Mike the Mad Biologist

One of the annoying claims by the so-called fiscally responsible is that we can’t “print prosperity”–that is, we can’t deficit spend in order to help the real economy. It’s derided as unrealistic and ‘ideological’ (whereas fiscal austerity is implied to be ‘common sense’). Peter Cooper explains how it is fiscal austerity–the worship of deficit reduction–that elevates ideology over real-world consequences (italics mine):

The phrase “print prosperity” is shorthand for the common message board accusation that MMT [modern monetary theory] ignores real resources and gets bamboozled by money as if it is magic. The accusation is very common. The term “print prosperity” was coined, to the best of my knowledge, by a Math Professor, no less, who happens to be keen on the kind of “fiscal conservatism” advocated by the Concord Coalition.

I consider it a perverse injustice that, in online discussions, MMT sympathizers are frequently reproached for imagining that “we can print prosperity” when in fact it is us who constantly stress as a fundamental point that the only true constraints are resource based, not financial or monetary in nature. We are the ones insisting that if we have the resources, we can put them to use. It is the neoclassical orthodoxy and others who try to make out that we can’t use resources, even if they are available, because of some magical, mysterious monetary or financial constraint. Just who is it that believes in magic here?

MMT shows clearly that if we have the resources, money is no obstacle to a government that issues its own flexible exchange-rate fiat currency. It is not saying that creating money magically creates goods and services. It is saying that it is nonsense – superstitious nonsense – to think affordability for such a government could be about money rather than resources.

As I noted in a recent post, when you have idle workers, idle capacity, and severe infrastructure needs, spend the money:

The problem is that, faced with two linked problems, idle capacity and idle workers, we are politically unable to engage in the obvious solution, which is deficit spending to prevent workers and industry from sitting idle. Instead, we are left with the option of flooding banks with quantitative easing. Oddly enough, banks, many of which still have questionable balance sheets, instead of loaning to businesses with inadequate demand (go figure), are shunting this flood of dollars into speculative markets, since, as Cook notes, that’s where the (desperately needed) profits are.

As regular readers will know, I have no problems with deficit spending, but how one creates those deficits is really critical. The obvious way to solve the ‘dual idleness problem’ is through various employment programs–and it’s not like our infrastructure isn’t in need of a massive overhaul.

Instead, we moralize about balance of accounts, as millions are unemployed and underemployed and our nation’s infrastructure crumbles.

We are not on the gold standard anymore….

Comments

  1. #1 Ahcuah
    February 13, 2011

    Strangely, the same folks who say you cannot “print prosperity” do seem to think you can “print war financing.”

  2. #2 william e emba
    February 13, 2011

    These people also think we can prosper by grinding people into the ground.

  3. #3 JasonTD
    February 14, 2011

    It is saying that it is nonsense – superstitious nonsense – to think affordability for such a government could be about money rather than resources.

    But what is debt except for a claim on future earnings based on those resources?

    Debt is only affordable for a government if it can expect to either pay it back, or at least grow out of it down the road as the resources of the country provide increasing economic output. That’s how we got out of the WWII debt. Is there any evidence that the currently idle capacity will be enough to grow us out of the debt we’ve been incurring the last 30 years, the debt we’re projected to incur over the next 10+ years under current law, or the debt you think we’d need to incur to put that idle capacity to work now?

  4. #4 Min
    February 14, 2011

    JasonTD: “Debt is only affordable for a government if it can expect to either pay it back, or at least grow out of it down the road as the resources of the country provide increasing economic output.”

    Gov’t debt is not like private debt. That was so even when princes borrowed money from bankers. It is especially so with a fiat currency.

    Affordability is not a question for gov’t debt. Gov’t debt provides money for the people. (As we have things set up. We could do it differently, but that is another matter.)

    Andrew Jackson paid off the national debt in 1835. That was a mistake that we will not make again, no matter the political rhetoric of the moment. The depression of 1837 – 1843 was in part a result of that. Why? Because paying off the national debt removed too much money from the economy. For a brief time that was papered over (pun intended) by private bank notes, but that could not last. Subsequent periods of significant reduction in the national debt have followed a similar pattern.

    Jackson paid off the debt, in large part because of the horrors of the hyperinflation of the Continental. The economy requires a happy medium, neither too much money, as in hyperinflation, nor too little money, as in paying off gov’t debt. Gov’t debt is necessary for prosperity. Affordability is not the question.

  5. #5 JasonTD
    February 15, 2011

    Min,

    I’m certainly not suggesting that we even try to actually pay off the debt, even if that were feasible at this point. But if the word “affordable” is inappropriate to use in regards to government debt, “sustainable” should still be in play. And it seems clear that our current budgetary path is unsustainable. The most recent CBO report says as much. See http://www.cbo.gov/doc.cfm?index=12039

    I don’t see how anyone can read even that summary and not see a need to reduce the long-term deficit.

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