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Matt Stoller argues: “The argument for balanced budget orthodoxy is essentially a giant intimidation game by men in suits. ‘No credible economist thinks that you can run big deficits forever...’ or ‘long-term our debt is going to get us’ kind of deal. No. We’ve had a national debt for 200+ years.”
Journalists are undereducated persons who do not know how the economy works but only know how gossip works. Gossip is not about the factual truth of an argument but about labeling. The balanced-budget argument comes from the “men in suits” and everybody knows that these are sociopaths whose sole motive is to terrorize WeThePeople. In contradistinction, Progressives are the good guys who want to eliminate unemployment and who care for the poor and vulnerable, for social cohesion, and the environment. The only thing that stands between progressive activists and the overall betterment of society is the budget-balancers, the sociopaths “in suits”.
Now, this is worn-out propaganda and the smart part of WeThePeople simply ignores the blather of journalists and politicians and so-called economic experts.
What is the scientific fact of the matter?
Budget-balancing comes in three flavors: annually, over the business cycle, never. Permanent deficit-spending/money-creation is the program of Functional Finance and MMT. Permanent deficit-spending/money-creation translates into ever-increasing public debt.
For those who feel a bit uneasy with this perspective, MMTers have a whole arsenal of tranquilizers. The key argument is that the state as sovereign money issuer can never go broke and that potential negative side effects like inflation can easily be contained.
The lethal defect of MMT is NOT in the political program as such but lies in the fact that MMT has NO sound scientific foundations.
To make the argument short, the macroeconomic Profit Law is given as Q≡Yd+(I−S)+(G−T)+(X−M) which reduces to Q=(G−T) for Yd, I, S, X, M = 0. The reduced Profit Law says that the profit of the business sector as a whole Q is equal to the deficit (G−T) of the public sector. In a nutshell: Public Deficit = Private Profit. In other words, permanent public deficit-spending is a permanent free lunch for the Oligarchy.
The deficit spending on social measures does NOT benefit WeThePeople as a whole because the benefits of one group are paid for in real terms through unnoticeable stealth taxation via the price mechanism by the complementary group. From the perspective of WeThePeople, the negative effect of permanent deficit-spending is on the distribution of income and financial wealth.
Where MMTers are right is that the growth of public debt can go a long way and that the fear-mongers have been proven wrong again and again.
What happens in the longer term is this:
• no inflation,
• no financing problems,
• interest payments increase steadily which amounts to a redistribution via taxes from WeThePeople to the Oligarchy unless the interest rate on public debt is zero,
• the critical moment comes at the latest when the whole budget is required for interest payments,
• the critical moment can be postponed by paying interest with additional money-creation or by reducing the interest rate on the public debt to zero,
• when the growth of public debt slows down, macroeconomic profit declines, which triggers a recession,
• when the public debt is eventually repaid, macroeconomic profit turns into loss and the economy breaks down.
These real dangers, though, are beyond the time horizon. And nobody knows how far. In the meantime, the communicative task of MMT academics, journalists, and the social media sales team is to feed the general public with disinformation and tranquilizers and to justify permanent deficit-spending/money-creation with illusory benefits for WeThePeople as a whole.
Related 'Economics: a science without scientists' and 'How MMT enlightens Washington' and 'Austerity and the utter scientific ignorance of economists' and 'MMT: No sound basis' and 'Profit and the decline of labor’s nominal share' and 'Keynes, Lerner, MMT, Trump and exploding profit' and 'Austerity: Who takes the little man for a ride?' and 'Intellectual deficit spending' and 'Austerity and the idiocy of political economists' and 'MMT: The joy of public deficit spending' and 'MMT and the magical profit disappearance' and 'Who or what exactly did Keynes save?' and 'Mass unemployment: The joint failure of orthodox and heterodox economics’ and 'How to pay for the war and to be bamboozled by economists'. For the full-spectrum refutation of MMT see cross-references MMT.