This article was published by The McAlvany Intelligence Advisor on Friday, February 22, 2019:
Once Boston University economics professor Laurence Kotlikoff presented his findings – based on “generational accounting” – his readers and students knew that the United States government was headed for bankruptcy. The numbers were so huge – $210 trillion (the amount that one generation owed to another thanks to politicians’ promises) – that there was simply no way the U.S. economy could throw off enough tax revenue to come even close to keeping them.
The latest report from the Congressional Budget Office (CBO) reflects its tinkering around the edges of what’s owed – building sand castles on the beach while a tsunami is rapidly building just offshore.
The authors assume what most people assume, that the national debt is $20 trillion. They also assume that nothing substantial will change in the tax laws over the next 11 years. They conclude that the national debt will nearly double by then, to $36 trillion. They conclude further that the debt burden will become so onerous that the U.S. economy will slow to between 1.6 percent and 1.8 percent growth.
They give lip service to the proximate causes: an aging population demanding its entitlements (Social Security and Medicare) and rising interest rates that reflect the declining creditworthiness of the U.S. Treasury’s promises to repay.
The authors of the report issued the usual warnings: “Such a high and rising debt would have significant consequences, both for the economy and for the federal budget…. As interest rates continue to rise toward more typical levels, federal spending on interest payments would increase substantially. Because federal borrowing reduces national savings over time, the nation’s capital stock ultimately would be smaller, and productivity and total wages would be lower….”
If Alexandria Ocasio-Cortez and friends (including Sen. Elizabeth Warren (D-Mass.) have their way, the Green New Deal will add another $6.6 trillion in annual spending. If Noah Smith, who calculated that number for Bloomberg, is correct, in 11 years that will bring the national debt from $36 trillion to $108 trillion.
But, thanks to Modern Monetary Theory (MMT – the new alchemy), the only technical difficulty will be having to add another digit to the national debt clock. Under that new theory, politicians must be “prepared to unleash the enormous power of the public purse [in order] to save the planet.” Stephanie Kelton, the godmother of the new theory, says concerns over deficits and the national debt aren’t relevant any more: “We must change the way we think about the federal budget. We must give up our obsession with trying to ‘pay for’ everything with new revenue or spending cuts.”
Presented by Kelton in terms that only liberal economists can appreciate, the theory boils down to this: unlimited issuance of U.S. Treasury bills until the saving of the planet is complete.
Simply put, the new MMT rejects Margaret Thatcher’s claim that “the problem with socialism is that you eventually run out of other peoples’ money.” MMT says this isn’t true if you own the printing press.
As Smith notes:
The Green New Deal will be paid for with soaring deficits, which could be quite dangerous. The plan’s environmental spending proposals would be temporary, but the new entitlement programs would be permanent. If MMT is wrong, and if ever-expanding deficits cause runaway inflation, the result would be a devastating collapse of the nation’s economy. Hyperinflation has never happened in the U.S., but then again, neither has anything like the Green New Deal.
The CBO didn’t consult with Professor Kotlikoff in its analysis.
TheNewAmerican.com: “Modern Monetary Theory” Will Pay for AOC’s Green New Deal
Bloomberg.com: The Green New Deal Would Spend the U.S. Into Oblivion