Excessive debt doesn't cause inflation

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Econlib" /> <meta property="og:description" content="I cannot resist responding to a recent article by Stephanie Kelton, explaining the MMT view of public debt: Since the government’s budget deficit is, by definition, the difference between what it spends and what it collects in the form of taxes and other payments to itself, it may seem reasonable to call it “overspending” when […]" /> <meta property="og:url" content="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/" /> <meta property="og:site_name" content="Econlib" /> <meta property="article:published_time" content="2019-03-09T21:24:28+00:00" /> <meta property="article:modified_time" content="2019-03-10T18:01:50+00:00" /> <meta property="og:image" content="https://www.econlib.org/wp-content/uploads/2019/03/Screen-Shot-2019-03-09-at-4.13.53-PM.png" /> <meta property="og:image:width" content="733" /> <meta property="og:image:height" content="328" /> <meta property="og:image:type" content="image/png" /> <meta name="author" content="Scott Sumner" /> <meta name="twitter:card" content="summary_large_image" /> <meta name="twitter:label1" content="Written by" /> <meta name="twitter:data1" content="Scott Sumner" /> <meta name="twitter:label2" content="Est. reading time" /> <meta name="twitter:data2" content="4 minutes" /> <script type="application/ld+json" class="yoast-schema-graph">{"@context":"https://schema.org","@graph":[{"@type":"WebPage","@id":"https://www.econlib.org/excessive-debt-doesnt-cause-inflation/","url":"https://www.econlib.org/excessive-debt-doesnt-cause-inflation/","name":"Excessive debt doesn't cause inflation - 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position:relative; } .article-img-bg span{ color:#fff; font-size:21px; text-transform:uppercase; font-family:Arial; position:absolute; left:20px; bottom:10px; text-shadow: 2px 2px 4px #000000; } .col3, .col2{ margin-top:40px; } .grow1{ flex-grow:1; } .current-month, .previous-month, .previous-month2, .previous-month3{ width:100%; border:1px solid #979797; background:#d8d8d8; padding:10px; display:flex; align-items: center; justify-content: center; text-align:center; } .month-bg{ background-position: center center !important; background-size: cover !important; } /*.class-december{ background:linear-gradient(0deg, rgba(255, 255, 255, 0), rgba(255, 255, 255, 0)), url(../wp-content/uploads/2018/02/December.jpg); } .class-november{ background:linear-gradient(0deg, rgba(255, 255, 255, 0), rgba(255, 255, 255, 0)), url(../wp-content/uploads/2018/02/November.jpg); } .class-october{ background:linear-gradient(0deg, rgba(255, 255, 255, 0), rgba(255, 255, 255, 0)), url(../wp-content/uploads/2018/02/October.jpg); } .class-september{ background:linear-gradient(0deg, rgba(255, 255, 255, 0), rgba(255, 255, 255, 0)), url(../wp-content/uploads/2018/02/September.jpg); } .class-august{ background:linear-gradient(0deg, rgba(255, 255, 255, 0), rgba(255, 255, 255, 0)), url(../wp-content/uploads/2018/02/August.jpg); } .class-july{ background:linear-gradient(0deg, rgba(255, 255, 255, 0), rgba(255, 255, 255, 0)), url(../wp-content/uploads/2018/02/July.jpg); } .class-june{ background:linear-gradient(0deg, rgba(255, 255, 255, 0), rgba(255, 255, 255, 0)), url(../wp-content/uploads/2018/02/June.jpg); } .class-may{ background:linear-gradient(0deg, rgba(255, 255, 255, 0), rgba(255, 255, 255, 0)), url(../wp-content/uploads/2018/02/May.jpg); } .class-april{ background:linear-gradient(0deg, rgba(255, 255, 255, 0), rgba(255, 255, 255, 0)), url(../wp-content/uploads/2018/02/April.jpg); } .class-march{ background:linear-gradient(0deg, rgba(255, 255, 255, 0), rgba(255, 255, 255, 0)), url(../wp-content/uploads/2018/02/March.jpg); } .class-february{ background:linear-gradient(0deg, rgba(255, 255, 255, 0), rgba(255, 255, 255, 0)), url(../wp-content/uploads/2018/02/February.jpg); } .class-january{ background:linear-gradient(0deg, rgba(255, 255, 255, 0), rgba(255, 255, 255, 0)), url(../wp-content/uploads/2018/02/January.jpg); }*/ .section-title{ max-width:1280px; margin:auto; text-align:center; } .boxed-article{ width:100%; margin-right:40px; height:auto; } .section-title h2{ margin:60px auto; font-size:22px; } .section-title h2.featured{ margin:2px auto 50px auto; } .section-title h5{ margin:40px auto 0 auto; } .boxed-article:last-child{ margin-right:0; } .boxed-article .ba-title{ text-align:center; margin:10px 0 40px 0; } .boxed-article .ba-title a{ font-family:Arial; font-size:16px; font-weight:600; color:#000; } .boxed-article img{ width:100%; height:200px; object-fit:cover; } .ul-article{ /*list-style:none;*/ padding-left:20px; height:70%; } .ul-article a, .ul-article li{ font-weight:bold; font-size:16px; color:#000; } .ul-article a:hover{ text-decoration:underline; } .article-issue{ font-weight:600; font-size:24px; color:#fff; text-shadow:2px 2px 4px #000000; } .bio-links a{ display:inline-block; } .econlib_logo span{ display:none !important; } footer h6{ display:none !important; } .torch-text2{ color: #dbecf1 !important; font-size: 14px; margin-bottom:40px; } div.networking{ padding-top:40px; } .torch-text{ margin-bottom:2px; } h2.lined{ display:block; max-width:1280px; width: 100%; text-align: center; border-bottom: 2px solid #72bdca; line-height: 0.1em; margin: 10px auto 40px auto; } h2.lined span { background:#fff; padding:0 10px; } .oak-more-entries{ text-align:center; } #btn-more-entries{ background:#d8d8d8; border:1px solid #979797; padding:10px 60px; margin:20px; color:#000; cursor:pointer; border-radius:10px; font-size:18px; font-weight:600; } .title-category{ padding-top:20px; } .title-category h3{ font-size:16px; } #econtal-page-banner{ display:block !important; padding-bottom:20px; } #econtal-page-banner .col-md-6, #econtal-page-banner .col-md-12, #econtal-page-banner .col-lg-6{ padding-left:0 !important; padding-right:0 !important; } .econtalk-page.econtalk.main-banner:before{ left:0; } .pp-multiple-authors-layout-inline{ font-size:18px; margin-bottom:0; line-height:normal; display:inline-block; } a.author.url{ font-size:18px; line-height:normal; color:#212529; } .card-block .pp-multiple-authors-layout-inline, .card-block a.author.url{ font-size:14px; } .card-title a{ color:#000000; } h2.pp-multiple-authors-layout-inline{ font-weight:normal; } #label_total_shown{ display:none; } .facet_span_ctr, .search_result_facet_counter{ font-family:Arial, sans-serif; font-style:normal; font-size:14px; color:#27baae; font-weight:bold; cursor:pointer; } /*body{ max-width:1920px; margin:auto; }*/ .econtalk-container{ padding-right:0; padding-left:0; display:block; } #econtalks{ display:block; overflow:auto; } #econtalks .grid-masonry-item{ width:100%; } #econtalk-recent-wrap{ clear:both; margin-bottom:20px; } #econtalk-recent-image{ display:block; width:100%; height:30vh; background-repeat:no-repeat; background-size:cover; background-position:right center; } #econtalk-recent-content{ width:100%; } /*#econtalk-recent-content, #econtalk-recent-image{ float:left; }*/ #wrap-content-head{ background:#0e0c0c; padding:10px; } #wrap-content-body{ padding:20px; background:#f0f0f0; } /*#wrap-content-head span{ color:#72bdca; font-size:22px; font-weight:600; text-transform:uppercase; display:block; margin-bottom:15px }*/ span.wrap-title{ color:#72bdca; font-size:22px; font-weight:700; text-transform:uppercase; display:block; margin-bottom:15px } span.lwe-title{ color:#000; padding:20px 0 0 20px; } span.lwe-related{ padding:20px 0 0 0; } span.newsletter-title{ color:#fff; } .econtalk-archive-titles{ font-size:28px; font-weight:600; } #wrap-content-head h2{ margin-bottom:20px; } #wrap-content-head h2 a{ color:#fff; } .btn_pill{ background:#fff; color:#72bdca; border-radius:25px; border:0; padding:7px 30px; font-weight:600; margin-right:15px; cursor:pointer; text-align:center; display:block; margin-bottom:5px; } .lw_btn_pill{ padding:7px 7px; float:left; margin-left:-20px; border-radius:0; } #twe-date{ font-size:16px; font-weight:bold; } #twe-excerpt{ font-size:18px; font-weight:500; } .econtalk-action-btn{ display:block; width:85%; margin:auto; margin-bottom:5px; text-align:center; color:#fff; padding:15px 40px; border:0; text-transform:uppercase; font-size:16px; /*margin-right:10px;*/ cursor:pointer; border-radius:0; vertical-align:top; } .econtalk-action-btn:hover{ color:#fff; } .btn-listen{ background:#00c29d; } .btn-transcript{ background:#44c3da; } .btn-share{ background:#282e2f; } #wrap-btn-pills{ display:none; margin-bottom:16px; } .lw-col{ width:100%; } #last-week-epi-wrap{ background:#e8fbff; } #newsletter-wrap{ background:#363636; } #newsletter-wrap p{ color: #fff; padding: 20px 0 20px 20px; font-size:34px; line-height:1.2; } #newsletter-wrap form{ display:flex; padding:0 20px 20px 20px } #newsletter-wrap form .email{ width:70%; margin-right:20px; border-radius:0; } #newsletter-wrap form .btn{ width:30%; border-radius:0;; } #lw-image{ width:300px; height:300px; display:block; background-repeat:no-repeat; background-size:cover; background-position:center } #episode-archive-wrap{ background:#adf0ff; padding:20px 60px; } #single-episode-archive-wrap{ padding:20px; } #episode-archive-wrap .lwe-title, #single-episode-archive-wrap .lwe-title, #episode-archive-wrap p, #single-episode-archive-wrap p{ text-align:center; } #episode-archive-wrap p, #single-episode-archive-wrap p{ font-size:20px; font-weight:500; } #single-episode-archive-wrap .lwe-title{ padding:20px 0 0 0; } #featured-guest-wrap{ margin-top:20px; background:#f6f6f6; height:763px; } #lw-article-wrap{ display:blok; padding:0 20px 20px 20px; } #lw-image, #lw-content{ width:100%; } #lw-content p{ font-weight:500; } #lw-content h2 a, #lw-content h2 a:hover{ color:#000; } #econtalk-related-wrap{ background:#fff; padding:0 20px 20px 20px; } #wrap-rel-article a{ color:#000; font-weight:600; } #wrap-rel-article .lw_btn_pill{ color:#72bdca; } #browse-by-wrap{ display:block; } #browse-by-wrap a#bb-guest{ background-image:url(../wp-content/themes/econlib/assets/img/social.png); } #browse-by-wrap a#bb-date{ background-image:url(../wp-content/themes/econlib/assets/img/monthly-calendar.png); } #browse-by-wrap a{ display:block; position:relative; height:45px; width:100%; margin-top:30px; margin-bottom:30px; background-size:cover; } #single-episode-archive-wrap #browse-by-wrap a{ width:100%; height:200px; } #browse-by-wrap span{ position:absolute; bottom:0; color:#fff; background:#241919; font-size:18px; padding:10px; border:0; display:block; width:100%; text-align:center; margin-top:120px; } span.featured-guest-title{ color:#000000; text-align:center; padding-top:20px; } .carousel-control-next, .carousel-control-next:hover, .carousel-control-prev, .carousel-control-prev:hover{ color:#44c3da; } .carousel-indicators li { width: 15px; height: 15px; border-radius: 20px; background-color: rgba(105, 105, 105, 0.5); } .carousel-indicators .active { background-color: #44c3da; } .carousel-item .card a, .carousel-item .card-title{ text-align:center; } .carousel-item .card{ background:none; padding:40px 20px; border:0; } .carousel-item .card-text{ font-size:16px; font-family: Arial, sans-serif; color:#000; } .carousel-item .card-title{ font-size:21px; font-weight:500; font-family: Arial, sans-serif; color:#000; } .carousel-item .card-body{ padding:20px 15%; } span.econ-extra-title, span.past-epi-title{ text-align:center; color:#000; display:block; } span.econ-extra-title{ margin-bottom:0; padding:20px; } span.past-epi-title{ padding:20px; } #bg-wrap-econ-extras{ margin:auto; margin-top:20px; max-width:1230px; background:#f8f6f6; } #econtalk-extras-wrap .card-block, #econtalk-extras-wrap .card-comment, #econtalk-past-epi-wrap .card-block, #econtalk-past-epi-wrap .card-comment{ padding:10px !important; } /*#econtalk-extras-wrap .col-xl-3:first-child{ flex:0 0 50%; max-width:50%; }*/ #econtalk-extras-wrap .col-md-6{ max-width:100%; } #econtalk-extras-wrap h4 a, #econtalk-past-epi-wrap h4 a{ font-weight:600; } #econtalk-extras-wrap .card-block *, #econtalk-past-epi-wrap .card-block *{ font-family:Arial, sans-serif; } #econtalk-past-epi-wrap, .fa-caret-down{ color: #44c3da; } #econtalk-single-podcast-wrap{ display:flex; padding:0; flex-direction:column-reverse; } #podcast-wrap{ width:100%; padding:20px; background:#f0f0f0; display:none; } #podcast-wrap-mobile .clear-fix{ padding:20px; background:#000; } #podcast-wrap-mobile #econtalk-desc-wrap{ padding:20px; } #podcast-wrap-mobile #single-econtalk-title a{ color:#fff; font-size:22px; } #podcast-img{ display:block; width:100%; height:220px; background-repeat: no-repeat; background-size: cover; background-position: right center; } #econtalk-single-tabs-wrap{ margin-top:20px; } #econtalk-single-tabs-wrap nav{ background:#fff; margin-top:20px; } #econtalk-single-tabs-wrap nav a{ margin-left:0; margin-right:5px; margin-bottom:5px; background:#e1e1e1; } #econtalk-single-tabs-wrap .nav-tabs .nav-link{ color:#000; text-transform:uppercase; } #econtalk-single-tabs-wrap .nav-tabs .nav-link:hover{ color:#fff; background-color:#231f1f; border-radius:0; } #econtalk-single-tabs-wrap .nav-tabs .nav-link.active{ color:#fff; background-color:#231f1f; border:0; border-radius:0; } #econtalk-single-tabs-wrap #nav-tabContent{ width:100%; } #single-econtalk{ width:100%; } #econtalk-single-tabs-wrap #single-econtalk-tab-sidebar{ width:100%; } #single-econtalk-audio-wrap{ margin:20px 0; } #single-econtalk-title a{ color:#000; } #single-econtalk-date{ font-weight:600; } #single-econtalk-desc{ font-weight:500; } #single-about-the-guest{ padding:20px; margin-bottom:20px; background:#e8fbff; } #single-related-episodes{ padding:20px; } #single-about-the-guest span, #single-related-episodes span{ text-align:center; color:#000; } #single-about-the-guest-img{ text-align:center; margin-bottom:20px; } #single-related-episodes a{ color: #000; font-weight: 600; font-size: 20px; } #econtalk-single-podcast-wrap .btn-transcript, #econtalk-single-podcast-wrap .btn-listen{ display:none; } #single-about-the-guest h5 a{ display:block; text-align:center; color:#00c29d; } #checkbox_toggle{ font-family: Arial; font-size: 13px; color: #1ca5e9; cursor:pointer; } .woo_subscribe_now_btn{ background-color: #44c3da; border-radius: 2px; box-shadow: none; border: none; color: #fff !important; font-family: Lato; font-size: 16px; padding:20px 40px; font-weight: 400; letter-spacing: 0.6px; text-transform: uppercase; cursor: pointer; } .woocommerce *{ font-family: Lato !important; } .cart-collaterals{ padding-bottom:40px; } #customer_details .col-1, #customer_details .col-2{ max-width:100%; } #customer_details .form-row{ display:block; } .year-picker .col-8, .year-picker .col-4{ padding-left:0; display:inline-block; max-width:50%; flex:0 0 50%; } .year-picker .row{ padding-bottom:5px; } .year-picker .col-8 h3, .year-picker .col-4 h3{ font-size:14px; font-weight:600; } .dropdown-filter-wrap, .dropdown-filter-wrap2{ width:50%; position:relative; } .dropdown-filter-wrap2{ width:33.33%; } .dropdown-filter-wrap .btn-secondary, .dropdown-filter-wrap2 .btn-secondary{ color:#000; background:none; border:0; font-size:16px; } @media (min-width:768px){ .search_tool_bgwrap{ padding-top:40px; } .main-header{ height:64px; padding:0 20px; } section.main-banner, .navbar-search{ display:block !important; } .lg-nextprev{ display:flex !important; } .article-single-page .card-comment{ display:inline-block !important; } .m-featured-image, .s-nextprev{ display:none; } section.articles-page article .main-content, .card-block .article-content{ display: block !important; } .recent-cards .article-text h4, .card-title-container .card-title{ font-size: 18px; } .recent-cards .article-text h4{ white-space:nowrap !important; } .recent-cards .read-more-btn{ display:inline-block !important; float:right !important; } header .logo{ margin-left:5%; } .search-header{ width:auto; } .articles-page .row .col-md-6{ padding-right:15px; padding-left:15px; } .grid-masonry .col-md-6{ padding-left:15px; padding-right:15px; } article.grid-card .card-block{ min-height:250px !important; } .articles-grid .title-date{ padding:20px; } /* search tool desktop */ .search_tool_wrap{ max-width: 815px; margin: 0 auto; padding: 20px; border-radius: 12px; } .search_tool_wrap form{ padding: 55px 165px 10px 165px; } .search_tool_wrap h4{ font-size: 30px; text-align: center; margin-bottom:32px; } .search_result_article h4{ text-align: left; margin-bottom:5px; } .sp_searchterm_wrap #search_term{ margin-bottom:27px; } .sp_searchterm_wrap #search_term{ font-size:20px; font-weight:500; } .sp_searchterm_wrap .close{ top:10px; } .search_tool_wrap #refine_search{ display:block; width:80%; margin:45px auto 0 auto; padding:14px 50px; font-size:18px; } .search_results h4{ /*display:none;*/ text-align:left; } .sortbytoggle-wrap{ width:41.5%; float:left; margin-right:1%; /*display:block;*/ } .sort-total-wrap{ width:57.5%; float:left; } #results-orderby a{ text-align:left; } #divResultSummary{ display:block; /*justify-content:flex-end;*/ } .page_subcat_wrap{ padding:25px; } .page_subcat_wrap .subcat_wrap .oakcol{ display:block; width:50%; float:left; padding:10px 15px; } .page_subcat_wrap .subcat_wrap{ padding:30px; height:auto; } .page_subcat_wrap .subcat_wrap .oakcol a{ /*text-align:center;*/ font-size:18px; color:#fff; } .page_subcat_wrap .subcat_wrap .oakcol a.active-subcat{ color:#4a90e2; } .page_subcat_wrap .subcat_wrap .oakcol a.active-subcat::before{ content:"> "; } .page_subcat_wrap .subcat_wrap h4{ display:block; } .subcat{ display:none; } .page_subcat_wrap .subcat_wrap{ /*overflow-y:scroll;*/ } /*.grey-section{ padding:40px 0 100px 0; }*/ .div-container{ display:flex; } .section-title h2{ font-size:32px; } .boxed-article .ba-title{ margin:25px 0 0 0; } #cee_subcat_wrap{ /*background:linear-gradient(0deg, rgba(1, 1, 1, 0.5), rgba(1, 1, 1, 0.3)), url(../wp-content/uploads/2021/08/image-3.png); background-size:cover; background-repeat:no-repeat; background-position: bottom center;*/ } #label_total_shown{ display:inline-block; } .sortbytoggle-wrap, #results-orderby{ background:#4a90e2; } .results-header{ background:none; } } .category-list .category-card{ margin-bottom:0; } html { scroll-behavior: smooth; } @media (min-width:992px){ .article-single-page section .post-content .highlight{ float:right; margin: 20px 0 20px 20px; width:220px; } .mobile-related{ display:none; } .desktop-related{ display:block; } .econtalk-container{ display:flex; padding-right:15px; padding-left:15px; } #econtalk-extras-wrap .col-xl-3:first-child{ flex:0 0 50%; max-width:50%; } #econtalk-recent-image{ height:auto; width:40%; } #econtalk-recent-content{ width:60%; } #econtalk-recent-content, #econtalk-recent-image{ float:left; } #wrap-content-head{ padding:40px 40px 20px 40px; } #wrap-content-body{ padding:40px; } .btn_pill{ display:inline-block; margin-bottom:0; text-align:left; } .econtalk-action-btn{ display:inline-block; margin-bottom:0; width:auto; text-align:left; } .lw-col{ width:50%; } .lw-col:first-child{ margin-right:20px; } #lw-article-wrap{ display:flex; } #lw-image{ display:block; width:45%; } #lw-content{ width:55%; margin-left:10px; } #browse-by-wrap{ display:flex; } #single-episode-archive-wrap #browse-by-wrap a:first-child{ margin-right:5%; } #browse-by-wrap a:first-child{ margin-right:8%; } #browse-by-wrap a{ height:225px; width:46%; } #econtalks .grid-masonry-item{ width:305px; float:left; } #econtalk-single-podcast-wrap{ display:flex; flex-direction:row; } #podcast-wrap-mobile{ display:none; } #podcast-wrap{ display:block; float:left; width:60%; padding:40px; } #podcast-img{ float:left; width:40%; height:auto; } #econtalk-single-tabs-wrap #nav-tabContent{ width:60%; float:left; padding:20px !important; } #econtalk-single-tabs-wrap #single-econtalk-tab-sidebar{ width:40%; float:left; padding:20px !important; } #single-episode-archive-wrap #browse-by-wrap div{ width:43%; } #wrap-btn-pills{ display:block; } .econtalk-archive-titles{ font-size:32px; } #econtalk-related-wrap{ background:none; } .lw_btn_pill{ float:right; border-radius:25px; margin-right:0; } #econtalk-single-tabs-wrap nav a{ margin-left:15px; margin-right:15px; margin-bottom:0; background:#fff; } /*#econtalk-single-podcast-wrap .btn-transcript, #econtalk-single-podcast-wrap .btn-listen{ display:inline-block; }*/ } @media (min-width:1180px){ .econlib_logo, .econlib_logo span{ display:block; } header .navbar-toggler{ display:none; } .navbar{ position:static; } .navbar-nav{ flex-direction:row; } .navbar-collapse{ display:block; } #menu-top-menu > .menu-item{ min-width:130px; text-align:center; flex-grow:1; } .navbar-nav .dropdown-menu{ /*position:absolute;*/ background:#72bdca; /*top:100%;*/ /*left:0; width:100%;*/ margin:0; border:0; border-radius:0; } li.menu-item-has-children{ position:static; } .main-header{ position:relative; } ul.dropdown-menu li{ /*float:none !important; display:inline-block !important; */ } ul.dropdown-menu li a{ padding:10px 20px; } .nav-wrap #menu-top-mobile li{ /*min-width:130px;*/ flex-grow:1; text-align:center; } /*.nav-wrap{ display:flex; } .nav-mobile-wrap{ display:none; }*/ #template_submenu{ padding:0; text-align:center; } #template_submenu ul{ display:inline-block; position:static; width:auto; height:45px; padding:0; margin:0 auto; /*display:inline-block; height:45px; line-height:45px; list-style:none; text-align:center; margin:0; padding:0;*/ } #template_submenu ul li{ display:inline-block; } #template_submenu .subnav-parent, #template_submenu .subnav-toggler{ display:none; } /*.previous-month, .previous-month2{ width:25%; } .current-month{ width:50%; }*/ .current-month, .previous-month, .previous-month2, .previous-month3{ width:25%; } .article-second-container .div-item{ width:49%; float:left; } .article-second-container .div-item:nth-child(even){ margin-right:0; } .div-item{ margin-bottom:0; } .video-container .div-item{ width:31%; float:left; height:auto !important; } } /* ##Device = Tablets, Ipads (portrait) ##Screen = B/w 768px to 1024px */ @media (min-width: 768px) and (max-width: 1024px) { /* CSS */ } /* ##Device = Tablets, Ipads (landscape) ##Screen = B/w 768px to 1024px */ @media (min-width: 768px) and (max-width: 1024px) and (orientation: landscape) { .site-container{ max-width:100%; } .econtalk-container{ padding-left:0; padding-right:0; } .btn_pill:last-child, #btnGroupDrop1{ margin-top:10px; } } div.smcx-modal{top:0 !important;left:0 !important;max-width:100% !important;width:100% !important;height:100% !important;max-height:100% !important;background:rgba(0,0,0,0.5) !important;margin-top:0 !important;margin-left:0 !important;margin:0 !important;}.smcx-modal-invitation>.smcx-modal-content{margin:12% auto 0 auto !important;} #_customize-input-cee_page_header{ width:100% !important; } /* Econlog Archive Page - 2024 */ .econ-arch-filter-wrap{ padding:0 0 40px 0; margin-bottom:40px; } #econ-arch-sort-dd{ margin-right:20px; } .econ-arch-postwrap{ display:flex; flex-wrap:wrap; } .econarch-items{ width:100%; padding:5px; } .econarch-items h4 a{ color:#000; display:block; margin:5px 0; font-size:20px; line-height:24px; } .econarch-items .econarch-img{ background-repeat:no-repeat; background-size:cover; border:1px solid #cecece; display:block; width:100%; height:200px; } .econarch-items p.econ_mr_author{ margin-bottom:5px; font-size:14px; } .econarch-items .pad-right{ padding-right:15px; } .econarch-sortfilter-wrap{ display:flex; } #econ-arch-filter-cat{ width:100%; } 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demand, budget deficits, MMT </div> </div> </div> </div> </div> </section>  <section class="article-single-page site-container post-container"> <div class="row"> <section class="col-lg-8"> <article class="post"> <div class="row post-header"> <h1 class="col-11 post-title">Excessive debt doesn't cause inflation</h1> <div class="card-comment"> <a href="#comments" class="card-comment-container"> <span class="card-comment-count"> 18 </span> <i class="fa card-comment-icon" aria-hidden="true"></i> </a> </div> <h5 class="col-12 post-author">  <span class="pp-multiple-authors-boxes-wrapper pp-multiple-authors-wrapper pp-multiple-authors-layout-inline multiple-authors-target-shortcode box-post-id-69046 box-instance-id-1 ppma_boxes_69046" data-post_id="69046" data-instance_id="1" data-additional_class="pp-multiple-authors-layout-inline.multiple-authors-target-shortcode" data-original_class="pp-multiple-authors-boxes-wrapper pp-multiple-authors-wrapper box-post-id-69046 box-instance-id-1"> <span class="ppma-layout-prefix"></span> <span class="ppma-author-category-wrap"> <span class="ppma-category-group ppma-category-group-1 category-index-0"> <span class="pp-author-boxes-avatar-details"> <span class="pp-author-boxes-name multiple-authors-name"><a href="https://www.econlib.org/author/ssumner/" rel="author" title="Scott Sumner" class="author url fn">Scott Sumner</a></span> </span> </span> </span> <span class="ppma-layout-suffix"></span> </span>  <style> .pp-multiple-authors-boxes-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode .pp-author-boxes-avatar img { width: 80px !important; height: 80px !important; } .pp-multiple-authors-boxes-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode .pp-author-boxes-avatar img { border-radius: 50% !important; } .pp-multiple-authors-boxes-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode .pp-author-boxes-meta a { background-color: #655997 !important; } .pp-multiple-authors-boxes-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode .pp-author-boxes-meta a { color: #ffffff !important; } .pp-multiple-authors-boxes-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode .pp-author-boxes-meta a:hover { color: #ffffff !important; } .pp-multiple-authors-boxes-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode .ppma-author-user_email-profile-data { background-color: #655997 !important; } .pp-multiple-authors-boxes-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode .ppma-author-user_email-profile-data { border-radius: 100% !important; } .pp-multiple-authors-boxes-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode .ppma-author-user_email-profile-data { color: #ffffff !important; } .pp-multiple-authors-boxes-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode .ppma-author-user_email-profile-data:hover { 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.ppma-category-group { margin-right: px !important; } .pp-multiple-authors-boxes-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode .ppma-author-category-wrap { font-size: px !important; } .pp-multiple-authors-boxes-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode .ppma-author-category-wrap .ppma-category-group-title { font-weight: !important; } .pp-multiple-authors-layout-inline ul.pp-multiple-authors-boxes-ul { display: flex; } .pp-multiple-authors-layout-inline ul.pp-multiple-authors-boxes-ul li { margin-right: 10px }.pp-multiple-authors-boxes-wrapper.pp-multiple-authors-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode.box-post-id-69046.box-instance-id-1.ppma_boxes_69046 ul li > div:nth-child(1) {flex: 1 !important;} </style> </h5> </div> <div class="m-featured-image"> <a href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/"><img src="https://www.econlib.org/wp-content/uploads/2019/03/Screen-Shot-2019-03-09-at-4.13.53-PM.png" alt="Excessive debt doesn't cause inflation" width="100%"></a> <div class="post-categories"> Categories: <a href='https://www.econlib.org/econlog-by-category/#fiscal-policy'> Fiscal Policy</a> <a href='https://www.econlib.org/econlog-by-category/#macroeconomics'> Macroeconomics</a> </div> <div class="m-metawrap"> <p class="m-meta-stuff"> By Scott Sumner, Mar 9 2019 </p> <div class="share-post-widget share-post-widget-top"> <div class="share-text"> SHARE <br/> POST: </div> <a class="fa-regular fa-envelope fa-2x" href="mailto:?Subject=Check out this Econlib page&Body=I thought you might be interested in Excessive debt doesn’t cause inflation By Scott Sumner. You can view it at https://www.econlib.org/excessive-debt-doesnt-cause-inflation/"></a> <a class="fa fa-print fa-2x" href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/?to_print=true"></a> <a class="fa-brands fa-facebook-f fa-2x" style="color: #FFF" href="https://www.facebook.com/sharer/sharer.php?u=https://www.econlib.org/excessive-debt-doesnt-cause-inflation/" target="_blank"></a>  <a href="https://twitter.com/intent/tweet?url=https://www.econlib.org/excessive-debt-doesnt-cause-inflation/" class="fa-brands fa-x-twitter fa-2x" style="color: #FFF" target="_blank" data-show-count="false"></a> <script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script> </div> </div> </div> <div class="post-content"> <p>I cannot resist responding to a recent article by <a href="https://www.bloomberg.com/opinion/articles/2019-03-07/deficits-mmt-and-a-green-new-deal"><strong>Stephanie Kelton</strong></a>, explaining the MMT view of public debt:</p> <blockquote><p>Since the government’s budget deficit is, by definition, the difference between what it spends and what it collects in the form of taxes and other payments to itself, it may seem reasonable to call it “overspending” when the government spends more than it takes in. But it’s not.</p> <p>As every economist knows, inflation — not a budget deficit — is the tell-tale sign of an economy that is under pressure from excessive spending. If prices aren’t accelerating, you don’t have an inflation problem. And if you don’t have an inflation problem, you don’t have a spending problem.</p></blockquote> <p>It’s rare to see such a classic example of a non sequitur. Yes, inflation is a sign of overspending, in the sense of excessive aggregate demand. But in context, the second paragraph makes no sense at all. The previous paragraph was not about aggregate spending, it was about <em>federal spending and</em> the budget deficit. Indeed the entire article up until that point is discussing budget deficits, and nothing else. For instance, here’s the first paragraph:</p> <blockquote><p>When I was the chief economist to the Democrats on the Senate Budget Committee in 2015-2016, I attended a number of hearings, all called by its chairman, Republican Senator Mike Enzi of Wyoming. He would invariably open with prepared remarks that included his observation that deficits are evidence of “chronic overspending.”</p></blockquote> <p>So then what are we to make of the paragraph that begins “As every economist knows”? There are two possibilities here:</p> <p>1. Kelton is referring to excessive federal spending. But in that case, the claim is completely false. Economists do not generally believe that inflation is a tell tale sign of excessive federal spending, mostly because it obviously is not. Deficits tended to be low during the Great Inflation, and then rose sharply in the 1980s, as inflation fell sharply. Deficits again soared over the last few years, again without high inflation. So it’s certainly not true that “every” economist regards inflation as a sign of excessive federal spending, rather economists view it as a sign of excessive <em>aggregate spending</em>.</p> <p>2. OK, so perhaps that’s what Kelton meant. But then the entire article makes no sense. She had been trying to push back against the view that excessive federal spending and large budget deficits are a problem when inflation is low. If the paragraph about what “every economist knows” is referring to aggregate spending, then it has no bearing on her claims. In that case, the entire article literally makes no sense at all. Her “proof” has no bearing on the claim she is disputing.</p> <p>This is also puzzling:</p> <blockquote> <p style="font-weight: 400;"><span style="font-weight: inherit;">Depressed conditions meant that the government could have spent a trillion dollars without raising a single tax. It would not have been inflationary. But as things tighten up, and the slack dissipates, the economy moves to a fuller utilization of its resources.</span></p> <p style="font-weight: 400;"><span style="font-weight: inherit;">We almost never make it all the way to maximum velocity — we did during the mobilization for World War II — and we’re almost surely </span><span style="font-weight: inherit;"><a style="font-weight: inherit;" href="https://www.econstor.eu/bitstream/10419/168420/1/878951067.pdf">not there</a></span><span style="font-weight: inherit;"> now. That day could come. And when it does, you don’t get to spend so freely.</span></p> </blockquote> <p>Put aside the odd comment about “velocity”, which was actually relatively low during WWII (albeit slightly higher than in 1940). She’s right that excessive (aggregate) spending did cause substantial inflation during the war. But the suggestion that inflation is only a problem when we reach full utilization of resources makes no sense. Yes, the unemployment rate fell to barely over 1% during WWII, and we were certainly operating at capacity. But we also had double-digit inflation during 1980 and 1981, a time of 7% to 8% unemployment. In other countries you can find even more extreme examples of stagflation. Excessive spending can occur when the economy is far from capacity.</p> <p>Just to be clear, I don’t expect the current federal deficits to lead to high inflation, due to monetary offset. So it is reasonable for MMTers to predict low inflation for the foreseeable future. The financial markets also predict low inflation, as do most mainstream economists. But that’s not the point. While big budget deficits lead to hyperinflation in places like Zimbabwe and Venezuela, in the US the deficits are likely to place a burden on future taxpayers, slowing growth. Sharp future tax increases are the actual risk, not high inflation.</p> <p>PS. I’m expecting commenters to tell me that MMTers use terms like ‘velocity’ and ‘spending’ in a way that’s radically different from how mainstream economists use these term. They seem to have their own private language.</p> <p>Here’s velocity:</p> <p><img fetchpriority="high" decoding="async" class="alignnone size-full wp-image-45676" src="https://www.econlib.org/wp-content/uploads/2019/03/Screen-Shot-2019-03-09-at-4.13.53-PM.png" alt="" width="733" height="328" srcset="https://www.econlib.org/wp-content/uploads/2019/03/Screen-Shot-2019-03-09-at-4.13.53-PM.png 733w, https://www.econlib.org/wp-content/uploads/2019/03/Screen-Shot-2019-03-09-at-4.13.53-PM-600x268.png 600w, https://www.econlib.org/wp-content/uploads/2019/03/Screen-Shot-2019-03-09-at-4.13.53-PM-300x134.png 300w" sizes="(max-width: 733px) 100vw, 733px" /></p> <p>HT: Dilip</p> </div> <div class="mobile-related"> <article class="card related-article"> <div class="card-header"> <h6 class="related-article-author">RELATED CONTENT </h6> <h5 class="related-article-title">Steve Hanke on Hyperinflation, Monetary Policy, and Debt</h5> </div> <div class="card-body">Steve Hanke of Johns Hopkins and the Cato Institute talks with EconTalk host Russ Roberts about hyperinflation and the U.S. fiscal situation. Hanke argues that despite the seemingly aggressive policies of the Federal Reserve over the last four years, there is currently little or no risk of serious inflation in the United States. His argument is that broad measures of the money supply lag well below their trend level. While high-powered reserves have indeed expanded dramatically, they have not in...</div> <div class="article-btn-block"> <a href="https://www.econtalk.org/hanke-on-hyperinflation-monetary-policy-and-debt/" class="btn btn-info">Read This Article</a> </div> </article> </div> </article> <div id="comments" class="comments-section"> <div class="row reader-comments"> <h4 class="col-md-7 col-lg-8" id="read-comments">READER COMMENTS</h4>  </div> <div class="col-md-6"> <ul class="list-inline"><li class="list-inline-item"><a href="https://www.econlib.org/library/commentpolicy.html">READ COMMENT POLICY</a></li></ul> </div> <div class="comment even thread-even depth-1 extra-content-bordered parent" id="comment-218072"> <div class="extra-content-bordered-top-text"> <div class="comment-info"> <h5 class="comment-author-name">Ahmed Fares</h5> <h6 class="comment-date"> Mar 9 2019 at 6:53pm </h6> </div> <div class="comment-btn-block pull-right"> <a href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/#comment-218072" class="fa fa-link fa-2x comment-link"></a> </div> </div> <div class="extra-content-text"> <p>Hyper-inflation causes money-printing and not the other way around.</p> <p><em>Yes, that is true; Henwood adopts the Monetarist explanation that “too much money” causes inflation. He confuses causation and correlation. Severe supply constraints can push up prices, increasing the amount of money that needs to be created both publicly and privately to finance purchases. Tax revenues fall behind spending so a deficit opens up as spending tries to keep pace with inflation. The money stock is a residual and it will grow rapidly with hyperinflation. That does not mean it is the cause. Mitchell has closely examined the hyperinflation cases from the MMT perspective; the argument is not at all odd and has the advantage that it is fact-based, unlike Henwood’s Monetarist linking of money and inflation that has been so thoroughly discredited that even central bankers have dropped it. —</em>L. Randall Wray<br />  </p> </div> </div> <div class="comment odd alt thread-odd thread-alt depth-1 extra-content-bordered parent" id="comment-218078"> <div class="extra-content-bordered-top-text"> <div class="comment-info"> <h5 class="comment-author-name"><a href="https://lorenzo-thinkingoutaloud.blogspot.com" class="url" rel="ugc external nofollow">Lorenzo from Oz</a></h5> <h6 class="comment-date"> Mar 9 2019 at 7:55pm </h6> </div> <div class="comment-btn-block pull-right"> <a href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/#comment-218078" class="fa fa-link fa-2x comment-link"></a> </div> </div> <div class="extra-content-text"> <p>Hard to argue with folk using a Humpty-Dumpty approach to language.</p> <p>They are also hardly the only ones to use the motte-and-bailey style of argument, but it does not make it any less frustrating, as Cameron Harwick points out.</p> <p><a href="https://cameronharwick.com/blog/whats-radical-about-mmt/" rel="nofollow ugc">https://cameronharwick.com/blog/whats-radical-about-mmt/</a></p> <p> </p> </div> </div> <div class="comment even thread-even depth-1 extra-content-bordered parent" id="comment-218079"> <div class="extra-content-bordered-top-text"> <div class="comment-info"> <h5 class="comment-author-name"><a href="https://lorenzo-thinkingoutaloud.blogspot.com" class="url" rel="ugc external nofollow">Lorenzo from Oz</a></h5> <h6 class="comment-date"> Mar 9 2019 at 7:58pm </h6> </div> <div class="comment-btn-block pull-right"> <a href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/#comment-218079" class="fa fa-link fa-2x comment-link"></a> </div> </div> <div class="extra-content-text"> <p>Philosopher Nicholas Shackel, who identified and named the motte-and-bailey style of argument sets out what it is nicely here:</p> <p><a href="http://blog.practicalethics.ox.ac.uk/2014/09/motte-and-bailey-doctrines/" rel="nofollow ugc">http://blog.practicalethics.ox.ac.uk/2014/09/motte-and-bailey-doctrines/</a></p> </div> </div> <div class="comment odd alt thread-odd thread-alt depth-1 extra-content-bordered parent" id="comment-218080"> <div class="extra-content-bordered-top-text"> <div class="comment-info"> <h5 class="comment-author-name">Benjamin Cole</h5> <h6 class="comment-date"> Mar 9 2019 at 8:13pm </h6> </div> <div class="comment-btn-block pull-right"> <a href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/#comment-218080" class="fa fa-link fa-2x comment-link"></a> </div> </div> <div class="extra-content-text"> <p>Curiously, the MMT’ers may be right when inflation and interest rates hit zero.</p> <p>If a government can borrow at negative interest rates, as sometimes happens for Switzerland Austria or Japan, the situation becomes even more curious.</p> <p>There is every probability in the next recession that interest rates and inflation will hit zero zero or even go lower.</p> <p>In such an environment, will the monetary tools of interest rates and QE work? Even if QE eventually works, is not speed of the essence when people are unemployed?</p> <p>Given that capital markets are global, if only one central bank goes to QE is that effective?</p> <p>But I think that MMT’ers do have a blind spot. They are trapped within the conventional mode of thinking that a government can only borrow or tax. As was illustrated in Japan during the Great Depression, the government can also print money with very successful results in terms of macroeconomics.</p> <p>It seems to me that both conventional macroeconomists and the MMT’ers want to place macroeconomic policy into a straitjacket. They then devise extreme contortions to get their arm-less policies to work.</p> <p>Dudes, have the federal government print money and spend it. A recession is no time to dilly-dally around.</p> <p> </p> </div> <div class="comment even depth-2 extra-content-bordered parent" id="comment-218091"> <div class="extra-content-bordered-top-text"> <div class="comment-info"> <h5 class="comment-author-name">Matthias Goergens</h5> <h6 class="comment-date"> Mar 10 2019 at 12:56am </h6> </div> <div class="comment-btn-block pull-right"> <a href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/#comment-218091" class="fa fa-link fa-2x comment-link"></a> </div> </div> <div class="extra-content-text"> <p>QE as in buying assets with fresh money will work regardless of interest rates. Targeting interest rates might just not work.</p> <p>Eg Singapore targets the exchange rate, but they do that by buying and selling assets. In their case, I think they are buying foreign exchange, but it doesn’t matter too much. Eg the Fed could target the exchange rate or the NGDP level, and still buy and sell American federal government bonds as the policy tool to reach that target.</p> <p>(In practice, we might see a change to price level targeting instead of NGDP targeting first. Or equivalently, average inflation rate targeting that makes up for past misses. I think those were in the discussion at the Fed?)</p> <p>Yes, one central bank doing QE is effective for their currency.</p> <p>Because of rational expectations, the speed that matters is the speed at which people start believing that QE works. And that can be fairly quick, basically as soon as they announce a credible policy or even before.</p> </div> <div class="comment odd alt depth-3 extra-content-bordered parent" id="comment-218094"> <div class="extra-content-bordered-top-text"> <div class="comment-info"> <h5 class="comment-author-name">Benjamin Cole</h5> <h6 class="comment-date"> Mar 10 2019 at 5:12am </h6> </div> <div class="comment-btn-block pull-right"> <a href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/#comment-218094" class="fa fa-link fa-2x comment-link"></a> </div> </div> <div class="extra-content-text"> <p>“Because of rational expectations, the speed that matters is the speed at which people start believing that QE works. And that can be fairly quick, basically as soon as they announce a credible policy or even beforeMG</p> <p>Egads, do people even know what is QE, let alone do they think it will work? What minute percent of the population are you discussing?</p> <p>Besides that, there are Phd. economists, such as John Cochrane, who insist QE is ineffective entirely, and then there are published studies by the Federal Reserve Bank of St. Louis that said QE would have to be four times larger than it was to be effective.</p> <p>So even “experts” who understand QE argue about its merits.</p> <p>Some people say QE just “swapped reserves for Treasury bonds.” If that is true, we are dependent on commercial banks and endogenous money-creation creation to get us out of a recession. Except, banks do not want to lend into a recession, and no one wants to borrow. Yikes!</p> <p>Can we just open up the heavy artillery in the next recession?</p> <p> </p> </div> </div> </div> </div> <div class="comment even thread-even depth-1 extra-content-bordered parent" id="comment-218086"> <div class="extra-content-bordered-top-text"> <div class="comment-info"> <h5 class="comment-author-name">Rajat</h5> <h6 class="comment-date"> Mar 9 2019 at 10:30pm </h6> </div> <div class="comment-btn-block pull-right"> <a href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/#comment-218086" class="fa fa-link fa-2x comment-link"></a> </div> </div> <div class="extra-content-text"> <p>In fairness to Kelton, I’m pretty she meant ‘maximum velocity’ to mean full employment or a FE level of spending/output.</p> <p>But the comment that the US only reached FE in WW2 is puzzling. The Fed more or less hit its implicit or explicit inflation target from the early 90s to 2007, and is not far away from it now. Is she saying that US spending can be significantly higher without causing the target to be exceeded or does she have a problem with the target? Presumably the former. Unfortunately, the Fed’s timidity over the last decade has not just given Trump a spending-based platform for election and re-election, but brought undeserved attention to MMT.</p> </div> </div> <div class="comment byuser comment-author-ssumner bypostauthor odd alt thread-odd thread-alt depth-1 extra-content-bordered parent" id="comment-218092"> <div class="extra-content-bordered-top-text"> <div class="comment-info"> <h5 class="comment-author-name">Scott Sumner</h5> <h6 class="comment-date"> Mar 10 2019 at 1:32am </h6> </div> <div class="comment-btn-block pull-right"> <a href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/#comment-218092" class="fa fa-link fa-2x comment-link"></a> </div> </div> <div class="extra-content-text"> <p>Ahmed, Yes, and rising orange prices cause crop failures in Florida. (I’m joking)</p> <p>Ben, You don’t understand MMT. MMTers understand that governments can print money to pay for stuff.</p> <p>Rajat, You said:</p> <p>“In fairness to Kelton, I’m pretty she meant ‘maximum velocity’ to mean full employment or a FE level of spending/output.”</p> <p>Perhaps, but why say “in fairness to Kelton”. If you are right that she is making up new meanings for words in ways that no one else understands, that’s a pretty serious problem, isn’t it?</p> <p>We have terms for “full employment”, such as “capacity” and “the natural rate of output”. Unfortunately, “maximum velocity” means something very different. (I’m not saying that’s what she meant, BTW, just responding to your hypothesis. I don’t know what she meant.)</p> <p>It would really help if MMTers used economic terminology the way the rest of us do, and make their arguments using terms we can all understand.</p> <p> </p> </div> </div> <div class="comment even thread-even depth-1 extra-content-bordered parent" id="comment-218093"> <div class="extra-content-bordered-top-text"> <div class="comment-info"> <h5 class="comment-author-name">Rajat</h5> <h6 class="comment-date"> Mar 10 2019 at 1:43am </h6> </div> <div class="comment-btn-block pull-right"> <a href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/#comment-218093" class="fa fa-link fa-2x comment-link"></a> </div> </div> <div class="extra-content-text"> <p>Scott, I don’t disagree about the MMTers’ use of terminology, but even if they don’t argue in good faith, it doesn’t mean the rest of us shouldn’t. The link she provided in the same sentence of that passage is to an article entitled, “Full employment: Are we there yet?”, so I think her intended meaning is clear enough.</p> <p>But in general, I think I’ve read enough from the MMTers to believe that it raises nothing new or interesting other than that it makes a song and dance of the fact that previous views on the sensitivity of real interest rates to the size of national debt were – in hindsight – overblown. I don’t think MMT offers anything useful for future economic policy development.</p> </div> </div> <div class="comment odd alt thread-odd thread-alt depth-1 extra-content-bordered parent" id="comment-218095"> <div class="extra-content-bordered-top-text"> <div class="comment-info"> <h5 class="comment-author-name">Benjamin Cole</h5> <h6 class="comment-date"> Mar 10 2019 at 5:17am </h6> </div> <div class="comment-btn-block pull-right"> <a href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/#comment-218095" class="fa fa-link fa-2x comment-link"></a> </div> </div> <div class="extra-content-text"> <p>Ben, You don’t understand MMT. MMTers understand that governments can print money to pay for stuff.</p> <p>Ha, perhaps guilty as charged on the first declaration.</p> <p>On your second declaration, MMT’ers may understand government can go to money-financed fiscal programs, but they seem to respect the taboo that governments should not print money. They keep talking about Uncle Sam borrowing more and more money, mountains of it though all time, to fund huge social welfare programs, or a Green New Deal. That is about the worst possible face one can put on fiscal stimulus.</p> <p>BTW, check out Larry Summers March 4 paper at Brookings. Without big government deficits, he says neutral interest rates would be seriously negative already.</p> <p>Hey, Summers said it, not me.</p> </div> </div> <div class="comment byuser comment-author-ssumner bypostauthor even thread-even depth-1 extra-content-bordered parent" id="comment-218105"> <div class="extra-content-bordered-top-text"> <div class="comment-info"> <h5 class="comment-author-name">Scott Sumner</h5> <h6 class="comment-date"> Mar 10 2019 at 3:02pm </h6> </div> <div class="comment-btn-block pull-right"> <a href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/#comment-218105" class="fa fa-link fa-2x comment-link"></a> </div> </div> <div class="extra-content-text"> <p>Ben, You said:</p> <p>“but they seem to respect the taboo that governments should not print money.”</p> <p>No they don’t.</p> <p> </p> </div> <div class="comment odd alt depth-2 extra-content-bordered parent" id="comment-218114"> <div class="extra-content-bordered-top-text"> <div class="comment-info"> <h5 class="comment-author-name">Benjamin Cole</h5> <h6 class="comment-date"> Mar 10 2019 at 8:05pm </h6> </div> <div class="comment-btn-block pull-right"> <a href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/#comment-218114" class="fa fa-link fa-2x comment-link"></a> </div> </div> <div class="extra-content-text"> <p>Okay MMT, schemMMT.</p> <p>More important is Larry Summers March 4 paper at Brookings on the need for large and chronic federal deficits.</p> <p>Egads this is Larry Summers talking, not some lulus from MMT land.</p> </div> </div> </div> <div class="comment even thread-odd thread-alt depth-1 extra-content-bordered parent" id="comment-218120"> <div class="extra-content-bordered-top-text"> <div class="comment-info"> <h5 class="comment-author-name">Aleksander</h5> <h6 class="comment-date"> Mar 10 2019 at 10:05pm </h6> </div> <div class="comment-btn-block pull-right"> <a href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/#comment-218120" class="fa fa-link fa-2x comment-link"></a> </div> </div> <div class="extra-content-text"> <p>I really like this passage:</p> <blockquote><p>If we’re going to war against climate change — a war that will touch almost every part of the U.S. economy: energy, housing, transportation, agriculture and so on — something like this will need to be done to manage the inflation risk along the way. <strong>The financing is the easy part. The hard part is managing the inevitable upheaval through the transition.</strong></p></blockquote> <p>Of course directing economic activity is hard. That’s why we normally outsource it to the markets by using money. Then we only have to finance it (through taxation or money creation), which is much easier.</p> <p>I mean, we don’t even have to finance it if we don’t want to; the government could just order individuals to work for free on public works, and to give away all their things. But coordinating all these orders in a socially optimal way is really really hard, so instead we just tax everyone and outsource the coordination to the markets.</p> <p>If you tax everyone so much that the government has to manually steer the economy to “manage the inevitable upheaval”, then financing was only “easy” in the sense that it was literally easy to pass those tax laws (which is also not true in the current political climate). But I guess that’s what she means when she talks about budget deficits as well; it is technically easy to spend more than you collect, regardless of future consequences to the economy.</p> </div> </div> <div class="comment odd alt thread-even depth-1 extra-content-bordered parent" id="comment-218145"> <div class="extra-content-bordered-top-text"> <div class="comment-info"> <h5 class="comment-author-name">Thaomas</h5> <h6 class="comment-date"> Mar 11 2019 at 6:57am </h6> </div> <div class="comment-btn-block pull-right"> <a href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/#comment-218145" class="fa fa-link fa-2x comment-link"></a> </div> </div> <div class="extra-content-text"> <p>Public sector deficits are are negative savings and unless they are being used to finance activities that have future benefits and present costs that pass an NPV test, will slow growth relative to not running the deficits [assuming that the Fed is doing its job of minimizing unemployment with a constant increase in the price level]. Such a regime would produce approximately “Keynesian” counter-cyclical movements in deficits.</p> <p>There is a possible role for fiscal policy — departures from the NPV rule — if monetary policy is systematically perusing policies that are not consistent with full employment of resources and a stable increase in the price level, but exactly what it would look like would depend on the specific kind of mistaken use of monetary instruments and how the Fed would react to the policy.</p> </div> </div> <div class="comment even thread-odd thread-alt depth-1 extra-content-bordered parent" id="comment-218154"> <div class="extra-content-bordered-top-text"> <div class="comment-info"> <h5 class="comment-author-name">Benjamin Cole</h5> <h6 class="comment-date"> Mar 11 2019 at 8:08am </h6> </div> <div class="comment-btn-block pull-right"> <a href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/#comment-218154" class="fa fa-link fa-2x comment-link"></a> </div> </div> <div class="extra-content-text"> <p>On falling neutral real rates, fiscal policy, and the risk of secular stagnation<br /> Lukasz Rachel and Lawrence H. SummersThursday, March 7, 2019</p> <p> </p> <p>This paper is an A-bomb.</p> <p>Summers says monetary policy won’t work in the modern world, and negative interest rates very risky.</p> <p>Gotta go fiscal, but can’t build up debts to high. Yeah, both options bad.</p> <p>It looks like Summer is leading up to money-financed fiscal programs, but then he doesn’t pull the trigger.</p> </div> </div> <div class="comment odd alt thread-even depth-1 extra-content-bordered parent" id="comment-218160"> <div class="extra-content-bordered-top-text"> <div class="comment-info"> <h5 class="comment-author-name">Cody Allen Christianson</h5> <h6 class="comment-date"> Mar 11 2019 at 10:38am </h6> </div> <div class="comment-btn-block pull-right"> <a href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/#comment-218160" class="fa fa-link fa-2x comment-link"></a> </div> </div> <div class="extra-content-text"> <p>You’re misunderstanding what Kelton is arguing. The goal of the Fed is to manage inflation and employment. They currently print and destroy money to control Bank reserves which theoretically should ripple through the real economy. But why limit money creation into the financial sector? The Fed can give the Treasury as much money as was politically determined which would be spent directly into government programs. Public debt doesn’t need to be paid back by raising taxes, it can be paid back by printing money. Then inflation is the only issue that the Fed and Politicians would need to worry about. Public spending should be set to provide as much as the public wants without creating too much inflation. For example, if we wanted to fully fund Social Security, we would have to ensure the extra demand was followed by appropriate supply for which those funds would purchase.</p> <p>Starting with no government taxes or debt being issued, the government could fully fund every program the public desires. How much inflation would this create? Where would the inflation be? Lets add some taxation to remove some of the inflation (private demand) and government bonds to do the same while creating a savings vehicle for the public. This is the premise of MMT. There is no reason why we couldn’t do this if inflation and employment is maintained at a desired rate.</p> </div> </div> <div class="comment byuser comment-author-ssumner bypostauthor even thread-odd thread-alt depth-1 extra-content-bordered parent" id="comment-218179"> <div class="extra-content-bordered-top-text"> <div class="comment-info"> <h5 class="comment-author-name">Scott Sumner</h5> <h6 class="comment-date"> Mar 11 2019 at 3:53pm </h6> </div> <div class="comment-btn-block pull-right"> <a href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/#comment-218179" class="fa fa-link fa-2x comment-link"></a> </div> </div> <div class="extra-content-text"> <p>Cody, I’ve discussed that exact point in many previous posts. The governmentn can raise about 0.3% of GDP by printing money to finance spending (without high inflation). That’s pretty small.</p> </div> <div class="comment odd alt depth-2 extra-content-bordered parent" id="comment-218322"> <div class="extra-content-bordered-top-text"> <div class="comment-info"> <h5 class="comment-author-name"><a href="http://comeletusreasontogether.com" class="url" rel="ugc external nofollow">Thomas Sewell</a></h5> <h6 class="comment-date"> Mar 13 2019 at 11:22pm </h6> </div> <div class="comment-btn-block pull-right"> <a href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/#comment-218322" class="fa fa-link fa-2x comment-link"></a> </div> </div> <div class="extra-content-text"> <p>I think combining your response with Cody’s description of MMT creates a great plan. Let’s limit Federal government regular spending to a maximum deficit of 0.3% of GDP. 😉</p> </div> </div> </div>  <div class="row leave-comment-section"> <div class="col-lg-12 col-xl-10 reader-comments">  <p class="no-comments">Comments are closed.</p> </div> </div> </div> <div id='econlog-single-article-cards'><h4>RECENT POST</h4> <article class="card grid-card "> <div class="card-img-top econlog-logo-standart" style="background-image: url(https://www.econlib.org/wp-content/uploads/2019/03/Unknown-1.jpeg)"> <div class="article-info"> <p></p> <p class="article-date">Mar 11 2019</p> </div> <div class="article-label transparent-bg">Economic Education</div> </div> <div class="card-block"> <div class="row card-title-container"> <h4 class="col-10 card-title"><a href="https://www.econlib.org/mankiw-on-publishing-textbooks/">Mankiw on Publishing Textbooks</a></h4> <span class="col-2 article-icon econlog-icon-grey"></span> </div> <h6 class="article-author">  <span class="pp-multiple-authors-boxes-wrapper pp-multiple-authors-wrapper pp-multiple-authors-layout-inline multiple-authors-target-shortcode box-post-id-69046 box-instance-id-1 ppma_boxes_69046" data-post_id="69046" data-instance_id="1" data-additional_class="pp-multiple-authors-layout-inline.multiple-authors-target-shortcode" data-original_class="pp-multiple-authors-boxes-wrapper pp-multiple-authors-wrapper box-post-id-69046 box-instance-id-1"> <span class="ppma-layout-prefix"></span> <span class="ppma-author-category-wrap"> <span class="ppma-category-group ppma-category-group-1 category-index-0"> <span class="pp-author-boxes-avatar-details"> <span class="pp-author-boxes-name multiple-authors-name"><a href="https://www.econlib.org/author/dhenderson/" rel="author" title="David Henderson" class="author url fn">David Henderson</a></span> </span> </span> </span> <span class="ppma-layout-suffix"></span> </span>  <style> .pp-multiple-authors-boxes-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode .pp-author-boxes-avatar img { width: 80px !important; 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I highly recommend the article, even to people who have no intention of ever writing a textbook. You get ... </p> </div> <div class="card-comment"> <a href="https://www.econlib.org/mankiw-on-publishing-textbooks/#comments" class="card-comment-container"> <span class="card-comment-count">6</span> <i class="fa card-comment-icon" aria-hidden="true"></i> </a> </div> <div class="article-btn-block"> <a href="https://www.econlib.org/mankiw-on-publishing-textbooks/" class="btn btn-info">Read More</a> </div> </article> <article class="card grid-card "> <div class="card-img-top econlog-logo-standart" style="background-image: url(https://www.econlib.org/wp-content/uploads/2018/05/meat20and20potatoes-300x200.jpeg)"> <div class="article-info"> <p></p> <p class="article-date">Mar 11 2019</p> </div> <div class="article-label transparent-bg">Behavioral Economics</div> </div> <div class="card-block"> <div class="row card-title-container"> <h4 class="col-10 card-title"><a href="https://www.econlib.org/hypocrisy-and-hyperbole/">Hypocrisy and Hyperbole</a></h4> <span class="col-2 article-icon econlog-icon-grey"></span> </div> <h6 class="article-author">  <span class="pp-multiple-authors-boxes-wrapper pp-multiple-authors-wrapper pp-multiple-authors-layout-inline multiple-authors-target-shortcode box-post-id-69046 box-instance-id-1 ppma_boxes_69046" data-post_id="69046" data-instance_id="1" data-additional_class="pp-multiple-authors-layout-inline.multiple-authors-target-shortcode" data-original_class="pp-multiple-authors-boxes-wrapper pp-multiple-authors-wrapper box-post-id-69046 box-instance-id-1"> <span class="ppma-layout-prefix"></span> <span class="ppma-author-category-wrap"> <span class="ppma-category-group ppma-category-group-1 category-index-0"> <span class="pp-author-boxes-avatar-details"> <span class="pp-author-boxes-name multiple-authors-name"><a href="https://www.econlib.org/author/bcaplan/" rel="author" title="Bryan Caplan" class="author url fn">Bryan Caplan</a></span> </span> </span> </span> <span class="ppma-layout-suffix"></span> </span>  <style> .pp-multiple-authors-boxes-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode .pp-author-boxes-avatar img { width: 80px !important; 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} .pp-multiple-authors-boxes-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode .ppma-author-category-wrap .ppma-category-group { margin-right: px !important; } .pp-multiple-authors-boxes-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode .ppma-author-category-wrap { font-size: px !important; } .pp-multiple-authors-boxes-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode .ppma-author-category-wrap .ppma-category-group-title { font-weight: !important; } .pp-multiple-authors-layout-inline ul.pp-multiple-authors-boxes-ul { display: flex; } .pp-multiple-authors-layout-inline ul.pp-multiple-authors-boxes-ul li { margin-right: 10px }.pp-multiple-authors-boxes-wrapper.pp-multiple-authors-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode.box-post-id-69046.box-instance-id-1.ppma_boxes_69046 ul li > div:nth-child(1) {flex: 1 !important;} </style> </h6> <p class="card-text article-content"> I teach at a public university. Am I a hypocrite? Bernie Sanders' net worth is about $2M. Is he a hypocrite? How about vegetarians who regularly eat meat? The right answer: It depends on the details of the speakers' moral position! Consider the following cases. 1. You say, "It is always morally wrong t... </p> </div> <div class="card-comment"> <a href="https://www.econlib.org/hypocrisy-and-hyperbole/#comments" class="card-comment-container"> <span class="card-comment-count">26</span> <i class="fa card-comment-icon" aria-hidden="true"></i> </a> </div> <div class="article-btn-block"> <a href="https://www.econlib.org/hypocrisy-and-hyperbole/" class="btn btn-info">Read More</a> </div> </article> <article class="card grid-card "> <div class="card-img-top econlog-logo-standart" style="background-image: url(https://www.econlib.org/wp-content/uploads/2019/03/Screen-Shot-2019-03-09-at-4.13.53-PM-300x134.png)"> <div class="article-info"> <p></p> <p class="article-date">Mar 9 2019</p> </div> <div class="article-label transparent-bg">Fiscal Policy</div> </div> <div class="card-block"> <div class="row card-title-container"> <h4 class="col-10 card-title"><a href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/">Excessive debt doesn't cause inflation</a></h4> <span class="col-2 article-icon econlog-icon-grey"></span> </div> <h6 class="article-author">  <span class="pp-multiple-authors-boxes-wrapper pp-multiple-authors-wrapper pp-multiple-authors-layout-inline multiple-authors-target-shortcode box-post-id-69046 box-instance-id-1 ppma_boxes_69046" data-post_id="69046" data-instance_id="1" data-additional_class="pp-multiple-authors-layout-inline.multiple-authors-target-shortcode" data-original_class="pp-multiple-authors-boxes-wrapper pp-multiple-authors-wrapper box-post-id-69046 box-instance-id-1"> <span class="ppma-layout-prefix"></span> <span class="ppma-author-category-wrap"> <span class="ppma-category-group ppma-category-group-1 category-index-0"> <span class="pp-author-boxes-avatar-details"> <span class="pp-author-boxes-name multiple-authors-name"><a href="https://www.econlib.org/author/ssumner/" rel="author" title="Scott Sumner" class="author url fn">Scott Sumner</a></span> </span> </span> </span> <span class="ppma-layout-suffix"></span> </span>  <style> .pp-multiple-authors-boxes-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode .pp-author-boxes-avatar img { width: 80px !important; 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} .pp-multiple-authors-boxes-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode .ppma-author-category-wrap .ppma-category-group { margin-right: px !important; } .pp-multiple-authors-boxes-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode .ppma-author-category-wrap { font-size: px !important; } .pp-multiple-authors-boxes-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode .ppma-author-category-wrap .ppma-category-group-title { font-weight: !important; } .pp-multiple-authors-layout-inline ul.pp-multiple-authors-boxes-ul { display: flex; } .pp-multiple-authors-layout-inline ul.pp-multiple-authors-boxes-ul li { margin-right: 10px }.pp-multiple-authors-boxes-wrapper.pp-multiple-authors-wrapper.pp-multiple-authors-layout-inline.multiple-authors-target-shortcode.box-post-id-69046.box-instance-id-1.ppma_boxes_69046 ul li > div:nth-child(1) {flex: 1 !important;} </style> </h6> <p class="card-text article-content"> I cannot resist responding to a recent article by Stephanie Kelton, explaining the MMT view of public debt: Since the government’s budget deficit is, by definition, the difference between what it spends and what it collects in the form of taxes and other payments to itself, it may seem reasonable to call it “overs... </p> </div> <div class="card-comment"> <a href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/#comments" class="card-comment-container"> <span class="card-comment-count">18</span> <i class="fa card-comment-icon" aria-hidden="true"></i> </a> </div> <div class="article-btn-block"> <a href="https://www.econlib.org/excessive-debt-doesnt-cause-inflation/" class="btn btn-info">Read More</a> </div> </article> </div> </section> <aside class="col-lg-4 height-full flex"> <div class="share-post-widget"> <div class="share-text"> SHARE <br/> POST: </div> <a class="fa-regular fa-envelope fa-2x" href="mailto:?Subject=Check out this Econlib page&Body=I thought you might be interested in Excessive debt doesn’t cause inflation By Scott Sumner. 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Excessive debt doesn't cause inflation - Econlib