[skyredoubt]

This is another point of view that will also get us $10 a gallon gas. As a matter of fact, we do have a very serious debt problem. We've been using debt to paper over serious economic problems for at least the last $15 years and we're very soon going to have the face the music on this. The U.S. debt levels, if they continue accumulating anywhere close to the current rate, will end up hosing the dollar as the world's reserve currency. That would mean a dramatic decline in standard of living for the American middle class. The political consequences of all this could be even more dire.

So, we agree we have "serious economic problems" but then you're saying something funny, that is that to solve these serious problems we somehow need to solve the supposedly derivative debt problem!? I've been writing some stuff about it:

When MMTers say "deficits dont matter" – I know, I know, most MMTers are more careful than that, but this is still the take-away for a lot of people, judging from online discussions – this is often misconstrued to mean that the government can spend all it wants. But the real meaning is that deficit and debt numbers in themselves are only a reflection of some underlying economic realities. As such, targeting certain debt- or deficit-to-GDP ratios should not be the goal of economic policy. As Abba Lerner’s rules for Functional Finance state:

1. The government shall maintain a reasonable level of demand at all times. <…>
2. <…> the government shall maintain that rate of interest that induces the optimum amount of investment.
3. If either of the first two rules conflicts with the principles of ‘sound finance’ or of balancing the budget, or of limiting the national debt, so much the worse for these principles.

That said, a very large deficit most probably means something is wrong with the economy – the real culprits could be large unemployment, low productivity, big spending on nonproductive activities such as wars etc. Therefore targeting a certain deficit number is akin to treating a symptom instead of the underlying disease and is quite likely to be futile or even counterproductive. For example, a huge chunk of our projected debt growth is due to growing costs of Medicare and Medicaid. Trying to reduce the deficit by simply cutting those programs will do little to control the growth of medical costs in the economy and will not achieve anything beyond driving households into more debt and most likely higher deficits due to transfer payments and falling tax revenues (the automatic stabilizers). Similarly, saying that we should stop fighting wars because "they cost too much" is a funny rationale for what in most cases is a good goal. Seen this way, the deficit should be left alone and, if the right policies are pursued, the improvement of the underlying economy will deliver deficit reduction on its own.

I know that still leaves room for the argument that deficit itself, due to people’s misunderstanding or some sort of Ricardian equivalence, can be a drag on economic activity. In other words, even if MMT logic says that worrying about the deficit per se is silly, if enough people do worry about it then their worries can become self-fulfilling prophesies. But then reducing the deficit is still a silly goal, since such reduction would hope for a Placebo effect that would create auspicious economic outcomes in the face of what would most probably be actual strongly contractionary measures.

By the way, there is not a lot of evidence that dollar's reserve currency status -even if we were in any danger of losing, which we're not - really gives us any particular advantage over other advanced economies with fiat currencies.
Regarding sustainability of debt, there is a lot of literature. You might peruse this
http://www.cfeps.org/pubs/wp-pdf/WP53-Fullwiler.pdf
or a simplified version such as this
http://www.levyinstitute.org/pubs/pn_11_02.pdf
or even this:
The Concise Way to Destroy the IGBC, and Why to Destroy it The Traders Crucible

[jeffkrol]

The U.S. debt levels, if they continue accumulating anywhere close to the current rate, will end up hosing the dollar as the world's reserve currency. That would mean a dramatic decline in standard of living for the American middle class. The political consequences of all this could be even more dire.

"standard of living for the middle class" has been deteriorating since Reagan........
actually has nothing to do w/ the "debt"..........

Look around, our governors are trashing the middle class just fine,, and the poor, and any in-between...........


Japan is running 200% of GDP and they have health care and high employment.

Anyone really paying attention to facts not "gloom and doom" marketing??????

[mikemike]

mike wants high gas prices.

Yup, but I would be much happier to see the US government or State government soak up the extra $6/gallon.

High gas prices are good for the environment because they force people to make hard choices that are the right choices instead of just doing the expedient thing.

The public's coping strategies are largely unchanged from March, with 72 percent having cut back on other expenses, 66 percent saying they've reduced the amount of driving they do and 48 percent changing vacation plans
*snip*
Financial analyst Nicole Polite in Baltimore sold her Nissan Altima recently and is taking public transportation, opting for the bus, rails and walking to get to work. Gas prices were just too high, she says, so she and her boyfriend downsized to a one-car household. She says they kept their Lexus sedan, which requires pricey premium gas.
*snip*
Until that happens, Ross Cobb in Boerne, Texas, will still try to keep his highway miles down. Cobb says he and his wife have been driving less and curbing trips into the city for their children's clothing and other supplies.

"We coordinate all of our trips into San Antonio," said Cobb, an associate athletic director at the University of Texas at San Antonio. "We don't ever go in anymore just for one particular errand. We wait until we've got two or three things to do."

http://news.yahoo.com/s/ap/20110520/ap_on_bi_ge/us_ap_poll_gas_prices;_ylt=A...ljZXNhdGdhc3A-

Common sense steps to conserve fuel that don't take a huge lifestyle sacrifice are well within the reach of most drivers.

[skyredoubt]

High gas prices are good for the environment because they force people to make hard choices that are the right choices instead of just doing the expedient thing.

That is something I can support. I do believe the gas is underpriced when the environmental and other factors are taken into account. But the devil is in the details. If you simply hike gas prices and kill the households' already strained balance sheets and the economy with them then this is not a good thing, I think we all can agree. If you really want higher gas prices then some sort of gas tax remitted back to the public to force redistribution while maintaining aggregate demand + incentivising alternative sources and less consumption is the way to go, in my opinion.