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What Bob Adelmann doesn't seem to get is that government spending adds to GDP and if GDP and the debt grow at the same rate, then the debt to GDP ratio remains the same. There is a multiplier, however, and if the multiplier is greater than 1, then the ratio decreases (GDP goes up more than debt), while if the multiplier is less than 1, the ratio increases (debt goes up more than GDP). The focus therefore should be on the multiplier if one evaluates growth as the priority and assumes that GDP reflects growth more or less accurately. But growth really the issue? Moreover, Bob Adelmann does not understand the concept of aggregate net financial assets. When the government spends it creates reserve balances for banks on the Fed's spreadsheet (M0 grows). The banks then credit customer
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Mike Norman considers the following as important: MMT, MMT criticism, MMT critics
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What Bob Adelmann doesn't seem to get is that government spending adds to GDP and if GDP and the debt grow at the same rate, then the debt to GDP ratio remains the same. There is a multiplier, however, and if the multiplier is greater than 1, then the ratio decreases (GDP goes up more than debt), while if the multiplier is less than 1, the ratio increases (debt goes up more than GDP). The focus therefore should be on the multiplier if one evaluates growth as the priority and assumes that GDP reflects growth more or less accurately. But growth really the issue? Moreover, Bob Adelmann does not understand the concept of aggregate net financial assets. When the government spends it creates reserve balances for banks on the Fed's spreadsheet (M0 grows). The banks then credit customer
Topics:
Mike Norman considers the following as important: MMT, MMT criticism, MMT critics
This could be interesting, too:
Mike Norman writes Jared Bernstein, total idiot. You have to see this to believe it.
Steve Roth writes MMT and the Wealth of Nations, Revisited
Matias Vernengo writes On central bank independence, and Brazilian monetary policy
Michael Hudson writes International Trade and MMT with Keen, Hudson
What Bob Adelmann doesn't seem to get is that government spending adds to GDP and if GDP and the debt grow at the same rate, then the debt to GDP ratio remains the same. There is a multiplier, however, and if the multiplier is greater than 1, then the ratio decreases (GDP goes up more than debt), while if the multiplier is less than 1, the ratio increases (debt goes up more than GDP). The focus therefore should be on the multiplier if one evaluates growth as the priority and assumes that GDP reflects growth more or less accurately. But growth really the issue?
Moreover, Bob Adelmann does not understand the concept of aggregate net financial assets. When the government spends it creates reserve balances for banks on the Fed's spreadsheet (M0 grows). The banks then credit customer deposit accounts (M1 increases). The liability is therefore the government's and the asset is owned by the private sector.
If the private sector wishes to save in "safe assets," it can purchase default risk-free securities from the government. Purchase of government securities transfers funds from customer deposit accounts to government securities, which the respective banks settle using their reserve balances at the Fed. M1 decreases and so does MO but the total amount of non-government net financial assets in aggregate remains the same. Purchase of government securities simply drains reserves in the payments system operated by the Fed into government securities. When the securities come due, the Fed simply reverses the process by retiring bonds and crediting bank accounts.
What this means is that government deficit spending increases non-government net financial assets in aggregate and this remains constant whether these assets are held in zero-maturity government obligations or term-maturity obligations that bear interest. Interest-bearing government obligations further add to non-government net financial assets in aggregated through the interest payments that increase both M0 and M1.
What's not to like here— if one understands it operationally. MMT provides that understanding.
Bob Adelmann apparently doesn't.
In simple terms, MMT is the new alchemy, a reiteration of a 4,000-year-old dream of tyrants, a medieval chemical pseudo-science that aimed to change lead into gold, a philosophy that promised a universal cure for cancer and a means of indefinitely prolonging life on earth.Rant much?
CBO: National Debt to Nearly Double by 2029
Bob Adelmann