By Scott Fullwiler
Tim Worstall has a post decrying the dangers of MMT ever being used in the real world—even as he recognizes or at least suggests that it might be the correct description of how the monetary system works—and is particularly concerned about Stephanie Kelton’s new appointment as Chief Economist on the Senate Budget Committee. (Note: Randy Wray also posted a critique of Mr. Worstall’s post today.)
Mr. Worstall’s main issue is one we’ve heard hundreds of times before—because MMT explains that currency-issuing governments operating under flexible exchange rates and without debt in a foreign currency do not actually have budget constraints, this opens the door to all sorts of problems if put into practice. We can’t trust our government with this information, in other words—it must be required to match spending with revenues over some period (whether each year, over the business cycle, etc.) or at least plan over some period of time to not allow the debt ratio to rise beyond a modest level.**
By J.D. ALT
What? You mean we haven’t always been doing that?
A recent op-ed in the Washington Post (“Dynamic Scoring” by Congressman John K. Delaney) alerts us to an astonishing fact: Not only does our political leadership insist that the federal government manage its budget in the same way as a household—i.e. not spending more than it “earns”—but further insists that the federal government behave like a household devoid of any rational capacity to evaluate the net future benefits of its budgetary decisions. In other words, if the U.S. federal “household” wanted to buy seeds for the federal “household” garden, it is required to deduct from its budgetary calculation the cost of the seeds, but it is NOT allowed to add to its budgetary calculation the value of the tomatoes and cucumbers that will grow from the seeds it intends to plant—nor is it allowed to assign a value to the nutritional benefits that the “household” members will obtain by eating the tomatoes and cucumbers (or the health-care costs incurred if the veggies are not consumed.) This is called “static scoring”, and it is what the Congressional Budget Office, Delaney tells us, is required to do each time Congress proposes to spend money on any particular item or program.
Posted in J. D. Alt