@AliceMarshall @antares

This is a common misconception, but no, Congress only appropriates money, giving permission for it to be spent.

The actual spending takes place throughout the year as the Executive Branch pays bills and buys things.

The US Government has plenty of ongoing income to pay its debts. It cannot legally default as it is legally required to service debts first.

@athousandcateaus Yes, I see from the comments that I should have added a choice for Monitizing the Debt and the resulting hyperinflation to the list. I just didn't think anyone would seriously think the US would pull a Zimbabwe. I have clearly underestimated the internet.

@antares well having a higher deficit doesn't even necessarily mean hyperinflation. Also the overwhelming majority of US debt is in USDs which the US can create, in situations with Zimbabwe, they owed a lot of debt in foreign currency and attempted to print more money to cover it which devalued their own currency and caused hyperinflation. The situation in the US is much different.

"Why "Printing Money" DOESN'T Lead to Inflation"
https://www.youtube.com/watch?v=ihPtDyS6RkU

"What Caused Hyperinflation In Weimar, Zimbabwe And Venezuela?"
https://www.youtube.com/watch?v=1U7t47toB5E

@athousandcateaus There is a big difference between having a higher deficit and monetizing debt. You don't hear anyone in economic circles worrying about the US debt to GDP ratio if congress fixes the statutory borrowing limit we are fine (choices 1 or 2).

On the other hand fixing a legal fiction with real dollars will absolutely have economic consequences. Perhaps not 10,000% inflation, but certainly double digit inflation, especially if market participants start to believe that it will be the standard solution to a debt limit impasse.

Now as your first video points out we could raise taxes to the point that income = spending, which is another way governments can handle unpaid debt. I think new taxation is particularly unlikely in the current political climate. There is also the slight problem of popular revolution. I would remind you what happened when the government of King George III tried to raise taxes to pay off the debt of the French and Indian war.

@antares The main point I'm trying to make is that the idea that people should be worried about a deficit is wrong and that using it as a limit on government spending/policy and also other related ideas like the idea that taxes fund government spending.

That ideological outlook, that I feel MMT refutes, does a lot in the way of giving ideological cover for governments not implementing things that are good for people and the economy as a whole like a federal jobs guarantee, socialized healthcare, etc.

Taxes don't pay for things. The role of taxes is creating value for the currency and helping to cement it as the main medium of exchange (because people need it anyways to pay taxes), controlling the money supply (which helps limit inflation), and also controlling the distribution of wealth/power.

It's really important to try to uproot the ideology that leads to deficit hawkery, and to focus on the real limits to economic policy rather than the ones countries impose on themselves.

@athousandcateaus MMT is a fun little theory, but there are some glaring flaws in it's narrative.

MMT proposes an all-powerful government that can spend money and raise taxes at will without political pressure from the people. It sees a government in isolation where wealth transfer to other nations is not a factor. It further proposes that "the government" will be a rational economic actor with an abiding interest in in stable currency an the ability to make complex economic corrections in a timely and intelligent manner. Now to quote @kairyssdal , "Have you met the Congress of the United States?"

Most of the worlds advanced economies have carefully separated the function of maintain a stable currency from the operations of government. * In the sense of MMT the Federal Reserve is the agent most like "the Government" in the narrative. Congress could take direct control of the US Central Bank but it won't and for very good reasons.

So long as the regulation of the money supply is left to a politically independent FOMC congress does not have the power to spend without borrowing** and the MMT idea that the US Treasury cannot run out of money does not hold, and it is a good thing it doesn't, because were we to depend on the US congress to maintain economic stability directly the US would be in deep s**t.

In terms of raising the debt limit, you can argue that congress and the president might come up with a completely revamped economic system for the US, but I think the probability that it happens in the 118th congress are quite remote.

* China is the one glaring exception and they themselves would probably debate whether they are and advances or developing economy. At least in WTO terms China still uses the rules for developing economies.

** The hypotheticall trillion dollar coin ploy not withstanding

@antares @athousandcateaus

“Now as your first video points out we could raise taxes to the point that income = spending”

This is so key when addressing MMT. We see that, for all practical purposes, we can’t actually do that :)

MMT seems to rely on that being true, but it isn’t practically true now, and won’t be any time soon.

Maybe when that world arrives we can consider the MMT form of fiscal governance, but until then, we need to clearly say that MMT cannot work because it misses this key piece.