Monday, 17 November 2014

Homer Simpson on the debt - cartoon.


  1. What is the source of the confused rubbish which the teacher is reading to these unfortunate kids?
    "So the debt needs to be whatever size induces the private sector to spend at a rate that brings full employment".

    Not so, according to to MMT (Bill Mitchell): "the public debt ratio is a relatively uninteresting macroeconomic figure and should be disregarded. If the government is intent on promoting growth, then the primary deficit ratio and the public debt ratio will take care of themselves."

    Contrary to the teacher, demand management and full employment are best achieved by fiscal policy (government spending and taxation), not by trying to find the optimum the size of the national debt.

    And the role of fiscal policy is not that of "dealing with" the alleged inflationary effects of QE and paying interest on the national debt.

    1. Bill was reacting there to the large crowd of ignoramuses who get worried about larger than normal deficits and debts. I agree with him that the size of the deficit and debt are “uninteresting” in the sense that they are not a cause for panic. However, they DO HAVE an effect.

      The initial effect of a deficit is what might be called a fiscal effect, i.e. if government prints or borrows money and hires a thousand extra bureaucrats, then employment will rise by ROUGHLY a thousand. A secondary effect is that in both the print and borrow scenario, what MMTers call “private sector net financial assets” rise. In the borrow scenario, it’s the debt that rises. And the larger is PSNFA, the more will the private sector spend. What would you do if someone gave you £1m of Gilts? Or in the case of the print option, what would you do if someone gave you £1 in cash?


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