We are now hearing the usual moaning in anticipation of the inevitable failure of US political leaders to agree on a budget. Yes it is sad that America is so ideologically divided that decisions are difficult to make. But it is a blessing that this deadlock, in which Republicans refuse to countenance tax increases, and Democrats will not accept spending cuts, has produced an outcome - a large budget deficit - that is exactly what is needed. It is this budget deficit that is responsible for the nascent recovery in the USA. The UK and the Eurozone are following orthodox policy by cutting government deficits, and they are floundering.
The 'consensus' view that the government deficits and debt are 'a bad thing' and must be reduced is based on largely discredited orthodox economic thinking. I find it remarkable that, although this same thinking failed to anticipate the global financial crisis, cannot agree on why it happened, and has no plausible solution (other than more of the same), anyone bothers too listen to it.
There is an alternate view that is rapidly gaining traction, which is based on sound logic, a working understanding of modern financial systems, and abundant empirical evidence. It goes by the name of modern monetary theory (MMT).
By recognising that money-issuing governments can never be forced to default on debts in their own currency, and that budget deficits are a necessary means of injecting real financial assets into an economy (less obvious but indisputably true), in much the same way that monetizing gold did in the past, MMT shows that large deficits are essential at times when demand is so weak. Deficits inject demand so that the productive capacity of the economy can be used; everyone can then get back to work and the private sector can pay off its debts, reducing leverage from unsustainably high levels that the neoliberal consensus delivered.
Trying to cut the deficit at times like this is frankly insane. History will judge deficit hawks very harshly.
The 'consensus' view that the government deficits and debt are 'a bad thing' and must be reduced is based on largely discredited orthodox economic thinking. I find it remarkable that, although this same thinking failed to anticipate the global financial crisis, cannot agree on why it happened, and has no plausible solution (other than more of the same), anyone bothers too listen to it.
There is an alternate view that is rapidly gaining traction, which is based on sound logic, a working understanding of modern financial systems, and abundant empirical evidence. It goes by the name of modern monetary theory (MMT).
By recognising that money-issuing governments can never be forced to default on debts in their own currency, and that budget deficits are a necessary means of injecting real financial assets into an economy (less obvious but indisputably true), in much the same way that monetizing gold did in the past, MMT shows that large deficits are essential at times when demand is so weak. Deficits inject demand so that the productive capacity of the economy can be used; everyone can then get back to work and the private sector can pay off its debts, reducing leverage from unsustainably high levels that the neoliberal consensus delivered.
Trying to cut the deficit at times like this is frankly insane. History will judge deficit hawks very harshly.
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