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It is exactly the idea of a new theory of the economy that the government should spend more, not less.
The status quo says that Republicans have promised strong growth boosted by the tax cuts that they have adopted without democratic aid would help "pay for" the tax cuts themselves. This is a question mark in any case, but it will only really work with the so-called rights reform to curb the growth of Medicare spending and social security. They passed the tax cuts – the easiest part – without addressing the expenses, the most difficult part.
The end result is that the US deficit is the amount of money that the US government receives from taxes and other items subtracted the amount it spends – should to be more than a trillion dollars this year.
In total, it will rise to $ 22 trillion every day and it will be much larger. Report the annual political struggle against raising the US debt limit – the maximum amount the government is allowed by law to borrow.
By the way, lawmakers do not even increase the debt ceiling anymore. Recently, they have suspended the idea of a limit of debt for a year. Democrats said this year that they wanted to create an automatic mechanism to raise the debt ceiling, but Republicans are not convinced.
The increase in debt has caused more than its share of helplessness to politicians who warn of the dangers of the United States. Essentially disagree with his creditors.
But no warning prevented every successive president from finding a way to add his own spending plans, but never enough to tighten the belt to make up for new spending. The last time the United States did not spend more than planned, it was in 2001.
George W. Bush spent a lot on the war on terror as well as adding prescription drugs to Medicare. Barack Obama spent a lot on economic recovery during the Great Recession and Obamacare. And Donald Trump spent for his tax cuts.
When Democrats took power in Congress, a new wave of lawmakers wanted to eliminate the so-called "paygo", a "paygo" – rules so that they could introduce and vote for new programs governments to provide free education and better health care and to combat climate change without having to pay for it by raising taxes or reducing spending elsewhere in the budget.
The former Democrats have prevailed, for the moment, on this front, but it is clear that the more progressive Democrats who helped their party to win the majority and who are more in tune with the Bernie party wing Sanders as that of Hillary Clinton have big plans for the government to help people and do not want to balance the budget.
Alexandria Ocasio-Cortez, the girl of the new Democrats, spoke freely about her desire to impose a marginal tax rate of over 70% on the wealthiest Americans. It sounds crazy politically after the Republicans simply cut taxes on the wealthiest Americans. But this is not entirely unprecedented: similar rates were in effect under the Republican and Democratic administrations in the 50s and 60s. Nor is it in contradiction with what many economists have said, according to an article by New York Times columnist Paul Krugman.
Ocasio-Cortez and other progressives like Sanders are not afraid to spend billions of dollars New programs without cutting other programs, the debt is cursed.
The School The thought that allows such dreams – the modern monetary theory – seriously suggests that if a government that controls a currency needs more money, it prints more. He can not go bankrupt if he prints his own money. Simply print more, essentially.
The idea is that the deficit is actually equal to the wealth of the private sector and that's a good thing. What are the treasuries guaranteeing this debt if it is the promise of a new printed currency? And as long as there is a market for them, they should be used by the government to improve society.
If it sounds a little socialist, it's true, but self-proclaimed Socialist Democrats like Sanders and Ocasio-Cortez are too.
For the record, the liberal Krugman, while approving the increase in taxes, has shown himself to be less supportive of MMT, as is well known.
We asked him for his opinion on the national debt, which is close to $ 22 trillion. This exchange is presented below:
CNN: We have spent years and years in American politics worrying about the national debt, which will reach $ 22 billion every day. $ 22 trillion, it looks like a lot of money and the rate of increase in debt seems to accelerate. Why is not it such a big problem?
Kelton: Few people understand what is the national debt and most people tend to confuse public deficits with the national debt. Let's start by clarifying these terms. The national debt is nothing but a historical record of all the dollars spent by the government but not recovered. When the government spends more than it collects in the form of taxes (and other payments), we call it "deficit spending". But this is only part of the story. To complete the picture, suppose the government spends $ 100 on the economy, but only $ 90. The result is a surplus equal to $ 10 that appears somewhere in the non-governmental part of the economy. In other words, the government's "red ink" becomes our "black ink". Their deficits are our financial surpluses. So where does the "debt" come into play? Whenever the government records a deficit, it sells government bonds called US Treasuries. This is what is generally called "borrowing", but it is actually misleading. What is really happening is that the government allows people to trade their money for an interest bearing bond. A very good deal if you are lucky enough to own some of that $ 22 trillion.
CNN: What is the magnitude of the annual deficit that worries you and why?
Kelton: Inflation is the relevant risk, not the magnitude of the annual deficit. In the aftermath of the 2008 financial crisis, budget deficits reached more than 10% of GDP. They were big, by historical standards, but they were not to worry. In fact, most economists seem to agree that larger (and better targeted) deficits would have helped the economy recover much faster. Today, the government has annual budget deficits that are expected to reach $ 1 trillion. That's a lot of zeros, but so what? Remember that their red ink is our black ink. What worries me about the deficits we have today is not their size, but their nature. Much of the reason the government is racking up bigger deficits right now is that Republicans voted in favor of tax cuts that mostly benefit the wealthiest Americans and large corporations . Inequalities in income and wealth, already at alarming levels, will only widen. So I'm worried about how these deficits are used to channel resources to the people who need the least help.
CNN: If Republicans Can Reduce Tax Rates and Democrats Should Adopt Massive Benefit Programs, Such as Medicare for All and a Free, No-Charge University What is the brake on debt? This keeps politicians in check with what they can promise to voters. Or should there be a brake?
Kelton: The brake is inflation. If policymakers unleash, cut taxes and inject money into the economy inconsiderately, inflation will rise and voters will (probably) check the politicians at the ballot box. So, in a sense, democracy is what keeps politicians under control. But that does not mean that we can not adopt Medicare for all nor make public colleges and universities free, even with the current tax cuts. Debt is not the binding factor (except perhaps politically). The problem is this: the economic constraint is inflation.
CNN: You explain in part that if inflation escapes control of the situation, it is a good time for Congress to raise taxes. But the political momentum is going in the opposite direction, as we saw last year with the tax cuts. What do you think of the place of political theory in political reality?
Kelton: I believe the government should use the federal budget process to maintain a balanced economy. This means balancing the risks of inflation with the benefits of full employment. It means engaging in new spending programs only if these programs can be implemented without causing excessive inflation. It may be necessary to raise taxes to prevent, for example, a large-scale infrastructure program from pushing the economy beyond its limits. But taxes are not the only way to curb inflation. The most important thing is to understand what really drives inflation. Historically, the main factors of inflation have been: energy, housing and health care. So, even if the political reality means that you can not raise taxes, you can always fight against inflation with policies that increase the supply of available housing, promote energy efficiency and reduce the costs of health care. I would not neglect either the possibility that our political realities evolve rather quickly with an informed Congress of MMT.
CNN: Is MMT a socialist idea or is it a free market idea? Explain.
Kelton: Neither one nor the other. MMT is mainly a descriptive project. It provides a goal that can be used to understand the functioning of a modern capitalist economy. On the basis of this understanding, MMT also offers a normative aspect, which shows how fiscal / monetary / regulatory policies can be used to limit inflation while maintaining full employment.
CNN: What should the national debt do if it were not to scare the Americans?
Kelton: The national debt is not to be feared. What should scare the Americans is to leave misunderstandings and alarmist statements about the public debt to prevent us from taking bold steps to address the urgent threat of climate change.
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