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US Budget Gap Is Top Worry for NABE Economists

Posted by WARREN MOSLER on February 28th, 2011

So much for their legacies:

US Budget Gap Is Top Worry for NABE Economists

February 28 (Reuters) — The massive U.S. budget deficit is the gravest threat facing the economy, topping high unemployment and the risk of inflation or deflation, according to a survey of forecasters released Monday.

The National Association for Business Economics said its 47-member panel of forecasters increased its estimate for the 2011 federal deficit to $1.4 trillion from $1.1 trillion in its previous survey in November.

“Panelists continue to characterize excessive federal indebtedness as their single greatest concern,” with state and local government debt the second-biggest worry, the survey said.

33 Responses to “US Budget Gap Is Top Worry for NABE Economists”

  1. Tom Hickey Says:

    Probably so much for our legacies, too, literally. Depression, anyone?

    Reply

  2. GLH Says:

    If the deficit is so important, I wonder why they didn’t report this BEFORE the extension of the Bush tax cuts? I know they didn’t want tax cuts just so they could complain about the deficit and ask for spending cuts to social security.

    Reply

  3. Tom Hickey Says:

    The other side responds:

    James K. Galbraith, Economists Warn of “Irrational Fears” of the Deficit and Stymied Recovery

    Economists for Peace and Security has issued the following statement on current budget debates, pointing out that the entire premise is false and that giving in to the demands to cut the deficit imperils fragile recovery. James K. Galbraith, Ken Arrow, Andrew Brimmer, and Robert J. Gordon are among the notable signatories.

    Reply

    WARREN MOSLER Reply:

    and they didn’t even ask me to sign.
    ;(

    Reply

  4. Art Says:

    What’s really bizarre is that they rank federal deficits ahead of state and local. That’s a bit like worrying more about the ECB’s solvency than the EMU member states’, isn’t it??

    Reply

    WARREN MOSLER Reply:

    yes

    Reply

  5. Ralph Musgrave Says:

    NABE & Co do have some sort of a point when they say “indebtedness” is their concern. Letting a deficit accumulate as national debt rather than extra monetary base enables foreigners to become creditors of the U.S. as a country. In contrast, if the deficit (to take a simple example) consists just of extra road building in the U.S., the deficit accumulates, initially, as extra cash in the bank accounts of U.S road builders and construction employees.

    Plus there is widespread disagreement on the extent to which government borrowing crowds out private sector activity. Plus, why pay interest to China as a reward for supplying the U.S. with money which the U.S. could perfectly well print itself? Thus letting deficits accumulate as extra monetary base is the better option: it was to option favoured by Abba Lerner.

    Of course, if the monetary base option were adopted, NABE & Co would start wittering on about inflation. But why a bit of extra demand would cause inflation with current levels of unemployment is a mystery.

    Reply

    WARREN MOSLER Reply:

    either way they are ‘creditors’ when reserves pay interest, if you define creditor as having something to do with earning interest.

    and either way they are creditors if you define creditors as willing to hold what the govt demands for payment of taxes

    Reply

  6. The Arthurian Says:

    What’s really, really bizarre is that they rank federal indebtedness ahead of private-sector indebtedness. If we reset government debt to zero, the government could borrow and spend a lot. If we reset private-sector debt to zero, the private sector could borrow and grow a lot.

    I forget. What is our objective??

    Art S.

    Reply

    Rodger Mitchell Reply:

    The federal government can spend without borrowing. Federal borrowing (aka “creating T-securities out of thin air, then trading them for dollars”) is 100% unnecessary. If there were no T-securities, the government’s ability to spend would not be reduced by even $1.

    “Debt,” “deficit” and “borrowing” have completely different meanings in the federal world vs. the private world. Somehow, people don’t seem to get it.

    Rodger Malcolm Mitchell

    Reply

  7. james hogan Says:

    I’m watching FED chairman Bernanke testify before a Congressional committee. It appears that he has bought into the argument that the deficit is a threat to the US economy…somewhere down the road.

    It seems to me that the present situation has disproved the notion that deficits cause inflation. In fact, if there were no deficits, the US economy would be in a very deep contractionary depression now.

    Since the MMT is the best explanation for the behaviour of markets, monetary flows and economic expectations. So it would be most helpful if the MMT advocates could develop a visual presentation, accessible to the majority of the public, that could explain how the macro monetary system really works.

    So much of the thought behind present monetary system is grounded in the “hard money” (gold-backed)era that it is apparently very difficult for them to adapt to this new reality.

    Reply

    Tom Hickey Reply:

    So it would be most helpful if the MMT advocates could develop a visual presentation, accessible to the majority of the public, that could explain how the macro monetary system really works.

    Yes, something that can compete successfully with “Dancing with the Stars,” and “American Idol.”

    :)

    Reply

    Matt Franko Reply:

    Tom,
    I think some form of physical/dynamic model or ‘enactment’ is going to be required for some people to be able to “see” this.

    My observations are that some people do not possess the, I’ll call it “quantitative vision” to be able to grasp this. Some folks (yourself NOT included, along with all in paradigm) cannot ‘visualize’ a dynamic/quantitative system in operation, if the only information available is written information, or spoken information (even with animated hand motions;)

    I think the cognitive ability may be called “abstracting”; my wife and I ran into this with our son and Sylvan Learning Center helped him thru it some years back. I think this is why folks like Barry Ritholtz, and Hubbard, cant get this even when you speak to them for hours in a small meeting. Someone studying human “cognitive quantitative perception” I think should find this phenom very interesting. Some people just dont seem to have it, they have a hard time “abstracting” these events, so to teach this to them may require extreme efforts on the part of those trying to educate them. I think this can be done though, they just need more help than some others like ourselves (not to say that I do not have my own limitations in other areas). From what I see here and on the other MMT blogs, most all of the folks who understand this are PhDs and equivalent (you know who you are!) and are just extreeeeemly intelligent, it’s really amazing to me how smart some of these people here are, but if we care enough about the people who cant pick this up (and the resultant policies) as fast as we do, we are going to have to go the extra mile……

    So some sort of computer graphical simulation i think is required to help them visualize something they just cannot viualize on their own; or I have been thinking about a sort of “stage play” where you have characters in Tee shirts with “FED” “TREASURY” “BANKER” “PRIMARY DEALER” on them exchange large notes and certificates as props on a big stage and every character maintains ledgers with dry erase markers on whiteboards in the background so an audience can watch the dynamics of these balance exchanges transpire right before them. The “play” could be divided into “Acts” such as “Treasury Auction”, “Tax Payment”, “Importing”, “Govt Purchase”, etc… the audience can follow along and watch the flows… make a film of it?

    I’ll call Steven Spielberg and see if he wants to fund it! ;) Hang in there…. Resp,

    Reply

    Peter D Reply:

    I see people who while accepting the MMT reasoning in a shallow way, without deep understanding, still bulk at what they feel amounts to “free lunch”. I’ve seen this over and over: no matter how many disclaimers the MMTers make about “real constraints”, inflation etc, the fact that the govt can just create money doesn’t ring true to people. As someone in one of the forums said, “here comes the magic wand”. I think an appropriate answer to this is:
    “OK, call it a magic wand, but this is no more “magic” than driving a car based on road conditions vs. driving a car based on what you think the conditions will be is “magic”. MMT says that you can adjust taxation and spending ex post, while what we’re doing today is trying to adjust them ex ante. So, we find ourselves going uphill and breaking because we think that a downhill will begin at some point.”

    WARREN MOSLER Reply:

    try this?

    fiscal adjustments don’t ‘add stimulus’- you can’t get something for nothing.
    they remove drag and remove restrictions- we all know you can run faster if you take the plastic bag off from over your head.

    beowulf Reply:

    The Greeks had a saying, “When Pericles speaks, the people say. ‘How well he speaks.’ But when Demosthenes speaks, the people say, ‘Let us march!’

    You convince people by moving their hearts not by changing their minds. There is no better example than the Words of He who showed that there IS such a thing a free lunch (if you don’t mind fish and loaves of bread).

    When we think of Jesus’ teachings, we think of stories, don’t we? Parables. Lessons taught through familiar experiences, at least familiar to the original hearers—farming, weddings, employment, borrowing and lending, tending sheep. It was really just an extension of what we now call the “oral tradition.”…

    In this way, he influenced thousands of his contemporaries and billions since then to see differently. How does this work? It’s not just that Jesus’ stories offered clever analogies to everyday experience, or that they were simply memorable tales. A major reason is that Jesus’ stories, like all of the most influential stories throughout history, touched people’s emotions. They had “pathos,” to borrow Aristotle’s term for the influence principle—the power to evoke feelings and arouse emotions.
    http://www.epiphanyresources.com/influence/principles/principle7.htm

    The only way to combat “family budget” or “tightening our belt” analogies is with counter-analogies. To give an example, by likening an output gap to crops left rotting in the field. Instead of workers without jobs going without food or living off an unemployment check, why not pay them to bring in the harvest? To do otherwise is pointless, wasteful, practically a sin. Now I’m sure any journeyman preacher could tighten that up, but you get my point. MMT would get farther if it were framed more like an Al Sharpton sermon than an Al Gore powerpoint.

    To be sure, I’m talking about the use of parables or storytelling as a method of presentation and not for making a “What would Jesus do” argument. There’s an Alabama tax professor, Susan Hamill, who takes that tack in her scholarly work, but I’ve always believed mixing religion and politics is best reserved for politicians trying to get out from under a sex scandal. :o)
    http://www.law.ua.edu/susanhamill/

    Tom Hickey Reply:

    Matt, I agree with what you say. My point is that would most people be interested enough to stay tuned when the alternative is, facetiously, “Dancing with the Stars,” or porn or whatever. I don’t think most people are interested. They are convinced (cognitively and emotionally biased) of their strongly held views and see no need to question them. They are regard “experts” as “elites” and eggheads.

    I think that the challenge is to convince policy makers and let them figure out how to slip it by the people, as usual. They have plenty of practice selling the unsaleable, which usually involves saying one thing to get elected and then doing another.

    Matt Franko Reply:

    Right Tom,
    My hypothetical ‘play’ would not be for popular consumption ;) Or at least if we buy air time for it, we shouldnt put it on opposite ‘Dancing with Stars’ or whatever ;) … Sarah wouldn’t watch if Bristol was dancing that night!

    But something like it may be of value to the policymakers who are having trouble with this. I found this Wiki on “Abstraction”

    http://en.wikipedia.org/wiki/Abstraction

    “Abstraction in mathematics is the process of extracting the underlying essence of a mathematical concept, removing any dependence on real world objects with which it might originally have been connected, and generalizing it so that it has wider applications or matching among other abstract descriptions of equivalent phenomena.
    The advantages of abstraction in mathematics are:
    it reveals deep connections between different areas of mathematics
    known results in one area can suggest conjectures in a related area
    techniques and methods from one area can be applied to prove results in a related area.
    The main disadvantage of abstraction is that highly abstract concepts are more difficult to learn, and require a degree of mathematical maturity and experience before they can be assimilated.

    I believe accounting is an abstract construct. See I think the people who are not getting this have a low “mathematical maturity” and we have to somehow help them overcome this as we are able. It wont be and isnt easy. I dont think it can be overcome with ‘whitepapers’ and speeches, or video ‘hits’, but I think it can be done with 3D visual aids/playacting, etc. If you look at all of the MMT folks (you know who you are!), you all have HUGE mathematical maturity levels, I guaranty it. And it’s more than being able to solve differential equations, you have to realize correctly why you would want to do that in the first place. Thoma, Keen > Good math skills for sure, but no ‘mathematical maturity’ imo.

    http://en.wikipedia.org/wiki/Mathematical_maturity

    We all may be created equal, but it looks like we are not created ‘the same’… Resp,

    Tom Hickey Reply:

    Matt, I think that is part of it but there is a larger factor. Everyone has a worldview (logical construct) that they identify as “reality.” This worldview is imbibed through nurture, education, association, and exposure to various popular and institutional influences. It is very difficult to change this worldview based on factual evidence because the justification is in terms of the norms of the worldview that establish the criteria of truth and falsity.

    Science is a method of escaping the confines of a prevalent worldview, but the normal paradigm in the various science shapes the worldview of most scientists working in the field, since it dominates the universe of discourse and if one does not subscribe to it, one doesn’t have a voice.

    This is why it is so hard to get to the experts. But experts have the tools to overcome their bias if they dare to confront the evidence. As Upon Sinclair observed, ” “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!” (I, Candidate for Governor: And How I Got Licked (1935), repr. University of California Press, 1994, p. 109)

    Ordinary people are different. Most people have rigid belief systems and are both unwilling and unable to change them short of a conversion experience. Generally, such a conversion is the result of a shock rather than an “aha.” As long as government can manage to keep the pain bearable that probably won’t happen. But if the pain becomes unbearable, then there will be mass conversion. The problem is that is not possible to predict what that conversion will be to.

    I agree that MMT’ers should do their best to make their views as available as possible, ready to be picked up in a handy format. But the probability of this solution being picked up is still very low based on the exposure I see out there. We are a long way from a critical mass.

    I think that the better course at this stage is to focus strongly on key levers that would be most accessible to influence, and those are in the business and financial community, academia, and politicians, especially those in need of a fix who are willing to go out on a limb.

    It is probably up and coming young leaders that will pick up this ball and run with it. These are the ones to target. We are just going to have to wait for the older ones to die off or be replaced. They are never going to get it.

    Peter D Reply:

    I don’t think we can realistically hope to convince a lot of people in the short term. But, as Naomi Klein puts it, we need “to move the center”. Look what the right wing managed to do in all those years – they moved the center so much to the right that as somebody on this forum noted, Nixon sounds like one of the current most liberal congressmen (beowulf, I think this was you.) This is a result of tireless efforts during all these decades to slowly but surely to move the center in their direction. We need to do the same. So, no, I don’t believe we’ll see people demanding JG in the near future, but if we’re doing it correctly, in 20 years they might.

    Sabine Reply:

    Matt,

    I offered to work on a film with Bill Mitchell but I think he’s too busy and I would need help with the script (I can’t do it alone) and I think your idea of characters in Tee shirts is a great one. Anyone with idea should participate.

    Here’s my website
    http://sabine.massal.net

    Hope I can help ;-)

    Parker Williams Reply:

    I think what you need is to work MMT into a type of “sims” model game. It would be fun and informative.

    Tax more create inflation and unimployment – “watch the towns people panick”

    Spend more and reduce tax – watch prosperity return

    Spend recklessly and tax at 1% – watch hyperinflation run rampant.

    I would love computer model where you could see real results as you adjust variables. I think people would learn best this way.

    Do we have any programmers on here?

  8. jaymaster Says:

    I’ve been thinking about a “shock” statement that I am fairly sure would be supported by MMT, and could certainly be enlightening.

    When someone mentions the “terrible” US national debt, be it $3 trillion, $30 trillion, or whatever, I could respond with:

    “But we could pay it all off tomorrow if we wanted to. Or the next day. Or in the next minute.”

    Of course, we would be breaking contracts, and there might be other legislation that prohibits such a move. And I can’t actually envision a case where it would be desirable.

    But technically, such a statement is correct, is it not?

    Reply

    Neil Wilson Reply:

    Treasuries and other government bonds are savings certificates with the state. That’s all they are.

    So you’re not really paying anything off. You’re just responding to a normal liquidation of a term deposit – just as happens in banks and financial institutions day in, day out across the world.

    There is another question you can ask when ever somebody suggests the government is borrowing ‘just like you or me’.

    When was the last time you issued bonds onto the open market in an auction to fund a house or car purchase? You didn’t did you. You went to a bank and asked for a loan.

    So if the government really needed to borrow money, wouldn’t it just go to its bank (the Fed) and ask for a loan?

    Therefore this selling of bonds in auction has to have some other function.

    Reply

    MamMoTh Reply:

    I’d say that’s not a very good question to ask.
    Corporations issue debt in the open market in a similar way to the government. If you can’t do it it’s because nobody knows you. Moreover there are even some online micro-credit systems where you can borrow money by taking bids.

    Reply

    Neil Wilson Reply:

    You’ve sidestepped the main question. Why doesn’t the government just go to its bank and ask for a loan?

    That’s what you’d do. Why doesn’t the government.

    WARREN MOSLER Reply:

    offering securities is functionally asking for a loan

    Kristjan Reply:

    and the hyperinfationists would reply that private sector credit has two sides. There is liability on one side of It. Government money liability is not a true liability since you can get only money for money from the government.

    I would reply to such hyperinflationist with QTM identity. If the money stock increases(no full employment) and It’s not inflationary then It can become inflationary if the economy reaches full capacity or there is increase in velocity of money. Increases in velocity can always happen, we cannot have the economy operating under capacity because we are scared of velocity increase.

    I heard such an argument recently that ok for right now they don’t have inflation in Japan but what if in the future since they have mountains of money. It can happen but should we let the economy deteriorate?

    Reply

    jaymaster Reply:

    I appreciate all of your attempts to help educate me. But what I really wanted was a simple “yes” or “no” answer.

    When I’m discussing such a topic with some one who asks, “How are we going to pay for all these unfunded mandates and huge debts we owe to China and the likes?” , I am sorry, but I can’t respond with, “ Bonds are really just savings certificates with the states. So we’re really not paying anything off.” :) Not to pick on you Neil…

    IMO, the constant use of economic and financial techno-babble is a real problem that must be addressed before MMT will be accepted into the main stream. I think Warren does an excellent job explaining these things in something closer to layman’s terms, but I think there is still room to go.

    And I do appreciate the challenges involved. I’m an engineer/researcher/technical manager, and I do quite a bit of technical writing. When the target audience consists mostly of my peers in my particular specialty, I can crank things out pretty fast. We all share a common jargon. But if I’m writing for, say researchers in a slightly different branch, I need to choose my words more carefully. If I’m writing to executives, I need to refine them even more.

    The greatest challenge of all is when I know my paper or report will be translated into 5 or 6 languages. After working with translators a few times, I’ve learned how important it is to get the original English document down to a lowest common denominator of sorts, and into easily translatable words.

    I think this is on of the greatest obstacles still facing the MMT community. Your particular jargon works well for discussing amongst other economists and such. But those terms and phrases will make people eye glaze over if/when you get your chance to talk on CNN or CNBC, or even in something like the WSJ or Bloomberg.

    Reply

    Dan F Reply:

    Its all about marketing. Packaging and presenting it ideas in a way that they gain traction and people start to believe it because it sounds right.

    Reply

    WARREN MOSLER Reply:

    true.

    Reply

  9. William Wilson Says:

    I have previously offered suggestions concerning provision of some sort of simplified explanation of MMT so that it could/might facilitate an easing/partial solution/whatever to the current economic dilemmas facing the decision-makers [a variation on the theme mentioned above by Tom Hickey].

    Recently, I came across Brendan McCooney’s site called Kapitalism101.com on which he has presented an excellent video series in which this self-taught teacher presents his explanation of Marx’s ideas with respect to capitalism. As I am unfamiliar with most historically significant economics writers’ works, I found Brendan’s presentation technique both enjoyable and enlightening. I have no interest in analyzing Mr McCooney’s work in any sort of critical fashion. B McCooney’s website and YouTube.com sites are prototypes of the model I would recommend that MMT proponents adopt. I left a message several weeks ago at Brandon’s site and attempted to inquire as to his possible interest in attempting to discuss MMT; so far, no replies:
    https://kapitalism101.wordpress.com/2010/05/13/law-of-value-3-das-mudpie/#comments

    While I have neither the background or software talents required to facilitate such an effort, there are many commentators on this and other MMT related sites who probably do have such talents. One only wishes that such a facility were available as, if it were, one could point to it for clarification of those points which are continually misunderstood/misinterpreted by the unenlightened.

    Reply

  10. jahbu Says:

    You guys are missing the whole point. The Good Ol Boy Club knows how simple this really is. They obviously dont want the public to know. Why would they? It makes them rich and powerful. So they pay damn good money to slick talking salesmen to keep the public misinformed.
    It sure was easy for the Good Ol Boy Club to come up with the money to bailout their wallstreet buddies. Not so much for the public employees in Wisconsin.

    Spreading your message is in direct conflict with the most powerful men in the World.

    Good Luck!

    Reply

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