this interview is a bit too superficial on the debt, and ive heard very soon america wont be able to afford its debt:
"JS: You, in essence, say that it’s false that the government can’t afford to fund any program that it wants. Explain how that would work. If tomorrow there was the political will, which is unlikely at this point, but if there was the political will to fund college education for everyone, how would the government do that under your thinking?
SK: Okay well, first, it’s not just under my thinking. I mean, this is something that Alan Greenspan, for example, the former Chairman of the Federal Reserve has very candidly said. In fact, in his words —
Alan Greenspan: There’s nothing to prevent the federal government from creating as much money as it wants and paying it to somebody.
SK: As much money as it wants and paying it to someone. So it’s not a Kelton idea. It’s not an MMT idea. It’s not a theory. It’s just simply the way things work in the modern era with the type of financial and monetary system we have today. So, the way it would work is this:
if Congress wanted, as your example, to fund public universities and colleges, to make them tuition-free for everyone, then what they would do is pass a bill that says that Congress is authorizing the payment to cover the tuition for anyone who wants to attend a public college or university in this country and that the government will pick up the tab. So, the legislation gets written. You don’t find the money, you find the votes and so if enough members of Congress vote to pass legislation like that, it will result in the authorization, the budgetary authorization for the government to go ahead and spend that money.
JS: And will the government have to take those funds from elsewhere?
SK: So the answer to your question is no, the government doesn’t go out in advance and collect up U.S. dollars so that it can then spend those dollars covering those tuition payments. The government is the source of the U.S. dollar. In fact, it holds a monopoly on the issue of the currency. You and I can’t create U.S. dollars, it would be illegal. But the federal government has the monopoly issue. They control the U.S. dollar. It’s where the money comes from. So when they want to spend, whether it’s on defense, or education, or infrastructure, anything else, they issue the currency into existences. They spend the dollars into existence. They don’t go out and find the money first.
JS: It sounds great.
Then why aren’t we doing that?
SK: Basically, government deficits compete with private lending. In other words, they compete with the private banking sector. And so, it’s one reason that there might be some opposition to the idea that the government should loosen the purse strings and provide more financing for public projects, for public works, for education, infrastructure and the like. It’s because it competes with private lending.
JS: You have said that the government’s deficit is always mirrored by an equivalent surplus in another part of the economy. What do you mean by that?
SK: As an accounting identity, as a matter of just accounting logic, if the government runs a budget deficit, it is spending more money into the economy than it is removing by taxing and collecting other payments to government. So, for example, suppose the government spends 100 into the economy but it only taxes 90 back out. OK we write down, someone writes down that the government has run a budget deficit and their books record a minus 10. So, we say the government has engaged in deficit spending. Minus 10 goes on their books.
But what we do is we tend to overlook the fact that somebody out there in the economy is now holding 10 that they wouldn’t have had otherwise and that that’s a plus 10 on their books. So, the mirror image is that the government’s deficit becomes a financial surplus somewhere else in the economy. Their minus 10 is matched by a plus 10 on somebody else’s balance sheet.
JS: How would you describe the economic philosophy that is driving the Trump administration? I mean, maybe philosophy is too fancy of a word to bestow upon Trump, but how do you see what his economic philosophy and policy has amounted to in his two years in power?
SK: What the Republicans have demonstrated it that they are very, very willing when in power to take the reigns of the budget authority and to deliver on their agenda and their agenda has been to transfer as much as possible to the people at the top and to big corporations. And so, we saw this with the recent tax cuts, right? I mean, when the Republicans had the opportunity to do so they said, “OK, we understand that running budget deficits has a positive effect on someone else’s balance sheet.”
In other words, we can make a lot of people rich by having our budget in deficit because it will result in surpluses somewhere else. OK, where do we want those surpluses to go? And then they figure out who are their special interests, the campaign donors and so forth, big corporations and they said alright, this is what we’re going to do.
So, I don’t think it’s really an economic philosophy or an economic agenda. I know it was sold that way, right? It was supposed to be about getting us four percent growth and really juicing the economy so that jobs just rain down and we got wage pressure and everybody was better off. The old trickle-down, supply-side stuff. I mean, that’s the rhetoric that’s used to sell the policy but at the end of the day, I doubt that there was much of a belief on the part of the Republicans who pushed this stuff through that it was actually going to work that way. They’re interests are much more short-term. They just understand that the government’s red ink becomes the black ink somewhere else in the economy and they wanted to deliver a big financial windfall to the people that they serve."
Intercepted Podcast: Donald Trump and the Media Temple of BOOM!