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If the road to hell is paved with good intentions, then the road political progressives are on may be very well paved, but it's still heading in the wrong direction.

Prof. Stephanie Kelton explains why in her response to CPC Co-Chair Representative Keith Ellison:

Maddening! The Clinton surpluses were driven by the dot.com bubble and unsustainable private sector deficits. When the bubble burst, stocks crashed, the economy went into recession, and the surplus quickly reversed itself. It was only AFTER the government’s budget moved sharply into deficit that the private sector was able to get out of the red. All of this would happened even without 9/11, the wars in Iraq and Afghanistan, the subprime crisis, etc. We cannot keep relying on asset bubbles (stocks, housing, whatever) to drive economic growth.

The simple fact is this: A GOVERNMENT SURPLUS IMPLIES A DEFICIT IN THE PRIVATE SECTOR. And the private sector, unlike the public sector, cannot survive when it’s running a deficit. Anyone who does not recognize this simple fact (intuitively or empirically) should not offer commentary on matters of such significance.

Government Deficits allow the private sector to net save financial assets. Balance the budget, and the private sector loses financial assets. Run a government surplus, and you drive the private sector into deficit.

Someone in Washington better figure this out pretty damn quick, or our children and grandchildren are going to be burdened like never before.

The Ph.D. Economists who blog here understand:

http://neweconomicperspectives.blogspot.com

Excerpts from This Is Our Moment by Representative Keith Ellison:

America has an historic opportunity. We have the chance to address our budget deficit in a manner not seen since President Bill Clinton created a budget surplus in 1999. And if we do it right, we could pave the way for a vibrant American economy based not on gimmicks like giveaways for special interests, but on job creation for working Americans. As co-chair of the Congressional Progressive Caucus, I urge us to avoid a default on the faith and credit of the United States while protecting Medicare, Medicaid and Social Security.
The Congressional Progressive Caucus stands with the American people. Long before Republicans took our economy hostage, we introduced the People’s Budget, the most fiscally responsible deficit plan introduced this year. The People’s Budget would eliminate the deficit in 10 years. Economists across the political spectrum have called it courageous and responsible. Introducing this budget was one of my proudest moments as a Member of Congress, because it shows the power of Progressive policies and values. Creating an economy that reduces deficits and creates jobs is a progressive value, not just a slogan as it is for the Tea Party.

As the People’s Budget has proposed, and the president has affirmed, our solution must reflect the same values that have motivated us historically. We believe in a fiscally healthy America because it leads to an economically healthy America. A balanced budget is critical precisely because it allows us to maintain the services that the middle class depends on. Any deficit deal that takes money away from seniors and American workers who rely on Social Security, Medicare, or Medicaid undermines the original goal of deficit reduction. Any deficit deal that cuts food stamps but pampers the wealthy is not only bad for the most vulnerable Americans, but damages our fiscal health.

See Warren Mosler for more: Kelton responds to the Progressive Caucus Co-chair

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Comment Preferences

  •  An interesting take on debt (2+ / 0-)
    Recommended by:
    Letsgetitdone, selise
    Government Deficits allow the private sector to net save financial assets.

    I don't find it intuitive at all, so I'll read up on what those economists are arguing. My first reaction is to wonder why government and private finances should be linked in this rigid dependency. It's not obvious to me that without the existence of a government that incurs debt, there could be no private sector net savings. Is government debt really the only means for creating/holding savings?

    Thanks for bringing this up.

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