Kelton’s Myth — Ch. 4: Their Red Ink is Our Black Ink.

Most of the myths are easily understood. Others require background and nuance, but are no less dangerous. “The quintessential example” per Kelton is known as “crowding out.”
Before reading I’ll take a stab that this is some kind of Zero Sum argument that “You can’t have both private spending and government spending. Government borrowing “crowds out” private investment.”

She establishes that this myth has been propagated on a bi-partisan basis.
How to unmask it, from being buried in complex models, interest rates, and economic theories? Think of our economy as two simple buckets. Government, and everybody else. Immediately I note that she does not include payments from the government to entities OUTSIDE of the US economy. This could be a glaring hole. <continues reading>

By itself uncomplex, the model is accurate: A government deficit of $10 is indeed a “private sector” surplus of $10. The only question (and I touched on this in one of the earlier chapters) is an argument over who should get what portion of that $10 surplus. How should society distribute wealth? And that is outside the discussion of whether or not we have a deficit.

Upon closer inspection, the bucket model is flawed from the get go. Her example is government spends 100 and taxes 90. That kind of taxation rate does not exist anywhere, especially when some of the entities upon which government bestows money are untaxable. (foreign nations, for one.) A “paygo” balanced budget is simply wealth transfer, because the people receiving the money, and the people being taxed are NOT the same people, and definitely not in the same proportions.

“MMT asks us to focus on economic outcomes, not budgetary outcomes.” Hmm… another definitional piece of the puzzle. “Look over here instead. This is important to look at.” This is a rhetorical assertion. It may be a VALID one, but it requires that it actually be appealing, to draw sufficient attention.

Page 111: Kelton asks, “But who, exactly, is we?” This is the question I raised above. She identifies foreign nations and corporations being in our bucket. “Tax cuts go disproportionately to the wealthiest…. If the goal is broadly shared prosperity, then we need fiscal deficits that channel resources more equitably.”

THIS is the argument. What is the GOAL of the nation, of our government? Enough people of Kelton’s opinion need to seize government power (via elections, of course) to make broad prosperity the goal: to make an “annuity society” vs. a “lottery society.” A Social Security, rather than a casino.

I think Kelton gets closest to the point of chapter 4 on page 112: Deficits are a tool that can be used for good or evil. They can buy more yachts for wealthy people, or they can build a broad, equitable economy that works for the many. “What they cannot do is eat up our collective savings (account – my addition).”

She closes the chapter reminding us that this is true only for “fiscal sovereigns.” They can do whatever they want apparently, while all other nations must operate beholden to the sovereign. I keep coming back to my earliest analogy. This sounds like nothing more than a “my way or the highway” offer we can’t refuse, from a Mafia Don with enough muscle to back up its will with violence.

Is MMT really proposing anything radically different, as Kelton continues forward ignoring this armed elephant in the room? This book continues to appear to be a political argument more than an economic one. How should the wealth of a nation be distributed?

Increasing one’s share is only taken by violence, if “The system” has already decided that what you offer is a commodity not worth compensation. We’ll call you “heroes” or “essential” in lieu of reasonable distribution, part of which is the political will to establish “reasonable” caps on how much wealth one can possess, use it to leverage further growth in your wealth, charge in interest rates, or pass on to heirs. All political power questions.


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