'All deficits are good for someone': Visiting economist shrugs off debt concerns
The Morrison government has received praise from an unlikely source following its decision to set up a $2 billion fund in response to the bushfire crisis.
Stephanie Kelton, a senior economic adviser to United States presidential candidate Bernie Sanders, said moves to put bushfire recovery ahead of the budget surplus were “a good indication they’ve chosen to prioritise the correct things”.
Stephanie Kelton, a senior economic advisor to Bernie Sanders, said Donald Trump would be very hard to beat in the 2020 US presidential election.
Photo: Roy VanDerVegt
“The good news appears to be that there is recognition that what matters is human outcomes and climate outcomes, not budgetary outcomes,” she said.
Kelton, a professor of economics at the State University of New York at Stony Brook and a former chief economist on the US Senate Budget Committee, was last year named on Bloomberg magazine’s list of the 50 people who are most influential on global markets.
She is in Australia for a series of events, including engagements with PricewaterhouseCooper in Sydney and Melbourne this week. Her book The Deficit Myth will be published this year.
A proponent of modern monetary theory, which suggests budget deficits do not matter in a country with its own currency unless they cause inflation, Professor Kelton said governments should use the federal budget to achieve “real goals” in the economy such as full employment.
The Morrison government was warned in November that major fiscal stimulus would risk the country’s AAA credit rating, but leading economists such as Olivier Blanchard, the former chief economist of the International Monetary Fund, have softened their opposition to debts and deficits.
Professor Kelton said the focus on achieving a budget surplus came from a mistaken belief that a government should run its finances like a household or, in the words of Margaret Thatcher: “The government should do what any good housewife would do if money was short - look at their accounts and see what was wrong.”
But Professor Kelton said the government’s finances were fundamentally different because it had the power to issue currency.
“It’s normal and customary for governments to run deficits,” she said. “The deficit is nothing more than the government’s financial contribution to some other part of the economy.”
Professor Kelton said President Trump’s tax cuts, which have been estimated to add US$1.9 trillion to the national debt over 10 years, had delivered a financial windfall to high-income earners. “All deficits are good for someone,” she said.
Professor Kelton said a Democrat president, if elected, should not work to eliminate the budget deficit, which stands at US$1 trillion.
“Keep it. There’s no evidence that the deficit is too big,” she said. “We don’t have increasing inflationary pressures. The trillion-dollar deficit is perfectly fine and we could probably go higher.”
Professor Kelton said Democrats should keep the trillion-dollar deficit and be prepared to increase it “as appropriate”, but redirect it to infrastructure, healthcare, education and reducing dependence on fossil fuels.
Besides cutting carbon emissions, Professor Kelton said, the Green New Deal advocated by Senator Sanders and Democrat congresswoman Alexandria Ocasio-Cortez dealt with other economic problems such as inequality and homelessness.
Professor Kelton said she did not believe ambitious policies would turn off voters.
“If the world is on fire it seems to me voters are going to be pretty happy to hear that someone has an ambitious plan to rescue us from this inevitable fate,” she said.
“I would think that the outrage would come from hearing politicians stand up and put forward modest, centrist, small-thinking, mitigating-at-the-edges …
“That would be the kind of thing that would draw serious outcry and backlash against anyone who isn’t prepared to come forward with a program and an agenda to deal with a problem on a scale that is necessary.”
Professor Kelton described President Trump as a formidable candidate who would be difficult to defeat in this year’s U.S. presidential election, and will only be beaten by a Democrat candidate who can “excite and energise” voters so that turnout is high. “Because that's the only way we win,” she said.
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