MMT Basics: You Cannot Consider the Deficit in Isolation
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MMT Basics: You Cannot Consider the Deficit in Isolation
- 1. MMT Basics: You Cannot Consider the Deficit in Isolation Stephanie Kelton Associate Professor of Economics University of Missouri-Kansas City
- 2. People tend to get very emotional about the size of the government's deficit. MMT tries to calmly examine changes in the size of the government's budget by focusing on the big picture. The following graphs reveal some important facts about the government's budget.
- 3. The Following Graphs Show The US government is almost always "in the red". The BIGGER the government deficit, the BIGGER the non-government surplus. Because the United States runs a trade deficit with the rest of the world, the US government must run a deficit in order for the private sector to achieve a surplus. The Clinton surpluses occurred at the expense of the domestic private sector, which went deeply into negative territory for the first time in post-WWII history.
- 5. Domestic Private Surplus Govt Surplus 10.00% private sector We go “up” surplus/deficit as % GDP Clinton surpluses 5.00% 0.00% 19521 19532 19543 19554 19571 19582 19593 19604 19621 19632 19643 19654 19671 19682 19693 19704 19721 19732 19743 19754 19771 19782 19793 19804 19821 19832 19843 19854 19871 19882 19893 19904 19921 19932 19943 19954 19971 19982 19993 20004 20021 20032 20043 20054 20071 20082 20093 20104 -5.00% public sector Unprecedent private surplus/deficit as sector deficits Government % GDP goes “down” -10.00% -15.00% The so-called "Clinton Boom" was driven by an unsustainable increase in private sector debt. Extreme leverage made possible by a bubble economy. It ended in recession.
- 6. -2.00% -8.00% -6.00% -4.00% 10.00% 0.00% 2.00% 4.00% 8.00% 6.00% 19521 19532 19543 19554 19571 19582 19593 19604 19621 19632 19643 19654 indicate 19671 grey bars recessions 19682 19693 19704 19721 19732 19743 19754 19771 19782 19793 19804 19821 19832 19843 19854 19871 19882 19893 19904 19921 19932 19943 19954 19971 19982 balance (% GDP) 19993 private sector 20004 20021 20032 20043 big government 20054 We achieved this big deficits after the crisis surplus because of the 20071 20082 20093 20104 0 1 0.5
- 7. Read and Return to Previous Slide Notice how the private sector’s balance (blue line) declines in the period leading up to each recession. It takes government deficits to prevent the decline in private balances (or to repair private balance sheets after a recession). This is why MMT is not hostile to deficit spending.
- 8. To learn more about MMT, follow us on Twitter @deficitowl and read our blog www.neweconomicperspectives.org