{"id":13088,"date":"2016-04-25T12:29:18","date_gmt":"2016-04-25T16:29:18","guid":{"rendered":"http:\/\/multiplier-effect.org\/?p=13088"},"modified":"2016-04-25T12:36:38","modified_gmt":"2016-04-25T16:36:38","slug":"dear-time-magazine-readers-the-united-states-is-not-insolvent","status":"publish","type":"post","link":"https:\/\/blogs.bard.edu\/multiplier-effect\/dear-time-magazine-readers-the-united-states-is-not-insolvent\/","title":{"rendered":"Dear Time Magazine Readers, the United States Is Not Insolvent"},"content":{"rendered":"

This is apparently the latest cover of Time<\/em> magazine:<\/p>\n

\"Zombie<\/a><\/p>\n

The idea that the US government or the nation as a whole is “insolvent” has an undying appeal. The fear of (or yearning for) some manner\u00a0of\u00a0budget\u00a0crisis has waned somewhat over the last couple of years (one hopes<\/em>\u00a0this is\u00a0due\u00a0to the fact that\u00a0most people alive today have never lived through a period in which the deficit has shrunk so rapidly), but stories like this will never go away.<\/p>\n

The 25th Minsky conference wrapped up\u00a0recently (video of all the speakers\u00a0is\u00a0posted here<\/a>), and in one of the sessions Stephanie Kelton delivered a presentation in which she argued that, in contrast\u00a0to almost any other area of policy, there is\u00a0one issue on which Democrats and Republicans agree: a public\u00a0debt crisis is looming. In addition to some disagreement over when the\u00a0crisis will strike\u00a0(hawks: yesterday; doves: in a decade or so), they differ merely\u00a0on the question of how to solve this perceived problem: by cutting spending or\u00a0raising revenue. This broader moment of bipartisan consensus, Kelton argued, is tarnished only by being wrong.<\/p>\n

Among her efforts\u00a0to dispel the appeal of the debt crisis narrative, Kelton pointed\u00a0out that US government deficits are the mirror image of non-government surpluses (domestic private sector surpluses plus current account deficits), with a nod to\u00a0what\u00a0Goldman Sachs’ Jan Hatzius once\u00a0described<\/a>\u00a0as\u00a0“the world’s most important chart.” The upshot, she argued, is that calling for a reduction of public sector deficits in the presence of persistent current account deficits should be understood as calling\u00a0for a reduction of the private sector’s surpluses. Kelton put together the following chart, which flips the script on the Simpson-Bowles-era discussions of how rapidly we should bring down the budget deficit:<\/p>\n

\"Kelton_Flip<\/a><\/p>\n

“Ask the same question now. Now the graph doesn\u2019t show the path of projected government deficits, but instead the path of projected non-government surpluses. So the question becomes how rapidly would you like to reduce the non-government surplus? You want to do it really quickly, follow the blue line; just bring surpluses down very sharply. Would you like to reduce the surpluses in the non-government sector more slowly, a more gradual approach. Or would you like to rethink this exercise all together because you think it\u2019s madness that a policy objective is to reduce non-government surpluses? […]<\/p>\n

In other words, their red ink is our black ink. And setting out to reduce budget deficits by $4.1 trillion over the next ten years is the same as saying my goal is to reduce the non-government surplus by 4.1 trillion over the next ten years. One might sound reasonable and the other sounds like madness, but it\u2019s the same thing said two different ways.”<\/p><\/blockquote>\n

Watch her presentation (slides here<\/a>):<\/p>\n\n\n