I can remember the shock to us as students when first taught in our Government Finance course that the federal government does not collect taxes to pay for its activities. Each year, it creates the new dollars that it wishes to spend. It then collects taxes to soak up a certain quantity of money (its former IOUs) already out there in circulation. Of course, it is quite true.
All money is simply government IOUs that by law must be accepted in payment of debt, public and private. Read what it says on any bill in your wallet. The government creates the money each year that it has chosen to spend, via sales of its debt instruments either to the Federal Reserve banks or to other sources, domestic or foreign. US government bank accounts appear as those bonds and notes are sold — new money.
To prevent the money supply from greatly exceeding what is needed in commercial transactions, consistent with keeping the price level fairly stable, the treasury then soaks up a certain amount of federal IOUs outstanding via taxation.
As a rule the government likes to keep the inflation rate at around 2%. This largely is handled via taxation and Federal Reserve buying or selling of federal bonds on the open market. This concept takes a while to sink in, since we are used to equating federal “debt” with private debt. Once one gets used to the idea things begin to make a bit more sense. Try it!
17
MMT = Magic Money Tree = printing money = hyperinflation. This is not new.
6
Reading many of the comments left me scratching my head. The one thing that comes to mind is the idea of a government run and paid for health service. I keep reading in these pages the question of how to pay for it. Well, I remember when I retired at 58 that I applied to Blue Cross for insurance. A letter came saying how happy they were that I was about to join the BC family to the tune of $2K per month. I didn't even have serious pre-existing conditions. My income at the time was about $1300.
All of the insurance premiums paid by individuals on that private market must total at least a trillion annually. A public plan with no private market should have no problem functioning with the trillion that would be saved on a national basis considering the economy of scale. I will be fine with funding national health care through my taxes. In fact, my tax bill would probably go down.
Same with spending on infrastructure. Examples would include improved roads and bridges, providing solar to all new buildings including homes--except where sunlight is a problem, free university education, improved public transport, electric government vehicles . . . All of these would represent huge savings and many would pay for themselves over time.
My point is that spending now would yield vast savings in the long run and would be well worth borrowing for.
12
Cortez and Trump both have exactly the same idea--create money and give it to friends. This is not investing in infrastructure. The Ontario Canada Liberal party did the same thing Cortez wants, and ended up turning the provincial utility into a tax cow, with bills higher than New York City's. The Liberal party was annihilated in the last election. Even the premier lost her seat.
Neither Cortez nor Trump are friends of working people.
2
Shiller, the prototypical economist: on the one hand . . . but on the other hand . . .
4
Modern Monetary Theory is a simple restatement of the old adage - You can fool all of the people some of the time...
7
“There do appear to be some urgent needs that might justify more debt for a while.“ Is one of those needs Trumps tax cuts? Because we’ve got record deficits at a time of economic growth.
4
If Larry Summers hates it, that means it's good for everyone but the recipients of his smash and grab looting agenda. How is it possible he still has credibility? Larry Summers and his cronies are the biggest hypocrites in modern history and if the Dems continue to embrace him it will be at their own peril. How can anyone possibly use him as a counter narrative considering everything that actually happened under his guidance/influence? How is it possible people still don't have a clue what actually happened?
10
These comments are shocking! I did not see Trump's name mentioned once. What is the world coming to? Isn't there some way to disparage him? After all, who wants strong growth, mild inflation and low unemployment?
2
@Tim Lewis
Trump's name and serious discussion of economics and policy are seldom mentioned in the same sentence, let alone an essay.
Trump and his Republicans have always hated debt and his tax cuts were supposed to create investment and additional tax so that they wouldn't incur any debt. That failed, so, are we to believe that he now embraces debt?
The temporary sugar hit that enabled mild growth, mild inflation and low unemployment have come at the cost of a trillion dollars worth of additional debt. Who wants it? Is that what Trump wanted? Does that vindicate Shiller's article?
5
What a disappointment! I had hoped for some meaningful criticisms of MMT. But we got nothing, zilch, nada. Who cares if its ideas are original or not? Is it right or wrong?
The only argument given concerns the idea that the federal debt is "owed to ourselves." She does not say that.The point there is that a dollar of federal debt is matched by a dollar of money in the private sector that can be used for commerce, to buy & sell goods & services.
There are two basic facts that underlie MMT & NEITHER is even mentioned here.
1. Thru the FED the federal gov can create as much money as it needs out of thin air.
2. It MUST create money & spend it to the private sector so that people and businesses can use it to conduct commerce & so that banks can use it as reserves to create more money by making loans.
He totally misses the point about inflation. The federal gov could create all the money it needs for gov operations, but all that new money may cause excessive inflation. If necessary, we may have to tax some back, but the question is how much? Since prices are inversely proportional to the dollar value of the stuff we produce, the question is how much will the federal spending increase the GDP?
That is the right question to ask & is entirely different from the question “How are you going to pay for it?”
And his last sentence is just embarrassing since I know of no MMT economist who proposes "unlimited spending or carelessly adding debt upon debt."
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@Len Charlap
Schiller's piece exercised the brilliant hand of long academic experience in a masterful refutation of several of Kelton's nebulous points, including expertly navigating several technical hypotheticals posed in past public remarks.
Rather than excoriating AOC for being a facile drollup, Schiller seems adroitly willing to discover a sense of meaningful good intentions in the shallow life experience and naivete of an x-bar maid.
7
@wd funderburk - Thank you for your content free opinion.
7
"Modern Monetary Theory Makes Sense, Up to a Point" ….
And then what? It makes sense that deficits don't matter --- until they do. Just how predictable is this event? And what do policy makers do when they reach this point? How far out on the limb can you get before it cracks and breaks off?
4
@Kurfco - MMT teaches that deficits DO matter since they measure the flow of money FROM the federal government TO people, businesses and state & local governments. This is the money we use to buy and sell stuff and banks use as reserves to make loans.
MMT points out that ALL 6 times we have eliminated federal deficits for a while and paid down the federal debt significantly (10% or more), we have immediately fallen into a terrible depression.
So deficits matter, just not in the way kitchen table economics tells you they do.
5
No economist here, but let me use two examples to explain what I think the left is saying. Many, if not most, people buy houses by borrowing - i.e. mortgages. The mortgage will be much more than you earn or have, but will be paid off over time with a payment you can afford. We all understand this concept, the bank assures its interest by checking your bona fides. The house provides jobs for the people who build it and maintain it, and stability for the owners (on a fixed rate mortgage). This is sensible deficit spending. Similarly, borrowing for an education makes sense. Again it is deficit spending, but the purpose is to allow the individual to qualify for a better job and thus be able to pay back the loan (not necessarily so now, where the interest rates are prohibitive). Both examples of deficit spending make sense. So does such spending for climate control - it should provide jobs and the platform to strengthen our economy. On the other hand, going into debt to make a loan to rich uncle John, who makes his living by gambling, is a really high risk, little return proposition. This is exactly what the Republicans have been doing. Doesn't make sense to me. So go into debt for things that help us and tell the gambler Republicans to get a real job.
11
@Melvin Cowznofski - None of this has anything to do with the finances of the federal government.
The federal government (thru the FED) can create as much money as it wants out of thin air.
Can you?
6
Maybe the best government investment is to give money back to the public. This will put money into citizens’ pockets, driving consumer spending, which is the biggest component of GDP.
If deficits don’t matter, then let’s cut taxes.
Right?
4
@John, you already know your proposition is dicey because your first word is “maybe.” The entire point is that many investments — whether we’re talking about the Eisenhower era highway system, the NASA moon project, or a Green New Deal — must be made on a large scale. Government investment in major infrastructure is required, even to start private investment if nothing else. (Though I argue it’s a virtue in and of itself.) In this case, at least, consumer spending would be the equivalent of empty calories: a sugar high for the economy.
1
@John - Rather than giving money to Joe who if he is not rich, will drive consumer spending, why not pay Joe to fix a bridge? That will still get the money to him BUT we will ALSO get the bridge fixed.
8
MMT has two non separable parts;it means money creation and the use of the money. Used to make better people by education, health care, communications, transportation,and climate, will produce an enlarging economy of goods and services and no inflation. Using money creation by deficit financing of a tax cut for the rich gives the rich beneficiaries of the tax cut discretion over how it spent.
The better choice is to for the people, through their elected government to decide the time, size, and use of a deficit. Relying on he rich only benefits the rich. FDR taught us that lesson: MMT is about who gets the money and who gets to keep it.
2
@rose6 -->
You mean it's just another wealth transfer mechanism?
(Just asking for a friend.)
1
I'm very surprised this article has not attracted any comments yet.
I always enjoy reading Shiller's articles and am glad the NYT published this one.
2
Argentina knows all about modern monetary theory.
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@James Ribe: I looked up information on Argentina's economy and found that they have a very high rate of inflation. The rate is currently around 20% and that is down from what it was fairly recently. The rate of inflation is around 2% (or a little less) in the USA.
This sounds a lot like the idea that if the USA becomes more socialist, such as having universal healthcare, we are going to end up like Venezuela!
1
@James Ribe
Actually, no, it doesn't.
3
The reason MMT is called "modern" is that for the past 85 years orthodox economists have spoken of government spending and taxation in language appropriate to a gold standard monetary system -- a system which ceased to be on January 31, 1934.
Did they know better? Probably. Did they explain to the general public what it means to have a fiat currency and the degrees of freedom such a system affords? Absolutely not!
A profession of mossbacks!
11
Hear! Hear!
2
@Len Charlap
Yes, I like it too Len, Ellen1910's piece: yet it needs a qualification. The US gold standard was re-established by the Bretton Woods Agreement of 1944, where countries like France could cash in their rapidly accumulating US dollars for a ratio of dollars per gold ounce...and the French sent a destroyer to pick up that gold as the US balance of payments vs Europe, a rebuilt Europe and then Japan deteriorated...noticeable even in the 1960's...
Nixon and Connolly took us off the that gold standard in August of 1971, no consultation with allies, with complete abandonment by 1973 or 1974. The then "floating" national currencies creating great uncertainty and that ramped up speculation, leading to the development of finan. "derivatives" as both hedging and speculative instruments - it's sometimes hard to tell the difference since one story is used as a cover for the other..."spreading risk to those who can most afford to bear it" was the happy mantra of pre 2007-2008 near catastrophe.
Yanis Varoufakis has written 4 or 5 wonderful books about this great unraveling of Bretton Woods and its trading system...and I invite Times readers also to read Karl Polanyi's book from 1944, one of the seminal books in political economy, "The Great Transformation" for a wonderful account of the 19th century capitalist foundations, the four pillars, one of which was the gold standard.
Polanyi is the left alternative to Von Hayek and Von Mises.
We need a debate on political economy.
2
@William Neil - Thanks for the history. I will save your reply. But ellen is correct that today's mainstream economists do not seem to understand today's fiat money.
3
Faith based economics - or - it will work right up until it doesn’t.
4
Dr Schiller's efforts to be judicious make me wonder how many hands he has. On the one hand, MMT is a bunch of crazy and dangerous slogans; on the other, it's a rehash of old ideas that are too complicated for you and me; on the third hand, there's a good deal of common sense in them; on the fourth hand...
As a layperson, what I see in MMT is a critique of the objectification of money. The objectification of money was originally performed by insisting on gold reserves, which turned out to be systemically deflationary. Now, metaphors of family budgets and kitchen tables are used to demonize deficits.
Clearly, the state that makes money stands in a different relationship to it than an enterprise or family that uses it as a store of value. Most conservative economic theory simply denies this, and keeps claiming that we're on the brink of runaway inflation. Moderates read Keynes, and look at the real world, and note that our situation has nothing to do with Germany in 1925. MMT take it a step further by seeing that money is more complicated, and isn't simply stuff or an objective store.
Do we understand money, now? Hardly!
6
England has been in debt for well over 200 years. Never eliminated at at any point. Never paid it off. Never suffered because of it.
2
Are you sure? In 1916 England ran out of credit and had to beg the United States to come in and bail them out. After World War I, England was unable to pay for maintaining her empire, with a resulting mess in the Middle East. During the interwar years, England was unable to finance a needed defense buildup to deal with Germany. In 1971 the British currency collapsed with devastating results for the British standard of living. The list goes on. England experienced many serious problems as a result of her impaired credit.
4
@James Ribe
Hard Monetarists, Protective Tariffs, Reparations & a vindictive Treaty of Versaille precipitated worldwide depression economics & WWII.
As the old order fell with the ascension of Wilhelm II, England has been suffering since .
Yet, a gold standard survived until c.1933 at the height of GD, replaced in turn by theory of fixed exchange rates Breton Woods (1944), and abandoned once again by floating exchange markets (1971).
Now nearly 50y on, free monetary theorists (MMT) seek to persuade the masses that by diluting the value of lifetime savings, work, & aspiration churning consumer spending is a road to somewhere.
Although, unlike Professor Schiller, Rogoff, and Summers, 98% of MMT advocates have no recollection of history.
2
@wd funderburk - Well, here's some history they know, that Professor(s) Schiller, Rogoff, and Summers seem to be ignorant of:
The federal government has balanced the budget, eliminated deficits for more than three years, and paid down the debt more than 10% in just six periods since 1776, bringing in enough revenue to cover all of its spending during 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, and 1920-30. The debt was paid down 29%. 100%, 59%, 27%, 57%, and 38% respectively. A depression began in 1819, 1837, 1857, 1873, 1893 and 1929.
6
I'm surprised Shiller didn't also mention that MMT is actually just the mirror image of "supply side economics". For MMT, the government simply spends more than it taxes, borrows the rest, and invests in the economy to promote growth. For SSE, the government spends more than it taxes, borrows the rest, and assumes the recipients of the tax cut with invest the money to promote growth.
If you believe in supply-side economics, MMT makes perfect sense.
The only difference is who is making the investment the government or the people.
And yes, we're all Keynsians now.
7
@OneView Given the global popularity of austerity during the Great Recession of 2008, apparently we are not all Keynesians now.
4
The key difference between MMT and supply side economics is that SS ASSUMES investment, which we have learned again and again and again is not a valid assumption.
MMT, on the other hand, assumes nothing. If you use MMT to invest, the investment is up front, part of the policy.
9
@Objectively Subjective And MMT assumes worthwhile investment by the government, while SS assumes worthwhile investment by individuals seeking private gain. Neither of which is guaranteed.
Seems like Japan has paved half the country with deficit spending over the last 30 years and I'm not sure that's gotten them any farther than a huge tax cut might have.
My point is both methods are equally flawed or equally beneficial and are simply differing viewpoints of how to use deficit spending put money/demand into the economy.
3
I'm surprised to read an op-ed about the hazards of applying untested economic theories that doesn't even mention our last venture in this direction - supply side theory. Although debunking that theory is not the point of this piece, acknowledging our country's 40-year history in applying a continually-disproved theory that created extreme income inequality while running up huge deficits would ground this discussion in reality: that it doesn't seem to matter whether a theory is useful in describing reality, or in providing us direction for the future. All that matters is who the beneficiaries of that theory are.
27
@Peter Keyes Well, as Paul Krugman has recurrently pointed out, SSE etc is a lot of smoke and mirrors, but let's not be too Machiavellian and say "they cheat so we should cheat too". Ignore reality at your own peril.
5
@Peter Keyes - The thing is that MMT explains history while other economic theories do not. For example:
Keynes wrote:
"The Boom, not the Slump is the time for Austerity at the Treasury."
This is usually taken to mean that we should run federal deficits & thus increase the debt when times are bad, but when times are good we should run federal surpluses & pay the debt down. For years I believed this was correct.
But during the Great Prosperity of 1946 to 1973, not only did we not pay down the debt, but we increased it
Also EVERY time we followed Keynes' & Krugman's advice & paid down the debt significantly (10% or more), we fell into a depression. This happened 6 times & has accounted for all of our depressions.
MMT explains why this happened.
3
Fact: even Mr. Krugman finds MMT laughable.
https://www.nytimes.com/2019/02/25/opinion/running-on-mmt-wonkish.html
Yeah, Len, we got it -- 1946, 1946, 1946. It was a long time ago, when China was a poorly-run rice farm. Well, China, it ain't a rice farm, any more. Really. Look it up.
3
This is a start for a real debate, but it is not a dialogue with the proponents, except as their ideas are interpreted for them by the respected Robert Schiller, and recently, in the Times, by Paul Krugman.
But this is not a panel where the MMT advocates get to do the rebuttals; if the movement is serious enough to generate the critiques referred to by Professor Schiller, then true debates, Oxford style, ought to be visible in the mainstream media.
Missing here, and from Krugman, is reference to the man who was a colleague of Professor Kelton, L. Randall Wray, who has written a book entitled "Modern Monetary Theory." He's now at the Levy Institute, not far from NY City, so what's the problem with having him debate directly?
There is no mention here, either, of a crucial aspect of the theory: don't just listen to what the establishments says are the laws of debt and deficits, actually watch what central banks do here and in Europe, where they have the longest history.
When there was a "national" crisis in 2007-2008, they did "whatever it takes" to save the financial establishment, and Martin Wolf of the Financial Times said the G-7 memo written by Henry Paulson in Oct of 2008 was a watershed for reversing Neoliberal state attitudes toward regulation and economic intervention.
Where is Schiller's or Krugman's "accounting" of how the Fed Reserve created trillions for their rescue without getting spending authorization from Congress?
MMT has an answer. Do they?
14
It would have been nice if Prof. Shiller had said something more specific about what constitutes "carelessly adding debt upon debt" as opposed (I guess) to "carefully" doing so.
One possible test that does not seem to get enough airplay is the size of the interest burden as a share of federal revenue. Deficit doves like to say that we are OK as long as the deficit is not growing as a percentage of GDP. However, we have to service (pay interest on) the existing debt as well as any new debt we add. That means we also need to look at whether the interest burden is increasing as a share of total federal revenues. Every dollar of revenue we need to spend on interest is a dollar we cannot spend on anything new.
Interest payments as a percentage of total federal revenue are a function of the total amount of outstanding debt, interest rates, economic growth and tax policy. Thus, even if all else remains equal, what the deficit or the debt are as a percentage of GDP is meaningless without considering how much of the GDP we are capturing in revenue.
Low interest rates and economic growth masked the effects of the other two variables and kept debt service in the 6 to 7 percent range of the budget (OMB stats) through 2017. For 2018, the tax cut plus rate increases pushed debt service to 7.9 percent of the budget, and it is projected to rise to almost 13 percent by 2024. That trend is hard to sustain.
16
@FJP
"Interest burden"?
If the bonds are sold to the Federal Reserve Bank, then, the interest will be paid to the FRB, and the FRB will pay its earnings back to the Treasury.
Where's the burden?
Note: There's only one socially acceptable reason to sell bonds to the public, that is, to provide safe long term savings investments to provide for pensions. Other sales are gifts to the wealthy.
4
@ellen1910 Part of the interest burden is revenue that has to be shifted away from uses like health care and infrastructure in order to pay the interest on the debt.
3
@James Ribe - Read again what ellen1910 wrote. There is NO interest on Treasury bonds sold to the FED.
ellen, you will find that people cannot read what you write if it goes again their firmly held myths.
3
"Failing to realize that the government’s deficit is mirrored by an equivalent surplus in another part of the economy." But it's not. If that were true, there would be no hyperinflation.
The extremes on both sides of this debate are wrong. The simple truth is that an economy's capacity to sustain debt can change. Sometimes it increases, especially when there' an excess of savings (internal or external (eg, China)). But when it decreases, and your stuck with a large debt pile and structural deficits, watch out.
4
@mainliner - You have it just backward. Hyperinflation happens when there is too much money in the private sector for the amount of stuff that can be produced. So if the federal government spent too much money and as Kelton said, it would wind up in the private sector, if the economy were constrained, we would get too much inflation.
2
The economy of the USA is gigantic (~20% of the world's GDP at PPP), but so is its growth. A growth rate of a 1% produces additional GDP equivalent to the size of New Zealand (51st in size in a list of 186 countries listed in the wikipedia). When the economy of the USA grows by 2.5%, it's the equivalent of adding the economy of Sweden (or one half of the economy of Mexico, one third that of Russia, one fourth that of Italy). Intuitively this means that it can sell treasuries to international lenders pretty much without concern, but the catch is that the economy has to grow. That money is still owed, with interest.
2
@northern exposure I should add a correction. In the examples I bring up, the growth of the US economy is equivalent to the GDP of the other economies and not to their total size (so 1% of GDP growth is not the equivalent of adding the economy of NZ). But the point remains, the US economy is very very large.
"we should not react automatically against new expenditure" -- you mean like quantitative easing? After all, QE is recorded as spending and receipts in ledgers somewhere, namely monetary authority and the banks.
Now there's the rub: toadies in monetary authority who calibrate policy with an eye to their future consulting prospects and their future employer's political influence.
You're correct MMT wouldn't work. Not under the current regime of Argentinian-style corrupt policy capture that is monetary authority in central banks today.
Real independence in central banks first.
2
This entire article is about theory and "ideas." Not one mention of empirical data or real world experience, even though the same theories and ideas have been endlessly discussed and debated for a century. That is the fundamental problem with the "dismal" science - economists love their theories more than reality.
7
@David - That is entirely false and only goes to show you have never read much MMT. The fact that turned me to MMT was precisely empirical history. Here it is again:
The federal government has balanced the budget, eliminated deficits for more than three years, and paid down the debt more than 10% in just six periods since 1776, bringing in enough revenue to cover all of its spending during 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, and 1920-30. The debt was paid down 29%. 100%, 59%, 27%, 57%, and 38% respectively. A depression began in 1819, 1837, 1857, 1873, 1893 and 1929.
5
Apparently economists are willing to debate endlessly about whether deficit spending that might make the country a better place for the average citizen can be justified, but most appear not to consider enormous deficit spending in order to make the rich richer worthy of further discussion.
13
@wrt
USA owes $22,000,000,000,000 to "boomers" and Chinese Communists, worst GNP/debt since WW2. Norway has zero debt and fully-funded Social Security.
Who's "richer?" Norway, of course -- and they got the USA to pay for the medical research and nuclear umbrella, too. Well, that "free ride" is over -- thank you, President Trump.
1
We can always go into debt for tax cuts for the rich, but never to help the people.
Kelton advocates using the debt to finance projects for the people, not make the rich richer. She also advocates for regulation.
One of the leading proponents of MMT is Randall Wray who has written very comprehensive books explaining. I assume you have read these. His theories are based on the teachings of Hyman Minsky.
Minsky noted that bankers, traders, and other financiers periodically played the role of arsonists, setting the entire economy ablaze. Wall Street encouraged businesses and individuals to take on too much risk, he believed, generating ruinous boom-and-bust cycles. The only way to break this pattern was for the government to step in and regulate the moneymen. Many of Minsky’s colleagues regarded his “financial-instability hypothesis,” which he first developed in the nineteen-sixties, as radical, if not crackpot.
His most famous quote was: Stability leads to instability. The more stable things become and the longer things are stable, the more unstable they will be when the crisis hits.
How often do we have to prove him right and stop listening to the de-regulators?
23
Shiller seems to have missed the point. MMT does not have the same implications for state governments and the federal government. It isn't about whether deficit spending is prudent given interest rates and opportunities for public investments.
Rather, MMT draw attention to the fact that the federal government is the creator of fiat currency - the U.S. Dollar. On any given day, the US federal government mints currency with a printing press. That money is then spent, and treated like pre-existing money. No obvious inflationary impact is observed.
Why is that? Because inflation isn't determined by the volume of US currency. Rather, it is determined by the demand for goods and services that accept US currency in payment. As long as there's plenty of goods and services available, an additional dollar created is inflation-neutral.
Presently, the US federal gov't could put lots of idle workers and capital to work. It just needs the political will to print the money to pay for it.
For the federal government, borrowing money rather than printing it is a matter of controlling the money supply. That's a great tool, but MMT reminds us that the US federal gov't could pay off the national debt with the stroke of a keyboard. Thus, the federal gov't does not need to have the same approach to debt as state gov't, local gov't, business, and individuals. None of us can pay our debts with a keystroke, and none of us are responsible for money supply.
23
@Sam I Am - Very fine!
3
We can probably keep increasing the national debt as long as the US dollar is the world's standard currency. And as long as the giant American military machine makes us the world's enforcer. If China ever wrests those distinctions from us, we would be unable to borrow at affordable rates and would sink into a Greece-like debt mess. It is remarkable, but not unexpected, that economists ignore these self-evident factors in favor of more "theory."
5
@Madison’s mistakes - Among the hundreds of differences between Greece and the US is the fact that Greece cannot print the currency it debt are in. The US can.
2
The Federal government went deep into debt in the 30's and 40's to get the nation out of the great depression and to fund World War II. All that debt was paid back because both population and productivity were surging. Today, the debt is surging even in the good times with no hope of ever paying it back. There was a surge in Debt to bail the nation out of the DotCom crisis, there was another surge to bail us out of the great recession. The Bush tax cuts, the Bush Medicare drug benefit, Obamacare, Trump tax cuts are all funded with more debt. Most mortgages are underwritten by the Federal government and so are most student leans. Whatever the laws may say, when major lenders fail, there is a federal bailout, otherwise the economy will collapse. Greece, Italy and Japan have all shown us that when the Federal debt nears 150 % of the GDP, a crisis is already developing. There is a misplaced confidence that since we borrow in our own currency, debt does not matter. We are going to find out sooner than later what the crisis will look like as the antics by which we claim our pensions, social security and medicare are funded are revealed in the harsh light of reality.
2
@Rahul
Empirically, your comparisons don't work:
Greece borrowed in Euros
Italy borrows in Euros
Japan has experienced not inflation, but deflation despite towering national debt in yen.
What does this suggest?
1
@Pquincy14
There are many roads to ruin, all paved with good intentions. According to the Austrian economics, deflation is just a reversal of the prior inflation caused by monetary policy. The Japanese inflated their stock and property markets for 30 years, now they have watched the stock and property markets come down for the last 30 with many fake rallies in between. Inflation and Deflation are both strictly monetary phenomenon.
1
@Rahul - NONE of the WWI debt was repaid.
Here are the debt figures:
06/28/1946 $269,422,099,173.26
06/30/1973 $458,141,605,312.09
Those 27 years have been called the Great Prosperity.
Of course, after WWI some of the debt was repaid.
Here are the debt figures:
07/01/1920 $25,952,456,406.16
06/30/1930 $16,185,309,831.43
In 1929, the debt was only 16% of GDP
AND THEN WHAT HAPPENED !?
1
So tell us, Professor Shiller, was the recent federal tax cut a good idea - or not? Tell us about the increasingly skewed distribution of wealth in this country. Tell us more about what sort of investments we should make as a society - even if that means we incur more deficits? Tell us if Keynes ideas (government spending to help counteract the inevitable business cycles) are still valid.
24