The Fiscal Summit Counter-Narrative: Part Three, Are There Spending Constraints On Governments Sovereign in Their Currencies?
Posted on May 25, 2012 by Mitch Green | 29 Comments
By Joe Firestone
An issue at the core of all the fuss about fiscal sustainability is Government solvency. The deficit hawks and doves believe that Governments sovereign in their own currency can run out of money if they keep deficit spending, and keep borrowing to do it. They believe that if deficit/debt levels are high enough, then Government insolvency can occur, because eventually the burden of interest on the public debt will crowd out all other public spending and investments. So, they are for working towards debt/deficit reduction, “reforming” (i.e. cutting) entitlement spending, and raising taxes, though not necessarily on the rich.
The counter-narrative of Modern Monetary Theory (MMT) is that such a currency issuer can never involuntarily run out of money, though it can default voluntarily from an excess of stupidity. And because such nations can’t run out of money and can buy anything for sale in their own borders, including all labor resources, that means that their governments can spend what they need to spend to help solve the problems they encounter. They can afford job guarantees for anyone wanting full-time work at a living wage with a full package of fringe benefits, universal single-payer health insurance for all, a first class educational system, re-inventing their energy foundations, cleaning up their environments, re-creating their infrastructure, and doing anything else necessary to create good, democratic societies. For Governments sovereign in their own currencies, running out of money is never an issue. The real issues are resource constraints, political constraints, and constraints of poor decision making. But they are not fiscal in nature.
So, the critical issue of government financial solvency was a major topic in developing the counter-narrative of the Teach-In. Stephanie Kelton, Associate Professor of Economics at the University of Missouri, Kansas City gave the presentation on this topic. It was a model of clarity. Audios, videos, presentation slides, and transcripts for the presentation are available at selise’s site and a slightly different version of the transcripts is available from Corrente as well.
Stephanie Kelton’s Presentation On Spending Constraints
Stephanie began by point out that the name Modern Money Theory is not a name the MMT economists gave to their approach. Instead people following what they were doing “started referring to us as the Modern Money School and to our ideas as Modern Money Theory” (MMT). Stephanie also said that this is unfortunate:
“. . . because it is something of a misnomer. What we’re doing is actually not modern at all. The ideas are not theoretical, and they aren’t particularly modern. What we’re doing is simply describing, operationally, the way government finance works. It’s not a theory; we do not make assumptions, . . . . but rather . . . attempt to simply describe the way in which the institutional arrangements are set up, and the accounting identities and what happens in a balance sheet framework; when one side of the equation moves, what happens on the other side of the equation?
“What we didn’t do, I guess, a lot of this morning is really to talk about money, and what is money. And, while there were some references to accounting, and blips on a screen and button pushing and so forth, we didn’t really distinguish what we’re talking about in Modern Money Theory from what most of the textbooks describe and what our students end up getting taught in most economics programs across the globe.”
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