Discussion about “Deficit Is Falling Because”

There is much discussion on YouTube about the The Real News Network’s  YouTube video I showed in my previous post Deficit Is Falling Because Of Government Austerity, Not Economic Recovery.

There was one particular comment that I thought exemplified where we are failing to communicate.

Byron Anderson said:

You remind me so much of Alan Greenspan who didn’t understand the problem with repealing Glass-Steagall, thereby releasing the Wolves of Wall Street who have ravaged honest financial markets; or The Bernanke who testified to Congress that he saw no problem in the speculative housing bubble just prior to it bursting, and causing the 2007-09 collapse. Your ideology has blinded you to the simple fact that debt cannot grow exponentially forever on a finite planet, and money-printing does not magically create wealth and prosperity.  Obama has piled-on more debt in his term than all prior Presidents combined.  The reckoning WILL come and interest rates WILL rise.  When that happens, the game is up.  Good luck to you.

I tried to get to the heart of some of the misunderstanding.

Nobody is saying debt can grow exponentially.  Nobody is saying that money-printing magically creates wealth and prosperity.  If that is what you think we are saying, then we have a real failure to communicate here.  I can try to do a better job at communicating, if you can tamp down your assumption that what I am saying is so ridiculous that I must believe in some of what you  rightly think is ridiculous.

Some people don’t seem to want to believe the part of Keynesian theory that says the economy sometimes needs stimulation.  They ignore or dismiss the part where he says, and sometimes it needs the opposite of stimulation.

How loudly do we have to shout SOMETIMES? I don’t know if putting it in all caps makes it any clearer.

At the current time, public debt (meaning the federal government’s debt) is not growing exponentially.  And you have to realize that public debt and private debt are two different and frequently complementary things.

Creating money does not magically create wealth and prosperity as you say.  If it did, then the Fed’s QE would have fixed the recession.  That is exactly the point that Keynes made.  When printing money doesn’t work, the government actually has to take on the role of buying real stuff.  By real stuff, I mean the real stuff that keeps people employed. The government can always afford to buy real stuff, because it creates the money with which to buy it.  Yes, the FED is part of the government.  So all the FED QE polcy shows is that the FED could create the money needed to buy real stuff. That is why we bring up QE all the time. The QE policy is not that policy of financing the government’s role of buying real stuff.  The FED is buying financial stuff only. The ability to create money could be used for the right policy, but at the moment it is not being used for the right policy.

Sometimes we argue strongly for the point we are trying to make without realizing that we aren’t clearly stating what is the point itself.  We bring up lots of examples which we think proves our point, and fail to realize that the listeners don’t understand exactly what point we are trying to prove with our examples.  In the heat of the argument it pays to stand back and try to figure out where we are failing to communicate.

So let me be clear as to what I said.

The FED’s QE policy is anti-Keynesian.

Please do not blame Keynes when the Fed uses policies that are diametrically opposed to what he prescribed.

Notice my very important word “WHEN”.  Note that the FED does not have the tools that Keynes says should be used.  Only the Congress and Executive branch have those tools.  If and when they use the tools prescribed by Keynes, and if they do not work, then and only then can you place any blame on Keynes’ theory.

Leave a comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.