All Debt, All the Time: Hoisted from the Comments
Believe it or not, Major Freedom has been defending Abba Lerner in the qualified sense that MF says Lerner didn’t contradict himself, as I implied here. My response:
MF wrote:
All I can say is that the way I understand Lerner is that he is likely worried about whether the money will be spent at all, and that if deficits are for practical reasons the only way to finance government spending, due to the public being dunces and whatnot, then the last thing needed is for Buchanan et al to be going around fear mongering about debt burdening the future generations, and possibly persuading Ike to refrain from the deficit financing and hence the spending Lerner wanted.
Oh, I totally agree with you MF that that’s what he was thinking. But it’s a very weird scenario.
I guess it would be analogous to a situation where a group of travelers is freezing in the mountains, and the only thing they have to burn is a giant voodoo doll of somebody’s kid who’s back in the village. The leader of the group and the other travels are very superstitious, but not the two Western anthropologists traveling with them. The leader doesn’t want to burn the voodoo doll, because even though it will provide them warmth, he thinks it’s wrong to hurt the kid. The Westerner knows this is a baseless fear. However, the rest of the villagers for some weird reason *want* to all die, yet they hate that kid even more than they loathe themselves. So they want the chief to throw the doll in the fire, because they want to hurt that kid.
So one Western anthropologist starts saying, “Well, there *has* been some research on this, and maybe there’s something to this vodoo thing. If the villagers really believe it has the power to do it, maybe it’s a self-fulfilling prophecy. When these people get back to the village, if they are all convinced the kid is going to die, maybe the kid will believe it too and actually die. So I agree with you, chief, don’t burn that for our sakes and risk that kid’s life.”
The other anthropologist is furious. “You idiot! You know vodoo doesn’t work. Keep your mouth shut. Let’s let these villagers demand that he throw the doll in the fire, because they believe vodoo will work.”
Do you see how insane this is?
ADDED: Just to make sure people are getting this: In the above analogy, the Westerner who’s furious can’t let the villagers start doubting the power of voodoo. By construction, they want to die; they will not choose to burn the doll, if they think it won’t hurt the kid. The only reason they will agree to let the chief do it, is if they believe in the power of voodoo.
The same is true for Lerner’s position. Even though he wants Eisenhower to see the truth, he can’t want the general public to realize it. By hypothesis, they are *not* willing to pay for all of Lerner’s desired projects through taxation. For some reason, though, they’ll go along with deficit financing of the same expenditures. They must think this somehow allows them to avoid paying for it, but of course they are idiots (according to Lerner). But he must let them continue in their idiocy. If they ever read his journal article and learned the awful truth–that they are paying for it regardless of how it’s financed–then they wouldn’t want to spend the money even via deficits.
I don’t know. That view would square with the comment he made, but it is such a crazy way of thinking. It is easier to believe he just contradicted himself, or he was thinking something entirely different that nobody has brought up yet. It’s probably me just not wanting to believe someone could possibly believe such nonsense. I’m going to stick with he contradicted himself without realizing it because I can’t think of a more plausible explanation than the one you came up with if he didn’t contradict himself.
Maybe I am still missing the proverbial elephant in the room, but that sounds kinda sorta reasonable. There is nothing that I can see that is a blatant contradiction. Maybe others can chime in.
I admit that the fact that his journal article was in the public domain would be a weakness for my interpretation, and that your position that his position makes no sense would jump out at me, but in all seriousness, how many people on the street really waded through the Journal of Economic Statistics? In 1961?
I don’t know. Maybe Dan is right. You’re playing chess and the rest of us are playing checkers.
MF you’re right, it’s not an actual contradiction. I don’t think Lerner (or Krugman) realizes what their position implies, though. But in fairness to Krugman, he *needs* deficit spending for Keynesian stimulus right now, whereas Lerner’s desires could have been satisfied with debt-financed spending. So Lerner is in worse shape than Krugman, on this narrow point.
Uh oh…
Isn’t deficit spending the same thing as debt-financed spending? That is what I have been assuming the whole time. Did I just drop the ball?
I’ve had trouble with this before, too.
Deficits are spending beyond available funds within a given accounting period.
Debts are the result of accrued deficits.
You can pay off the debt if, in each successive accounting period, you run a surplus.
The debt is paid off when accrued surplusses equal the debt.
Yes, I get that debts are accrued deficits, but given that deficit spending exists, doesn’t that imply, or rather isn’t that the same thing as saying, debt-financed spending exists?
Only if either 1) a transfer of wealth has occurred in the present, in which case one is made richer at the expense of another, or 2) the spending is really just a misallocation of resources based on a promise to be repaid with interest.
In the Apples Model – in terms of productivity – case 2 has simply been defined out of possibility (it magically remains at 200/person, even after incentives have been altered by government intervention).
But apparently, fiat money is still possible in the model, so case 2 can happen as a result of the Cantillon Effect.
People BELIEVE they are making profit, but they are only making “profit” in terms of the fiat money (newly printed bonds).
Since fiat money isn’t real wealth, people are transferring real wealth into bonds based on a ponzi scheme.
Further, the new fiat money results in price inflation in real life, but, again, in the Apples Model costs magically have no effect on production.
(It should be noted that at no point should the government be considered to be owed something. The government is promising something it cannot possibly make good upon without stealing from [taxes or Cantillon Effect], or deceiving [ponzi scheme], someone else in the present.)
guest:
So given the assumptions that 1) there is no wealth transfer in the present, and 2) there is no misallocation of resources: how do debt financed spending and deficit financed spending differ?
Suppose Robert Barro had said *something like* what Lerner said. Barro could do so consistently.
The existing cohort would leave offsetting bequests so that the burden would be shared between young and old regardless of whether it was tax financed or bond-financed. But non-lump-sum taxes cause deadweight costs, and those deadweight costs rise with the square of the tax rate (roughly). (Increasing Marginal Costs of raising $1 of tax revenue). So it is better to smooth tax rates over time, to minimise the present value of those deadweight costs. So it should be mostly bond-financed.
Yes Nick Rowe, I’m sure the reason it’s easier politically to deficit spend, is that most voters are trying to minimize deadweight losses to the representative agent who derives 85% of a util today from a util to be enjoyed by his son next year.
(My sarcasm doesn’t mean I disagree with your technical point, just that this whole thing is absurd. Of *course* people today would rather have deficits than taxes because “they don’t want to pay for it.”)
As a reward for making good sense I wanted to buy M_F a beer. But when I checked my wallet I was very short on cash. I was explaining this to M_F when Abba Lerner, now working as a bartender, interjected “Why not use your Visa card?”
That Abba, such a card, but a slow learner.
Who would sell you a perfectly good beer in exchange for fiat notes?
If you think I was gonna buy M_F a *good* beer then you have much to learn grasshopper.
I would have politely declined on the beer. Now, a nice glass of scotch, something modest, like blue label, then I would have graciously accepted.
Well if it’s your unborn grandson’s credit card, let him pay for it!
Well if it’s your unborn grandson’s credit card, let him pay for it!
If we’re lucky, it’s also his unborn grandson’s credit card company. That way he owes it to himself and no one is harmed.
My grandson can then break his windows, take someone else’s money, then pay for a new window.
Good, efficient use of labor and resources.
Of course, there will almost certainly be at least some unemployed people and at least some idle resources at that time, so the wanton destruction of other people’s wealth is, “paradoxically”, a pure net benefit to everyone.
If Lerner really believed that failure to carry out this spending would “fail to protect them [future generations] from nuclear war and/or totalitarian domination” and if debt was more likely than tax to allow it to take place then it would be logical for him to support debt funded spending.
As a MMTer he would also know that any “burden on future generations” could be adjusted in the future by govt tax (and debt) policy at the time, so any burden would be illusionary anyway.
This would be a “political” reason for him to support bonds.
From an economic perspective then either tax or bonds can equally be used to control who loses consumption in the present to pay for the defense system. Future tax and bonds policy can then be used to control income distribution in the future totally independently(ignoring moral and political factors) from any “commitments” that may been made in the past by bond sales.
You remind me of the babe …