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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Kelton responds to the Progressive Caucus Co-chair

Posted by WARREN MOSLER on July 28th, 2011

Maddening! The Clinton surpluses were driven by the bubble and unsustainable private sector deficits. When the bubble burts, stocks crashed, the economy went into recession, and the surplus quickly reversed itself. It was only AFTER the government’s budget moved sharply into deficit that the private sector was able to get out of the red. All of this would happened even without 9/11, the wars in Iraq and Afghanistan, the subprime crisis, etc. We cannot keep relying on asset bubbles (stocks, housing, whatever) to drive economic growth.

The simple fact is this: A GOVERNMENT SURPLUS IMPLIES A DEFICIT IN THE PRIVATE SECTOR. And the private sector, unlike the public sector, cannot survive when it’s running a deficit. Anyone who does not recognize this simple fact (intuitively or empirically) should not offer commentary on matters of such significance.

Government Deficits allow the private sector to net save financial assets. Balance the budget, and the private sector loses financial assets. Run a government surplus, and you drive the private sector into deficit.

Someone in Washington better figure this out pretty damn quick, or our children and grandchildren are going to be burdened like never before.

The Ph.D. Economists who blog here understand:

This Is Our Moment

By Rep. Keith Ellison

July 28 — America has an historic opportunity. We have the chance to address our budget deficit in a manner not seen since President Bill Clinton created a budget surplus in 1999. And if we do it right, we could pave the way for a vibrant American economy based not on gimmicks like giveaways for special interests, but on job creation for working Americans. As co-chair of the Congressional Progressive Caucus, I urge us to avoid a default on the faith and credit of the United States while protecting Medicare, Medicaid and Social Security.

At every step of the way, Republicans in Washington have blocked a fair plan. The American people are demanding that our government resolves deficits while maintaining our promises to the middle class. Yet, an uncompromising political faction is stonewalling and ignoring the clarion call of this historic moment.

The Congressional Progressive Caucus stands with the American people. Long before Republicans took our economy hostage, we introduced the People’s Budget, the most fiscally responsible deficit plan introduced this year. The People’s Budget would eliminate the deficit in 10 years. Economists across the political spectrum have called it courageous and responsible. Introducing this budget was one of my proudest moments as a Member of Congress, because it shows the power of Progressive policies and values. Creating an economy that reduces deficits and creates jobs is a progressive value, not just a slogan as it is for the Tea Party.

As the People’s Budget has proposed, and the president has affirmed, our solution must reflect the same values that have motivated us historically. We believe in a fiscally healthy America because it leads to an economically healthy America. A balanced budget is critical precisely because it allows us to maintain the services that the middle class depends on. Any deficit deal that takes money away from seniors and American workers who rely on Social Security, Medicare, or Medicaid undermines the original goal of deficit reduction. Any deficit deal that cuts food stamps but pampers the wealthy is not only bad for the most vulnerable Americans, but damages our fiscal health.

Progressive economic policies lead to a sustainable economy. Americans understand this and history confirms it. Progressive policies implemented since the early 1900s launched America into the modern age and created a vibrant, middle class. Yet, for 10 years, Republicans have given more money to special interests, while the middle class has footed the bill. They passed the biggest tax cut ever for millionaires and billionaires, without paying for a dime of it. They passed a giveaway to the pharmaceutical lobbyists that will cost $1 trillion over 10 years. And it was George W. Bush, not President Obama, who ran roughshod into two unfunded wars, which alone are estimated to have cost us $4 trillion, more than 20% of the deficit.

The stakes are too high now. Republicans have taken us to the brink of default, and it is already hurting our economy. If we do default, the pain our middle class feels would be even worse. Retirement investments would be threatened by plummeting stock prices; higher interest rates would make it more expensive for Americans to pay off credit bills; and the unemployment rate would skyrocket in the face of decreased consumer spending. House Speaker John Boehner’s proposal is less a good-faith effort to avoid a default than an appeal to a narrow sliver of his political base. As Robert Greenstein, president of the Center on Budget and Policy Priorities wrote yesterday, “[Boehner's plan] could well produce the greatest increase in poverty and hardship produced by any law in modern US history.” Most worrisome of all, it wastes our opportunity for a long-term solution and stalls progress for another six months. Credit agencies have already hinted Boehner’s plan would not convince them that America is able to pay its bills.

Progressives know this is America’s moment to lead. The deadline is upon us – but so is the opportunity.

15 Responses to “Kelton responds to the Progressive Caucus Co-chair”

  1. Delores Says:

    A question for you, Rep. Ellison: HOW STUPID DO YOU THINK WE ARE?

    You and your cohorts are progressing America directly into the hell of 3rd world nationhood. Nice try but, “we won’t get fooled again”.


  2. jaymaster Says:

    I’ve said it before and I’ll say it again: these folks deserve to be called “Tax Terrorists” just as the as the other side deserves “Deficit Terrorists”.

    Far too many progressives consider taxes as first and foremost, a tool for redistribution of wealth, and secondly as a tool for manipulating behaviors (think “sin” taxes, gasoline taxes, carbon taxes, etc).

    And IMO, far too many MMTers fail to call them out on this, and that is part of the problem we are now facing.



    they see tax cutting as a way to defund spending. and in the paradigm both sides are in it’s pretty much the case


  3. Arthur Says:

    Private sector could run a continuous deficit for the same reasons public sector can: what matters is whether the central bank is willing to refinance the debt. Under our system, where it’s not normal for the Fed to buy anything other than Treasury debt and we like households to save, Treasury must run a deficit.


    Unforgiven Reply:


    Or we could just pay it off, remove the FDIC cap and pay a bit of interest on reserve accounts.

    “The Debt” is just a tool for deficit terrorists.



    private sector debt expansion is limited by income and collateral


  4. Art Says:

    Is there a link to what Stephanie wrote? Or was this an email?


    Clonal Antibody Reply:


    The reply is as a comment to Ellison’s article


    Art Reply:

    @Clonal Antibody,

    Just noticed that, thanks. Mike Norman and Joe Firestone chimed in too.


  5. anon Says:

    “And the private sector, unlike the public sector, cannot survive when it’s running a deficit.”

    Deficit in this context means that real investment by the private sector exceeds saving by the private sector, where saving is the usual national accounts definition of saving. It doesn’t mean this version of saving is negative.

    Leaving aside empirical observation through these historical statistics, what is so special from a logical point of view about private sector real investment exceeding private sector saving?

    This part of MMT seems like a proposition that is simply assumed to be self-evident. What’s so special about one additional dollar of real investment that is funded from another sector? Seems a bit loose as “theory” in MMT.


    djp Reply:



    It is absolutely possible that the desire for dollar savings could go down, allowing for a gov surplus to be run without any disaster. But, generally, you probably want to run a gov deficit.

    I suspect there’s a good bit of interesting things to be reasoned through the lens of people’s desire to save. Certainly as life expectancy increases you would expect that people would want to save (and I’m not constraining savings to savings in dollars or dollar equivalents) more given that they expect that their productivity in later years will wane and their desire for consumption of medical resources will increase. This alone makes it somewhat reasonable to assume that per capita savings desires should have increased considerably over the last 50-100 years, and will likely continue to grow.

    Now, how do you save? Many things you would like to save have a very high cost of storage — batteries just don’t work that well (if you solve this problem, you won’t worry much about saving anymore), I don’t think you really can store medical care that long, and food is pretty costly to store. Even gold costs a reasonable amount to store. In normal, good times, dollars seem like a pretty cheap way to store value, and so we should expect that many people will want to keep some of their savings in dollars. I think many people just assume that, ceteris paribus, the fraction you want to save in dollars will remain relatively stable and that population increases alone would imply you want to increase net dollar savings. But I agree it’s a bit loose and often improperly emphasized as some self-evident fact.



    if you build your own house you have real savings/investment without any nominal savings

    the reason to look at nominal savings is the correlation/causation with unemployment


    Tom Hickey Reply:


    On your nominal savings you get interest (which is taxed). On your real investment (house) you just get taxed unless you rent (and then you get taxed on that, too).




  6. Dear CPC Co-Chair Rep.Keith Ellison: Progressive Values need a Progressive Economic Policy | NetRootsMass Says:

    [...] Warren Mosler for more: Kelton responds to the Progressive Caucus Co-chair [...]

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