John Maynard Keynes is generally given credit for the economic axiom, “We owe it to ourselves.” That idea has caught fire with the left in our country, who are now trumpeting a world where government deficits and debt – at least at the federal level – simply don’t matter, because, well, see Lord Keynes.
This idea even seems to have gotten sympathy – or at least, seems to be taken more seriously than you would have thought – by formerly level-headed financial publications such as the Wall Street Journal and Bloomberg BusinessWeek. Both of them have published lengthy stories recently which have come to the same conclusion, namely that, yeah, this could actually work.
Last week, the Journal’s story was headlined “Worry About Debt? Not So Fast, Some Economists Say,” supported by the subhead, “U.S. deficits may not matter so much after all—and it might not hurt to expand them for the right reasons.” A couple of weeks before that Businessweek’s cover story featured the grande dame of the so-called progressive wing of the Democrat Party, Congresswoman Alexandria Ocasio-Cortez.
Both articles cited “Modern Monetary Theory,” which the Journal explains “argues that fiscal policymakers are not constrained by their ability to find investors to buy bonds that finance deficits—because the U.S. government can, if necessary, print its own currency to finance deficits or repay bondholders—but by the economy’s ability to support all the additional spending and jobs without shortages and inflation cropping up.”
In other words, the federal government can just print lots of money, sell lots of bonds, and have the Federal Reserve, the Social Security Administration, and other government agencies buy them – as they already do – if private investors won’t. Or as Lord Keynes said, “we owe it to ourselves.” So what’s the big deal?
I suppose it shouldn’t be surprising that the Journal, Businessweek, et al take MMT seriously – at least a lot more than they did a couple of months ago – because their reporting and editing staffs are mostly peopled with millennials in synch with AOC, angered about their high student debt loads, which makes it difficult to get a car loan – never mind a mortgage – or move out of their parents’ homes. They have every right to be angry and want the government to provide the good things in life – for free, of course. MMT sounds too good not to be true, so therefore it must be.
While I am just a tad skeptical that this economic theory will actually work, I am heartened by the fact that the left is refloating this boat while a Republican – and the despised President Donald Trump at that – is occupying the Oval Office. Generally, federal deficits are only something we need to be concerned about when a Republican is in office, as we saw during and after Trump managed to guide his tax cut through Congress two years ago. All we heard back then – and still do now, although to a diminishing degree since AOC became a political celebrity – was how big federal deficits were going to be, at least in the short term (which has proven to be true) and what a danger they would be to our economic and financial well-being. Deficits during Democrat administrations, by contrast, as we saw under President Obama, never pose any such problem.
Quite clearly, these “progressives” believe this is a winning campaign issue in 2020, so it’s not too early to start beating the drums for it, even if they won’t be able to bludgeon Trump and the Republicans with the deficit cudgel, although blatant hypocrisy has never stopped them before.
Which leads me to another question, if debt isn’t a worry anymore, why are most of these same people so adamant and belligerent about taxing the wealthy? For that matter, if deficits and debt don’t matter, and the Fed will buy up everything the Treasury throws at it, why tax anyone?
One of the arguments of the deficits-don’t-matter crowd – including those serious professional economists who have latched onto it – is the current yield on Treasury securities. After all, they point out, the yield on Treasury securities are still at historic lows, even as the government borrows more and more money. As the Journal notes, federal government debt as a share of GDP has more than doubled to 78% at the end of last year from just 34% before the Great Recession, yet interest rates have gone down, not up.
If deficits and federal debt are so bad and dangerous, how could interest rates be so low? This has been the case for several decades actually – federal deficits get bigger and bigger, the national debt grows and grows, yet interest rates stay low. Same goes for inflation.
Maybe there’s something to this MMT after all.
So relax. Everything’s going to be fine.
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INO.com Contributor - Fed & Interest Rates
Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.