MMT Basics: You Cannot Consider the Deficit in Isolation
Stephanie Kelton Associate Professor of Economics University of Missouri-Kansas City
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.
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.
Clinton Surpluses
19521 19544 19573 19602 19631 19654 19683 19712 19741 19764 19793 19822 19851 19874 19903 19932 19961 19984 20013 20042 20071 20094
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
Domestic Private Surplus Govt Surplus
private sector sur-plus/deficit as %
GDP
public sector surplus/deficit as
% GDP
Clinton sur-pluses
Unprecedent private sector deficits Government
goes “down”
We go “up”
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.
195211954319571195931962119643196711969319721197431977119793198211984319871198931992119943199711999320021200432007120093
-8.00%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
0
0.5
1
private sec-tor balance
(% GDP)
grey bars indi-cate recessions
We achieved this big surplus because of the
big government deficits after the crisis
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.
To learn more about MMT, follow us on Twitter @deficitowl and read our blog
www.neweconomicperspectives.org
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