If I told you that there are no constraints on federal government spending, you’d probably think I’m a radical deficit hawk and thus fiscally irresponsible beyond conventional liberal economics. Even Paul Krugman, the personification of liberal economics, doesn’t take it that far and assumes that adequate revenue is necessary for a proper budget (i.e. since borrowing costs are low, the government should run an affordable deficit and spend to offset the lack of private investment). Moreover, the spectrum of the national dialogue on public spending is limited between those who believe that deficit spending and the resulting higher quantity of money in the money supply would cause dangerous levels of inflation, and others (as evidenced by Krugman’s position) who believe that deficit spending can be responsible as long as borrowing is cheap and eventually financed by proper levels of taxation. Yet, Modern Monetary Theory (“MMT”) insists that the fiscal policy positions within that spectrum are all assuming an unnecessary constraint in public spending. In a soon-to-be published paper, Cornell Law School professors Robert Hockett and Saule Omarova undermine the notion of capital being mostly private, hard to come by, and flight-prone, and advance the fact that capital is mostly publicly supplied and “indefinitely extensible[.]”[1] One implication regards the relationship of banks with the economy and the central reserve (a discussion we will bookmark for my next post), but another is that the US can continuously borrow and never go bankrupt.

CONSCIOUSLY LIBERAL | MARKETS: New Census Data and Why We Should Proceed With Caution

A new census found that median household income in the US had risen by 5.2% in 2015 compared to the rise in income in the previous year. Although this is good news, the data turns out to be more a reflection of the health of the labor market, rather than the health of the economy. In other words, rising median income, according to a New York Times article, was due to the expansion in employment. Although gains were made in median household income, we have yet to see the market move in the direction that one would predict it to move if the health of the economy had adequately recovered. According to a Financial Times article, the months prior to the past month of August have shown decent consumer spending.

THE DISMAL SCIENCE | Venezuela Can’t Feed Its Cats

Long lines and empty shelves plague Venezuela’s grocery stores as its economic crisis shows no signs of stopping. Pets are also feeling the effects of the prolonged food shortages as residents are struggling to spare a single morsel, according to a report by CBS. The South American nation traditionally relies on foreign goods to stock its stores, but imports are down 40% from last year, according to a report by NPR. The reason for such a sharp cut is simple: the government is running out of money. It is easy to blame the problem on a worldwide slump in oil prices.

CONSCIOUSLY LIBERAL | On Monetary Policy for the People

In conjunction with low interest rates, the cash for trash program, or quantitative easing (QE), has led to inflation in asset prices, including housing. In exchange for toxic assets and treasury bonds, QE was supposed to flood banks with cash in order to encourage lending and thus stimulate growth. In the end, most of the cash was held in bank reserves. Banks were not ready to loan out money because interest rates were low (and still are), compounded with the insecurity of high private debt and stronger credit regulation. If Fed policymakers are trying to stimulate growth, propping up asset prices at pre-crisis levels seems contrary to basic thinking.