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View Diary: Livestream at Noon: Summit on Protecting Social Security, Medicare, Medicaid, and veterans' benefits (8 comments)

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  •  The problem (0+ / 0-)

    with this event and the thinking underlying is that it reflects a refusal by progressives in Congress to directly call into question the idea that deficit reduction should be planned, targeted, and implemented independent of private or foreign  sector accounting balances.

    The progressive defenders of our entitlement programs tell us that we don't need and should have deficit reduction now; but they also all agree that there is a long-run debt problem that we need to cope with as soon as the economy recovers.

    There is very little difference between their vision and that just expressed at the Peterson Fiscal Summit by a umber of speakers, including most notably President Clinton. Recognizing the bad results in Europe at last, our own austerity mongers are now saying that, of course, we should not have much austerity now. The BS-boys even recently laid out a plan that would postpone serious cuts until 2016, to give the economy a chance to recover. But then their plan would require us to make those big cuts and also to cut entitlements to "bend the cost curve," to avoid increasing debt eventually resulting in higher interest rates imposed by the bond markets.

    While "progressive" budgets like the CPC don't go down the road of entitlement cuts, and in that way are different from B-S and other budgets, they still mandate a deficit of 3.3% of GDP in 2015, and less than 2%, every  year from 2016 to 2022.

    2013 Budget Projection Comparison

    Such deficits are far too small. They allow very little room for trade deficits, and private sector savings. Since the prospect of a trade surplus in the next 10 years is very small, this means that the room available will be taken up by trade deficits and that the CPC budget, authored by a number of speakers at today's summit is sure to require the private sector to accumulate debt between 2016 and 2022.

    This will either cause a serious recession or create the conditions for a new debt bubble that will eventually burst and leave us where we were in 2008. There is no escaping that result unless the CPC and progressives change their ideas and cease to plan for deficit reduction, but let the deficit float and target full employment instead.

    Progressives in Congress need to put aside their beliefs that increasing debt will be a problem because the bond markets will refuse buy our debt, and they must come to realize that as long as deficits don't cause inflation, then deficit spending doesn't need to be cut, and that when it does cause inflation, what should be cut is the specific spending triggering inflation and not any across the board deficit.

    There are at least two reasons why progressives can quit worrying about the debt and learn that government deficits are good when a nation is running trade deficits because they are government additions of bank reserves to the private economy. They are:

    !) the bond markets don't control interest rates in fiat sovereign nations like the US. The rates are controlled by the Central Bank and the Treasury together, since the CB can set the overnight rate for the interbank reserve market as low as it wants to, and then the Treasury, if need be can issue very short-term debt whose interest rates will be very little higher than the CB's overnight rate. So if the Fed and Treasury want to keep interest rates close to zero, they can do that indefinitely, contrary to Bill Clinton's worry that the rates on our debt can suddenly double if the bond markets get obstreporous; and

    2) If the Government wants to, if can use High Value Platinum Coin Seigniorage (HVPCS) force the Fed to fill the public purse with, for example, $60 Trillion in reserves. These can be used to avoid issuing debt when we deficit spend in the future, and also to pay down all existing debt. If we took this course, then we would entirely remove our debt over time and our debt-to-GDP ratio would be 0% eventually, even though we continued to run the deficits necessary for full employment.

    I've outlined the case for HVPCS in a new kindle e-book. It's been very well-reviewed so far, and if you want to understand why progressives can stop worrying about the debt and enjoy the deficit spending we need to have to rebuild our economy and create on-going full employment, then please read it. If the progressives on the podium today would take the time to read it and its perspectives, then they'd be much better able to defend our entitlements and discretionary programs because they'd be able to directly contest the viewpoint that we deficit reduction plans. We don't need them. We need full employment. When we have that the deficits will take care of themselves.

    •  Let's not confuse the New Deal and MMT (0+ / 0-)

      I know MMT folk are enthusiastic but from the outside it seems they are making a couple of possible mistakes including confusing  an accounting identity for reality (the trade deficit : private savings : budget deficit equation however formulated) and mistaking bond market behavior resulting from the odd combination of anti-Keynesian Austerianism and interest rates at the lower bound to argue for effective unlimited debt immunity for monetary sovereigns.

      The MMT debate is worth having but it has fundamentally bupkis to do with the equity considerations that underpin what is IMHO the most effective defense of the New Deal. One that by the way also worked during 70s Stagflation in ways that MMT might struggle. (The U.S. was just as much a monetary sovereign then, yet foreign and domestic creditors were demanding double digit returns to accept that sovereign paper).

      But either way I see that dragging Krugman-Wray into this serves any particular tactical purpose. It is a kind of MMT Absolutism that echoes some of the worst impulses of the other side. And like the excessive reliance on R-R by the Austerians risks putting too much weight on a theoretical reed than the current state of play justifies.

      BTW I am the Social Security lead for econoblog Angry Bear and we are practically begging for thoughtful defenses of MMT with or without reference to Social Security. Yet our experience is that most MMT folk would rather assign reading and assert 'obviously' than engage hand to hand with actual trained economists (and me-a wannabe economist). AB just moved publishing platforms to WordPress and so while I have publishing privileges I haven't buckled down to figure out the system. But could try. Or you could just use my name whe submitting stuff to the siteowner Dan.

      I just don't see an advocacy post and thread to be the right place for this particular debate, however needed in the bigger picture.

      ( And if by some chance you would argue that HVPCS is NOT simple MMT then all the more reason to shift to a different forum)

      SocSec dot.Defender at - founder DK Social Security Defenders Group

      by Bruce Webb on Thu May 09, 2013 at 07:09:36 AM PDT

      [ Parent ]

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