What Is A Deficit Owl?

What Is A Deficit Owl?

so it was a fixed exchange rate gold
standard system and it was in place from 1944 all the way up until
1971 when president nixon took the u.s. off of gold. Ok, so what I think has happened is that
we, especially within economics, the text books were written and popularized,
especially in the fifties and sixties, Samuelson’s textbook, ok, and, those text
books were written and theories were written and the models were designed for
an economy that had fixed exchange rates and then in the early 1970’s
we change the monetary system completely but we didn’t bother to rewrite the
textbooks so we kept telling the same stories and using the same models and so
forth and it left us thinking that we had less policy space available because,
look, if you’re on a gold standard and you’re promising to convert dollars into
gold at a fixed price, you have to be pretty darn careful about how many
dollars you spend into existence because people might want to convert to gold, and
there is only so much gold, so once you start running out of your gold reserves
you compromise the whole monetary system. So we chuck that thing only we didn’t
get it out of our heads and we act as if we are still hamstrung by those same
constraints that exist under a gold standard and the truth is in the modern
era where we are today, we need the federal government to run deficits
almost all the time. Ok, and that’s really controversial; it
doesn’t sound fiscally responsible. The “deficit hawks” definitely do not think
this is fiscally responsible. Deficits all the time? What do you mean, the government should
never spend a dime more than it takes in taxes. It should balance its budget in
every fiscal year. Have a constitutional amendment to ensure that that happens.
Extreme fiscal conservative, fiscal hawks. “Deficit doves.” Kinder, gentler, deficit
birds. Sometimes I refer to them as the mealy-mouth liberals. These are the.. these are the guys mostly (let’s be
honest) who say, “well, gosh golly gee, we fundamentally agree with you, deficits
are unfortunate, and we sure would like to avoid them but sometimes the economy
just gets so darn weak that government needs to step in and prime the pump a
little bit, right? Rev the gas and run a deficit in the weak period, but as the economy
recovers we want the government’s budget in surplus. So over the course of the
business cycle the budget will be in balance: deficits in weak years, surpluses
in stronger years, balanced over the course of the cycle, right? That is the
deficit dove position. I think we need a brand new bird, because the others are
not getting us where we ought to be and where we could be which is at our
potential, right. they’re holding us back. Why do I choose the owl? Obviously
deficit owl is very wise. Owls are well known to be able to see in the dark
so they can see things the others can’t, their little heads go all the way around
so you can see stuff the other guys are missing they can look at the problem
from a different vantage point. This is a big advantage. Deficit owls want to
balance the economy, not the budget. The priority is just different. What
good is a balanced government budget if you wreck your economy to get there. You
feel good about the fact that the government’s deficit has been falling at
the fastest pace since the end of World War 2, that’s a real achievement? Not if you
have a junkie economy, right? So the goal should be balancing the economy. This is a graph using actual US data
that just shows the relationship between the government’s budget and all of our
budgets. It is the balance sheet position of the government on the bottom, below
zero is a deficit, above zero is a surplus. And what it shows, it’s not a perfect 1-to-1 because I left out the foreign
sector here, but I think it makes an important and striking point, which is as
government deficits get bigger, which means this red line is diving down,
that’s government going into deficit, but look what’s happening above: private
sector’s moving way up into surplus. When government deficits fall, go back here,
government deficits fall almost to balance there, what happens to the
private sector surplus? Falls almost to zero. We tend to move in opposite directions;
their deficits help to produce our surpluses. So anybody who’s out to attack
the government deficit, without knowing it maybe, is attacking private sector
surpluses, which we all know no one in their right mind would support reducing
private sector surpluses if they understood that that’s what they were
doing by championing reduced government deficits.

19 thoughts on “What Is A Deficit Owl?

  1. My only disagreement is with Kelton's early statement that the world changed in 1971. MMT was true long before that. See Beardsley Ruml's essay from 1946 http://home.hiwaay.net/~becraft/RUMLTAXES.html

  2. Private sector surplus goes into inflating land values, as towns grow and development sites become more valuable. This provides the land owners with a free lunch when they speculate in the rising land prices, competition for its access and site rentals that result. It makes entrepreneurs activities too costly, slows production (except through that in monopolistic land owning organizations) and there is less activity due to raised costs and the resulting high goods prices of consumer products. this also make for less employment and greater degrees of poverty.

    The private sector surplus should be used for helping the government meet its deficit bills and without other kinds of taxation, this form of national revenue should be spent nation-wide instead of our tax-money. This proposal (of Henry George, 1879) cuts 2 beneficial ways. No other taxes means prosperity through more to spend and greater employment. And it stops land becoming so costly that we are limited in being able to afford it. It will be used properly, not held out of use for purposes in its value speculation.

  3. Why can't the US Govt (or Australian in my case), just create money to spend, and destroy money by Tax?
    (esp. Tax unproductive money & unethical things).

  4. I was just watching this video and saw the graph at the end that says when government deficits go down public surplus goes up. Isnt mmt saying the opposite? Maybe I missed something but I took a screen shot and looked at it more closely.

  5. If money is infinite, how are so many living in poverty/scarcity of funds? Why do people risk their lives and destroy their health and relationships just to get by?

  6. So, is this correct?

    1. As a sovereign currency issuer, the federal government, I'll pay you $10 for an hour of work. Now you have $10 that did not exist prior to my spending.
    2. Now I'll tax you $10.
    We've now run a balance and there are no dollars in the economy.
    3. Let's say that I'll pay you $20 for an hour of work and again tax you $10. You have $10 after taxes. There are now $10 in the economy that was not there before and I've run a deficit of the $10 of which I did not tax out of the economy.
    4. Say I pay $20/hr and tax $10 again. Now I've run a deficit of $10 yet again and have a total national debt of $20. There are now $20 that exist in the economy.
    5. The deficit is the amount added to the economy that are not directly offset by taxation. The debt is an accounting of how many dollars that have been created, in total, that are still in the economy.
    6. So long as the currency I'm issuing is represented by real recourses, inflation will remain stable and economic growth will be funded as it grows. The national debt should run a balance with national assets.

  7. ok, i'm curious but i need to learn more. What is the MMT solution to debt? The result of multiple deficits? Surely you can't think we can just spend and spend and for that not to have a huge impact on inflation or exchange rates. Is the US dollar the only currency where this is viable?

  8. Suggested reading. 'A History of Money and Banking in the United States: Colonial Era to World War II' by Murray N. Rothbard

  9. It's strange. MMT seems such an eye-opener – that our sovereign governments are pulling such sly ones over us. Then you hear about Chomsky and private tyrannies. How does one reconcile the apparent hope of MMT, and the incessant pessimism of Chomsky?

    What's to blame: government or corporate hegemony? Full employment sounds nice, but under what auspices?

  10. Shouldn't the deficits occur before, not in tandem, with the surpluses if they're the cause and not a byproduct of say, politicians spending lavishly during goid economic times?

  11. This is one of the worst thought out ideas in economic theory I've ever come across. It completely couches its authority on the federal government as supreme manipulator of the currency and imperils immeasurable new powers to government. Of course it can't work if people don't trust the dollar, so we'll see how far this idea goes before it crashes and burns on the international market.

  12. Also all you long term pro deficit advocates seem to want your economies to be filled with zombie and inefficient uncompetitive firms. Well have fun with that

  13. The graph she uses at the end to claim that gov deficit results in our wealth increasing is an amalgamation. Ofc private sector spends more when gov pumps it with freshly printed USD, but that is mostly firms producing that shouldnt have been producing otherwise. Gov deficit is mostly a subsidy to inefficient firms at this point, taking some of production costs and allowing and encouraging over the top production and output

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