"It is not the Federal deficit we need to worry about. "When we operate at less than our potential - at less than full employment - then we are depriving our children of the real goods and services we could be producing on their behalf." From "Seven Deadly Innocent Frauds of Economic Policy" by Warren Mosler
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Let me try to add something in here. I think it's fair to say we in the
MMT camp start from a very different premise. The question is: for the ‘
right’ amount of government spending which we presume is necessary to run the
nation the way we would like to see it run, how high should taxes be?
The reason we look at it this way is because the ‘right amount of
government spending’ is an economic and political decision that, properly
understood, has nothing to do with government finances or public debt, as Taleb
seems to think. The real ‘costs’ of running the government are the real goods
and services it consumes- all the labor hours, fuel, electricity, steel,
carbon fiber, hard drives, etc. etc. etc. The real cost of the government
using all these real goods and services is that those resources would other
wise be available for the private sector. So when they government takes
those real resources for its own purposes, there are that many fewer real
resources left for private sector activity.
So, for example, the real cost of the ‘right size’ army with enough
soldiers to defend ourselves is that there are fewer workers left in the private
sector to grow the food, build the cars, do the doctoring and nursing and
administrative tasks, sell us stocks and real estate, paint our houses, mow
our lawns, etc. etc. etc.
Therefore, we first set the size of government at the ‘right’ level,
based on real benefits and real costs, and not the ‘financial’ considerations.
Of course, we don't do that today, which is part of the problem. The
monetary system is the tool we use to achieve our real economic and political
objectives, not the source of information as to what those objectives are.
And after deciding what we need to spend to the ‘right sized’ government,
we adjust taxes so that we all have enough spending power to buy what’s
still for sale in the ‘store’ after the government is done with its shopping.
In general, I’d expect taxes to be quite a bit lower than government
spending. In fact, a budget deficit of perhaps 5% of our gross domestic product
might turn out to be the norm, which in today’s economy is about $750
billion annually, as that's probably the amount (IN A NORMAL ECONOMY) which
helps to accommodate private sector savings desires.. However, that number
per se is of no particular economic consequence. What matters is that taxes
are set to balance the economy and make sure it’s not too hot or not too
cold. And government spending is set at the ‘right amount’ given the size
and scope of government we want.
That means just because we are in a slow down, we should not necessarily
add to the size of government to help the economy. We should already be at
the ‘right’ size for government, and therefore not add to it every time the
economy slows down and grow it to the ‘wrong’ size. So while during a
slowdown increasing government spending will indeed make the numbers work,
and will indeed end the recession, for me that is far less desirable than
accomplishing the same thing with the ‘right’ tax cuts in sufficient size to
restore spending to the desired amounts.
Even worse is increasing the size of government just because the
government might find itself in surplus. Again, government finances tell us nothing
about how large government should be. That decision is rightly and
totally independent of government finances. The right amount of government
spending has nothing to do with tax revenues or the ability to borrow, as both
of those are but tools for implementing policy, and not reasons for spending
or not spending, and not sources of revenue needed for actual government
spending.
Hope this helps.
