“Deficit Denier” ??
The accusation of being a ‘deficit denier’ seems to cause real problems for many progressives. We should meet this accusation head-on. WTF is a ‘deficit denier’ anyway? This is the obvious question that needs to be asked. Is anyone denying the UK and US governments spend more back into their economies than they receive in taxation revenue? No-one is. Neither is anyone denying, during the very rare times the government is in surplus, the reality that everyone else is then in deficit themselves. Someone has always to be in deficit. What is there to deny?
We try to be deficit comprehenders. Just like Stephanie Kelton’s deficit owls. We try to understand and explain why a sovereign government like the UK can be in deficit for an extended period of time and why the bailiffs aren’t knocking on the door demanding an immediate repayment of all loans.
“Magic Money Tree” ??
This is rather a silly phrase that betrays a lack of capability for even simple lateral thinking by its user. Mrs Thatcher was fond of comparing Government to her father’s retail business. It leads to the wrong answers. We can’t understand Government economics on this basis.
We need to be thinking about the nature of economics from a government’s POV. It’s not the same as our POV! Once we accept that, it all becomes easy enough.
Say a government, perhaps the Greeks, issues a new currency. They issue 100 million currency units into the economy to pay their workers and other expenses. Where does it come from? Nowhere. It is just created in a computer or printed on a press. There’s no need to even pick it from the “magic money tree”. A few taps on the keyboard is all that’s required!
In the first year the govt receives back 60 million in taxes. So the Government now have a debt of 40 million. Where has it gone? Well the people have 30 million in their wallets and piggy banks. They’ve bought some imports from Germany so the Germans have 10 million in their central bank.
So Govt Debts = Assets(Monetary) of Domestic Sector + Assets(Monetary) of Overseas Sector.
No Government debts means no-one else has any assets! The Government of a sovereign currency issuing country has to be in debt!
It really is that simple!
The government then issue another 100 million in the next year and collect back 110 million in taxes. Yippee! They are in surplus! But just look at where that surplus has to come from.
Once we understand that we can see that the Government’s debt or deficit is no problem to it at all. Just as it is no problem for the ‘banker’ (who should perhaps be called the government) in a game of Monopoly (as in the board game) to be in debt. There would be no point playing if he hung on to all his cash and started fretting about his deficit! It can be a problem for the players in the economy though. If there’s too much spending there can be too much inflation of prices and that’s the time to think about taxing some money back into the bankers infinite ‘coffers’. The ‘banker’ doesn’t need it – he might just want to keep prices stable.
I don’t believe these are difficult concepts. There’s over four years to the next general election. It is understandable that politicians are more concerned with picking up easy votes than explaining macro-economic principles, but when it is all this simple why not call out the neoliberals, if they really do believe this nonsense, for the dim-wits they are?
Understanding the nature of our economy doesn’t imply an ultra -left political stance any more than does an understanding of the nature of the solar system. ie Knowing that the Sun doesn’t orbit the Earth!