America is not broke

  • Oct 24,2020

After the chaotic spring under quarantine, Farhad Manjoo, Opinion Columnist, spends a weekly vacation with his family at a cozy, remote house in California desert. While his family is enjoying the beach, he reads two new books of Macroeconomics. The first one is “The price of Peace”, from Maynard Keynes, it’s a biography of the British economist John Maynard Keynes. The second one is “The Deficit Myth”, by the economist Stephanie Kelton. 

Those two books sparked note of optimism in Manioo for the future of America. He says he hadn’t felt that kind of optimism in a while, but now it seems that the idea of those two books suggests a compelling political, moral and economic case for the federal government and its’ new start of big, expensive investments for improving American citizens living and for the people around the world. 

Comparing to Manioo in the last few years the United States economy was crumbling, mostly now when the Coronavirus is spreading at the world. The society of America is fragmented, the infrastructure is falling apart, the health care is costly and inadequate, childcare became impossible and the life expectancy is completely declining. 

The federal government is not helping the citizens maybe because it’s not able to do it. The only way to save the situation is somebody goes to private companies and asks them for action because nowadays people are so dependent on those private corporations. The government should be able to provide to the American citizen's services like health care, childcare, college education, etc. but with a $26.5 trillion national debt, America looks hopelessly broke. 

In the second book which Manioo had read the author - Kelton, said that America is not broke. The government's inability to provide services for citizens is not due to a lack of money, the problem is that American leaders need political will. 

Kelton has worked as an economist for Democrats in the Senate and as an adviser to Bernie Sanders’s presidential campaigns. She is one of the leading proponents of Modern Monetary Theory (M.M.T.). This theory teaches that the government cannot “run out” of money because is in charge of its own currency. Because of that, it doesn’t need to raise taxes for funding government spending. 

That does not mean that the Government has infinite resources, it just means that the deficit is a fake perception. According to Kalton, policymakers should care about other real measures of economic activity like unemployment and inflation. 

Unemployment is an indication for the aggregate demand, If the unemployment rate is high the aggregate demand is low. To stimulate the demand the government should spend until there is the possibility of the price rising. And Inflation will cause soar of deficits. The point is to keep up the full employment and keeping the inflation stable. This could happen if the government hires anyone who needs a job for a set wage. 

Lawrence H. Summer is a left-leaning economist who had worked as Barack Obama’s director of the National Economic Council, he is calling the M.M.T. theory “a recipe for disaster”. 

Kelton’s fundamental point is that in the 40 years since Ronald Reagan has won the White House, the left and the right-leaning economists were unnecessarily obsessed with deficits. The best example of that mindset is after the Great Recession in 2008. At that time many experts were suggesting the government spend trillion dollars or more to boost the demand. But Obama and his aides were worried about the sticker shock, lowballed the stimulus and a lot of people were left without work. 

At the decade after the Great Recession, a lot of economists and lawmakers stopped being so worried about the deficit, as they saw that the red ink didn’t put the economy in such a big risk. And that’s good because lawmakers don’t question deficit when they are spending money for military or reducing the taxes for corporations. So, it would be fair if they don’t question the deficit also when they spend money on healthcare, childcare, or education.