In this Renegade Short, Professor Steve Keen explains why the government isn’t supposed to balance it’s accounts like a household.
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Of course Keen is not right at all. His basic assumptions are very short sighted, very short on all of the facts and therfore wrong since a government may be taking the 50 billion pounds out of the private economy by running a 5o billion surplus however that money does not disappear. It goes to pay off existing debt that governemnt has accrued by having any previous deficits and thereby reduces the amount of interest on that debt. That interest (in the form of government bond interest ) always has to be paid by the taxpayer every year. The other incorrect information is that the burden of all government debt becomes private debt over time since there is nobody other than private persons to pay debt since they are the only ones who produce the work that cretes the value in every pound that is spent. Without the work that produces the goods and services the pound would buy nothing.
His qualifiers are that government money does not come with the obligation to pay back the spent fiat money. But that is also wrong since it is short on the facts that people (taxpayers) must continue to pay the interest on that government debt unless government reduces the debt by then running a surplus.
His assertion that government deficit money is somehow painless (no obligation to pay back) is also misleading since that newly created fiat money to pay for the deficit is spent by government to take goods and services (resources) from the private economy that private people and private business must compete against in the price , demand /, supply mechanism.
The answer to what should be done is government should run a balance over time to maintain stability of the currency and financial stability in the economy. After all he is talking about central governments not state governments who must balance their budgets over time since they cannot by law print money because that would cause the chaos that ensues with central governments printing deficit money
This is a good riposte. The argument centres around balancing the demands for private money and using public money to solve private debt?
1. Bringing in more debt obligations guarantee a flow of tax money to bondholders. His argument only holds if Central Banks fully monetise the government spending.
2. But Steve Keen missed the most important theme that is well stated in MMT. Government spending and taxing is a covered slavery system. The people are forced by the government to deliver labour, and here the whole things blow apart. Western countries can not provide the right amount of qualified labour anymore because of the demographic reality. The Netherlands, Germany and Sweden are at full capacity, and elderly people are forced to work until their age of 72 in these countries. We will see the coming decennia the biggest outflow in the history of Western and East Asian workforces. It simply never ever happened! And somehow economist do not see a problem?
3. The tuitions fee he talks about creates a class of ill-educated people with little-added value at the expense of somebodies else labour.
@Rob not necessarily.
If the inflation exceeds the interest, in real time, it’s it the bond holders that feed the economy.
For a very coarse overview, Pikety explained how fixed income investments approximate 4% profits for most of modern history, whole it is the fluctuations is the inflation that decide whether they are getting richer or not.
And a government that holds the initiative (ie the US Fed still does that) can most of times achieve the targeted inflation.
Kostis. Why would you say that when one of main the causes of inflation is the government creating it by issuing more debt ( via treasury bonds) and spending more than taxation takes in. There is no rational resaon why their target inflation should be Zero and not some percentage higher.
Picketty’s figures are very rubbery to say the least. He even has said property always rises in value when it does not and aslo says the rate of return of capital has a tendency to exceed economic growth. This is total rubbish and not supported by the figures as well as being contrary to sound reasoning. It is impossible and a result of his poor observations.