Stephanie Kelton was on Channel 4 News last night. I recommend watching. She is, undoubtedly, the best exponent of modern monetary theory that there is. She offered a clear and reasoned explanation.
When asked who was going to pay for the coronavirus crisis she said very clearly that in the US the Federal government was, which is true, just as the ECB is in Europe and the Bank of England will in the UK.
Stephanie was up against Niall Ferguson. He disagreed. he said there will be a cost to pay, and that government will have to repay the debt created. In the process he claimed that from 1945 to the 1970s the US government repaid debt to pay for WW2 by running surpluses, which would imply the debt was repaid.
Stephanie flatly told him he that he was wrong. I suspected that he was. I went to the Congressional Budget Office to find out. These are their charts:
It's true that as a proportion of GDP debt held by the public fell. But as Stephaine noted, that's because GDP rose so fast. Fergusson was clearly confusing the two issues. It's a school student error.
But, to make sure I examined that very long flat line up to the 1970s in the first chart and downloaded the data. This is that chart in more detail, cut short at 1980:
Fergusson was, in other words, talking complete and utter nonsense. The US fed did not run surpluses for decades to pay for the war. It did not borrow much for a while, I agree, but then it did not need to because US government taxed in those days, with corporations most especially paying a fair share. But his claim is still simply untrue: it did not repay any significant debt. And overall it borrowed, with the upward trend being marked from 1958 onwards.
So much for being an expert: he appears to have had not a clue what he was talking about.
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I saw it, too.
“Dad, you need to stop shouting at the TV, they can’t hear you” was the response from my son.
The problem is that without a real-time “fact checker” the typical viewer will go away with the wrong impression – I suspect that only the already converted will have recognised the clear rebuttal that Prof. Kelton delivered.
You could see she was livid! Glad you were too
” I suspect that only the already converted will have recognised the clear rebuttal that Prof. Kelton delivered.”
That was exactly my instinct. So I checked the stats via Wikipedia as the go-to public source, and this took me to a long-term graph of debt/GDP %age, here : https://en.wikipedia.org/wiki/History_of_the_United_States_public_debt#/media/File:Federal_Debt_Held_by_the_Public_1790-2013.png
The graph covers 1790-2013, then projected to 2038. It is exactly as Fergusson wants to present his argument, and this graph is all he wants people to remember.
I have attended two of Fergusson’s lectures. I can only say that he left me with the impression that he is an academic brawler, and he enjoys the opportunity if his interlocutors become annoyed. I may be wrong, but it almost seemed to me as if Stephanie Kerlton looked needled, even before the interview began. Ferguson feeds off the slips or inattentions this creates, and he deflects the argument or attention wherever he wants. His fixed smiles remains, no matter what.
I asked a question at one lecture, perhaps five or six years ago, after he had expounded his ideas of recent economic history in the US. I framed a question by turning it into a referral to Fulbright’s opinion of Reagan: “Reagan’s initial rhetoric was a virulent revival of the old McCarthy attitude that proved successful, politically, in so many cases. It has been the Republican Party’s most reliable issue and avenue to power in the postwar era……People often ask me why I voted against McCarthy – why I cast the single vote in the senate in 1954 against funding Senator McCarthy’s witch-hunting subcommittee. I can only say that ….. They used to have an old saying down home. ‘You don’t engage in a pissing contest with a skunk'” (J William Fulbright, ‘The Price of Empire’, 1989; p.51).
Ferguson responded ‘good quote’, smiled winningly and answered without addressing my question.
As he always will
I think Stephanie was pretty bloody annoyed with him
She can be a lot more relaxed than that
In retrospect, and I confess a little to my surprise, more people may have spotted Ferguson’s problem than I feared; I suspect Kelton could actually have scored a palpable hit. I say this because Ferguson can’t quite let go of it on Twitter; and that is a surprise. He is now waffling about “primary surpluses” in the 80s and 90s (after the debt US debt/GDP percentage had risen sharply under Reagan). It would be useful if Ferguson was now forensically interrogated about the full import of his “primary surpluses”; he is beginning to sound like a pre-Ockham mediaval scholastic multiplying vacant entities beyond necessity as he tries to rescue his incoherent metaphysics from collapse.
🙂
Ah, you too Clive!! – well at least I was not the only one shouting at the TV last night and also very pleased with Kelton’s poise. I’m looking forward to reading her book.
I was another one watching (and getting irritated) and thought Stephanie did OK. Ferguson should stick to history rather than economics where his politics are all too obvious.
So who is our Stephanie Felton…?
If the money that the Government is putting into the system, is simply replacing money that has disappeared, then taking that money out of the system again will recreate the depression that the Government was trying to minimize.
If the missing money has not disappeared into thin air, then where is it?
Money disappears when loans are repaid
Loans are being repaid
Money is just a promise to pay
When the promise is fulfilled the money ceases to exist
It’s as simple as that
Michael G.
The government never stops putting money into the economy. It’s constantly putting it in and taking it out again.
PS And thank you Richard for replacing dogma with data
Niall Ferguson made a partial retraction on twitter after the broadcast – “it was mostly growth and inflation, in roughly equal measure, that brought down the debt/GDP rate to its low point of 31% in 1981.”
But he clearly doesn’t like being shown up. He qualified that admission by asserting that if there wasn’t growth as well as fiscal expansion you wouldn’t have growth (!), or you’d get inflation. He then suggested that his broadcast claim that fiscal consolidation lasted for decades would have been correct if he had used the term ’primary surplus’ rather than ‘surplus.’
No doubt his 189K followers will be re-assured – how could a man who describes himself on his twitter profile as “International man of history” ever get it wrong?
His claim really was a crass error
Fergusson’s assertion that it was the War rather than the New Deal which repaired economic health is highly dubious. Without the New Deal it is unlikely that the US would have been in a general economic condition to respond to the war requirements.
History is folk myth when it comes down to it; or at least it seems so.
Yes she is impressive and he is mostly an unchallenged bully. But, was anyone from the Labour Party watching?
I watched it too and was ready for the responses, BUT, most will have been aligned with the Fergusson response and will continue to be.
For the public mood/understanding to change it is perhaps wise to make the case of the social good that comes from government debt from the investors perspective and as it relates to us all e.g. pension funds etc. Talking up the benefit of this debt will help. That can then open the way for public acceptance that US/UK gov’t debt has almost never been repaid and never will be nor needs to be.
Ed Milliband managed to make a good argument about GND on Radio 4 this morning – as in we are going to have to move to zero carbon, we will spend the money some time, that it involves a lot of shovel ready projects and employment and it makes sense to support this also because it reduces spending on welfare benefits.
How do you eat an elephant?
one bite at a time.
Ed Miliband does, I think, get it
I hope to find out….
I don’t think a debate about whether it was the New Deal or WW2 which turned the economy around is the important issue. The fact that WW2 required massive state spending and created full employment and improved public health is the important point. As Stephanie Kelton said we don’t want another war to achieve the same objectives… we need massive state spending on new infrastructure etc. What I found disappointing is that she didn’t say that the new war spending is needed for the war on climate change.
The book does
I am waiting for Stephanie’s book to arrive in the next few days. However she missed a trick on C4 News last night by not mentioning the GND and the “war” on climate change… more people will have been watching the news than will read her book.
I promise you – getting everything you want in an interview is hard
Progressive economists – like progressives in general – are caught between a rock and a hard place. While it’s necessary to get new ideas out to a wider audience, time-constrained media slots can be counter-productive. It’s much easier to defend a prevailing ‘wisdom’ than to argue for a counter-intuitive alternative. But it’s important to keep hacking away at the lies (as you do) and Stephanie Kelton is certainly an MMT ‘skjaldmær’! I have little doubt that given more time she would have convincingly defeated the arrogant & ignorant Fergusson.
Erratum: Oops! Ferguson not Fergusson
There were 7 years of US budget surpluses between 1945 and 1979 and 11 until the present day. https://www.thebalance.com/us-deficit-by-year-3306306#citation-2 (with commentary on events)
Debt: https://www.thebalance.com/national-debt-by-year-compared-to-gdp-and-major-events-3306287
But they were tiny…
Exactly so. I thought this would illustrate the nonsense he was speaking.
I have never had much time for Fergusson’s economic views which have always seemed a bit lame. The idea that any generation has to pay for a previous generations consumption is logically ridiculous. At any point in time it can only be that generation that can consume the output they produce. It cannot be carried back. You could argue that infrastructure projects can be used by future generations but even here the money transferred for the labour to build them is consumed in the current period not in the future. Savings can be used to defer consumption to a future period and savings reduce the money supply in the current period by taking money out of the system now via the banking system. Savings do not equal investment. Investment is created by credit. Money is the creation societies use to allow for consumption and work is the mechanism that is used to enable the money to be passed around so that more individuals can consume which can either be a good consumption or not. Money and work are the mechanism to allow more and more people to share in output. What it isn’t is a store of physical goods or services or the expenditure of physical goods and services that need to be paid for at some future date.
As Paul Krugman ( of whom I’m not a fan personally ) said of Fergusson ” I’m told that some of his straight historical work is very good. When it comes to economics, he hasn’t bothered to understand the basics, relying on snide comments and surface cleverness to convey the impression of wisdom. It’s all style, no comprehension of substance . ” Precisely . Move on , nothing to be seen here.
Stephanie Kelton was great in the interview yesterday evening.
Ferguson is just out of his depth in these matters.
Here is a link to an interesting (to me) critique of a critical review of Stephanie Kelton’s latest book:
http://www.bondeconomics.com/2020/05/comments-on-tyler-cowens-review-of.html
It certainly shows the level of ignorance and deliberate obfuscation she is fighting against.
Worth reading
Thanks
I’ll tell you Stephanie does not make the suggested mistakes in the book
Either you have enough equitable medium of exchange or “signalling” capacity in an economy for citizens to “signal” their needs or you don’t and that includes satisfying the desire to save by citizens. Creating that “signalling” is merely the ability to impose some level of its redemption. Full in the case of private bank loans and not full in the case of sovereign government where centuries old so-called National Debt is black ink on non-government balance sheets. Niall Ferguson unfortunately is still a professor of Thatcherite “handbag economics” and if pushed could not explain why both the UK and USA evolved its monetary system whereby the state needed to be “signalling” creator of last resort not merely for national and global crisis situations but also for stability in the everyday payment settlement system, a twin facilitator!
Agreed Helen, but in short Ferguson and his ilk, is not very bright, except in that passing exams at school kind of way. He wasn’t getting enough attention as a history professor, so he thought he could turn himself into a half brained economist ( as though we don’t have enough of them already ) and started to spout economic neoliberal platitudes and fell at the first hurdle. There’s a sycophantic interview with him on the Hoover Institution channel on You Tube with their number one brown noser Peter Robinson . It’s hilarious, especially right now when the ultimate neoliberal state is collapsing in real time with a million mobile phones recording every tiny detail of the collapse.
I see the Tories have selected another economist, Richard Hughes, who doesn’t get it to head up the OBR:-
https://www.resolutionfoundation.org/app/uploads/2019/09/Seeking-public-value.pdf
He is very neoliberal
If we can pass debt on to future generations, why would that burden them? What’s to stop them from just repeating the trick and passing this “burdensome” debt on to generations that follow them? And so on forever. Problem solved!
Debt passed on is an asset….the liability is always the government’s
True, of course, yet the people who think government debt is burdensome use this idea as a meme without thinking. But if we imagine we can pass this so called “burden” to our children then so can our children pass it to their children, and so on forever. And so this imaginary claim is wrong even on it’s own terms.
Stephanie’s reply to me on Twitter :
Stephanie Kelton (‪@StephanieKelton‬)
05/06/2020, 14:58
‪@RichardJMurphy‬ I think my favorite part was when he chided me, saying, “Unfortunately, historians have to correct economists…” just before getting the history wrong.
“Wow” Stephanie replies to you on Twitter!!! …Your a 60 odd year old bloke behaving like an 8yr old in awe of their favourite pop star!! Funny
I thought it worth sharing
We actually talk quite often
I most certainly won’t be sharing that
Your comment is the puerile: mine was adding her perspective to the story
Clearly Ferguson’s “Rogoff” moment! How embarrassing!
Though not strictly germane to this discussion, this isn’t the only time he has gotten economic history wrong. In 2013, he claimed that Keynes didn’t care about future generations because he was childless and gay, somehow forgetting about Lydia’s miscarriage. I wouldn’t trust his history either. Perhaps someone can explain to me why he is asked anything.
He got pretty uppity with me in Twitter
I also watched it last night and have been watching C4 news for some time now; it appears to be more reasoned, objective and ‘honest’, if can use that description!
As a new reader of this blog of a couple of weeks, and coming from a position of a relative lack of knowledge of economic theory, I can say that it has been a revelation!
Watching the interview last night, my wife gave me a look of surprise when I uttered, “that’s nonsense” listening to Ferguson!
I had heard his name before but did not know who Stephanie Kelton was but she did appear to be talking more sense and getting quite exasperated with Ferguson. I can only assume that Ferguson is a self-styled ‘expert’ and without the past few weeks of reading this blog would have been at a loss to know who was talking more sense or have the confidence to express an opinion.
I look forward to its delivery each morning now and try to learn a little bit more each day, thanks!
Thanks Rob
I’ll keep trying
You might enjoy Stephanie’s new book
I read the draft and recommend it
Richard