The Catfood Counter-narrative: The Fiscal Sustainability Teach-In Program

Pretty soon I plan to start blogging about the presentations and discussions emerging from the Fiscal Sustainability Teach-In Counter-Conference. But, first, I want to discuss the program design and its logic.

That design was basically a reaction to the framing of the deficit hawk messaging developed from the beginning of the Obama Administration. The Peterson Foundation and its allies, the President himself and some in his Administration, various Republican and Blue Dog Senators and Congresspersons, and the appointees to what has become known as the Catfood Commission, all assume that fiscal sustainability is about the national debt, the budget deficit, and the public-debt-to-GDP ratio. They also assume that too high levels of these can trigger a sudden move towards insolvency due to rapid rises in the interest rates at which Treasury bonds can be sold. Of course, they also assume that the Federal Government could reach a state where it literally runs out of money due to an incapacity to acquire it, rather than to incompetent human decisions by the Congress or the Executive refusing to create it.

Other assumptions often made by deficit hawks include: the claim that the Government can only acquire money by taxing or borrowing, so that like any household, it must “fund” its spending; the claim that the Government must “stabilize” its debt, by stabilizing the size of the public debt-to-GDP ratio; the claim that the Federal Government is like any household it governs and is subject to similar rules of budgeting; the claim that if we leave “heavy” public debts to our children and grandchildren, it will hamstring their ability to produce and/or consume and will harm their opportunity for a good life; the claim that the US can run out of money to pay our entitlement obligations; and the claim that “excessive” deficit spending can cause demand-pull inflation before the productive capacity of the economy has reached its limits.

I believed that not one of these claims, which so many accept, is true, and that the Teach-In needed to provide the arguments against them and for various counter-claims. The first four of the five programs of the Conference were devoted to criticism of the conventional wisdom that asserted these various assumptions. The first session on Fiscal Sustainability was scheduled to present and discuss an overview of the basic perspective of Modern Monetary Theory (MMT) and to analyze what “fiscal sustainability” meant from the MMTd point of view, rather than from the point of view of the neo-liberal paradigm used by the deficit hawks.

The main presenter during the first session was Professor Bill Mitchell of the University of Newcastle. Bill did a great job of both presenting the overview and also zeroing in on “fiscal sustainability,” while critiquing the nonsensical neo-liberal view of it which underlies the very foundation of existence of the Catfood Commission. Bill’s discussion was then supplemented by a very free wheeling panel/audience discussion during which a lot of pretty fundamental questions were asked of the panelists.

The second session focused in on the core claim of the deficit hawks: namely that the Federal Government can run out of money, become insolvent, and therefore has budgetary constraints. The main presenter was Professor Stephanie Kelton of the University of Missouri at Kansas City. Stephanie provided a presentation of great clarity and simplicity on how our fiat currency system actually works. It was perfect for dispelling the fairy tales the deficit hawks tell about Government budgetary constraints. After she was done another very vigorous discussion took place in which the panel and much of the participants exchanged views.

The third session was held over the lunch hour. The main presentation was given by Warren Mosler, an international financial consultant, hedge fund manager, accomplished economic theorist, and the then candidate for the US Senate from CT, one of the mainstays of the MMT approach, and a very relaxed and down-to-earth communicator. Warren dove deeply into the nature of fiat currencies, and where they get their value. He also discussed inflation issues while zeroing in on the reasons why the US can never be forced to default on its entitlement obligations, and also why the debts we leave today can have no material effect on our children and grandchildren tomorrow, so long as we manage the economy well and retain our fiat currency system. Warren and the other panelists received a very good going over in the Q and A session after the presentation.

There were two afternoon sessions. The first was on Inflation and hyperinflation. That topic was selected to meet one of the major objections to the MMT point of view, specifically that deficit spending in fiat currency systems can easily lead to inflation and hyper-inflation as illustrated by cases like Weimar Germany and Zimbabwe.

When deficit hawks make this sort of objection it’s usually in the context of their retreating from some of their other claims and granting that there are really no solvency problems, but then claiming that we need to run the Government as if we will run out of money and do have solvency problems, because if we use Government’s power to create fiat currency freely, the resulting hyper-inflation will render the currency worthless, and it will be as if we have run out of money.

Marshall Auerback an International Financial Consultant and Economist provided the primary presentation on inflation and hyperinflation. His presentation was highlighted by the MMT view of the causes of demand pull inflation and an analysis showing that the necessary and sufficient conditions for Weimar, Zimbabwe, and other highly visible contemporary cases were not fulfilled in the United States. Conference participants had many questions on the inflation cases and there was also a very vigorous debate on the meaning of the term “inflation,” among the panelists and Conference participants

The final teach-In session shifted from critique and answers to objections to a treatment of Policy Proposals for Fiscal Sustainability made from the MMT point of view. The primary presentation was given by L. Randall Wray, Professor at the University of Missouri at Kansas City and Pavlina Tcherneva, Professor at Franklin Marshall College. They covered both the connection between fiscal responsibility and creating full employment, and also the various benefits associated with full employment. Price stability and job guarantee programs were also discussed, and the case of Argentina, which successfully implemented a job guarantee program was analyzed.

The discussion following the formal presentation focused mostly on the idea of the Federal Job Guarantee and the shift from an unemployment to an employment buffer stock to stabilize the economy. The questions were very deep, and the panelists answers were in depth as well.

So, the Teach-In Program was designed to do three things. The first three sessions were focused on countering the various assumptions associated with the neo-liberal model of fiscal sustainability, and to suggest the outlines of the alternative MMT view. I think these three sessions were successful in producing the needed counter-narrative to deficit hawk assumptions. The fourth session made the counter-narrative stronger by countering the main objection to the MMT paradigm focusing on the dangers of inflation and hyper-inflation, and the fifth session, developed the MMT alternative view of fiscal sustainability focused on full employment and price stability, and on jobs guarantee programs as a key policy initiative in a responsible fiscal sustainability effort.

In future posts I’ll review each of the presentations and discussions given at the Teach-In. All the presentations, audios, transcripts, and videos of both the presentations and discussions are available for readers at selise’s web site. I urge you very strongly to take the time to go through them. I think they show that the deficit hawk/Administration/Congressional Hooverite efforts to organize Federal Economic policy around the idea that certain numerical rules must be followed with respect to debt, deficits, and public debt-to-GDP ratio numbers are based on myth, and, like the false case about WMD made in the run-up to the Iraq War, the current wave of propaganda advocating deep cuts in federal spending, focuses on a non-existent problem, and recommends solutions that will cost this nation many trillions of dollars, as well as further inequality and concentration of wealth.

Efforts to fight the current wave of deficit hawkery by trying to save this or that aspect of the social safety net or other discretionary spending, are missing the point and buying into the deficit hawk fantasy. What we all should be doing is using the MMT point of view to fight against the very idea of managing the economy by using deficit and debt statistics. That is the error that is endangering our futures. What we need to do instead is to consider economic policies relative to their expected outcomes in achieving public purposes, and decide for or against specific policies based on their legality, morality, and anticipated effects, and on no other basis.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).