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LARS P. SYLL 
Don’t be deceived by Kelton’s very slick presentation.
She fails to even begin to address the problems caused by government deficits and national debt.
Instead she pivots into a fuzzy dream where future needs and obligations can be met by extra infrastructure investment.
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Regarding the national debt, there is no escaping the obvious fact that the state will be obliged to make future interest and redemption payments to bondholders. This is likely to result in extra spending by bondholders, which entails fewer resources available for spending by the rest of us, i.e. the general public, firms and government. So, in order to prevent inflationary excess demand, deficits/extra debt mean that in the future there will have to be higher taxes, reduced government spending and/or higher interest rates.
In other words, debt implies a future redistribution of after-tax incomes from the general public/taxpayers to bondholders.
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MMTers sometimes make the specious argument that future debt obligations are not a problem because they can be simply refinanced or “rolled-over” through additional bond issues. However, debt rollover merely changes the financial portfolios of banks and wealthy individuals, with negligible effect on their spending on real resources.
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Kelton attempts a different argument. She claims that there is no problem about paying for future needs (e.g. future debt obligations or the welfare of the elderly) because extra future resources can be made available through infrastructure investment using unemployed resources.
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Kelton’s argument is fuzzy and probably very weak because she does not quantify how much extra investment is possible using currently unemployed resources. Nor does she quantify the future resources which such investment might produce. Arguably only a small proportion of future needs could be met in this way. As Ralph Musgrave points out, extra taxation is likely to be required.
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But even if there are substantial unused resources today, future debt obligations would remain a very serious problem. This is because of opportunity costs.
Instead of the investments proposed by Kelton, there could extra spending today on welfare and other expenditures. Or there could be tax cuts/higher private consumption today.
And in the future, even assuming Kelton’s investments take place and are productive, compared with what would otherwise be possible, debt obligations would reduce the spending which is possible on benefits for the elderly, or for other purposes, or for tax cuts.
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So while there is always a case for making the best possible use of unemployed resources, and while there never any ground for hysteria regarding the national debt, Kelton’s neglect of the future costs of deficits to the general public/taxpayers is deplorable.
Comment by Kingsley Lewis— 6 Apr, 2019 #
Such ominous bluster concerning “future debt obligations” is economic nonsense. When the government borrows money, selling a bond, that bond is exactly equivalent in nominal value (net present value) to the future stream of taxes that must be paid should the government choose to retire it.
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The government in spending money may well marshal real resources — mobilizing resources to some purposeful production of public goods being among the normal purposes of public spending. But, when the government seeks to pay off the interest or capital of the debt in the future, it is not de-mobilizing resources. Resources are not involved. The government levies money taxes exactly equal to the money payment necessary to extinguish the outstanding debt. It would be terrible PR to do so outright, but without admitting it, the government by declaring itself owed taxes exactly equal in nominal value terms to its debt obligation might as well simply demand the bond and its coupon be returned in satisfaction of the tax debt.
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The essential thing to notice is that the anticipated great burden of future debt obligation will be resolved on net when that future arrives by an exchange of paper alone. The government does not require that taxes needed to extinguish a debt be paid in bushels of corn. It asks for money. And the exact money to pay off the debt exists already in the form of the debt instruments themselves.
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Comment by Bruce Wilder— 6 Apr, 2019 #
Bruce,
You are right. My recent comments on debt are garbage.
Bond sales, redemptions, roll-overs, quantitative easing, etc. don’t affect the net wealth of the private sector, so there are no significant effects on spending and no debt burden on taxpayers or anyone else,
Apologies to all for my garbage comments.
Comment by Kingsley Lewis— 7 Apr, 2019 #
Hopefully you are being sarcastic Kingsley. I have always found your comments to be intelligent and thought provoking, even if I disagree at times. Far from ‘garbage’. This is one of those times when I disagree with parts of what you wrote but what the hell- I disagree with everybody sometimes. Maybe wrongly at times. Well probably rather than maybe…
Keep commenting- it helps me learn.
Comment by Jerry Brown— 7 Apr, 2019 #
Good rebuttal of the more simple minded ideas about the debt being a problem. On the other hand her dismissal of the “how are we going to pay for it” question is too flippant (around 30 minutes in). The reality is that assuming the economy is at capacity, and for a given ratio of retiree income relative to average incomes, taxes DO HAVE to be increased to pay for a generous social security system. Why else is it that in countries with high levels of public spending relative to GDP, taxes are also high relative to GDP?
Comment by Ralph Musgrave— 4 Apr, 2019 #
Social stability, remember FDR couched S.S. in taxation to facilitate political friction, not on fundamental monetary concerns.
BTW saw you over at TJN of late and found your complaint curious, ditto above in retrospect.
Comment by skippy— 4 Apr, 2019 #
Nice presentation with good visuals
Emphasizes the public deficit/private surplus symmetry – the right way to do it
As opposed to the often referenced “government spends first” nonsense, which is neither necessary nor accurate to explain this stuff
It’s 99 per accounting – why mainstream barely has a clue
Might enhance credibility by avoiding overly simplistic language about “scorekeepers”, “points”, “savings accounts at the Fed”, etc.
Comment by JKH— 4 Apr, 2019 #
Yes I think that was a very good presentation.
JKH, I think you could agree that an analogy that was simplistic for you might still help a non-expert like me to understand something. Especially when encountering an idea for the first time. The points at a football game worked so well for me that I spent hundreds of hours trying to learn if it was indeed a good analogy or not. All in all, I think it is a good analogy as far as analogies go.
Comment by Jerry Brown— 4 Apr, 2019 #
OK
Sometimes analogies require an investment in order to pay dividends
e.g. Analogizing an analogy to a stock
: )
Comment by JKH— 4 Apr, 2019 #
Yeah, something like that 🙂 In my case the analogy spurred the subsequent investment. This is probably a situation where Investment should not be thought of as bringing forth Saving….
Comment by Jerry Brown— 4 Apr, 2019 #
A large part of the issue with debate is semantics and any ideological trip wires.
Comment by skippy— 4 Apr, 2019 #
Agreed: good presentation, but there’s a lot of semantics there.
Comment by Ralph Musgrave— 4 Apr, 2019 #
Ralph its incumbent on you to delineate such and show grounds to establish such delineations from a historical perspective.
Comment by skippy— 4 Apr, 2019 #
Lots of Sumerians?
Comment by skippy— 4 Apr, 2019 #