TED: Stephanie Kelton: 'The Big Myth of Government Deficits'

Source:TED- economist Stephanie Kelton.

"Government deficits have gotten a bad rap, says economist Stephanie Kelton. In this groundbreaking talk, she makes the case to stop looking at government spending as a path towards frightening piles of debt, but rather as a financial contribution to the things that matter -- like health care, education, infrastructure and beyond. "We have the resources we need to begin repairing our broken systems," Kelton says. "But we have to believe it's possible."

From TED 

"Vice-president Dick Cheney famously boasted, “Reagan proved deficits don’t matter.” He was wrong.

Deficits do matter, but not the way we’ve been taught to believe. We’ve been told that China is our banker and that Social Security and Medicare are pushing us into crisis. We’re told the U.S. could end up like Greece and that deficits will burden future generations. These are all myths.

Deficits can be used for good or evil. They can enrich a small segment of the population, driving income and wealth inequality to new heights, while leaving millions behind. They can fund unjust wars that destabilize the world and cost millions their lives. Or they can be used to sustain life and build a more just economy that works for the many and not just the few." 

From Stephanie Kelton 

I've blogged about this before on The New Democrat: 

"Another interesting point being what Robert Reich said that it doesn't natter how much you borrow, just as long as that government borrowing is used for promote economic growth. And he said those government investments being things like infrastructure, job training, education, all things that I support, but I would disagree that you should borrow the money to pay for those investments. 

The other interesting point being that there's no set number as far as how large the national debt and deficit needs to be, even as a percentage of the economy. But with Maya MacGuineas with the great counterpoint being that we don't want to find out what that number is before out economy crashes because the American dollar is not worth anything and no one, including the U.S. Government can pay any of their bills.

My point for the Robert Reich's of the world: if deficits and debt doesn't matter (which is not what Reich said) then you don't need taxes. for anything that government actually does. Reich said in this interview that there is actually a limit to how much the U.S. Government can borrow before it's too much. But then he said that now is the time for more government borrowing, because the interest rates are now, which just begs a certain question and answer. 

Why are our interest rates so low? Because the Federal Reserve up until last year, kept them low. But then they started raising them last year to deal with high inflation and high borrowing, to deal with the rising national debt and deficit Part of President Biden's and the last Congress's social welfare package from last summer, was to deal with the national debt and deficit, the so-called Deficit Reduction Act.

Anyone who pays taxes and pays their own bills in general, knows that inflation, as well as the debt and deficit, have been major issues in the American economy the last two years. And the Fiscal Responsibility Act of 2023 deals with inflation, as well as the national debt and deficit. 

Again, if deficit and debt doesn't matter, then government, including the U.S. Government doesn't need taxes for anything, because it now has unlimited borrowing authority. And no serious economist actually believes that even the Uncle Sam's government, has unlimited borrowing authority." 

Stephanie Kelton makes one good point here. I don't completely agree with it, but she's right about inflation where she says and I'm paraphrasing: 

"It's inflation that matters, not deficits. When inflation becomes a problem, (like right now) that's when you know your deficit is too high."

Well, guess what, when you run trillion-dollar deficits every year (and we've been doing that since 2020) inflation will be a problem. 

Inflation is what the Federal Reserve worries about the most. Raising interest rates, which can also be a big problem for middle class consumers, is the Fed's way of telling Congress and The White House, that your deficits are too high and you need to get them down for the sake of the economy. The Fed fights inflation by raising interest rates. 

Higher interest rates, makes it harder for not just government's to borrow money, but everyday Americans as well. This is money that could be sued to buy an apartment, a house, start a new business, expand a current business, buy a new car, save money for college, etc, all very important features in the American economy. 

When interest rates are high, the average American, (which is most of the country) can't afford to borrow money for things that they need to do to live well. When inflation is too high, the basic necessities in life become too expensive for most Americans. 

Deficits don't matter? Try convincing average Americans who work very hard everyday just to pay their bills, that their government's deficit doesn't matter and that inflation an high interest rates are just a myth. 

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