Sorry to see this happen.


First, it’s not a debt burden.
Debt management is just shifting $ between Fed reserve accounts to Fed securities accounts.

Second, the trick is for a given size govt to keep taxes at the right level.

Yes, some day circumstances could possibly warrant much higher taxes, though in my 40 years of experience I’ve never seen excess demand. But yes, anything is possible. And a bit of forecasting of demand leakages along with deficits might be at least somewhat enlightening, and if history is any guide, probably show future deficits still aren’t large enough for full employment.

But even if you know you have to make a turn 20 miles down the road- that is, even if you do know that 20 years from now aggregate demand could be too high- you don’t turn the wheel now.

Can America Become the Next Greece?

By John Carney

February 27 (CNBC) — When conservatives worry about the size of the federal government’s budget deficits and the national debt, liberals tend to point out that “America is not Greece.”

This is certainly true. The U.S. economy is far healthier than the economy of Greece. We aren’t locked into a currency union that deprives us of monetary flexibility. Our government can never run out of money to service its debt because the debt is denominated in currency the government creates.

The most important difference between the U.S. and Greece, however, is not where we are in our economic cycle or our monetary system.

It’s the gap between the productivity of the American economy and the Greek economy.

The core reason why Greece is unable to service its debt without aid from its neighbors is that its economy does not generate enough wealth. Even if Greece somehow put an end to the habitual tax-avoidance of its people, it could not service its debt without truly impoverishing its citizens through unsustainable wealth confiscation.

The dearth of productivity and competitiveness explains, ironically, why Greece’s debts got so large to begin with. It’s people and government wanted to live beyond their means, to spend more than they produced. This is only possible if someone is willing to lend you the money to buy the excess goods and services.

Most Greeks never really realized how unproductive their economy had become. In some sense, access to debt had concealed their long-running economic slump. It seemed that things were humming along just fine.

This is one of the reasons Greeks are so shocked by what is being required by their creditors. It feels as if they are being looted, bossed around, sent orders from German and French bureaucrats. The Greeks just never internalized how dependent their economy had become on the capacity and willingness of more productive economies to lend to them.

The productivity gap, of course, is not the result of nature or the wrath of some angry gods. It is the result of years of policies that made investing in productivity — both through capital investment and increases in skills — irrational. The generosity of the Greek government and the regulatory burdens placed on businesses made the relative rewards from business investment meager.

This is important to keep in mind when considering the proposition that “America is not Greece.” It tells us we must zealously guard our productivity, protect our culture of competition and enshrine market processes almost as if they were the gifts of benevolent gods.

America is not Greece. But if our productivity is sapped by too much regulation, by misbegotten monetary policy, by taxes that undermine incentives to earn, or by government spending that rewards business meeting political rather than market demand, we can become Greece.

America can never be forced to default for lack of money. But our debt burden can become unsustainable — requiring either inflation or voluntary default — if our productivity does not improve as our debt grows.

42 Responses

  1. carney is a right wing tool. what does being “liberal”have to do with the fact that we are not greece? also, last i heard, corporate profits are at record highs and wages still stagnant, not as low as tptb would like, but they are working on that(with the help of tools like side show carney)

  2. Carney’s focus on productivity and importance of avoiding cronyism is logical. His use of the word “burden” was semantics and you know it. He clearly understands the difference between monetary systems. Your response above was to set up a straw man and attack it.

    1. yes, as specifically discussed over the last 20 years, we can ‘create jobs’ by outlawing lawnmowers and requiring toenail clippers for yard work, but that would be a major reversal in our standard of living. Yes, he understands the difference between being an issuer and a user. Yes, he knows US tsy debt payments aren’t ‘burdens’, especially with a full time 0 rate policy.

      And he knows or should know his statement

      ‘our debt burden can become unsustainable — requiring either inflation or voluntary default — if our productivity does not improve as our debt grows.’

      that somehow conditions the requirement of inflation or voluntary default on whether productivity improves or doesn’t improve as debt grows is bizarre at best.

      For example, suppose productivity doesn’t grow, yet china decides to double it’s $fx reserves, and we keep taxes at the right level for full employment, and
      the deficit grows that much, and we have a full time 0 rate policy, where would the inflation come from and what would ‘require’ voluntary default?

      Nor does he recognize the difference between possibility of ‘one time’ adjustments in the price level vs ‘inflation’ and ‘relative value stories’ vs ‘inflation’ should china suddenly go the other way, etc.

      He had the option of calling or emailing me to discuss in advance, and work it through, which he didn’t do, and instead just took a cheap shot from the hip.

      etc. etc.

    2. @Rob, I’m not sure I follow the logical leap Carney makes by assuming as we use a greater percentage of our productive capacity we our productivity will decline. We are no where near using what we have available much less worrying about decreasing marginal product. It is truly astonishing how little these neo-libs think we are capable of producing. Too bad we don’t have many left from The Greatest Generation to remind them.

    3. @Rob, i did not mean to attack a strawman, i was attacking all the talking heads, politicians, meat puppets, or what ever you prefer to call them who continually lie to the american people. carlin said it best “the game is rigged, the table is tilted” also “its a big club, and you aint in it”

  3. “[I]f our productivity is sapped by too much regulation, by misbegotten monetary policy, by taxes that undermine incentives to earn, or by government spending that rewards business meeting political rather than market demand, we can become Greece.”

    So what you’re saying, Mr. Carney, is that we cannot become Greece.

    1. it’s just another mixed metaphor on his part. ‘become greece’ means be on the verge of default, dependent on external funding, exposed to rising costs of funds, etc.
      none of which is applicable to the issuer of the currency

      1. @WARREN MOSLER,

        I can dig it. I was just implying that we are far from being sapped by too much regulation and misbegotten monetary policy. I agree with you and John Carney that our fiscal policy and tax code are awful.

        I give John major props for coming on here to discuss his article.

  4. In Carney’s defense you just can’t talk MMT at the networks. When I tried at Fox I was marginalized. CNBC generally doesn’t “buy it” either. If they did, Warren, you’d be invited on a lot more. Carney runs an editorial group over there. He’s under scrutiny from the CNBC bosses. You can’t just say, the government can print all the money it wants. They simply won’t accept that. He’s gotta walk a fine line.

  5. But nobody asks him to say that government can print all the money it wants.
    No need to walk any fine lines, just follow the logic line, man!
    Very disappointing.
    Well we just continue forward.

  6. Hey Warren,

    Just seeing this now. I agree that “debt burden” is not really the right way to think about it. That was lazy shorthand on my part.

    My point is really noting more than the one you make about Social Security and dependency ratios. If we become the next Greece, it will be because our economy isn’t productive enough to keep us prosperous.

    This paragraph is important:
    “But if our productivity is sapped by too much regulation, by misbegotten monetary policy, by taxes that undermine incentives to earn, or by government spending that rewards business meeting political rather than market demand, we can become Greece.”

    Notice that debt is absent from the causes of us becoming the next Greece.

    1. @John Carney,

      Thanks for pushing the message out there! I know you’ve got quite a headwind you’re working against and people can only absorb so much before they go tilt.

      Productivity is a big question mark. Regulation may cause fewer widgets that cost more, but they also cause a redistribution of currency and offer benefits to consumers (on the whole, not always). I would imagine that it does cause a difference in the number of times a dollar changes hands before it gets “saved”. Lots of variables there.

    2. @John Carney, Carney says “But if our productivity is sapped by too much regulation, by misbegotten monetary policy, by taxes that undermine incentives to earn, or by government spending that rewards business meeting political rather than market demand”

      Carney must have read this:

      And Carney is using his bully pulpit to do more to challenge our crony capitalist structure, to talk about reforming the government in a way that massively decentralizes the current overcentralized power structure.

      Warren came down and had a talk with Carney Beale:

      Arthur Jensen: You have meddled with the primal forces of nature, Mr. Beale, and I won’t have it! Is that clear? You think you’ve merely stopped a business deal. That is not the case! The Arabs have taken billions of dollars out of this country, and now they must put it back! It is ebb and flow, tidal gravity! It is ecological balance! You are an old man who thinks in terms of nations and peoples. There are no nations. There are no peoples. There are no Russians. There are no Arabs. There are no third worlds. There is no West. There is only one holistic system of systems, one vast and immane, interwoven, interacting, multivariate, multinational dominion of dollars. Petro-dollars, electro-dollars, multi-dollars, reichmarks, rins, rubles, pounds, and shekels. It is the international system of currency which determines the totality of life on this planet. That is the natural order of things today. That is the atomic and subatomic and galactic structure of things today! And YOU have meddled with the primal forces of nature, and YOU… WILL… ATONE! Am I getting through to you, Mr. Beale? You get up on your little twenty-one inch screen and howl about America and democracy. There is no America. There is no democracy. There is only IBM, and ITT, and AT&T, and DuPont, Dow, Union Carbide, and Exxon. Those are the nations of the world today. What do you think the Russians talk about in their councils of state, Karl Marx? They get out their linear programming charts, statistical decision theories, minimax solutions, and compute the price-cost probabilities of their transactions and investments, just like we do. We no longer live in a world of nations and ideologies, Mr. Beale. The world is a college of corporations, inexorably determined by the immutable bylaws of business. The world is a business, Mr. Beale. It has been since man crawled out of the slime. And our children will live, Mr. Beale, to see that… perfect world… in which there’s no war or famine, oppression or brutality. One vast and ecumenical holding company, for whom all men will work to serve a common profit, in which all men will hold a share of stock. All necessities provided, all anxieties tranquilized, all boredom amused. And I have chosen you, Mr. Beale, to preach this evangel.
      Howard Beale: Why me?
      Arthur Jensen: Because you’re on television, dummy. Sixty million people watch you every night of the week, Monday through Friday.
      Howard Beale: I have seen the face of God.
      Arthur Jensen: You just might be right, Mr. Beale.

      1. @Save America,

        The past few generations, it was all a dream….

        Howard Beale: What is finished… is the idea that this great country is dedicated to the freedom and flourishing of every individual in it. It’s the individual that’s finished. It’s the single, solitary human being that’s finished. It’s every single one of you out there that’s finished, because this is no longer a nation of independent individuals. It’s a nation of some 200-odd million transistorized, deodorized, whiter-that-white, steel-belted bodies, totally unnecessary as human beings, and as replaceable as piston rods… Well, the time has come to say, is dehumanization such a bad word. Because good or bad, that’s what is so. The whole world is becoming humanoid – creatures that look human but aren’t. The whole world not just us. We’re just the most advanced country, so we’re getting there first. The whole world’s people are becoming mass-produced, programmed, numbered, insensate things…

    3. ok, that makes more sense, thanks.

      The phrase ‘be the next Greece’ has always meant facing a funding crisis characterized by rising interest rates, credit cut off, on bended knee at the IMF
      begging for a loan, and in general the ability to spend in doubt as sources of revenue dry up. This is what Congressman Ryan was talking about
      at the State of the Union and the absolute fear of most of Congress in front of the Aug 2 debt ceiling drama. That is, Greece is the poster child
      for what happens with ‘fiscal irresponsibility’ defined as deficits too high for your ability to pay.

      As per your points/concerns over monetary policy, tax driven incentives, and misguided govt. spending, seems to me that for many pundits the US is already the poster child for that!



      1. @WARREN MOSLER,

        What I was trying to do was play with the concept of “becoming the next Greece.” Although maybe I played around too much and didn’t make myself clear.

        What I really hoped to do was steal away the concept of “becoming the next Greece.”

      2. ok, understood!

        on a similar note:

        It takes about 1% of the people to grow the food, and less than 10% to manufacture enough to keep the department stores full even if it was all free, and productivity is continuing to go, so its taking even fewer people to do all that every year.

        So the other 90% (or at least 70% if you consider a few other things ‘essential’)
        is ‘up for grabs’ so to speak, and a political decision.

      3. @John Carney,

        Trying to steal or neutralize concepts can backfire, especially if you’re also trying to differentiate from certain ideas and people (as some of your posts and Cullen’s ‘MMR’ seem to do). Those are high-risk tactics that don’t always complement each other.

        Trying to get a fairer hearing for MMT in the financial industry is laudable, but lately those efforts seem to be causing more confusion than anything else. How widely and carefully are you all vetting your strategic, tactical, and conceptual ideas?

      4. @WARREN MOSLER, Not only that, but U.S. always has the option of allowing more immigration of skilled and/or unskilled workers, or guest workers, if “dependency ratio” ever becomes a real problem. This is also a political decision to do or not do.

  7. It looks like he was instructed to review the list of ‘talking points’.

    Carney seem to be highly concerned in regards to the origins of productivity. In the past, I might have thought he was carrying water for miners and frackers but few argue it is more productive to polute now and to clean up later.

    Currently the financial industry is using the cry for less regulation, even more than industry, to ‘increase’ productivity.

    MMR places productivity on a pinnicle without regards to what the people want. Who says the Greek people don’t have exactly the productivity they want? They could drop out of the EU tomorrow but don’t. Instead they choose to remain within the EU structure.

    MMT justifiies a minimum job because the structure of the state collects taxes and a minimum job enables everyone to pay those taxes. Currently access to money through a job or from borrowing, trickles down through government ‘subcontractors’. Those ‘subcontractors’ are part of the established structure and therefore determine the government’s size and productivity of the economy.

    The ‘right’ size and type of government is determined through the political process. People have to understand the structure to make informed decisions about the ‘size’.

    1. @Winslow R.,

      Good points. Productivity has a big subjective component.

      I think too, that once MMT is understood, that some types of regulation will be unneeded, as those so concerned would see that they are shooting themselves in the foot or wasting company resources by engaging in certain behaviors in the first place. That is to say, they would see that their greed only works against their bottom line.

    2. good points, and I’ve always been all about productivity and efficiency

      digging holes and filling them in is just as futile and wasteful when done with high tech machinery, etc.

  8. In the future, the planet of the apes will look back and say what fools humans were, 7 billion humans available to do research and science and engineering, building stargate atlantis cities and space elevators, instead they sat around on econ blogs debating something called “money” while thier children played “minecraft” and thier militaries fought over the last drops of oil! HAHA! LOL! Now the APES RULE!

  9. Correct me if I’m wrong Warren: If we assume employment is below the full employment level and the deficit is increasing then output will rise (at a rate dependent on consumption/saving preferences). So, the only time productivity doesn’t rise when running a significant enough budget deficit is when the economy is already at full employment. At this point, the government can simply tax its excess spending, and keep prices and employment stable.

  10. How much does the CNBC contribute to ‘productivity’? I think the world would be fine without CNBC and its reporters which in any case are more about propaganda than real objective information.

    CNBC and its employees contribute to a waste of resources, in an era where information is easily accessed for free, most networks are redundant, we could use agencies like Reuters and left all the rest to blogs like this one which are way more informative and FREE. Probably all the money channelled to support dead structures like the CNBC is a waste of capital.

    What I mean with all this is all the talk about productivity is bollocks, economists don’t have even a consensus on what productivity is, much less how to measure it right. What you think is productive I may think is a total waste of resources and viceversa. Who says that apparently wasteful government spending is not necessary and we would be better without it? Who says spending money on toys for grown ups (I’m fine with toys but I’m not hypocrite about calling them for what they are) like iphones a few months apart is not a waste of resources?

    Yeah right, you can’t. And Greece was perfectly fine about 10 years ago, it wasn’t a paradise, it had (and still has) its own idiosyncrasies and inefficiencies, but its population still had probably better quality of life than the average american, plus it had balanced trade (not living above their productive capacity). All this obsession over productivity, competitiveness etc. is just a chimera of the market fundamentalists, in which by the perfection of the market eliminating any sort of public choice and democratic control you will achieve the Nirvana of capitalism.

    Life is about living, not about ‘productivity’ or ‘competitiveness’, and living is not only about money or production, its about needs and how you satisfy them. I don’t see more satisfaction by increasing production and consumption of goods. In modern societies productivity is not a problem (and will be less and less), if anything we have overproduction, it’s a problem of how wealth is shared and which use we do of it.

    Greeks were perfectly fine with their way of life without all the need for ‘productivity’ and ‘competitiveness’ and trash talk European elites are using to suppress demand and labour. And better yet: they had perfectly balanced trade! It was the manufacturing of these problems by the means of propaganda that got them into trouble in the first place.

    1. @Leverage,

      I agree with Leverage on the concept of productivity. It’s a great measure if you’re making widgets but it is really a meaningless measure of how a society is doing.

      I just had a quote for a new awning over my deck. How is what this independent installer of awnings, who makes a good living, effect productivity in the US?

      As long as this installer can make a good living selling and installing awnings the measure is his ability to maintain his income status and not his productivity.

  11. I thought productivity was amount of money paid for goods/services produced divided by number of hours worked.
    So – the more money change hands in less amount of time – the bigger is productivity.
    So people/countries that produce the most expensive product(s)/service(s) in the least amount of time would be the most productive.

    Is it correct to say that the most productive people are highest paid?
    So then whoever is in the position of power to require largest pay would be the most productive.

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