I’m one of those geeks who actually enjoys looking at (and even trying to predict) who serves on which committees in Congress, so I am actually always abreast of who is on the verge of taking over as the chairman or ranking member of a new committee due to the retirements or electoral defeats of other members. I knew, for example, that Socialist Senator Bernie Sanders of Vermont was well-positioned to take over for Sen. Tom Harkin as the top “Democrat” on the Health, Education, Labor and Pensions (HELP) committee. So, I was surprised to see that he hadn’t gotten the job. Instead, that position was taken by Senator Patty Murray of Washington.
Now, I knew that Sen. Murray had the seniority to claim HELP if she wanted it, but I presumed that she’d prefer to stay as the ranking member on the Budget Committee. You may remember that Sen. Murray has been a central player (along with Rep. Paul Ryan of Wisconsin) in negotiating through all the government shutdowns and fiscal cliffs and CRomnibuses and so forth. Murray is fourth in the Senate Democratic leadership behind Harry Reid, Dick Durbin, and Chuck Schumer, and she has twice run the Democratic Senatorial Campaign Committee. She’s also a high-ranking member of the powerful Appropriations Committee, sitting below only Ranking Member Barbara Mikulski of Maryland and president pro tempore emeritus Patrick Leahy of Vermont.
Maybe she is tired of dealing with fiscal crises, but she opted not to stay as the Democratic point-woman on budget negotiations now that she and her party are in the minority.
However, her decision opened the door for Bernie Sanders, especially because she was denying Sanders a leadership chair on HELP. So, now, all of a sudden, we have a committed socialist in position to argue budget priorities with the Republican House and Senate for the last two years of Obama’s presidency. Not only that, but Sanders is in pretty good position to be the chairman of the Budget Committee if the Democrats have a good election night in 2016 and elect a Democratic president and win back control of the Senate.
Over at Vox, Dylan Matthews explains plenty about why this matters. We can start with the person Sen. Sanders hired to serve as his chief economist on the committee:
His big move: naming University of Missouri – Kansas City professor Stephanie Kelton as his chief economist. Kelton is not exactly a household name, but to those who follow economic policy debates closely, tapping her is a dramatic sign.
For years, the main disagreement between Democratic and Republican budget negotiators was about how to balance the budget — what to cut, what to tax, how fast to implement it — but not whether to balance it. Even most liberal economists agree that, in the medium-run, it’s better to have less government debt rather than more. Kelton denies that premise. She thinks that, in many cases, government surpluses are actively destructive and balancing the budget is very dangerous. For example, Kelton thinks the Clinton surpluses are nothing to brag about and they actually inflicted economic damage lasting over a decade.
As Matthews goes on to explain, Professor Kelton is a proponent of Modern Monetary Theory (MMT), “a heterodox left-leaning movement within economics that rejects New Keynesianism and other mainstream macroeconomic theories.” Perhaps the most radical thing about MMT is its view of the dollar as more of an artifact of value than a determinant.
MMT emphasizes the fact that countries that print their own money can never really “run out of money.” They can just print more. The reason we have taxes, then, is not to pay for stuff, but to keep people using the government’s preferred currency rather than, say, Bitcoin…
…The main takeaway from this is that you really don’t need to balance the budget over any time horizon, and attempts to do so will hurt the economy. That’s what Kelton argues happened after the Clinton surpluses of the late 1990s / early 2000s. Any dollar of government surplus must show up as private debt, she reasons. And the private sectors just can’t run up debt like that indefinitely. “Eventually, something will give,” Kelton once wrote to Business Insider. “And when it does, the private sector will retrench, the economy will contract, and the government’s budget will move back into deficit.”
You may have heard this argument being propounded during the debate over the Trillion-Dollar Coin. Interestingly, Paul Krugman, who isn’t a proponent of MMT, ultimately signed off on the Trillion Dollar Coin idea because it was preferable to economic terrorism. For Krugman, the coin idea could work only in very specific circumstances, basically with interest rates at zero so that bonds and cash were basically equal in value. That’s different, of course, from the idea that the dollar and its value are just arbitrary conventions that people use out of habit. We could, under this view, dispense with taxation altogether and just print whatever money we needed to fund the government at whatever level we’d like. But we don’t do that because we like to maintain the fiction that our currency (and our paychecks) is how things are paid for. The need to pay taxes compels people to use the currency printed by the government.
There’s actually more to this argument than may at first meet the eye, but there’s also more to the argument that there’s value in maintaining that fiction. Maybe there is something absurd about how we generate money in this economy, but it does seem to work. And it isn’t long before absurdity takes over once you abandon the assumption that a dollar created must be paid for in debt (or that what we spend must have some relationship to what we raise in revenue).
In any case, that’s a theoretical argument that I’ll leave to people who are better informed about monetary policy. What’s important here is that the chief economist for the Democrats on the Senate Budget Committee doesn’t think we need to give a damn about the debt.
Matthews thinks this may create rifts in the Democratic caucus and a headache for the Obama administration, but it should be acknowledged that the Democratic leadership allowed this to happen. It must have been, in some sense, what they wanted to happen.
And, regardless, the headache is more likely to come when Sanders is chairman and can craft the budget plan.
So, watch out Hillary!
Good catch, Booman.
Even if Clinton gets elected and Democrats retake the Senate, they’ll still have to deal with a Republican majority in the House. But this does point to a broader shift in the congressional Democratic party, especially in the Senate: the progressive faction is growing in numbers and power.
And just as Paul Ryan may have more power from his chairman’s seat of House Ways & Means in setting the budget than the next president will, so could Bernie Sanders in a Democratic Senate two years from now.
I think it more likely that a landslide election would switch the House. Gerrymandering goes only so far.
Here is the Senate lineup:
Ron Wyden, Ranking Member, Senate Finance Committee
Bernie Sanders, Ranking Member, Senate Budget Committee
Too bad this wasn’t the lineup in 2009.
I’m curious as to the role that Stephanie Kelton will play in the preparation of the budget. Or in the public debate about budgetary principles. For too long, the austerians have gotten away with portraying government finance as household finance. The major obstacle to understanding MMT has to do with understanding government finance. And as Sam Brownback has shown, that is true at the state and local government level as well.
The other challenge for Sanders and Wyden will be breaking the death grip of military Keynesianism on the federal budget.
giving details
http://justice.gawker.com/these-world-leaders-are-a-worse-threat-to-free-press-th-1679032136?utm_cam
paign=socialflow_gawker_twitter&utm_source=gawker_twitter&utm_medium=socialflow
As a strong Obama supporter, I’m glad he missed that photo-op
He missed the Paris shindig, but what was that cybersecurity nonsense all about? Back to the 1990s?
I don’t know, still haven’t any idea what was going on there unless it’s more of the anti- Obama activity. from the movie POV it looks like a marketing ploy by Sony – a good one since the movie is… well I’ll leave that out
How come Patty Murray isn’t on the Sunday talk shows more? Is it her decision, or the decision of those who schedule the Sunday morning talkers?
Probably a lot of reasons, including potentially personal choice.
But, if I were scheduling guests, the chairman of the Budget Committee would be below the Chairman of Indian Affairs.
Of course, I’m assuming that my job would depend on ratings.
is the left about to embrace MMT?
Kelton seems to have some some thinking about economics.
And what’s the scary part? This (also from wikipedia)? “Because the government can issue its own currency at will, MMT maintains that the level of taxation relative to government spending (the government’s deficit spending or budget surplus) is in reality a policy tool that regulates inflation and unemployment, and not a means of funding the government’s activities per se.”
I guess to this Keynesian because I think MMT is hogwash.
Because you think that the level of taxation relative to government spending (the government’s deficit spending or budget surplus) is NOT in reality a policy tool that regulates inflation and unemployment, and IS a means of funding the government’s activities per se?
I don’t believe you can keep issuing debt forever, and I do believe you need revenue to fund government activities.
I’m not sure if those are disagreements, per that ‘per se,’ and given that (Wikipedia again) MMT believes that in rainbow ponies only ‘within the bounds of inflationary and political constraints.’
But maybe Kelton believes as you imply, I dunno.
Why is that a rainbow pony? If a monetarily sovereign government creates money without getting it from taxes, do angels pop into existence and destroy all of the fiated-into-existence money? If someone spends this fiated-into-existence dollar, do gremlins interfere with the markets with invisible sabotage until its value reaches zero?
Have you ever seen that one DuckTales story that showed what happened after Scrooge McDuck’s nephews got ahold of a duplicator and used it to duplicate money? At first it just ended up being economically helpful because it let the boys buy new toys and candy without any inflationary pressure. But after they started to overuse it, Duckberg had so much money that gumballs cost $20 and Scrooge’s moneybin was worthless. Using the duplicator to make more money would’ve been rather pointless, since all it would’ve done is drive up prices without really enabling the boys to spend more of it. In the end, they had to destroy the money to get prices back down to a reasonable level.
That’s what MMTers mean when they say that money creation is limited by inflation. MMT is not a free lunch; it’s instead pointing out that we’re wasting the lunch we are getting by placing artificial restraints on our economic behavior.
Yeah, between my typos and my general incoherence, I garbled that. Given that I really don’t understand economics, I was trying to make exactly your point. MMT understands that this stuff only works ‘within the constraints of inflation.’
That’s why I don’t understand fladem’s objection. Presumably Kelton has a better understanding of economic reality than the duck kids.
When the sovereign government creates money without getting it from taxes, its impact on the economy the first cycle around is no different from if it borrowed the money in advance of the taxes coming in. It passes through the economy and it is those transactions that determine where resource constraints start creating increases in prices and begins the process in which the money supply is greater than full-employment production. At that point, the government destroys the money by taxing it as a policy instrument to control inflation through running a government surplus. Instead of the Fed reading the tea leaves and adjusting interest rates on debt to control inflation, the government uses expenditures and taxes directly to control full employment and inflation.
But…the wrinkle that MMT adds to Keynesianism is how it incorporates the international monetary market and trade into making those policy choices. The formula:
(G−T) = (S−I) − NX
says that (Government Balance) = (Private Sector Balance) – Net Exports is a statement of accounting fact. In this formula, the private sector can only be profitable (run a surplus) if the government is running a deficit, there is a trade surplus, or a mixture of both.
The current condition is that our trade agreements prevent a trade surplus and the government is constrained by the austerians. Therefore the private sector balance will not be in surplus and the private sector will be looking for further ways to shed costs in order to show profits, which means the economy cannot be at full employment.
The key point is to get out of the world beyond the looking-glass in which the response to everything is “we can’t do that; there is no money”. Start repairing and building the infrastructure that lowers the cost of production (even quality education and health care lower the cost of production), let ‘er rip and tax away frothy financial transactions.
The discipline of a balanced budget has not help the US government keep from wasting trillions of dollars on boondoggle military expenditures and just blowing pallets of money into Iraq and Afghanistan in useless bribes. Instead budget discipline had prevented full employment domestically, allowed people to go hungry and homeless, and caused the closing of schools and libraries, the failure keep bridges safe, the deterioration of roadways, and the profiteering on poor communications infrastructure. It has produced the opposite of peace and prosperity that used to be every political party’s promise.
You are wrong.
Japan’s government debt to gdp ratio is 237% and they’ve been struggling with deflation for decades. Shorting Japanese bonds is called ‘the widow-maker’ for a reason.
I do believe you need revenue to fund government activities.
But why does this revenue need to come from the private sector? Let’s say that the US government placed all of our tax revenue while it was waiting to be spent in a giant warehouse like Scrooge McDuck. Then the building burned down, destroying all of our taxes. What would be the economic impact if the government just created new money via electronic deposits and running the printing presses to make up for all of the taxes? How would that impact the government’s ability to spend?
Now let’s say that after the government created all of the money to replace the money that was lost in the fire and send it to the private sector to be spend, people discover that Homeland security reported that the wrong building caught on fire; the tax money is still in fact there, waiting to be spent*. What would be the impact of the government declaring it to be destroyed because the replacement money was already spent?
This is why MMTers say that you don’t need revenue to fund government activities for a government that can issue and reclaim, through taxes typically, its own currency at-will. The idea of spending taxes is inherently flawed, because there’s no difference between collecting the money and spending the previously manifested physical units of currency (whether it’s bills, coins, bank ledgers, electronic statements, whatever) and creating the money through government fiat and destroying unrelated bits of currency later.
It’s a huge difference for entities that don’t control their own currency, because once I or Wal-Mart or the Texas State government or the pre-Nixon Federal government destroys or loses a USD, it’s gone with no possibility of replacement other than getting it from someone else. That’s where the idea of the government needing taxes or revenue to fund its spending comes from; that stupid-ass ‘the economy is like your household budget’ meme is more insidious than you think.
* This is a fanciful scenario, but then something scarily similar happened with nuclear weapons in the John F. Kennedy administration, so perhaps not.
a good Keynesian. I have no problem with running deficit IN THE SHORT RUN.
I understand the theory. I simply don’t buy it, because as some point you will undermine the confidence in the currency and people will value less of it.
And here is the rub: I don’t believe this is EVER happening: ” destroying unrelated bits of currency later.” And no one else will either.
What’s so special about the short run? What’s the economic difference of (given that these numbers inflation and economic multiplier-adjusted) running a short-term deficit over one year of three trillion USD and twenty-year deficit of 150 billion USD?
Here’s a more involved thought experiment that makes me think that this distinction New Keynesians make between deficits are artificial. Let’s say that we ran a permanent significant deficit of the strength of, say, the average between the Afghanistan War and prior to the 2007 financial crisis. In your own words, tell us what would happen.
I simply don’t buy it, because as some point you will undermine the confidence in the currency and people will value less of it.
I don’t like that word ‘confidence’. It’s too weaselly and isn’t tied to any measurable or even qualitative metrics. I’m not disputing that it isn’t real, I’m disputing that the correlation between deficit/debt is as strong as people say that it is. Again, you still have to contend with the fact that Japan’s Government Debt/GDP ratio is currently 237% and they’re still struggling with deflation. Why haven’t they experienced a collapse in confidence as reflected in inflation rates despite going way past the point almost every other developed economy has gone?
In the formula above, remember the net export term and the private sector balance (savings minus investment) term? It’s not just deficits that create problems. And the private sector is notorious for bad economic policy. Take outsourcing; it affects the net exports term. Or highly leveraging investments; it affects the S-I term. What the credit default swap system did and still does is create monetary obligations out of thin air on a contingent basis. In 2007, the notional value of those obligations were $100 trillion; today they are for all derivatives in the $300 trillion range. That only becomes real if the hedge conditions are met. In 2008, those conditions were were met enough that there was fear that the full $100 trillion would come crashing down. That’s how money gets destroyed when you don’t tax it.
The credit default system allowed the creation of money outside the regulation of any central bank as a result of some legal loopholes and fast players. A lot of the players were able to transfer that phony money into being real and others had that happen through the bailouts. The rest of us got caught on the rump side of those accounting transactions that were not imposing limitations on the funny money but started imposing limitations on everyone else but the sharp players because government accounts must not have deficits.
Meanwhile it is the production of goods and services that is the real wealth, not the notional prices that denote it.
The private sector depends on money from government in order to operate. The money is not coming from the private sector. Taxes do not originate the chain of transactions; the appearance of money does. The money comes only from the government unless you have some barter arrangement that allows synchronous exchange. Decades of conservative propaganda about the primacy of the private sector have messed up people’s thinking. The government originates money; the private sector originates goods and services (unless they are government-provide infrastructure, payments for which are a great way to distribute the government money to the rest of the private sector).
Even conservative members of Congress in their guts know this is true; they fight like hell to get that road or that military base into their district so that the the government money can get things going.
I guess to this Keynesian because I think MMT is hogwash.
That’s basically how I see things to. You can’t get too imbalanced but that’s because people lose confidence not because there’s inherently something wrong with debt.
I’d never seen that before, and I’m economically illiterate. But I’ve always wondered about it. That’s why I’m wondering what fladem’s objection is. It seems sorta common-sensical to me. (I’m not even really sure where it conflicts with Keynsianism, which I thought was just kinda, ‘investment leads to growth’.)
Keynesianism is mostly about preserving capitalism so it sees debt as the lesser of two evils but still an evil in boom times as I understand it.
Depends what kind of Keynesian school we’re talking about. Post-Keynesian schools (of which MMT is) doesn’t see debt as inherently evil at all and in fact has several arguments as to why decreasing the debt substantially and ‘safely’ in the way New Keynesians advocate can be a very bad thing.
If that seems too abstract, let me ask you this: for a monetarily sovereign government, why is debt a bad thing in the first place? What does it mean when, say, the United States government is twenty trillion dollars in debt? What would be the effect of erasing this debt on other economic actors, either through increasing revenue or declaring it null and void?
I’m not a MMT’er, per se. However, all I can say is thank god there is someone who is going against Saltwater and Freshwater is in some sort of position to challenge current economic dogma who isn’t a crackpot Austrian.
Well I would assume paying off debt would allow for increases in spending (new debt) to finance new projects. Because its basically a confidence game low debt with strong economy means you can really push a lot of the bonds because buyers will have a lot of confidence you won’t go belly up and lose them money. Its about creating room for new debt.
For the next two years, with the GOP holding majorities in both houses, the GOP will not hear one word that the Democrats and their affiliated independents have to say regarding the budget. They’ll go through some of the motions, of course, but the end product will reflect none of those thoughts or priorities. It is, however, a great move for limiting the damage that Hillary and her allies could do if they manage to get her elected and the Dems retake the Senate.
My biggest misgiving with Hillary economically is not the fealty towards Wall Street or the indifference towards wage stagnation and economic inequality — a comparison saying that getting a knife in the heart is better than being burned alive territory, to be share — but that she sees her husband’s government surpluses as a good thing. Like, it’s another javelin in the talking point quiver that Democrats know what’s best for the economy. Instead of it being a barely-avoided disaster that caused the recession that started on Bush’s and thus the Democrats were lucky as fuck that the baton got passed in such a way that the Clinton administration’s fingerprints were off of it.
To be fair, that’s the viewpoint of most Democrats. Unfortunately, I think Clinton will feel an extra amount of pressure to uphold that disastrous policy, especially once people start asking why people would think that her administration would be good for the economy.
If we can just get socialists in other important positions, maybe we can start using actual evidence rather than deference to wealth as a governing blueprint for this country.
Probably not though.
I met Stephanie Kelton at a conference on alternative economics in Dublin a couple of years ago – very impressive – but MMT is going to make conservative heads explode. Even most Dems don’t understand or believe in it. This is like inserting a special services operation behind enemy lines – not fighting on the usual front of how much to cut spending by.
It will cause absolute chaos in conservative mindsets and many Dems will just look on in wry amusement. It signals a determination by Saunders not to play on a conventional battlefield with conventional weapons where he is currently outgunned. This could be fun – and could make it more difficult for Dems to backslide later. Of course Stephanie Kelton will be demonized and ditched when the real decisions come to be made. But that doesn’t mean her appointment in the meantime mightened be hugely significant.