Bernie Sanders Adviser Says U.S. Can Safely Add $500 Billion to Deficit
U.S. Can Run Deficits Much Bigger Than $1 Trillion, Kelton Says
(Bloomberg) --
The U.S. government could be pumping half a trillion dollars of extra deficit spending into the economy each year without risking a jump in inflation, according to the economist who’s become the public face of Modern Monetary Theory.
“We could safely increase the deficit, let’s say by another $500 billion or so, before we begin to see inflation accelerating to something that we would consider problematic,” Stephanie Kelton, a professor at Stony Brook University in New York and an economic adviser to the Bernie Sanders presidential campaign, told Bloomberg TV’s Erik Schatzker in an interview on Thursday. Kelton cited research by investment firm GMO for the numbers.
The U.S. budget deficit is poised to exceed $1 trillion under Donald Trump, after the president pushed through tax cuts and Congress approved higher spending. That’s almost 5% of economic output, and the gap is set to stay around those levels throughout the coming decade, the Congressional Budget Office predicts. The CBO, a nonpartisan body, this week warned again about the risks of a persistently large shortfall.
Analysts warned that adding fiscal stimulus to an economy that’s already been growing for a decade would push inflation and interest rates higher. There’s been little sign of that so far, with yields on Treasury bonds close to record lows.
Kelton, a former chief economist on the Senate Budget Committee, has become the public face of MMT as the theory gained popularity in the past few years. It argues that governments borrowing in their own currencies can’t go broke and have room to spend more so long as inflation is subdued, as it has been in the U.S. since the 2008 financial crisis.
There’s been “no inflation, no spike in interest rates,” Kelton said. And she said the other things predicted by the “textbook models” haven’t happened either: “The crowding out, the slower growth, all of the things that are supposed to accompany an increase in deficit spending of this magnitude.”
As an adviser to Sanders on both his 2016 campaign and the current one, Kelton has backed policies like a Green New Deal and Medicare For All, arguing that the U.S. can afford them. But she said that MMT isn’t a partisan approach. It’s more like a new lens for looking at the economy that could be used to advance a wide range of policies.
“I could give that pair of lenses to a Republican, I could give that pair of lenses to a Democrat,” she said. “They could both see more clearly what the policy space looks like and then use that policy space to do tax cuts, use it to do infrastructure, use it to do education.”
--With assistance from Katia Dmitrieva and Erik Schatzker.
To contact the reporter on this story: Matthew Boesler in New York at mboesler1@bloomberg.net
To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Ben Holland
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