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Stephanie Kelton

22 Feb, 8 tweets, 3 min read

Consider this passage from CBO's August 2010 budget report:
"The amount of federal debt held by the public has
skyrocketed in the past two years: from 40 percent of GDP at the end of 2008 to nearly 62 percent at the end
of this year, CBO estimates."
cbo.gov/sites/default/…
1/8

CBO continues.... Next sentence: "Interest rates, however, have fallen to historically low levels, so despite the higher *levels* of debt, *interest costs* have not yet increased significantly." 2/8

Now consider this comment from Yellen earlier today. She seems to be invoking the sort of thinking found in this recent paper by Furman & Summers. 3/8 brookings.edu/wp-content/upl…

There were serious and costly policy errors made in the wake of the financial crisis, when the Obama admin decided to pursue deficit reduction in the presence of substantial unused capacity. Here they were calling for $4 trillion in deficit reduction. 4/8 c-span.org/video/?309794-…!

What bothers me? First, if (as Summers/Furman now say) "debt-to-GDP ratios are a misleading metric of fiscal sustainability" when there is "unused capacity and very low interest rates," then why wasn't that the argument back then? It was right there in the CBO report! 5/8

Ah, but here's the rub. Like Summers today, CBO went on to warn about rising rates. And that's what makes this all so frustrating. The mainstream has "evolved" on deficits to the new view that fiscal space (and sustainability) are about the cost of servicing the debt. 6/8

But the "new view" is still an austerity framework. It says, basically, "you're safe until you aren't." Exactly the sort of thing that will come back to undermine policy this time around. The cost of servicing the debt is NOT the right way to think about fiscal space. 7/8

@stf18

If you're covering these debates, please read Galbraith ineteconomics.org/perspectives/b… and @stf18 researchgate.net/publication/30… and you'll see that Scott had the whole Blanchard argument laid out years prior but with the added understanding that interest on gov bonds is a policy variable. 8/8

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More from @StephanieKelton

Stephanie Kelton

@StephanieKelton

24 Feb

“In truth, the only bond vigilante the US faces is the Fed—Congress allows it to raise rates whenever it wants ... But even if the Fed abandons low rates, the Treasury can ‘afford’ to make all payments on debt as they come due, no matter how high the Fed pushes rates.” 1/5

“Affordability is not the issue, but rather the desirability of making big interest payments to bond holders and potential effects on aggregate demand and hence inflation.” 2/5

tandfonline.com/doi/full/10.10…

“[T]he US Fed is a creature of Congress, and Congress can seize control of interest rates any time it wants (and in WWII interest rate policy was essentially dictated by the treasury).” 3/5

Read 5 tweets

Stephanie Kelton

@StephanieKelton

23 Feb

“Someone” is and has been paying for the recovery from COVID-19. In the US, that “someone” is Uncle Sam. By all means, deal with inequality, but let’s not pretend that the government didn’t already foot the bill. 1/3

If you don’t already understand this, there’s a book that might help. 2/3

If you think “someone is going to have to pay for the COVID recovery,” you are absolutely barking up the wrong tree. You’re not going to end up with a wealth tax. You’re going to end up with austerity. Mark my words. 3/3

Read 4 tweets

Stephanie Kelton

@StephanieKelton

22 Feb

Something doesn't add up here. nytimes.com/live/2021/02/2…

The weirdest bit, for me, is noting that interest as a share of GDP is "roughly the same" as during GFC, but somehow we are supposed to have more fiscal space today compared to what was available back then.

Like, if this was always the right way to think about fiscal space--and I don't agree that it is--then why didn't these people tell us that back in 2008/09/10?

Read 5 tweets

Stephanie Kelton

@StephanieKelton

17 Feb

Suppose you grew up in Sioux Falls, SD. Your family didn’t have a lot of money. You never thought about public vs. private as you contemplated your options in high-school. You just knew you wanted to go to college. 1/8

You considered three options. (1) South Dakota State Univ, which is 70 miles north in Brookings, (2) University of South Dakota, which is 70 miles south in Vermillion, (3) Augustana University, which is right there in your hometown of Sioux Falls. 2/8

Augustana is private. SDSU and USD are public. You never gave a moment’s thought to any of this. Your family didn’t have a lot of money, so you received a fairly generous financial aid package from Augustana. 3/8

Read 10 tweets

Stephanie Kelton

@StephanieKelton

3 Feb

We could have designed something *similar* to this.
The first question is basically, Do you need financial help? Y/N
I pretended I was Canadian for purposes of this exercise. 1/9