Alfred E. Neuman is a Boomer icon, at least for males. Although the pages of Mad Magazine were always littered with his clever asides and obiter dicta, his signature utterance, usually presented on the cover, was “What, Me Worry?” The insouciant, freckled redhead–a cross between Howdy Doody and Chucky–offered readers some assurance that they perhaps, but certainly he, had no reason for alarm. (Mind you, it was clear that, if the choice arose, he would gladly have thrown you under the bus.) And this angst-free message was presented against the backdrop of current events of the day: imminent nuclear exchange, rabid racial prejudice, a pointless war in a faraway land, and political corruption at all levels. Issuing from the magical world of New York City, it was just the thing to bring solace to a Midwestern adolescent.
Younger readers, should there be such, might not recognize any of the allusions in the preceding paragraph, but that doesn’t matter. The point of Alfred’s declaration is that there is never cause for alarm because you can always talk your way out of trouble. And so it appears. Not long ago, this writer was toiling in the throes of guilt regarding his new status as privileged retiree. He had been told that the US economy could not prosper if burdened with the payments toward his own Social Security and Medicare to which he was legally “entitled.” Along with others of his ilk, principally those born between 1946 and 1964, he would effectively bankrupt the country unless drastic measures were taken. Despite these repeated and solemn warnings, however, no one in government seemed to be taking notice. Wouldn’t the cost of entitlements soon force more deficit spending, more borrowing at higher rates, driving the total debt to a level where the interest alone would strangle all other initiatives? So we were told, but proposing cuts in those programs was not the route to a long career. In the case of one prominent politician, it proved possible to inveigh against rising deficits while continuing to add to them–yet even he is now a victim of political suicide.
But, as Alfred might say today, “chill out!” Prof. Stephanie Kelton and colleagues are popularizing a view of the macro-economy known as Modern Monetary Theory, which ought to end my sleepless nights. According to this theory, the idea that the government could be swamped by indebtedness is nonsense. The US budget, it is argued, does not operate like yours at home. The government has the power to print money with which to fund its expenditures. (Of course, according to the “old” thinking, this is precisely the problem.) Yes, the government sells securities–this is the idea of an accumulating national debt–but there is no limit to how big that debt, fueled by annual deficits, can get. In short, the country can’t go broke, no matter how much more it spends than it takes in through taxes. Individual states are often legally bound, though not always by their constitution, to work without handing on a deficit or borrowing excessively. And of course they can’t print their own currency. Not so the Feds. But if we agree that the US government can spend as much as it likes, then how much it chooses to offset through taxes appears almost arbitrary. In future, Prof. Kelton advises, either party’s platform could include massive investments in meeting national needs without running the risk of bankruptcy.
Needless to say, there are dissenting voices. It has long been a truism in some quarters that deficit budgets are bad, borrowing to balance the books even worse, and this instinctive orthodoxy shows no signs of abating. The idea of spending without limit just doesn’t fit with common sense. Take a recent editorial in a Midwestern newspaper decrying the perilous predicament of the Federal government “with its trillions in debt, borrowing 40 cents of every dollar it spends. That which cannot continue will not continue. If the idea of tyranny doesn’t frighten you, what do you think about anarchy?” Whence anarchy?, one might ask. Is this meant to conjure up images of the French Revolution, peasants with pitchforks and the urban rabble with torches? In fact, the plight of Louis XVI’s regime, under which something like 60% of annual revenue was going just to pay the interest on loans, seems to offer a cautionary example of what can happen when a government gets overstretched. But there were plenty of other factors at work here: chronic under-taxation of the wealthy, lack of economic innovation, increasing military commitments, and even popular disdain for the “First Lady” at court. If this scenario seems familiar to us, it’s not the debt alone that’s the problem.
Of course, there are real concerns with the government pumping money into the economy, the main one being inflation. Those in search of historical parallels will cite interwar Germany or contemporary Venezuela, and even proponents of MMT will admit that productivity must increase in order to prevent steadily rising prices. How would adoption of MMT affect traditional accounting? Would Treasury even have to go through the motions of selling t-bills to cover the cost? And what happens if Congress decides that government borrowing will interfere with the private sector’s access to capital by driving up interest rates? Wouldn’t talk like this make holders of US debt feel their investment is at risk? Surely China will try to unload all those securities, thereby undermining the dollar. If they’re threatening to do it as part of minor trade war, imagine how they might react if their trillion-dollar portfolio starts to tank.
If I’m going to start worrying again, though, it won’t be about how the US debt might produce a nightmare financial scenario. In every one of the cases above, political dysfunction preceded economic disruption. The foremost issue is confidence in the workings of government, or the lack of it, not the content of fiscal policy. When enough people begin to doubt the responsiveness of Congress, regardless of the cause, then we’re in trouble. Our real problem now, as in pre-revolutionary France, is lack of trust in the machinery that governs our lives. Should a Democrat win the Presidency in 2020 and launch a “socialist” spending spree, I hope we will all rest easy about the debt. The question is not what the politicians do but whether they ever had a legitimate mandate to act. We don’t have to like the plans the government concocts, but we do have to believe that they reflect some authentic voice of the people. Obamacare added a couple of trillion–based on a single vote in the Senate and then a legal opinion by a single Supreme Court Justice–but the Trump tax cuts have added even more and yet Republicans lost the House in the midterms. That’s the sort of thing that gives me pause.
So, do I feel better? No, but not because the US will run out of money. The failure to debate the cost of entitlements is a symptom of national disequilibrium, not a cause of it. I’ve resolved to embrace MMT and banish worry–at least until the economy crashes. As I recall, the last time that happened, government spending was the solution, not the problem.