The Marvelous Stupidity Of The US Debt-Ceiling Debate

I have a very difficult time countenancing the debt-limit debate as it manifests in soundbites from pundits and hapless (if mostly well-meaning) attempts by journalists to frame the discussion. There's no subject about which more nonsense is bandied than the purported limit on America's "borrowing" capacity. Please do notice the scare quotes. They're there for a reason. I won't use them around every instance of the word "borrow" below, but you can consider them implied. This is a topic about w

Get the best daily market and macroeconomic commentary anywhere for less than $7 per month.

Subscribe today

Already have an account? log in

19 thoughts on “The Marvelous Stupidity Of The US Debt-Ceiling Debate

  1. Kelton clearly stated that inflation is a risk from MMT. Her answer was that legislators raise taxes to cool the economy. NOT to fund spending, but to cool demand.

    Clearly that is a non-starter given our two year electoral cycle in the House of Representatives.

    1. Yes, it’s indeed a non-starter. There’s only one example of fiscal policy being used to cool demand going back six decades. No politician will ever try it again, which means Keynesian economics is unfairly saddled with a reputation for being inflationary. It’s not Keynesian economics that’s the problem. It’s politicians only leveraging it to juice demand, never to curtail demand.

      1. Sounds like MMT may be able to accurately describe a sovereign that spends what it issues, but that it’ll never be able to offer actionable policy. The fiscal levers are too political. Even in a world where everyone accepts that fiscal under-spending is a Good Thing, things will become intractable as soon as someones favored project is cut in favor of another’s. It just devolves to traditional pork barrel spending.

        I think the closest you can get is giving the Fed the ability to offer sectoral credit levers, rather than the single FFR shotgun approach…. but of course this has its own problems, like putting bureaucrats in charge of determining which sectors merit increased investment. And of course, if any of those working become too evident to the public, the whole thing will get politicized and destroyed (by the public themselves or by scotus).

        MMT is so often treated as a magic bullet, where everything would be easier if only these dumbasses would understand these basic monetary mechanisms… but i think it’s just a convenient distraction from the real problem — that nobody trusts each other anymore. Trust was always the foundation of the system, no matter how much we tarted up subjectivity with the objective sheen of law, philosophy, econ, etc. Without trust, facts are irrelevant. With trust, they’re only mostly irrelevant.

  2. H

    Once again you have hit the nail on the head — and once again you are absolutely right. Myths about debt are something akin to believing in Santa Claus, people can’t stop believing in him, no matter what they know to the contrary. And all of this political c..p is beginning to look like the politics relating to “stolen elections,” only actually stolen when a republican loses, and only if the individual pedaling the lie thinks s/he will benefit from doing so. Ironically, for me at least, my first publication, when I was still in grad school, was an edited treatise on governmental program budgeting which two of my professors excerpted from my honors thesis and included as a chapter for their textbook in Public Finance. I love this stuff but your observation that even those who spend our trillions for a living don’t understand it is sadly too true. Sadly, the source of much of this ignorance is the electorate which can only understand a few code words gleaned from Facebook, Twitter, or some other major source of fairy tales. Buying gifts for a semi-retired professor of Finance is a chore no one should be saddled with but my daughter rose to the challenge this year and bought me a shiny new copy of the book “Debt,” the first 5000 years. The author, David Graeber, is apparently an anthropologist who has waded into the muck where angels (and government officials) fear to tread. Can’t wait to read it. At first glance it feels as dense as plasterboard but we shall see if any light is visible from under the bushel.

  3. One thing that might help, and which is actually doable from a political standpoint, would be if the FED decided to just retire some of the treasuries they hold. It wouldn’t have to be a lot, just enough to show the the “debt” doesn’t actually have to be repaid; that we are not, in one of the most pernicious of canards, “borrowing from our grandchildren.”

    1. To reveal the system in such unambiguous terms is to invite criticism and reform to the system, which is why it will never happen.

      Frankly I’m surprised we have ‘plain english’

  4. I think the dynamics around deficits are similar to the ones around Trump. I suspect most serious Republicans realize that deficits are just a useful political wedge to win votes. Heck, Dick Cheney said the quiet part out loud 20 years ago when he acknowledged deficits don’t matter.

    I would also argue that supply side economics has been very successful in achieving its actual goal: lining the pockets of their constituents. Republicans just can’t say that explicitly or they’d also have to recognize that those tax cuts don’t actually trickle down and have driven much of the asset inflation we’ve seen (alongside interest rates). It’s easier to let their voters believe that the gains they’ve made from housing prices and stocks over the last 40 years are due to hard work and that all the people who are shut out from housing and wealth now just don’t want to work. Those arguments are motivated reasoning at its finest.

    The last thing I’d note is that Republicans other favorite budget buster, military spending, is effectively a jobs program (the Bush military misadventures aside) and I’ve come to appreciate the value that it provides when we aren’t engaging in reckless invasions. The budget flexibility that being the world’s reserve currency affords us means it doesn’t have to be an either/or proposition when it comes to military spending and spending on healthcare, education, etc. There is value to the stability that the US military provides, and given the imperial ambitions of autocrats in the East, it’s good to know that we haven’t fully dismantled our defense industry and that it does give a significant number of people meaningful employment and benefits.

    1. The US military is one of the best upward mobility government programs for the lower class citizens ( In addition to education) that we have in the US. It provides opportunities to learn responsibility and ethics, financial management, upward mobility etc.

  5. Kelton’s proposed cure for legislative gridlock is policies that tighten fiscally on autopilot.

    Automation is hard and control systems always have failure modes: gimbal lock in a gyrostabilizer, infinite loops in an algorithm, etc. Effective governance is even more difficult, however, and Kelton’s position seems eminently reasonable to anyone frustrated by performative politics. I’m willing to take my chances with a “fiscal rectitude algorithm” if it means that policy decisions, however wrong, actually get ENACTED.

  6. All great thoughts! I want to thank all the commentators here on Heisenberg. Gratitude for bringing the Heisenberg Report to a higher level. Thanks guys and gals and who knows, maybe some bots!

  7. You have given us so much- it seems that knowing your actual legal name/past resume would be a distant second in terms of importance, given what we already know about you from your written words.
    Happy New Year, H.

  8. Is Kelton correct? Yes
    Is MMT descriptively correct? No

    I’m one of the readers that’s tried to bring up a flaw with MMT by using Kelton’s own words in the past. For the record, I have read her work. I also agree with you, and her, that MMT is descriptive not prescriptive.

    However, it seems that there is no accounting for the games of politics in the MMT description. There is an incorrect assumption made that there is enough political will for politicians to be able to increase taxes. In Kelton’s explanation below she talks about offsetting or mitigating the inflationary pressure of MMT with higher taxes.

    Without higher taxes it would seem according to Kelton that MMT does describe increased inflationary pressures.

    So in conclusion, MMT is not accurate because it makes incorrect assumptions.

    Anyways, have a happy new years and thank you for doing what you do.

    Kelton: “So taxes are important, because they’re one way that the government can reduce the purchasing power of all the other spenders in the economy. So if the government wants to come in and do a big ambitious infrastructure project and spend trillions of dollars into the economy. It might be worried that spending trillions of dollars could push prices higher, could lead to inflationary pressure.
    And to offset or mitigate the inflationary pressure, it matches up some of its new spending with higher taxes. So it makes room for the government to be able to spend those dollars into the economy without creating inflationary pressures. Taxes are important because they allow government to pull a lever if it’s interested in rebalancing the distribution of wealth and income.”

    1. Oh, I see. So if I correctly describe the process by which water is made safe for people to drink, I can be rendered wrong if it turns out that unscrupulous or clueless people work at the facility where the process takes place? If you correctly go through the steps to have a pizza delivered to your house but it never gets there because the delivery driver was drunk, will you accept the pizza shop’s contention that you aren’t due a refund because you made an incorrect assumption about driver sobriety? Also, speaking of “wrong,” that transcript you linked to was initially riddled with misquotes and typos of all kinds. I have no idea if they fixed them, so I removed the link. It took me an hour to clean that mess up when I posted it (with permission) here originally.

      1. Also, you’re talking past me here (probably deliberately, because there’s no debating the points I’m actually talking about). I’m talking about whether the national “debt” matters, whether deficits matter and the extent to which politicians habitually show, in word and deed, that they don’t understand what a US Treasury actually is. They betray that ignorance in other, totally unrelated, ways too, which only underscores my point. You skipped all of that and went straight to the (implicit and deeply flawed) contention that the pandemic/war inflation is due mostly to fiscal spending. Sometimes, I think your sole purpose for sticking around on this platform is to make what you mistakenly think are valid arguments about MMT. To the extent that’s true, the saving grace is that you’re habitually mistaken without realizing it, which is, at least, a source of amusement.

Comments are closed.

NEWSROOM crewneck & prints