Prepare to hear a lot more about taxation and government spending as the Trump Administration settles in and the Republicans assume control of the Federal Government. Talking points about the perils of government borrowing to fund annual budget deficits and the consequent growth in the national debt are a stock GOP scare tactic. The Congressional Republicans are paving the way for tax cuts which, according to various analyses of the tax plan Trump trotted out during the campaign, will mostly benefit the very rich while blowing a hole in the budget. Throw in cuts and changes to entitlement programs such as Medicare and Social Security and Paul Ryan will finally get to go to his prom. There is a fascinating historical perspective here, given that the Federal deficit has increased during Republican Administrations and decreased when Democrats were in the White House. The most notable instance, of course, is the budget surplus Bill Clinton bequeathed George W. Bush morphing into a deficit that was passed onto Barack Obama. As Bruce Bartlett wrote in 2011:

“[Deficits] provide Republicans with endless talking points on how they are bankrupting the country and will inevitably lead to high inflation and interest rates.

This is good for Republicans, politically, because rich people, the elderly and other core elements of the Republican coalition get scared and give lots of money to Republican candidates.

In office, of course, Republicans care nothing about the deficit. They cut taxes willy-nilly, sharply raise defense spending and start wars if necessary to justify it, create huge numbers of pork barrel projects, and enact massive new entitlement programs such as Medicare Part D, all while asserting that they are the party of fiscal responsibility.

When a Democratic administration such as that of Bill Clinton comes along that actually is fiscally responsible, Republicans change the subject and talk about something else. As at least some of us remember, Clinton inherited a budget deficit of 4.7 percent of the gross domestic product from the George H.W. Bush administration in 1992. By the year 2000, Clinton had turned that deficit into a budget surplus of 2.4 percent of GDP.”*

A thinking person has to wonder if any of five-hundred-thirty-five members of Congress has any comprehension of macroeconomic theory. Begin with the most obvious and incontrovertible fact: The US dollar is a sovereign currency. Simply put, a dollar is a dollar because the US government says it is and the proof is that the government accepts dollars for the payment of taxes. Theoretically, if the government needed more money, it could simply create it. Yet, we still hear rumblings from reactionaries that we must abandon a fiat currency and return to the gold standard. 

In the real world economy, public liabilities- meaning government debt- equal private assets. This is not to propose that government borrow money without limit; economists debate constantly on what is an excessive amount of government debt. Many argue the contrary position, that government surpluses are more damaging to the economy than deficits. One such school of economic thought is MMT- Modern Monetary Theory. Earlier this week, economist Stephanie Kelton, a proponent of MMT, blasted out this tweetstorm on Twitter to explain, in simple terms, an MMT view of government spending, taxation, deficits and surpluses:

@StephanieKelton

Speaker. Author. Prof. of Economics. University of Missouri, Kansas City. Was Chief Economist, U.S. Senate Budget Committee and Economic Advisor to Bernie 2016g

1/We can think of the US government as the scorekeeper for the US dollar.

2/The US government spends by adding $ points to the balance sheets of others.

3/When it collects taxes, it subtracts $ points from others.

4/It had to add points before it could subtract them, which means spending had to come first.

5/It can never run out of points.

 6/It can collect more points than it adds, but only because it *previously* added more points than it collected.

7/IOW, government surpluses are only possible because of prior deficit spending.

8/A budget deficit raises the point total for the non-government

A budget surplus reduces the point total for the non-government

9/Many people (economists included) celebrate(d) the Clinton surpluses.

10/But they were built on unprecedented and unsustainable private sector deficits. http://huff.to/20wYQtG

11/Deficits matter, but not the way most people think. http://rooseveltforward.org/deficits-do-matter-not-way-you-think/
-The End

Not being a trained economist, I choose to view this as I do the double-entry bookkeeping I use for my business. A credit or debit in one account must be offset by a debit or credit in another account. Example: I have an account called Receivables and another called Checking. In Receivables, there is a credit for $200, the amount I charged for a service I provided to Acme, a client,  Upon receiving payment and depositing the funds into Checking, I credit Checking $200 and debit Receivables the same amount. This is the point Ms. Kelton makes in tweets 2 and 3.

When I sent a bill to Acme, it reflected a real economic activity, a service I provided. When the government borrows money in order to spend it, it is funding real economic activity. It is effectively creating wealth by inciting economic activity. And a portion of the money the government spends is returned to it as taxes.

In my uneducated understanding of macroeconomics, I see government funding of real economic activity as a plus. I am unclear of what the limit of government deficits should be; I tend to think it lies somewhere in the complex relationships between interest rates, inflation and unemployment. In my view, proposals such as the Balanced Budget Amendment reflect a troubling lack of comprehension of government’s role in the economy. My thinking on efforts to reduce safety-net programs is similar: These attempts are short-sighted since most recipients of benefits via unemployment, SNAP (food stamps) and other programs put all or most of the money directly into the economy.

A final anecdotal point: I think one could argue that the United States government has been the greatest creator of wealth in the history of civilization. We will hear all about the entrepreneurs and capitalists who built this nation, but it was the government who gave land to the railroads and who granted the right to extract the wealth of public lands to private mining and logging companies. It was the government who granted grazing rights on public lands to ranchers. It is the Army Corps of Engineers that keeps our inland waterways navigable for commerce. Government underwrote the construction of the great dams in the 20th Century which gave us cheap electrical power. It paid for the construction of the major highways of the country. It provides the Air Traffic Control system slo we have a safe commercial airline industry. Spending by the Department of Defense funds mega-business such as Lockheed-Martin, Northrup-Grumman and United Technologies. And the government underwrites the basic research that is then handed over to private industry for development.**

It is thus disturbing that the wealthy, those who have benefited the most from feeding at the public trough, seem so determined to siphon off more for themselves. To that end, they have been willing to spend great sums to influence the outcome of elections. As the Trump team prepares for its march on Washington, it will comprise the wealthiest group to ever sit atop the executive branch. In the final analysis, labeling Congress as ignorant is probably giving them a pass. Calling them venal may be more appropriate.

For the average citizen, educating ourselves on these issues is the first step in holding our elected officials responsible to produce the greatest good for the greatest number.

*http://www.businessinsider.com/republicans-actually-love-deficits-2013-5

** Mariana Mazzucato covers this topic in depth in her excellent book, The Entrepreneurial State: Debunking Public vs. Private Sector Myths