July 25, 2019

The decisive reason to worry about government debt

Comment on J. W. Mason on ‘A Baker’s Dozen of Reasons Not to Worry about Government Debt’

Blog-Reference and Blog-Reference

Arguments 1. to 8. and 11. boil down to unemployment is bad for multiple reasons and government deficit-spending can effectively reduce unemployment. This is widely accepted since Keynes but tacitly implies budget-balancing over the business cycle. So, there are two cases, temporary and permanent deficit spending. Not many people worry any longer about temporary deficit-spending. But the fact that the self-regulating and self-optimizing free market economy is on the permanent life support of the government tells one that the system is not sustainable over the long run. And this is the life-and-dead reason to worry about growing government debt. Permanently growing debt is an indicator that the system is dysfunctional.#1 This is the real problem to worry about.#2

Arguments 9. and 10. say that with low interest rates the growth of public debt is slower in relation to GDP growth. This is trivially true, of course, and suggests that the problem will go away by itself. This is pure optics, though, that crucially depends on the tacit assumption that GDP will grow. If it does not, the debt/GDP ratio explodes and low interest rates only dampen the process.

Argument 12 is circular. The macroeconomic Profit Law boils down to Public Deficit = Private Profit. So, the government continuously fills the coffers of the Oligarchy which, in turn, is looking out for some safe and juicy assets. Again, the government jumps in and offers Treasuries to consolidate its overdrafts at the central bank. This is a case of simultaneous supply/demand creation.#3

What J. W. Mason misses altogether is the distributional effects of a permanently growing public debt. Deficit-spending/money-creation benefits the Oligarchy because it increases macroeconomic profit according to the Profit Law. MMT is a free lunch program for the Oligarchy. Financial wealth and public debt grow in lockstep and the fabulous financial wealth in the USA is roughly equal to humongous public debt ($22 trillion and counting). The Profit Law explains how billionaires are able to accumulate that much money and why they can buy all the bonds the Treasury issues and cash in the ultra-safe interest that is reliably taxed from WeThePeople as long as the debt is rolled over which can be very long indeed. This Ponzi scheme creates the extremely skewed distribution of income and wealth and this works as long as public debt grows. But infinite growth is impossible on a finite planet. This holds also for public debt. Eventually, debt-growth slows down and even reverses and then macroeconomic profit turns into loss and the so-called free market economy breaks down.

This is the decisive reason to worry about government debt. What J. W. Mason is doing is doling out an overdose of argumentative placebos.

Egmont Kakarot-Handtke

#1 Just one more day: How deficit-spending delays the breakdown of Capitalism
#2 How to pay for the war and to be bamboozled by economists
#3 Safe assets ― how the State pampers the Oligarchy

Related 'MMT undermines democracy' and 'Some nasty MMT surprises behind the time horizon'.


REPLY to JW Mason, Arthurian, MisterMr, Unlearning, PeterT

Distribution is the problem of MMT policy and nothing else. For details see
Dear idiots, it is deficit spending that creates the distribution people complain about
and cross-references Profit/Distribution.