An adage I’ve long enjoyed is this one: Never attribute to malice that which can be explained by incompetence.
I think it’s better to assume mistakes are not malicious. Everyone makes mistakes, and everyone has areas of incompetence. Assume the best before assuming the worst.
But there’s another adage I like: Once is accident, twice is coincidence, and thrice is enemy action.
When someone keeps making the same mistake, it might not be an accident.
Which brings me to the point of this post: For someone who claims to be an expert, Kenneth Rogoff sure does display a lot of uncertainty about a lot of things in this article about the dangers of government debt. For example:
- “Advocates of much higher debt might be right, but …”
- “… the real risks and costs may be hidden.”
If he was new to the area of economics, we might be able to blame incompetence. But he’s been doing this a long time, so I’ve reached the conclusion that malice is in play.
Some simple facts readily refute his arguments:
- A government that issues its own free-floating currency and has debts only in that currency can always meet all debt obligations. Period.
- The U.S. government issues debt to (a) control the overnight interest rate and (b) to give investors a place to safely harbor dollars. Neither of those are essential. If Rogoff and other so-called “experts” are so frightened of large numbers, we could simply just stop issuing Treasury securities, let the overnight rate drop to zero, and tell billionaires and corporations to find a good commercial bank to hold their riches. Problem solved. No more big numbers to keep Rogoff and his ilk awake at night.
I used to be impressed by things like Harvard professorships. Excuse me for becoming cynical in my old age, but I’ve had a lot of help from people like Rogoff.
A good friend writes …
One other thing deficit austerists wail about is the devaluation of the dollar when deficits and debt are “too high”. They say that creating your own money will lead to inflation. As a consequence, they say markets will drive down the value of the currency. As Bill Mitchell says, runaway inflation could be curbed by judicious government management in this article: https://www.theguardian.com/business/2019/dec/08/turning-the-economic-tide-could-a-radical-monetary-theory-fix-australias-woes
“I don’t see it as a problem. If the currency sold off you can just introduce capital controls and that would be the end of that. The legislative system would triumph,” he says, citing Iceland’s success in forcing US hedge funds to accept losses after the country’s banking system collapsed in 2008.
“Instead of taking the neoliberal approach which was being forced on them by the British and the Dutch, they brought in capital controls and made the hedge funds take a hit. Markets can only work through the law of the land. Iceland did the right thing by their citizens. The government’s job is to protect the citizens, not to guarantee private capital.”
The article mentions that Japan is a real-world model proving the veracity of MMT:
Mitchell notes that what has happened in Japan has confounded mainstream economists. Despite decades of money creation, the country has a stable economy with low inflation and low unemployment. “The Bank of Japan BOJ says we are not a MMT laboratory but it makes me laugh,” he says. “Mainstream economists can’t explain any of it but MMT can explain all of it.”