It's Not The Debt We Need To Fix, Stupid! It's Our Thinking

The ad nauseam repeated claim that our public debt is excessive and that we have to balance the public budget is nothing but absolute nonsense. The harder politicians - usually on the advice of mainstream establishment economists - try to achieve balanced budgets for the public sector, the less likely they are to succeed in their endeavor.

lets.get.deeply.into.debt.

And the more the citizens have to pay for the concomitant austerity policies these wrong-headed politicians and economists recommend as ‘the sole solution.’

Public debt is normally nothing to fear, especially if it is financed within the country itself (but even foreign loans can be beneficent for the economy if invested in the right way). Some members of society hold bonds and earn interest on them, while others pay taxes that ultimately pay the interest on the debt. The debt is not a net burden for society as a whole since the debt ‘cancels’ itself out between the two groups. If the state issues bonds at a low-interest rate, unemployment can be reduced without necessarily resulting in strong inflationary pressure. And the inter-generational burden is also not a real burden since - if used in a suitable way - the debt, through its effects on investments and employment, actually makes future generations net winners. There can, of course, be unwanted negative distributional side effects for the future generation, but that is mostly a minor problem since when our children and grandchildren ‘repay’ the public debt these payments will be made to our children and grandchildren.

To both Keynes and Lerner - as to today’s MMTers - it was evident that the state has the ability to promote full employment and a stable price level - and that it should use its powers to do so. If that means that it has to take on debt and underbalance its budget - so let it be! Public debt is neither good nor bad. It is a means to achieve two over-arching macroeconomic goals - full employment and price stability. What is sacred is not to have a balanced budget or running down public debt per se, regardless of the effects on the macroeconomic goals. If ‘sound finance,’ austerity and balanced budgets means increased unemployment and destabilizing prices, they have to be abandoned.

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