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How do deficits matter?

Summary:
Tyler Cowen directed me to a Ross Douthat post on people with intellectual influence: Scott Sumner/Stephanie Kelton: Because market monetarism and modern monetary theory arguably stand in the same relation to our “no, really, deficits don’t matter” policymaking era as Milton Friedman did to Reagan-Thatcher neoliberalism. I’m flattered that Douthat believes that I’ve been influential, but I worry that people might misunderstand this claim.  As far as I know, my views on the deficit are almost the opposite of the MMT view: 1. I’ve been strongly opposed to the big budget deficits during the Trump/Biden era because they will require future tax increases, which slows economic growth.  In contrast, many MMTers don’t seem to believe that deficits impose a burden of future

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Tyler Cowen directed me to a Ross Douthat post on people with intellectual influence:

Scott Sumner/Stephanie Kelton: Because market monetarism and modern monetary theory arguably stand in the same relation to our “no, really, deficits don’t matter” policymaking era as Milton Friedman did to Reagan-Thatcher neoliberalism.

I’m flattered that Douthat believes that I’ve been influential, but I worry that people might misunderstand this claim.  As far as I know, my views on the deficit are almost the opposite of the MMT view:

1. I’ve been strongly opposed to the big budget deficits during the Trump/Biden era because they will require future tax increases, which slows economic growth.  In contrast, many MMTers don’t seem to believe that deficits impose a burden of future taxpayers.

2.  When inflation becomes a problem, MMTers favor tax increases as a way to restrain inflation.  I don’t believe that tax increases are an effective means of reducing inflation (as we saw in 1968) and instead favor tight money as an anti-inflation tool.  Thus when inflation does become a problem, MMTers basically assume that the budget deficit is too big, whereas I assume that money is too expansionary.

My views on the budget deficit are very much out of step with the times.  I opposed fiscal stimulus last year, while (AFAIK) most economists favored it.  I don’t believe that excessive fiscal stimulus in the US causes high inflation, most economists believe it does.

Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment". In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea.

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