Thread by @StephanieKelton

Had some further thoughts on the Orzag intervention. 1/12

https://twitter.com/rohangrey/status/1366852449609289728

The big breakthrough will come if/when Congress changes the way it approaches the use of "offsets." Right now, offsets = pay-fors. The purpose of *offsetting* spending is to neutralize the impact of the spending on the budget outcome--i.e. to keep it deficit neutral. 2/12

That is not how we should think about offsets. In MMT, offsets are explicitly about inflation. You don't need a binder full of revenue-raisers--i.e. offsets--to neutralize the impact on the budget. 3/12

In MMT, you're not worrying about how to keep things *budget neutral.*

In MMT, you're worrying about how to keep things *inflation neutral.* 4/12

When it comes to the federal budgeting process, MMT is about replacing an artificial/fake/phony/imaginary *budget constraint* with a *real resources/inflation constraint.*
As @stf18 explains here:
researchgate.net/publication/28…
5/12

To keep things inflation neutral, Congress *might* need to offset some or even all of its proposed new spending. But offsets are frequently unnecessary! Very often, there is ample *non-inflationary fiscal space* available.
Low-hanging fruit. 6/12

That long-hanging fruit means that Congress can safely commit to higher spending (or tax cuts) without the need for offsets! That isn't always the case. It depends (among other things) on the size and scope of what's being proposed and the state of the economy. 7/12

Moreover, fiscal offsets--e.g. tax increases or spending cuts--are not the only (and maybe not even the best) way to mitigate potential inflationary pressures. Congress should consider a menu of options that include non-fiscal pay-fors, a term coined by @NathanTankus 8/12

Read @NathanTankus 's How to Pay for the Pandemic War for more on this way of thinking about offsets. 9/12 nathantankus.substack.com/p/how-to-pay-f…

Bottom line: MMT takes a completely different approach to conventional budgeting.

PAYGO tells us to keep things deficit neutral. With PAYGO, you *always* need offsets.

MMT asks: Are offsets necessary? And, if so, which offsets will work best to mitigate inflation risk. 10/12

This is an extremely important point. I have argued for years that it would be very easy for me to draw up a spending package that is deficit neutral but massively inflationary. By centering inflation risk, MMT provides a better insurance policy against reckless budgeting. 11/12

And it reminds us that we can design offsets to include non-fiscal measures (again, see @NathanTankus above). We should also think more carefully about how to design legislation with triggers that adapt to changing inflationary pressures.
12/end