vox.com: Bernie Sanders opens a new front in the battle for the future of the Democratic Party

[PeterMP]

http://www.vox.com/2015/1/10/7521819/sanders-mmt-kelton

 

I thought this might be interesting:

 

Dick Cheney once reportedly said the deficits don't matter.  Is the left ready to embrace that idea?

 

"Usually, when Democrats hire economists, they hire nice, respectable Keynesians, who use mainstream economic models and often agree with conservative economists on a lot of theoretical matters while drawing different policy conclusions from them. For example, Greg Mankiw, who served as George W. Bush's top economic advisor, and Christina Romer, who served as Obama's, were both influential in developing New Keynesianism, a macroeconomic theory that emerged in the 1980s and arguably dominates the field today. What really set Romer and Mankiw apart was policy, not economic theory."

 

"But new budget committee ranking member Sen. Bernie Sanders (I-VT) is poised to break dramatically from traditional Democratic views on budgeting, from Obama to Clinton to Walter Mondale and beyond.

 

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.

 

"Kelton disagrees with Romer and Mankiw on economic theory. In fact, she disagrees with just about every economist Bush or Obama ever hired about economic theory. Kelton is among the most influential advocates of Modern Monetary Theory (MMT), a heterodox left-leaning movement within economics that rejects New Keynesianism and other mainstream macroeconomic theories.

 

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. In some rare cases, consumer demand gets too high, so sellers raise prices and inflation ensues. Then, you need to raise taxes to cool the economy down. But the theory holds that this eventuality is pretty rare. James Galbraith, another MMT-influenced economist, once told me that the last time it happened was in World War I."

 

I think the piece isn't quite right because it ignores that many on the right (including the some "conservative" politicians) seem to actually embrace the Austrian economics so if you've looked at people in Congress until now, you've seemed to go from New Keynesianism on the far left to the middle right, and then the far right you transition into more of an Austrian thought (where like MMT the Austrians are not really main stream economic theories).

 

If you look at the Presidential candidates, the economics are pretty similar.  Greg Mankiw isn't going to say something like at least in theory wealth inequality can't become an issue or that the government can't redistribute money to the poor (borrowing from a recent thread).  The arguments to not (do more) redistribution are more nuanced.

 

The differences actually in many cases are ethical in nature (i.e. is redistribution ethical and at what level).

 

It'll be interesting to see what happens if the far left does something like the far right has done (in embracing Austrian economics) and embraces an economic theory that disagrees with the main stream economic ideas and what the far right argues (MMT is very different than the Austrian school).

[Larry]

I was going to suggest that you not quote so much of the article. Possible rule violation.

But I decided to go check the article, before I posted that. And I'm noticing a lot of things in the article, that aren't in your post. (And things in your post that aren't in the article.)

1) I don't know if this means the article has changed, or what?

2) And I think some of the things that are in the article, but not in your post, might be more important than the parts you quoted.

Net result: I strongly recommend that people follow Peter's link, and read the article. There's some real bombshells, in there.

[Dan T.]

 I strongly recommend that people follow Peter's link, and read the article. There's some real bombshells, in there.

 

I took your advice.  Now I have a headache and a vague sense of unease. 

[tshile]

I'm far from a true student of economics, i just read blogs with authors i think aren't bat**** crazy and try to find my way from there.

Some of this makes no sense. From the original link...

 

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.

From a link to support the claims in the article (http://www.businessinsider.com/how-bill-clintons-balanced-budget-destroyed-the-economy-2012-9 )

"Now, you might ask, "What's the matter with a negative private sector balance?". We had that during the Clinton boom, and we had low inflation, decent growth and very low unemployment. The Goldilocks economy, as it was known. The great moderation. Again, few economists saw what was happening with any degree of clarity. My colleagues at the Levy Institute were not fooled. Wynne Godley wrote brilliant stuff during this period. While the CBO was predicting surpluses "as far as the eye can see" (15+ years in their forecasts), Wynne said it would never happen. He knew it couldn't because the government could only run surpluses for 15+ years if the domestic private sector ran deficits for 15+ years. The CBO had it all wrong, and they had it wrong because they did not understand the implications of their forecast for the rest of the economy. The private sector cannot survive in negative territory. It cannot go on, year after year, spending more than its income. It is not like the US government. It cannot support rising indebtedness in perpetuity. It is not a currency issuer. Eventually, something will give. And when it does, the private sector will retrench, the economy will contract, and the government's budget will move back into deficit."

It seems like they're making some basic mistakes in drawing cause and effect here, but I'm not really in a position to claim authority with that idea...

It seems to me that the premise that government surplus = privatized debt seems fundamentally flawed, or an overly simplistic exaggeration.

Pinning the financial crisis to a government surplus int he late 90's seems all kinds of... lacking in facts...

edit: the damn business insider website overrode my copy past and put the whole article there. Sorry...

[PeterMP]

I was going to suggest that you not quote so much of the article. Possible rule violation.

But I decided to go check the article, before I posted that. And I'm noticing a lot of things in the article, that aren't in your post. (And things in your post that aren't in the article.)

1) I don't know if this means the article has changed, or what?

2) And I think some of the things that are in the article, but not in your post, might be more important than the parts you quoted.

Net result: I strongly recommend that people follow Peter's link, and read the article. There's some real bombshells, in there.

 

I didn't comment too much on the economics because realistically that's over my head.

 

I thought the consequences of the far left embracing a new economic theory that disagreed with the far rights and even the "middle" was a more reasonable thing to talk about (at least for me).

 

Thinking about Tailgate threads where will you have Ron Paul fans (or whoever his substitute is on the right) essentially arguing based on Austrian economic theory, somebody in "middle" the essentially arguing based on  Keynesian economic, and the person on the far left essentially arguing based on MMT theory might be entertaining.

[Larry]

See, what I found interesting in the article, was the assertion that the economic collapse of 08-09 wasn't caused by allowing the banking industry to gamble other people's money on investments that were 100% leveraged, but that it was caused by the government running a surplus.

That, to me, sounded loonier than the things I've heard the Republicans say about the economy and government policy.

[PeterMP]

See, what I found interesting in the article, was the assertion that the economic collapse of 08-09 wasn't caused by allowing the banking industry to gamble other people's money on investments that were 100% leveraged, but that it was caused by the government running a surplus.

That, to me, sounded loonier than the things I've heard the Republicans say about the economy and government policy.

 

Right, but that's because you are used to hearing economics argued from a primarily new Keynesian economic stand point and on this board mixed with a pretty good dose of the Austrian economics.

 

And from that stand point, the idea is loony.

 

But the idea that the continents float and are able to move was also considered loony and so were Adam Smith's concepts related to supply and demand.

 

(I do think you don't quite have their argument right.  At some level, I think the argument is this:

 

The economy really wasn't better under Clinton.  We simply shifted the debt burden from the government to individuals.  Yes, the government balanced its books, but at the same time people were going more and more into debt.  But there are more real limits to people borrowing the money and therefore more real consequences.  While for the government running up debt the consequence at least are less severe (because they can just print more money)).

 

The economic collapse wouldn't have happened if instead of individuals running up debt, the government would have continued to run a debt.  It is better for the economy to shift debt from people/businesses to the government.  And private debt at the sake of government balanced budgets is bad.

 

That's at least the beginning of the argument as I understand it.)

[Larry]

(I do think you don't quite have their argument right.  At some level, I think the argument is this:

 

The economy really wasn't better under Clinton.  We simply shifted the debt burden from the government to individuals.  Yes, the government balanced its books, but at the same time people were going more and more into debt.  But there are more real limits to people borrowing the money and therefore more real consequences.  While for the government running up debt the consequence at least are less severe (because they can just print more money)).

Unfortunately, the problem I see with that argument is the notion that the government (accidentally) balancing it's books (in 2000) caused people to go into debt (in 2008).

I agree, in 06-08, everybody in America was borrowing money just as fast as they could. But I don't see any cause and effect relationship.

Rather, it was caused by the notion (on the part of borrowers and the financial industry, both) that real estate never goes down, and therefore, being 100% leveraged in an investment (or loaning hundreds of thousands of dollars to minimum-wage employees) can't lose.

 

(I will also observe, are they seriously trying to argue that the collapse of 08 was caused because W didn't kill the surpluses of 2000 enough?) 

[tshile]

I have the same problem...

I'm fail to see how the government running a surplus resulted in people racking up debt.

There's so much information that suggests:

- Banks were scheming the system with MBS, credit default swaps, and a bunch of other securities bundling/exchanging

- Loans were given to people that couldn't afford it; in some cases the lender knew this and wrote it off as "we'll just foreclose"

- People were taking advantage of the housing bubble. Refinancing to afford a trip, car, or other otherwise unaffordable luxury gambling (though they didn't seem to know they were gambling at the time) that they would eventually get the money back by selling their house

None of that relates to the government running a surplus, or a transfer of debt from the government to the private sector.

Sure, there are some pretty graphs that show correlation. I don't see the argument for causation...

[PeterMP]

Unfortunately, the problem I see with that argument is the notion that the government (accidentally) balancing it's books (in 2000) caused people to go into debt (in 2008).

I agree, in 06-08, everybody in America was borrowing money just as fast as they could. But I don't see any cause and effect relationship.

Rather, it was caused by the notion (on the part of borrowers and the financial industry, both) that real estate never goes down, and therefore, being 100% leveraged in an investment (or loaning hundreds of thousands of dollars to minimum-wage employees) can't lose.

 

But it didn't start just happening in 2006-2008

 

 

http://www.businessinsider.com/how-bill-clintons-balanced-budget-destroyed-the-economy-2012-9

 

Sure, there are some pretty graphs that show correlation. I don't see the argument for causation...

 

And if they could more directly demonstrate causation, their theory would be much more widely accepted.

 

(I'm actually not even sure their theory requires that they demonstrate causation with respect to what you are talking about.  I can say if X happens doing Y is bad even if X doesn't cause Y, and that might be what they are doing.  I'm not sure.)

 

But demonstrating causation in economics is generally an issue that all of the big umbrella theories have because of the complexity of the system.

 

So this theory isn't the only one that has that same general problem.

[PeterMP]

I need to be clear.  I know 3 things about MMT.

 

1.  It is something that 99% of Americans have never heard of and doesn't affect the normal economic discussions in the US (e.g. on this board).

 

2.  That a US Senator appointed somebody that supports MMT to an important position.

 

3.  That I don't know enough about MMT to mount a meaningful defense or critique of it.

[twa]

C'mon, it's a Senator from Vermont......shouldn't even be a state anymore.

 

that said I embrace the crazy

 

http://neweconomicperspectives.org/modern-monetary-theory-primer.html

[tshile]

damnit twa now i'm going to read that...

[88Comrade2000]

What surplus?  When you owe money, there is no real surplus.  The government just decided not to pay off more of the debt they owed,

 

When the government's debt is ZERO, then we will have a real surplus and that will never happen.

 

 

Though maybe what we need is another Clinton presidency to go along with this Republican congress?

[Larry]

It's amazing the things you can come up with, when you fervently believe that you can make things up, if you just insist on them forcefully enough.

[twa]

It's amazing the things you can come up with, when you fervently believe that you can make things up, if you just insist on them forcefully enough.

 

you can't talk about economists like that.....unless it's Krugman of course