REEXAMINING THE ECONOMIC COSTS OF DEBT (20 NOV 2019)

By. L. Randall Wray

Commentary by Charles H. Sulka

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The conclusion at the end of this article must be regarded as a definitive statement on the issue of debt. In short, debt is not a real problem, and those who claim it is are uninformed alarmists. Moreover, MMT (Modern Monetary Theory) resolves any (supposed) problem with debt and deficit spending.

That being said, it is worth noting that this analysis of the issue is above my level of understanding. It probably will be above the level of comprehension of many readers, even some students of economics (especially those at the University of Chicago, the birthplace of some highly questionable economic theories which are the cause of most of today’s economic woes.) Wray provides us with in-depth analysis of the issue, backed up with a number of easy-to-read charts and graphs. (Well, maybe not that easy to read.) It is clear that the man is not faking it here.

Before questioning the man’s conclusions, make sure you know what you are talking about. This is a truly daunting work.

We are experiencing a sea-change in economic thinking. This is how it happens. Hopefully, a more thoughtful view of economics will lead us to a better future for mankind. A future that actually works….

The sad part is, it will take time — decades, maybe even generations — for new thinking to permeate this hide-bound field and for common-sense policies to be embraced. The situation is dire. We do not have any time to waste in formulating a new economic program for man’s future.

(chs 01-26-2020 1828 -0500)

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STATEMENT: House Budget Committee, “Reexamining the economic costs of debt”, Nov 20, 2019
Posted on January 23, 2020 by Lambert Strether

By Randy Wray. Originally published at New Economic Perspectives.

By L. Randall Wray

This blog is based on the testimony I provided to the US House of Representatives. My written statement will be published in the Congressional Record (a version is also at the Levy Economics Institute: http://www.levyinstitute.org/publications/statement-of-senior-scholar-l-randall-wray-to-the-house-budget-committee. The full statement was co-authored with Yeva Nersisyan.

I will argue that the Federal Government’s deficit and debt are not so scary as we are led to believe.

Neither the deficit nor the debt ratio is on an unsustainable path. In some sense, chronic deficits and a rising debt ratio are normal.

They are not due to out of control spending—now or in the future. They serve a useful public purpose. In any case they are largely outside the control of Congress.

It is hard to imagine a scenario in which rising deficits and the debt ratio will create a financial crisis, lead to government insolvency, generate high inflation, or trigger an attack by bond vigilantes. Figure 1 looks at government spending from several angles but just focus on the red line—which is total Federal Government spending as a percent of GDP. It is essentially stable since 1960.

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READ THE ARTICLE AT NAKED CAPITALISM:

STATEMENT: House Budget Committee, “Reexamining the economic costs of debt”, Nov 20, 2019