era for most: every family should have a house, a car, enough food, etc. Now, the ‘American Dream’ is largely based on excess; everyone wants more, no matter how much they already own or how fat they are. It doesn’t make sense for humanity as a whole. You want economic growth? Make the majority more productive with more money to spend. Double one persons fortunes from 50bn to 100bn and what does that change for the economy? Basically nothing, especially in the short term. This is the ‘trickle down economics’ logic that evidence shows is worthless. If instead you take that 50bn and distribute it to the 10mm poorest people, I guarantee that entire amount will be recycled, either directly or indirectly through greater spending power via lowering debt. That’s when you potentially start running into problems with inflation, but there is no inflation, and any price increase would be met with increased competition anyway. The conclusion is that the current system is at best archaic, and highly predatory at worst.
“A short and sweet ‘soundbite’ summary and FAQ that explain the theory would be welcome and valuable.”
Anonymous, I think you have made a good contribution to the request he made, with your reply.
Headlines today are “vaccine rollout” is going slower than expected.
States have been left with distribution and inoculation. States are broke. T he Fed’s can create the money to send to states for distribution, but apparently have not.
Alas, if only states could create money like the Fed…
There is a link in an earlier post to a podcast interview with Stephanie Kelton. That’s a good starting point. Her book, ‘The Deficit Myth’–written for the educated reader, not a PhD economist–is worth reading.
For what it’s worth, back in my UG days the NY Times used to run an economics point/counterpoint in the Sunday paper. It was assigned reading in Econ 101 and even at the height of supply-side giddiness, one of the installments debated the issue of whether deficits matter.
Despite the ensuing decades of nearly-endless ‘overspending,’ the country is still here, so if empiricism is your thing, there’s that to consider, too.
Yeah, “The Deficit Myth” is a good place to start. And that’s not just me advertising Stephanie’s book. It is eminently readable. In fact, it’s almost a bonafide “page-turner.” You can finish it in 2 or 3 days with minimal effort. Plus, it’s not expensive. I would recommend that as a starting point.
The fastest onramp I’ve seen is this presentation. https://www.youtube.com/watch?v=E5JTn7GS4oA
It glosses over a lot of points that are easily gone into more depth with some reading like the deficit myth but this is 1 hour and all the general concepts are covered.
I visited Italy in the summer of 2002; from memory, the euro was worth $0.80. I returned to Italy in the summer of 2003; the euro was worth $1.20. (I did not verify these figures; they are what I recall). I don’t doubt the ability of the US government to print money and maintain a large deficit with little or no domestic inflation; we produce out own food and oil, for example. I worry about the effects of explicitly adopting MMT on the FX market. I like my dollar to go farther when I visit Taiwan or Germany or Waterloo, Ontario.
Your vacation desires are kind of besides the point. The reasons FX rates change in advanced economies has little to do with printing, but even if it did, you’re essentially taking the position of letting the masses suffer so your vacation costs 10% less.
Until more “mainstream economists” start to accept the basic tenets of MMT, people will continue to view the national debt as a problem. You can’t expect the “educators” to educate the public when it is still a fringe theory, no matter how obvious it may seem to you and me.
Regarding the “no atheists in foxholes” phenomenon, another way of this is that when shit really hits the fan, everyone is a socialist, even hardcore libertarians. Unfortunately, language has been abused for so long in this country, along with wisdom passed down through humanistic education, that few are equipped to think critically and clearly articulate all of these concepts to even be capable of having a proper discussion. The dogma cuts way beyond economic territory into the bone of linguistics and philosophy. So, instead we are left with “debates” that quickly descend into a reductio ad Stalinum (or reductio ad Venezuela, etc.).
I have little hope that these people will ever be able to understand and discuss the global financial system, and the fact that their own government in fact has the incredible power to print the world’s most pristine collateral and most liquid asset, anytime that it wants or doesn’t want to. Instead they will continue to be gaslighted by the oligarchs, and believe the US is barreling down the path to Venezuela.
Even if one assumes the premises of these lies, “the deficit” could, in fact, be eliminated through higher taxes. But that discourse is also blocked in the name of “capitalism”. The way all of these labels are thrown around has rendered them utterly nonsensical, and divorced them from their responsible, historical meanings. The tragedy is that when this republic eventually collapses in on itself, it will have been an entirely avoidable act of self-destruction. But at least the dead rich “libertarian” “capitalists” will be buried with their wealth like Tuthamkhamun.
“The tragedy is that when this republic eventually collapses in on itself, it will have been an entirely avoidable act of self-destruction.” Indeed. And it might occur during either of our respective lifetimes.
And they didn’t have it in their hearts to maybe try to milk another 20 or 30 years out of it.
My dad fought on foreign soil wearing a US government uniform. He’s dead now. I can’t imagine that he’d be all too happy to be witnessing this self immolation.
I keep thinking of WWII and how the record amounts of deficit spending ended up pulling us out of the Depression
And left us the richest and most powerful nation on the planet. What if all that debt had been used for infrastructure,
Housing, education, etc………….instead of for destruction.
Even today we have no problem with debt, if it is used for the military or to fight terrorism.
“Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children.”
Dwight D Eisenhower – Address “The Chance for Peace” Delivered Before the American Society of Newspaper Editors, 4/16/53
While I agree with the descriptive part of MMT (how our government actually funds itself), I remain concerned about the prescriptive part of MMT (that there is no no need to worry about “deficits”). Without the psychological discipline of deficits and “paying for government expenses”–or something of that nature–what prevents politicians from simply recreating a Weimar situation? Fiat currencies depend on confidence and once that confidence is lost economic stability ends. To me money creation should be proportional to overall GDP growth plus whatever level of inflation is considered acceptable; creating additional money should be limited to emergency situations such as this past year. MMT seems to give a hall pass to politicians to do whatever [oops, they already do!]. Despite their missteps over the years, I still tend to favor the check valve provided by the Fed.
“Fiat currencies depend on confidence and once that confidence is lost economic stability ends. To me money creation should be proportional to overall GDP growth plus whatever level of inflation is considered acceptable.”
Even if you’re right, what percentage of the public do you reckon understands that latter part of your comment?
If your answer is “probably less than 5%,” then you’ve accidentally undermined your own argument. If it’s a confidence game, and 95% of the people playing it don’t reliably use “there,” “their,” and “they’re” correctly, the notion that those same people are going to do the math on the rate of money creation versus the rate of GDP growth on the way to losing confidence in the dollar is far-fetched.
And even if they did, what is the alternative? Remember, when you talk about episodes of currency angst in, for example, emerging markets or in extreme cases like frontier markets, you often quantify the extent of the problem in “dollarization.”
Does it seem plausible to you that Americans would ever descend on their local BofA branches and demand physical yen? Or try to trade bundles of dollars for euros? Or call up customer service at JPMorgan and ask for their savings accounts to be converted to a combination of AUD, GBP, and CAD?
Look back at March, when it was clear that the Fed was poised to embark on the most spectacular case of monetary largesse in recorded history. What did the dollar do? It surged during the most acute weeks of the panic. And what did gold do? It plunged.
When push comes to absolute shove, nobody wants anything other than dollars — not even Treasurys, which are just interest-bearing dollars.
This is why, paradoxically, downgrading the US government will likely always result in a Treasury rally — i.e., a rally in the very obligations that are being downgraded.
H, this requires its own post, I get your (multiple) points about deficits don’t matter (assuming its coming from currency under the control from that sovereignty). But I am left confused, why is this something previous civilizations failed to achieve, what makes this method different and more importantly sustainable?
1. If all countries print the same amount (proportionaly) then the FX stays stable (against other currencies), to your point confidence remain relatively stable (vs extremes like Venezuela, Turkey, Argentina etc). However some countries are in worst situation than others – where at some point that debt has to be actually be written off. Japan heading to 40% debt interest on tax income… (with yields where they are). I expect that debt to be written off, then surely the value of the Yen will plummet, so are we just waiting for that trigger, I fail to understand how the Yen has remained so strong over these last 13 years (record deficits YoY).
2. I get gold has no useful function and people would still rather keep their dollars, but if money is printed out of thin air then other assets will become more valuable, whats stopping [enter soverignty] from printing money and buying [enter commodity]. Are we about to see an explosion in commodities, if there is no penalty to infinite printing?
3. What else has got to give, because printing forever at some point will cause imbalances (what are they) – does this depend on how that money is used?
3.1 If so, how can it be used?
3.2 What are the likely imbalances?
3.2.1 Wealth gap is one you mention frequently, due to how the Fed is supporting shareholders (by buying stocks and providing liquity) and loan providers (buy buying treasuries and lowering comparitive yield), so if they started using helicoper money as they are will this help to balance things in any way?
4. What happens to household (mortgages, student debt etc) and corporate debt these can’t just be wiped off in such a simple way as the same as government debt?
5. China has been doing something similar to Japan but rather than using government debt (which currently sits at circa 50%) it is using alternative debt vehicles, notably SOEs, household debt, corporate debt, local government debt, off balance sheet finance etc. This is probably its own topic. Total debt to GDP is now 300%+ with a lot of bad debt that just keeps getting refinanced.
6. What factors are likely to happen for people to lose confidence in a particular currency given the conjecture of continuous printing (I take it we can look at history for this and what happened in other civilizations)?
Happy to be pointed to books or other media that might help shine some light into this? Thank you for your continuous education, and emphasising the same point multiple times, it sometimes takes a few articles (data and different approaches) to understand why you keep saying a particular point.
To the first point, it sounds like you have been fresh canon fodder in the short JGB/short JPY trade.
Move along. Foreign holdings of yen bonds are inconsequential.
Hi Derek, never directly held japanese stocks, bonds or currencies… but lately looking at some of the numbers coming out of Japan and looked back at the effect on USD/JPY exchange rate going back some 40 years and could not believe how well it held. I was curious as some some Western economies where I do hold assets are following suit.
Sorry if I sounded snarkey in my response. But it came from trying that trade in the 80s. It doesn’t work.
The BOJ now owns just over 51% of the JGB market, as I recall. Maybe more. No defaults are needed. The MOF & BOJ can and should simply roll the government debt into zero coupon perpetuals.
I have to think that what we are experiencing with humanity as a whole embracing a new economic paradigm is similar to humanity coming to terms with the sun as the center of the solar system or the earth being round instead of flat. Things definitely move faster now, but I’m guessing we still have a long way to go before a majority embrace MMT.
I was trying to illustrate the volatility of the forex market using a personal example. I’m sorry that you were unable to grasp this, just as you are unable to grasp the idea that international vacations might be a think of the past or that specifically mentioning “Waterloo, Ontario” was tongue-in-cheek.
Americans should be worried about the deficit. The deficit and the Fed that funds it are supercharging the wealth and power gap.
As ever, you’re only partially correct, but I’ve learned over the years that debating the issue with you is an exercise in futility, so this is more PSA to other readers than it is a reply to you: This reader’s comment is not entirely accurate, and any subsequent comments from this particular reader will, based on my experience, be at best partially accurate and at worst mostly incorrect. So, just caveat emptor. I won’t personally engage beyond this short PSA.