Want To Sound Really Smart About Economic Issues? Read This

When Blue America endorses a candidate, there are several ways we can be helpful to their campaigns, the most obvious being to help them raise campaign funds by connecting them to small dollar campaign contributors. This cycle one of the most valuable other ways we've helped candidates is by connecting them to Stephanie Kelton, America's most brilliant economist. She has been very patient and very helpful with any candidate who wanted to take up he offer. When candidates are advocating Medicare-For-All, the most obvious question they get is "How does that get paid for?" Months after a session with Kelton, Alexandria Ocasio-Cortez had a great, to-the-point reply:

Yesterday Ben Walsh did a Q & A session with Kelton for Barrons. It's certainly worth reading the whole thing, but here are some excerpts:

Barron’s: Let’s start from the top. The way the federal government works is it takes in money from taxes, and then it spends it. Right?

Stephanie Kelton: Well, that’s the usual belief. How it really works is that there’s a constant overlap of things happening. That when Congress sits down, in an ideal scenario, the House and the Senate would come up with budgets. And in all likelihood, they won’t match exactly. And so there will be reconciliation. The budget will either pass or not. It gets signed by the president or not. Congress is writing down numbers and saying, “This is our intention, to spend in these amounts.” And the budget authorization is given that allows the heads of these agencies to go out and start hiring, engaging in contracts. It’s the authorization from Congress that provides the funding. That triggers the spending.

The conventional wisdom about deficits is that we should always be worried about them. When do you worry about deficits?

I worry not just about the magnitude, but about the purpose. We could add $1.5 trillion to the deficit over 10 years, as we just did with tax cuts that go disproportionately to people in the top-income distribution, and we could have done, for instance, student debt cancellation at virtually the same price tag. We could have done massive infrastructure investment, or R&D investment.

You can have the same budgetary outcome, but very different economic outcomes, in terms of the potential to boost long-term growth and productivity, impacts on the distribution of income, and so forth. Every economy has its own internal speed limit. You can only absorb so much additional spending at any point in time, given the slack that the economy has at that moment. So can the deficit be too big? Of course! But can it be too small? Yes. And that’s something you rarely hear people say. Or complain about it.

It seems like people forget that balance sheets have two sides.

Government debt is just the money the government spent into the economy and didn’t tax back. That’s all the national debt is. It’s a historical record of all of the times that they made a net deposit, spent more than they taxed out, and the bonds are the difference between those. One of the greatest cons ever perpetrated on the American people is this notion that the national debt belongs to us, that we are responsible in our individual capacity for a share of it.

The national debt clock that counts up exactly how much is owed by every man, woman and child in America!

When I worked on the Hill, one of my favorite exercises was to find elected officials, staffers, and ask them if you had a magic wand, and you could wave it, and eliminate the national debt tomorrow, would you do it? Of course. Who wouldn’t do that? Yes, I mean, the quickest “yes” you ever got in your life.

OK, what if I gave you a different wand, and I told you, you can wave the magic wand, and you can eradicate the world of U.S. Treasuries. There won’t be Treasury notes anymore. They’ll just all be gone. How many members of Congress, would do that?

Zero.

They looked at me with a total blank stare.

Why do you think that people generally, and politicians in particular, are stuck on this notion of the government spending being like a household or an individual?

In some ways, it’s rhetorically convenient. No politician wants to stand, I think, in a town hall meeting and try to explain the intricacies of government finance to constituents. So it’s a convenient narrative to just reinforce the conventional wisdom, the norms of understanding. And I think it also provides political cover.

You advised Sen. Bernie Sanders, and you’re a major proponent of a jobs guarantee, support Medicare for all, free college tuition, and on-- all things the left wants. Do you think that modern monetary theory has an inherent set of politics?

No. When we started undertaking the research for this body of scholarship that’s now dubbed MMT, it was an exercise in trying to understand the monetary system, the way things work. We just wanted to get a better understanding of how the economy works, how fiscal and monetary operations work. At least 90% of MMT is descriptive in nature. But if you believe that the economy chronically operates under its full potential, then it makes sense to look for policy recommendations to make things more efficient, to maximize potential output. And MMT’s not the only school of thought that does that. You see that with classical supply-siders as well. They think the way to squeeze out the last bit of potential is largely through tax cuts and deregulation.

What about Greece, Portugal, Spain, Italy, Argentina, and their debt crises? They exist. Why don’t those things worry you?

Well, the debt crises in those countries are worrying to me. But it’s not a lesson for America. You know, back in 2010, at the height of the European debt crisis, I can remember standing in my kitchen with the TV on, and turning on the news, cooking dinner, and seeing the opening to the nightly news. And it goes, dah, dah, dah, the debt crisis in America. And I go, what debt crisis in America? But that is really what the narrative started to become: This is a warning for America. We need to get our fiscal house in order.

What’s different? Look, Italy in 1995 had a debt-to-GDP ratio of around 120%. Spain in 1995 had a debt ratio of 62%. Greek debt-to-GDP over 100% before joining the euro. These countries were borrowing and spending in a currency that they created. Who remembers the debt crisis in Europe in ’95? There was no debt crisis in ’95, because Italy could always meet every obligation that came due, on time, in full, because it was paying in lira. Where and how else is the lira going to come from but the Italian government?

Do you think openness to MMT and view of deficits and government debt is generational? Do old people just not get it?

I think so. For a certain demographic, the ’70s are still kind of a fresh memory, and you know, waiting in long lines to put gas in the car, high inflation. And so that’s a live memory for some demographic. But young people-- I mean, Obama’s slogan was “Yes we can.” And then all hell breaks loose, and he’s on TV right after the inauguration saying, we ran out of money, so no, we can’t. And then you get Hillary Clinton’s message, which was pretty much, “Yes, we can a little bit.” And millennials see their future, they see climate change, and they take it seriously. They see the cost of college education. They see problems with health care. They can’t get out of the home and start a life. They’re open to a big, ambitious agenda. The threats are real for them.