DISTRIBUTIONAL CONSEQUENCES

‘The more that the federal gov’t goes into debt, the more that we are indebting future generations.’

We are not ‘indebting’ future generations—not anymore. The pure ‘description’ MMT insight is that unlike a household debt, a federal debt is not an actual debt because now—unlike during the gold standard era—those Treasury bonds are denominated in a fiat currency that the federal gov’t has sole monopoly power to issue at will.

‘The more that the federal gov’t goes into debt, the more that we are burdening future generations.’

“When some people say that the government debt is a burden on future generations, I would say that is wrong.”—Stephanie Kelton, economics professor at Stony Brook University, in an interview with The Asahi Shimbun, 04/27/19

However, what Stephanie Kelton actually meant there is that you aren’t burdening the ENTIRE future generation, only SOME:

“The bondholders in the future will benefit from the interest payments on those bonds. Bondholders are also taxpayers. The next generation will be made up of bondholders and taxpayers, just like the current generation. But some taxpayers aren’t bondholders. It’s true that bonds are not distributed equally. There are distributional consequences. So you can’t burden an entire generation,” she added.

The current squad of MMTers should keep that quote in mind when they get frustrated every time their ‘prescriptions’ aren’t ‘funded’ (read: ‘approved’). It isn’t because federal policymakers need to ‘learn MMT’; it’s because political MMTers themselves need to factor in the times that we live in—and the distributional consequences of their good intentions.

For example, these MMTers need to realize that more federal ‘keystroke’ creations—that they covet—may be intended for the 95% (the borrowers), but eventually wind up with the 5% (the savers). NOTE that is only IF the 95% get their hands on any federal deficits AT ALL—because most of those ‘keystrokes’ get whacked up between the 5% (US Treasury bond interest payments paid directly to savers) and the foreign sector (US trade deficits). In other words, the question MMTers should be asking themselves is, ‘Federal deficits (their red ink) EQUALS WHOSE SAVINGS (equals whose black ink)?’ MMTers should also keep in mind that federal deficits are now (and will be routinely) rising big-time during an expansion. Meaning that unlike in the past, those larger deficits are moving in a pro-cyclical fashion rather than only as a Keynesian stabilizer during a contraction. Rather than worsen wealth inequality—which is what sours political ‘prescription’ MMTers and their internet followers on ‘evil’ capitalism in the first place—perhaps it’s better to come up with proposals that checks future generations of wealth inequality with ‘pen stroke’ creations of feedback loops from the nonfunctional ‘financial’ economy (where savings $$$ go out to pasture) back into the productive ‘real’ economy.

“Let me say I haven’t seen a carefully worked out description by what is meant by MMT. It may exist but I haven’t seen it. I have heard some pretty extreme claims attributed to that framework and I don’t know whether that’s fair or not. I will say this. I think US debt is fairly high, at a level of GDP and much more importantly than that, it’s growing faster than GDP, significantly faster. So we’re going to have to either spend less or raise more revenue. We are not even close to primary [budget] balance, which means the deficit before interest payments.”— Chair Jerome H. Powell, Board of Governors of the Federal Reserve System, semiannual testimony before congress, 02/26/19

Thanks for reading,

Pure MMT for the 100%

Real Macro for the 100%

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