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Ding!

What Warren Mosler said:

The right level of deficit spending, long term or otherwise, is the one that coincides with full employment.

Why on earth isn't this statement blindingly obvious in Versailles?

Because Versailles isn't accountable to the voters, that's why.

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CMike's picture
Submitted by CMike on

How much of a publicly held debt as a percentage of GDP is Warren Mosler willing to see accumulated to create full employment: 100% of GDP, 200% of GDP, 300% of GDP?

If Mosler concedes he and his allies can not finance a large amount of the cost of creating full employment through taxes because of political constraints, what are the types of federal government work he and his allies think Congress and the President would likely approve? What would be the ratio of expenditures on job creation programs that end up as wages versus those which end up as profit?

Mosler writes:

Any nation with a non convertible currency and floating exchange rate policy is necessarily not in any case operationally revenue constrained.

Let's hear the upper end numbers for the dollars Mosler is willing to commit to maintaining full employment; a trillion dollars a year?, two trillion a year?, three trillion a year and for how many years?

Is this another one of those "Plan B? Who needs a Plan B!" plans?

warren mosler's picture
Submitted by warren mosler on

The size of the federal 'debt' per se is of no consequence. It represents funds that have been moved from fed reserve accounts to fed securities account, and get 'paid back' by being moved back from the securities accounts to the reserve accounts.

The size of government is not constrained by available funds. Therefore the size of govt is a political decision, based on which resources (labor, food, bombs, etc.) the govt. wants moved from private to public domain.

Once the 'right sized' govt. is determined, taxes can be set at levels that coincide with full employment. Generally that would mean setting the them at something below the level of govt spending, resulting in a federal 'deficit,' but there have been times when the appropriate level was higher than govt. spending, resulting in a federal 'surplus.' In 1999/2000 for example the budget was in surplus and unemployment was below 4%, (and the the trade deficit was substantial as well). At that time private sector 'savings desires' were negative with the domestic private sector going into debt at an unheard of rate of 7% of gdp.

Point is, as soon as it was clear aggregate demand was collapsing in the second half of 2008, I was advocating an immediate payroll tax holiday to support aggregate demand of people working for a living and prevent the subsequent collapse of the real economy. There's no inherent reason for a financial crisis to be allowed to spill over to the real economy.

And aggregate demand can always be adjusted via tax cuts and/or spending increases to support desired levels of demand.

and there is no limit to the subsequent federal deficit. for me, the right sized federal deficit is the one that coincides with full employment.

(not to dismiss the micro- we need to channel real growth in directions that don't increase the wrong kind of energy consumption, for example)

CMike's picture
Submitted by CMike on

Warren Mosler, you write:

and there is no limit to the subsequent federal deficit. for me, the right sized federal deficit is the one that coincides with full employment.

I disagreed with Dick Cheney when he said "deficits don't matter." For starters we knew it was the strategy of some conservatives to run up the debt as a prelude to attacking social programs and entitlement programs. It seems your argument here is that Cheney was correct in some larger sense, that there's no reason a massive federal debt should ever curtail government spending. Me, I always thought, in addition to the moral issues and certain strategic ones, pouring hundreds of billions of dollars into the sands of Iraq with was a bad spending decision from a financial point of view.

You seem to acknowledge there is a necessity for smart spending decisions when you write:

(not to dismiss the micro- we need to channel real growth in directions that don't increase the wrong kind of energy consumption, for example)

If there's a need to do the smart thing that can only be because there are spending constraints. So, before we go on some spending splurge, I'm thinking we better figure out where we're headed on the way to unprecedented debt levels. Not only can't we go back to the Happy Days cheap oil economy, we can't go back to our more recent consumer debt economy which featured the illusion of an ever more profitable financial sector.

Sure we can afford to spend money that ends up providing a 110% return on our outlay, that's tautological. The question is how can our government spend money in a way that will create the potential for new domestic production in the out years, and that's new domestic production with an emphasis on domestic.