Thread by @IlliniBizDean

When the government announces that it intends to run a budget deficit, it’s announcing that it doesn’t intend to make current generation pay for the full cost of government, thus shifting burden to future generations, via higher future taxes, lower future spending, or inflation.

https://twitter.com/stephaniekelton/status/1024693246222643200

Folks are asking for papers to support my view. There are hundreds (thousands?) dating back decades. I will point out a tiny fraction of them below.

A nice overview - along with an accompanying lit review - can be found here: brookings.edu/wp-content/upl…

I start with this both because it is good & because the authors are Democrats. My view is not a partisan one in a US sense, but rather a mainstream economics view.

Here is another summary by Glenn Hubbard, who served as Bush 43’s CEA chair. Again, it has a nice summary of relevant literature, including much of Ben Friedman’s work.
ijcb.org/journal/ijcb12…

This paper by Ball & Mankiw, while a bit dated, is an important one and clearly describes the risks.
nber.org/papers/w5263

This is not an academic paper with citations, but given that Olivier Blanchard was my first PhD macro teacher at MIT, I thought I should post at least one item from him. :-)

piie.com/blogs/realtime…

And if I cite a French economist, I guess I should also cite some from the UK. :-) Again, not an academic article, but the names on this list advocating for fiscal restraint includes some of the top macroeconomists in the world.
lse.ac.uk/website-archiv…

This paper by Carmen Reinhart is also interesting reading because it discusses both mainstream and heterodox approaches to debt. Implicit throughout paper is understanding that debt levels matter.
poseidon01.ssrn.com/delivery.php?I…

Oh! And how can I forget this paper by @porszag and @WilliamGale2 (and, again, a lot of useful references contained therein).

papers.ssrn.com/sol3/papers.cf…

And back to the GOP side of the aisle, Marty Feldstein has written at least a gazillion papers and op-eds on the subject, including this one in a volume I edited.
journals.uchicago.edu/doi/10.1086/65…

A few notes about the scholars listed above: they are some of the top macro economists and/or fiscal policy thinkers in the world, represent a broad range of the ideological spectrum & disagree (strongly!) w each other on many issues. Yet ALL all agree that deficits matter.

Macro is known for varying schools of thought & some rather nasty intellectual battles over the years, so to suggest the field is not open to new thinking is just silly.

If a heterodox school of thought believes they have a better way, be it Austrians, MMT, or anything else, it is not enough to simply say that the mainstream profession does not like new ideas. Rather, they have to show - rigorously - that their ideas are an improvement.

So far, the MMT proponents have failed to do so. And THAT is the reason it is outside of the mainstream. Not because there is a conspiracy among economists who love a good intellectual battle and innovative thinking. But because they have failed to be sufficiently convincing.

Sifting through all these comments, there are two types of comments that really resonate & are worth highlighting:

1. Deficit spending can produce future benefits as well as future costs. True, more so if deficits used to finance public investments in things like infrastructure.

2. Might it be optimal to shift cost onto future generations if they are going to be better off than current generation? (This is essentially what @CoryForOhio was asking).

This is a great question & one that I’ve discussed with fellow economists many times.

There is no “right” answer. If you value generations equally, & if economic growth is high enough to raise per capital income / wealth so that actual living standards rise, then one may indeed wish to transfer money from future generations to today by running deficits.

Setting aside intentions, the actual effects of pay-as-you-go programs like Social Security have done this. We transferred large amounts of wealth to early generations from later generations.

One can make a very compelling case that this made sense. Early generations suffered through Great Depression, fought in two world wars, etc. Later generations were WAY better off.

But recognize that such policy decisions do have real costs. Most economists agree (though disagree on magnitude) that pay-go SS system has led to smaller US capital stock today than we would have had with a funded system that did not make intergenerational transfers.

A smaller capital stock means smaller economy & lower living standards. So there *is* a cost to making such transfers. You can legitimately believe such transfers are worth it - that is a policy preference. But it does have a cost, & that is what the MMTers are understating.