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Congress Finds a New Excuse to Avoid Balancing America's Books

September 19, 2018 in Economics

By Michael D. Tanner

Michael D. Tanner

In April of this year, the Congressional Budget Office warned
that we were on track to return to trillion-dollar budget deficits
by 2020. That warning turns out to have understated the problem:
The latest estimates suggest we will now reach the dubious
trillion-dollar milestone this coming fiscal year, and the deficit
for the current year is now expected to be close to $900 billion,
$222 billion more than last year. Our current $21 trillion national
debt will likely top $30 trillion by 2025.

Democrats were quick to blame last year’s Republican tax
cuts for exacerbating the deficit, but tax revenues, fed by
increased economic growth, are actually up one percent over this
time last year. The real culprit is spending, which increased by 7
percent from last year, the largest year-over-year increase since
2009.

Modern Monetary Theory,
which holds that the government’s capacity to finance its debt is
limitless, is all the rage in Washington.

In short, economic growth will only go so far if no one in
Congress is willing to tame spending, and the “minibus”
spending packages that congressional Republicans and Democrats are
currently negotiating to avoid a government shutdown won’t do
the trick.

But not to worry; both the Left and Right have discovered a
magic money tree in the form of a concept known as Modern Monetary
Theory (MMT), an idea prominently promulgated by Bernie
Sanders’s chief economic adviser, Stephanie Kelton, that is
now being used to argue that lawmakers shouldn’t worry about
the size of the national debt.

MMT essentially says that the government’s capacity to
finance its debt is limitless. Since the U.S. government is the
sole printer of dollars, it faces no binding revenue constraint
because more dollars can always be printed. Therefore, the theory
goes, the national debt is mostly a harmful fiction preventing us
from having nice things such as “free college” or
“free health care.” Yes, there might be a slight danger
of inflation, but MMT advocates contend this can easily be
contained through policies such as a $15 per hour job guarantee to
stabilize wages.

Count me as skeptical.

Modern Monetary Theory might ordinarily be thought of as having
a comfortable home on the loony left, but it is increasingly
slipping into the discourse on the populist right. Recently, for
example, John Carney, the chief economic writer at
Breitbart, not only embraced MMT but argued that
Republicans were better suited to implement it since deficits have
historically grown larger under Republican presidents than under
the “austerian Dems.” And while it is difficult to
picture President Trump spending his “executive time”
pouring over tracts on monetary policy, there is more than a …read more

Source: OP-EDS

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