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The Deficit Myth: a review



One common objection to neoclassical economics is that it underweights the importance of history and class. It is therefore paradoxical that Stephanie Kelton's The Deficit Myth, which claims to challenge orthodox economics, should be guilty of just these vices.

Let's start by saying that I wholly agree with the main claims she makes - that a government which enjoys monetary sovereignty can always finance its borrowing. Asking how we will pay for public spending is therefore daft. Instead, the question, as Dr Kelton says, is: can the extra spending be resourced? The constraint on raising health spending for example - if there is one - is a lack of doctors and nurses, not a lack of finance. Where there are resources lying idle, governments should raise spending to employ them. Dr Kelton explain these ideas wonderfully clearly, so I recommend this book to all non-economists interested in government finances.

For this economist, though, it poses a problem. I remember writing a research note for Nomura back in the early 90s arguing that increased government borrowing would not increase gilt yields because the same increased private saving that was the counterpart of government borrowing would easily finance that borrowing. Nominal gilt yields, I said, were determined much more by inflation than by government borrowing. But nobody accused me of originality. And rightly so. I was simply channelling Kalecki, Beveridge, Lerner and Keynes, who famously said back in 1933:

Look after the unemployment, and the Budget will look after itself.

For me, Kelton is - albeit very lucidly - reinventing the wheel. Reading her, I felt like Mr Jourdain in Moliere's The Bourgeois Gentleman, who was surprised to discover that he had been speaking prose all his life.

Here, Dr Kelton is more ambiguous than I would like. At one stage she claims that MMT "didn't exist" before the late 90s. But whilst the phrase did not exist, the ideas certainly did. Randall Wray is right to say (pdf) that "the main principles of functional finance were relatively widely held in the immediate postwar period."

And indeed Kelton does occasionally see this. There is passing reference to Lerner and to Keynes' How to Pay for the War, though not to Kalecki. And she cites JFK agreeing with James Tobin saying that "the only limit [on government borrowing] really is inflation."

Which is why I say she underplays history. I agree with Gavin Jackson that MMT is not new, and with Hans Despain that she neglects the ontology of MMT. We must ask, as she doesn't: why did these old truths get forgotten*?

I'm not sure about Wray's explanation, that it was because of the inflation of the 1970s. In principle, we might have interpreted that as consistent with functional finance, except that the inflation constraint on borrowing had tightened since the 50s.

Instead, I suspect the answer lies in Kalecki's great paper (pdf), "Political Aspects of Full Employment", written in 1942. He starts by saying "we are all 'MMTers' now":

A solid majority of economists is now of the opinion that, even in a capitalist system, full employment may be secured by a Government spending programme, provided there is in existence adequate plant to employ all existing labour power, and provided adequate supplies of necessary foreign raw materials may be obtained in exchange for exports.

What's not to like, he asks? His answer lay in something else Kelton neglects: class.

Capitalists, he wrote, disliked what we now call MMT because it weakened their power. If governments can use fiscal policy to maintain full employment, they don't need to maintain business confidence and so "this powerful controlling device loses its effectiveness":

The social function of the doctrine of "sound finance" is to make the level of employment dependent on the "state of confidence…[Capitalists'] class instinct tells them that lasting full employment is unsound from their point of view and that unemployment is an integral part of the " normal " capitalist system.

It is surely no accident that the backlash against functional finance came at a time when capitalists re-asserted their power over governments. Nor is it an accident that it's happened when capitalism has shifted away from mass-market Fordism to extractive finance capital: the former requires full employment and a mass market, the latter requires cheap money instead.

The analogy between government and household finances is of course a fiction - as we've known for almost a century - but it is a useful fiction for maintaining capitalists power.

Which is a big gap in Kelton's analysis. In treating public finances as merely a technocratic matter, she is ignoring the fact that capitalist power sometimes precludes good policy. She is making the error Kalecki warned us against:

The assumption that a government will maintain full employment in a capitalist economy if it only knows how to do it is fallacious.

Kelton is right. To implement her ideas (and those of Kalecki, Keynes, Lerner, Beveridge and Minskly!) however requires more than an intellectual (counter-)revolution. It requires a dismantling of capitalist power. And that's a tougher job.

* She neglects another historical question: if monetary sovereignty is as good as she claims, why were European nations (with the support of both public and economists) so keen to abandon it in the 1990s? One answer, I suspect, is that countries lacking the US's "exorbitant privilege" had less effective sovereignty. Whereas demand for Treasuries and dollars is so great as to give the US room to borrow, demand for drachmas, escudos and lira was not so great - and the dumping of such currencies meant their governments faced a tighter inflation constraint than the US.

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Nancy Pelosi Needs to Do More to Save the Postal Service — and the Election



The Daily Beast

See article on original site

The crisis at the Postal Service has been building and accelerating for months with virtually no official response. Over the past two weeks, however, it reached a crescendo that even the country’s remarkably confrontation-averse opposition party could not ignore. 

In a matter of days, overwhelming grassroots pressure pushed House Democrats from seemingly having no plan to executing a rapid return to Washington, D.C., getting a hearing with the postmaster general on the calendar for next week and winning a promise from Louis DeJoy to cease operational changes until after the election.

But, despite these early wins, protecting the USPS will require a steadfast commitment to seeing concessions implemented and getting to the bottom of this woeful series of events to make sure the caucus doesn’t lose its resolve, it’s essential that we keep up the pressure through the November finish line and beyond. 

In 2018, Democrats promised that, if propelled to a House majority, they would take on Trump. But it wasn’t long before it became clear that their actions in office would fall far short of their campaign trail promises.

Starting from Rep. Richard Neal’s initial failure to request Trump’s tax returns through to pursuit of the narrowest possible impeachment strategy, Democratic leadership failed to deliver. Up until just a few days ago, the Postal Service story was shaping up to be a repeat of this lackluster oversight pattern.

Within weeks of the pandemic’s onset, the Postal Service was warning that lower mail volumes put it at risk of collapse by summer. As we argued at the time, Democratic lawmakers had enormous leverage to protect elections and the USPS, and provide much-needed relief in March. With stock markets (and thus, the rich) a mess along with the real economy, Mitch McConnell and Donald Trump needed Pelosi and Chuck Schumer.

In the blink of an eye, however, Democratic leadership traded postal service relief away at Trump’s insistence. Funds wouldn’t surface again in proposed legislation until May, by which time Democrats’ leverage was gone. With the stock market still flying high (thanks in part to the CARES Act’s generous corporate relief measures), it’s unclear when Democrats will have negotiating power again. 

“This is a direct, undisguised assault on the basic democratic process. ”

In the meantime, the situation at USPS has only grown more dire. The little help that the CARES Act provided to the Postal Service—a $10 billion loan—ran through the Treasury Department. Predictably, Treasury Secretary Steven Mnuchin leveraged the funds to extract concessions. In June, Trump appointed Louis DeJoy, a major GOP donor, as postmaster general. He quickly set about shifting the agency’s priorities and upending usual practice. Before long, reports of protracted delays began surfacing across the country.

Over the last couple of weeks, the steady drip of bad news has become a flood. DeJoy oversaw a worrying organizational shakeup, reassigning or displacing 23 postal service executives, including two who managed day-to-day operations. Mail sorting machines in several distribution centers are being dismantled and sold, limiting the service’s capacity to rapidly sort flat mail (like absentee ballots). In Oregon and Montana, envelope collection boxes are being picked up and hauled away. Oregon, notably, votes entirely by mail. On Friday, we learned that the USPS has warned states that mail-in ballots in 46 states may not arrive in time to be counted. 

For those still unconvinced by this mountain of evidence, President Trump spelled out the logic of these attacks and his stubborn opposition to Postal Service funding last Thursday: “They need that money in order to have the post office work so it can take all of these millions and millions of ballots. If they don’t get those two items, that means you can’t have universal mail-in voting because they’re not equipped to have it.” And just two days later he warned, almost gleefully, that problems with mail-in voting could delay November’s election result for “months” or even “years.”

This is a direct, undisguised assault on the basic democratic process. Yet, until this weekend, Speaker Pelosi leaned almost exclusively on standard tactics to respond, issuing sternly-worded statements that seemingly seek to appeal to the president’s still hidden (after four years!) sense of decency. This is how one plays against a political opponent who is negotiating in good faith, not a would-be demagogue dismantling the very process of democratic elections. For months, other members of the caucus seemingly toed leadership’s line.

But, over the last few days, as the crisis spiraled further and further out of control, a rebellion was brewing. From the grassroots up through the Democratic caucus, people who had long been willing to trust Pelosi’s lead were fed up. Major people-powered organizations demanded action, pushed calls into members’ offices and poured out into the streets, including in front of Postmaster General DeJoy’s home. In turn, Democratic House members from the left to the center grew more strident in their calls for action and creative oversight tactics.  

“Until this weekend, Speaker Pelosi leaned almost exclusively on standard tactics to respond, issuing sternly-worded statements that seemingly seek to appeal to the President’s still hidden (after four years!) sense of decency.”

This pressure worked. After days of unacceptable dithering, Pelosi agreed on Sunday night to re-gavel the House into session to confront the USPS crisis. She also greenlit an “emergency” Oversight Committee hearing with DeJoy and USPS Board of Governors Chairman Robert Duncan for next week. Facing credible threats from newly rebellious members to issue subpoenas and deploy the Sergeant-at-Arms in the case they’re ignored, DeJoy has already agreed to appear. Tuesday, he went a step further, promising to suspend operational changes until after the election to avoid “the appearance of any impact on election mail.”

These wins are consequential but they shouldn’t blind USPS’ valiant defenders to the need to keep the pressure on. A promise to end the operational overhauls does not necessarily mean that it will be implemented, nor that harmful changes already enacted will be reversed. To win this battle, House Democrats are going to need to be pushed to take up the fight on multiple fronts. 

Oversight must press full steam ahead with its investigation by, for example, issuing subpoenas to any and all potential sources for information on the ongoing disaster. Democrats can start with the other members of the USPS Board of Governors, an independent, bipartisan body with six sitting appointees (four Republicans and two Democrats), including Chairman Duncan, who voted to approve DeJoy’s appointment. Members are insulated from the president’s influence by measures that protect them from firing, except “for cause.” That raises the question: why would the governors, even the president’s co-partisans, go along with the plan to install the obviously unsuitable DeJoy? Their role in this should not be lost.

In addition, hearings with Postal Service workers, local election officials, and any other relevant players would elicit consequential information about the shape and scope of the threat. Members are seeking out this information as we speak—on Saturday night, Rep. Alexandria Ocasio-Cortez used her Instagram story to encourage postal workers to describe the changes they were seeing on the ground. Such inquiries are likely to be even more consequential with the weight of the oversight committee (of which Ocasio-Cortez is a member) behind them. These hearings should begin this week, not in a month. And they should not end until USPS’ operational integrity and election security have been achieved.

“If Democrats are worried about his fitness for office, whether because of his leadership or his blatant conflicts of interest, they should open an impeachment inquiry to dig deeper”

Several lawmakers have called for the postmaster general to resign or be removed. But Democrats shouldn’t be waiting for Trump or DeJoy to act. If they’re worried about his fitness for office, whether because of his leadership or his blatant conflicts of interest, they should open an impeachment inquiry to dig deeper. Even after DeJoy’s reversal Tuesday, it’s essential that House members get to the bottom of the operational changes (and any ongoing problems). 

These committees represent the natural first lines of defense but the full caucus will need to provide reinforcements if they want to have any hope of success. Last fall, Speaker Pelosi tried a different strategy, explicitly closing impeachment proceedings off from the rest of the caucus’ work. Even as the White House refused to provide any cooperation, House Democrats acceded to demands for appropriations, thus trading away any leverage they had to compel compliance. 

This time around, House Democrats cannot let a cent out the door until Postal Service funding and operational integrity have been assured (along with aid to states to ensure they can implement necessary changes to their voting systems). With the fate of another relief bill uncertain and government spending set to expire at the end of September, this could not be more important.

Drawing this clear line in the sand will also signal to states and localities that reimbursement later for outlays on election infrastructure now are a near certainty, thereby incentivizing earlier preparations. (States that wait until a budget or continuing resolution is passed in, say, October, will struggle to prepare no matter the volume of aid provided.) While congressional Democrats wait for their colleagues across the aisle to cave, they can keep passing a package with the necessary funds for USPS and voting to ensure their priorities are at the top of the American public’s mind (no, no one outside of the Beltway remembers that the HEROES Act exists, let alone what’s in it).

Members can also look to the indirect convening and organizing authorities that come along with being a federal politician. They can, for example, meet with state and local officials to develop other creative strategies. They can also call upon figures from both sides of the aisle, from ex-military commanders to former presidents, to lend public support to the caucus’ efforts to safeguard the election. 

And speaking of the presidency, Biden and Harris must make clear that in case the election is bent but not broken, any lawbreakers from Trump and DeJoy on down will be prosecuted to the fullest extent of the law. That could influence the risk/reward calculations of key figures in this attack on democracy. 

But even if they can be convinced to do all this and more, House Democrats need to also prepare for the possibility of a contested election this fall. A statement of standards that outlines scenarios in which they would judge a broken election illegitimate and details responses in each case, will lessen the degree to which they can be accused of establishing post-hoc metrics. Perhaps just as importantly, such a step would signal to the American public that lawmakers recognize the gravity of the situation. 

After over a year and a half of hoping otherwise, millions have seemingly come to the hard realization that Democratic leadership is not going to save us from Trump of its own volition. Only with overwhelming pressure will House Democrats rise to the occasion. As the number of days before the election dwindle and many lawmakers inevitably gravitate back towards their habitual complacency, it is essential that we keep the pressure on. 

The post Nancy Pelosi Needs to Do More to Save the Postal Service — and the Election appeared first on Center for Economic and Policy Research.

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IPA’s weekly links



Guest post by Jeff Mosenkis of Innovations for Poverty Action.

  • There’s a lot of basic social science documenting humanity’s flaws, biases, and injustices, but less on fixes. The cover of the new issue of Science today features Salma Mousa’s paper using an experiment in post-ISIS Iraq to promote reconciliation between persecuted Christians and their Muslim neighbors (plain language summary here). Using contact theory, she randomly assigned Muslim players to some teams in a Christian soccer league and found it improved social cohesion, but changed attitudes extended only to Muslims in the league, not beyond. Summary here, explanatory thread by editor Tage Rai, and commentary from Betsy Levy Paluck and Chelsey Clark explaining the significance of the work.
    • She worked contemporaneously and shared ideas with Matt Lowe, who mixed cricket teams across caste in India with similarly positive outcomes (h/t Seema Jayachandran for the reminder). Chris Blattman called them two of the best conflict-related papers of recent years.
  • A conversation between Amartya Sen, Angus Deaton, and Tim Besley on economics and morals, and also reminiscing (video here).
  • Looks like the WHO is creating a Nudge Unit for health (closest explanation I could find is this job posting that already passed)
  • Speaking of jobs, Arifu, a Nairobi-based mobile information sharing platform, has a few open, including for a researcher (BA/MA level) to do A/B testing and (eventually) impact evals.
  • Alaka Holla, Billy Jack, and Owen Ozier have created a free edX class: Impact Evaluation Methods with Applications in Low- and Middle-Income Countries. It seems like it would be particularly helpful for those in schools, or countries, without access to the classes for learning methods basics, so please share widely.
  • Podcasts:
    • Conversations with Tyler with Nathan Nunn (Apple) was really good, about economic history and why culture is undervalued in development, even though it’s hard to measure. An interesting tidbit at the end is when he reflects on growing up and being able to work your way up from working class in Canada vs. the U.S.
    • Rough Translation (Apple) on the Venezuelan anti-corruption bureaucrat turned Ecuadorian lumberjack who led a group of Venezuelan refugees *walking* back to Venezuela.
    • The Hidden Curriculum is a new podcast (Apple), on what you should know about going through econ grad school
  • I shared some tips on looking at Ph.D. programs and considering non-academic careers (psych in my case, but hopefully these are general enough).
  • A clever visual investigative journalism explainer on how Mauritius became a center for corporate tax dodging in Africa.
  • 60 Decibels has a really nice interactive visualization of their results (with qual quotes), on the impact of COVID in rural Kenya.

The post IPA’s weekly links appeared first on Chris Blattman.

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Trump’s “Law and Order” Campaign is a DistractionTrump has…



Trump’s “Law and Order” Campaign is a Distraction

Trump has refused to act to contain the coronavirus, opting to sit on the sidelines as the pandemic ravages the country. But when it comes to waging violence against his own people, he’s quickly risen to the occasion.

Here are 6 ways Donald Trump has failed to attack the coronavirus, but instead has attacked Americans.


Trump has said he has “no responsibility” for the coronavirus pandemic, fobbing it off on governors and mayors whose repeated requests for federal help he’s denied. 

But when it comes to assaulting Americans exercising their right to protest in defense of Black lives, Trump is quick to assert strong “leadership.” He called the NYC Black Lives Matter mural a “symbol of hate” and has sent federal agents to terrorize protestors even as mayors and governors urged him to stay out.


Trump has never offered a national strategy for testing, contact tracing, and isolating those who have the virus. He has provided insufficient funding for the schools he’s trying to force open, abysmal standards for reopening the economy, purchasing critical supplies, or helping the unemployed, and no clear message about what people and businesses should do. 

But he has a strategy for attacking Americans. He deployed unidentified federal agents against protesters in Portland, Oregon, where his secret police pulled them into unmarked vans, and detained them without charges. Federal agents have since left the city, causing violence to go down almost immediately, but Trump has threatened to send agents to Kansas City, Albuquerque and Chicago. He also said he’ll send them to New York City, Philadelphia, Detroit, Baltimore and Oakland – not incidentally, all cities with Democratic mayors, large Black populations, and little violent unrest.


Trump can’t find enough federal personnel to do contact tracing for the coronavirus.

But Trump has had no problem finding thousands of agents for his secret police, drawn from the Departments of Justice and Homeland Security.


Public health authorities don’t have adequate medical equipment to quickly analyze coronavirus tests. 

But Trump’s police have everything they need to injure protesters, including military style armored vehicles, teargas, and tactical assault weapons – “the best equipment,” Trump boasted obnoxiously.


There is ample legal authority for Trump to contain the coronavirus.

But he’s likely exceeded the legal authority for him to send federal troops into cities where mayors don’t want them. The framers of the Constitution denied police power to the national government. The local officials in charge of public safety have rejected Trump’s troops. (The mayor of Portland was tear-gassed. The mayor of Kansas City called them “disgraceful.” Albuquerque’s mayor announced: “There’s no place for Trump’s secret police in our city.” Chicago’s mayor said she does “not welcome dictatorship.”)


Trump has tried to suppress the truth about the coronavirus. The White House instructed hospitals to report cases to the Department of Health and Human Services rather than to the CDC. Trump muzzled the federal government’s most prominent and trusted immunologist, Dr. Anthony Fauci, while the White House tried to discredit him. 

But the Trump campaign ran fictitious ads portraying cities as overrun by violent leftwing mobs, and Trump’s shameless Fox News lackeys have consistently depicted protesters as “rioters” and the “armed wing of the Democratic party.”


More than 160,000 Americans have already died from the coronavirus — tens of thousands more than would have died had Trump acted responsibly to contain it. And the economy is in freefall.

No matter how hard he tries, we can’t let Trump shift public attention from his failure to attack the virus to his attacks on Americans protesting to create an America where Black lives matter and everyone can thrive.

In fewer than 90 days, we must hold him accountable at the ballot box.

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