Kelton Shouldn’t Have Ceded This Point To Noah

(Re: Just When Should We Start Worrying About Deficits?)

Kelton: “Deficits…can be too big.”

Why did Kelton so easily cede this point to Noah? “Deficits” (tax:savings ratio) do not realistically matter unless a government were to make insane fiscal policy choices. She lets Noah frame the discussion in a neoliberal fantasyland and thus loses the end of the debate. Accumulated deficits (“debt”) can of course carry zero interest, and it is only a (vestigial) policy choice that they do not.

Let’s all say it: “Deficits do not matter in any realistic scenario.”

The end of the article went about like this…

Kelton: “Can meteors make an airplane crash? Absolutely! Meteors matter.”

Noah: It seems like you’re agreeing with me that meteors can take down airliners. The question is whether they will take down an airliner tomorrow or only once every 10,000 years…

If it is tomorrow, then the dangers of meteorites wouldn’t become apparent until it was too late. Of course, we can never know exactly when the meteor strike on an airliner will come, so its hard to decide how much precaution to take. But with airliners and meteors in the universe, it seems like the potential benefit of flying at this point in time is small…

So we should allow the entire air transport industry to fail…

Because of meteorites.


{End of article}

Elsewhere Kelton links to Wray’s Deficits Do Matter, But Not the Way You Think . Here Wray offers a “two prong” response to annoyingly facile claims that “MMTers say deficits don’t matter”:  1)  that of course absurd scenarios can be set up where they matter and 2) that growth from deficit spending increases taxes received and thus deficits do not keep growing.

But once again, and oddly, Wray fails to mention the obvious: paying any interest on “bonds” is a policy choice. The government can pay zero interest and therefore there is never any sustainability issue (and the silliness of bonds by currency issuers would be clear to boot). Not that there would be sustainability issues anyway as it is only keystrokes. But rather than argue that astronomical interest payments can be made with keystrokes, better to point out that there never needs to be astronomical interest, full stop.

And, of course, none of this is inflationary because accounting-wise it is already as if we spend without bond issuance and just pay savers an annuity. Wray himself made this clear as early as 2001 (page 6) and Scott Fullwiler (stunningly so) in 2011.

And Bill Mitchell makes it abundantly clear that bonds are vestigial nonsense, and There Is No Need To Issue Public Debt.

Let’s all just say it: No, “Deficits” don’t matter. In fact, they don’t really exist. Ignoring the foreign sector, the budget is ALWAYS balanced. Dollars spent in to the economy always = dollars taxed out + dollars saved.

Our budget is balanced now, and always is balanced.

There is no “deficit”.


PS Here is the passage from the debate:

Kelton: Is there a limit to how big the deficit can safely climb? Absolutely! Deficits matter. They can be too big — risking accelerating inflation.

Noah: It seems like you’re agreeing with me that accelerating inflation is a risk of deficits. The question is whether that would come slowly or quickly. If deficit-induced inflation comes slowly, we don’t have much to worry about, because we can see it coming and adjust policy accordingly. But if it comes quickly — if the economy switches suddenly between a low-inflation equilibrium and a high-inflation equilibrium — then the dangers of deficits wouldn’t become apparent until it was too late. Of course, we can never know where that breaking point is, so it’s hard to decide just how much precaution to take. But with the labor market looking very strong, it seems like the potential benefit of large deficits at this point in time is small. So it seems like an unknown risk in exchange for only a small potential gain — not the most enticing of gambles.

One thought on “Kelton Shouldn’t Have Ceded This Point To Noah

  1. Steven Hail replied via tweet: “She did not ‘cede’ a point. Too much spending can lead to inflation. That’s just a fact.”

    Yes, obviously spending without taxing adequately can cause inflation.

    That observation is not at all the same as asking “Just When Should We Start Worrying About Deficits?”

    The short answer would of course be when the price index shows inflation and we know we are near full resource use.

    The Bloomberg article, however, tendentiously perpetuates the false mainstream view that government spending to maintain a healthy economy is something to “worry” about. It is not, and it never is.
    That is what I mean when I say Stephanie ceded a point when she could have made one. We should never “worry” about a vestigial accounting charade that is really just savings; we should only rationally come to consensus on how many group projects we want and how many bring about optimum resource use and wellbeing.
    So no, “deficits” do not matter, only real resources and wellbeing matter.
    I don’t think this debate can be won without making it crystal clear that

    1) accounting-wise we already spend with no bonds (the accounting shakes out to be spending into the economy as if OMF, with some annuity purchases by savers)

    2) there is no need to pay interest at all

    These facts make it crystal clear that any “worry” for “deficits” in the sense Bloomberg/Noah and others mean is unadulterated hogwash. The banal point that spending in without taxing out can cause inflation is not the same as the mainstream dogma that there is something inherently wrong with spending in more than is taxed out (forever) in order to achieve desired resource use and wellbeing.


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