> On Wed, Nov 5, 2008 at 3:59 PM, Bill wrote:
> Dear ABC breakfast,
> Headlines like – 40 billion hole in the bucket – repeated by the breakfast
> hosts today – merely perpetuate the myth that the Federal government
> has a financial constraint. This myth has been used by the neo-liberal
> agenda that is now in tatters as a result of the failure of markets to
> The reality is that the Federal G. as the monopoly issuer of the currency
> has no financial constraint and does not require revenue to spend. In
> fact, spending provides the funds to the private sector that we use to
> fulfill our tax obligations.
> Further, the pursuit of budget surpluses has squeezed the liquidity of
> the private sector and been an important part of the reason why that
> sector is now so indebted. The natural state is for the federal
> government to run deficits in order for the private sector to save. The
> private sector cannot save if the government is running surpluses.
> Further, running surpluses (or deficits) in any one year makes no
> difference to the capacity of the Federal G. to run a surplus (deficit) in
> the next. The surpluses that have been adored by the neo-liberals and
> by the sin of ignorance of your announcers have not built up any
> capacity to allow spending to proceed now. There is no hole in the
> bucket. There is no bucket!
> I have written a lot about this over the year. My recent book (see
> details below) articulates this in detail. You can also read details of how
> a modern monetary economy like Australia works from the many papers
> available from my research centre.
> It would be good if you stopped perpetuating this myth and instead
> allow reasonable commentary on what is actually going on with
> government opportunities etc. It is time your listeners (and viewers)
> learned how the economy actually operates and how they have been
> dudded by fiscal surpluses over the last 11 years.
> Best wishes,
Warren, who wrote this and what book is he talking about?
It’s Bill Mitchell. His book is “Full Employment Abandoned–Shifting Sands and Policy Failures.” It’s on the Mandatory Readings list on the right-hand column (scroll down till you see it) with a link to the publisher’s site, FYI.
Currently reading: The Truth About the National Debt: Five Myths and One Reality by Frances Cavanaugh.
His warnings on GSEs in mid 90s are quite prescient.
We had Cavanaugh in KC for a CFEPS event 5 years ago. He’s better than most in the mainstream on deficits and the national debt, but still not “in paradigm” (as Warren puts it). Very nice guy, though, and decades of experience in the Tsy Dept.
I recall Frank making the statement in his book that old people’s savings were funding young people’s mtgs. i told him i saw it the other way around- loans create deposits- young people take out mtgs to buy old people’s houses meant they were funding old peoples savings.
he said that made sense, he’d never thought about it that way.
chief tsy economist for 30 years…
Speaking of not being “in paradigm”, I was listening to Robert Kuttner on “Fresh Air” today, and he said some sensible things about the debt (that it’s only 40% of GDP, that a lot of it is for capital spending that increases productivity, etc.), but he still doesn’t really get it. He went on to talk about how we need to increase spending, but that we should we “pay for it” by increasing taxes on the rich. Now, I don’t have any particular problem with progressive taxation, but the whole idea of a “stimulus” that you “pay for” with taxes is so ridiculous (even in conventional terms!) that I honestly don’t know what he’s thinking. The fact that professional, liberal economists can have such a poor understanding of basic issues about public finance 70+ years after the General Theory reminds me of why I dropped out of graduate school…
5 & 6 . . .
Right–the core issue is that the overwhelming majority of economists, analysts, members of the financial press, etc., regardless of political affilication or persuasion, don’t “get” or otherwise don’t understand the 4 points posted at the top of the “support” page on this site.
I just need some clarification on a point… If the US government never ran a deficit and we did not issue debt, which is an imposibility, would our economy actually never grow or would it simply be more and more people chasing fewer and fewer dollars?
since at inception govt has to spend first and then wait for tax revenue to come in that question is inapplicable
Warren, some governments are better off not existing, which would make your point inapplicable.
Agree. How can you add to demand by taxing A and giving it to B. Net amount of new money introduced = 0. I guess it might change where the money is spent (consumer goods,etc).
I see Pelosi is talking about introducing capex stimulus. Long term this seems good but doesn’t seem immediate enough. I can’t believe we can spin up these cap improvements fast enough.
well if A isn’t spending it but saving it instead, they aren’t adding to demand anyway, so taxing them has no effect on demand… and we know B will spend it.
Also the actual plan is give more to B, and then in 2010 tax A. Not ideal by any means, but if this is what it takes to get money to B, then what else can you do? As you guys have been pointing out over and over again, no one actually in charge knows what they are doing, so all we can hope is that they stumble into the right answer, or close enough.
Also . . . widely reported that many $ billions of infrastructure spending ready to go now, just put on the shelf due to state/local budget issues.
yes, taxing someone who would ‘never ever’ spend it anyway does nothing more than make them angry. but given their level of understanding, for politicians it’s the least worst choice.