Vickrey on deficits and obfuscatory financial rectitude

24 Apr, 2019 at 08:17 | Posted in Economics | 3 Comments

wvickreyWe are not going to get out of the economic doldrums as long as we continue to be obsessed with the unreasoned ideological goal of reducing the so-called deficit. The ‘deficit’ is not an economic sin but an economic necessity […]

The administration is trying to bring the Titanic into harbor with a canoe paddle, while Congress is arguing over whether to use an oar or a paddle, and the Perot’s and budget balancers seem eager to lash the helm hard-a-starboard towards the iceberg. Some of the argument seems to be over which foot is the better one to shoot ourselves in. We have the resources in terms of idle manpower and idle plants to do so much, while the preachers of austerity, most of whom are in little danger of themselves suffering any serious consequences, keep telling us to tighten our belts and refrain from using the resources that lay idle all around us.

Alexander Hamilton once wrote “A national debt, if it be not excessive, would be for us a national treasure.” William Jennings Bryan used to declaim, “You shall not crucify mankind upon a cross of gold.” Today’s cross is not made of gold, but is concocted of a web of obfuscatory financial rectitude from which human values have been expunged.

William Vickrey

This — really — should not be so hard to understand. It is not rocket science. It is simple. In ‘affluent society’ — as Galbraith had it — rich people save more than poor. To close the demand gap governments have to run deficits.

The economic policies pursued by authorities nowadays cannot turn bad austerity policies into good job creating policies. Austerity policies and simple-minded fixation on inflation ​are not what it takes to get our limping economies out of their present-day limbo. They simply do not get us out of the ‘magneto trouble’ — as Keynes had it — and neither do economists and politicians who seem to think that cutting government budgets would help us out of recessions and slumps. In a situation where monetary policies have​ become more and more decrepit, the solution is not fiscal austerity, but fiscal expansion!

michalAmong the opposers of this doctrine there were (and still are) prominent so-called ‘economic experts’ closely connected with banking and industry. This suggests that there is a political background in the opposition to the full employment doctrine, even though the arguments advanced are economic. That is not to say that people who advance them do not believe in their economics, poor though this is. But obstinate ignorance is usually a manifestation of underlying political motives …

Michal Kalecki Political aspects of full employment


  1. Vickrey: “Alexander Hamilton once wrote ‘A national debt, if it be not excessive, would be for us a national treasure.'”

  2. Bill Mitchell -“Banque de France should write off its holdings of State debt- Central banks could easily write off all Eurozone debt”

  3. One solution to this problem would be to QE the entire national debt and pay no interest on reserves (i.e. commercial banks’ stock of base money at the central bank). That would ultimately put us in the position where the only state liability was zero interest yielding base money, which is exactly the set up advocated by the two founders of MMT, Warren Mosler and Bill Mitchell (plus Milton Friedman).

    Economically illiterate politicians and economically illiterate economists would then not be able to point to any debt: at least they’d have a problem because all that base money / “debt” would be identical to $100 bills, £10 notes etc, which the above illiterates have never counted as “debt”.

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