Barron’s published this article about the imminent Debtageddon. Here’s a message I sent to the author:
Mr. Forsyth,
I read your article “Trump’s Budget Deal Shows Deficits Don’t Matter Anymore”. Others more qualified than I might rebut this article to some extent or other, but from my amateur perspective, you clearly misstated or misunderstand some key points.
First, you apparently do not understand the critical difference between Greece and the U.S. The U.S. is monetarily sovereign and issues its own currency. Greece is not and does not. Therefore, their economic circumstances are fundamentally different. As a financial reporter, you should understand that distinction.
Second, you imply that MMT holds that deficits don’t matter. That is categorically false. As Stephanie Kelton likes to say, deficits matter but not the way most people think. MMT holds that deficits can be too big or too small or even detrimental (in circumstances where a surplus would be better).
Third, you imply that MMT says we can just “print money” without end or consequence. Again, that is categorically false. MMT simply says that a monetarily sovereign government is not financially constrained – in other words, it has the ability to finance anything it needs to finance, without resorting to taxation or borrowing. (The ability to create money is established in the Constitution.) The limit to government spending is defined by inflation, and inflation is driven by the availability, or lack thereof, of physical resources – labor, raw materials, etc.
Conservatives, mainstream economists and others apparently think that MMT is a liberal school of thought. That, too, is false. MMT is primarily descriptive, not prescriptive. It attempts to describe how things actually work, as opposed to mainstream economists who generally describe how things used to work (the gold standard) or how things work in some imaginary world (Galbraith’s “The End of Normal” talks about that problem, as does Bill Mitchell’s blog). MMT can accurately describe the effect of either liberal or conservative economic policies. It is nonpartisan.
Ironically, your piece contains evidence of MMT’s correctness, but you dismiss that evidence as a joke. MMT clearly explains – again, read Mitchell – why “bond vigilantes” hold no power over the federal government. Just as people used to fear falling off the edge of the earth, some used to fear those vigilantes. Some people have learned enough to dispel both of those fears.
It is true that once one understands how things actually work, it is easy to see the possibilities of what our society could accomplish if we only applied realistic and broadly beneficial economic policies and practices. Some might characterize those possibilities as “progressive” while others would simply call them humane and just. In any event, such characterizations attach to the applicant, not to MMT itself.
I mean no disrespect, but you do your readers no service if you mischaracterize or otherwise distort what you write about. I encourage you to brush up on MMT. You can learn why all federal deficit spending must currently be matched with debt issuance (Treasury securities), and you can learn that the national debt is nothing to lose sleep over.
Respectfully,
Tom Olin