Government Must Run A Deficit

Prof Keen has created a system dynamics (stocks and flows) economic modeling tool (unlike anything mainstream economists use).

He has long beeen somewhat ambivalent about the MMT crowd, those that take the "deficits don't matter" to extremes.

One central claim of MMT turns out to be true, the government should always run deficits.  The average deficit run by the USG over the past 100 years seems to work out very well in the model.

If government does not run a deficit, then correspondingly private accounts have to be in deficit, and such deficits are much harder for private entities to maintain.

In the rare historical cases where US government didn't, the 1920's and the 1990's, there was runaway private speculation followed by a crash.  That seems to logically follow (though his modelling does not include such things yet).

The bottom line is that a turn towards austerity would be among the worst things Biden could do.

I would also add that it matters what the government is spending money, which it must spend, on.  Craters and potential craters in foreign countries are not wise investment.

Quoting Prof Keen

 the sensible conclusion is the one MMT reaches: that the government should run deficits and be in negative equity, to enable the private sector to run surpluses and be in positive equity. Periods of apparent prosperity that coincided with the surpluses of the Coolidge and Clinton eras were the result of private sector levered speculation by a private sector that was experiencing (identical) deficits at the time. Rather than "saving for a rainy day", these government surpluses helped set off speculative bubbles whose later crashes caused the greatest economic downturns in America's pre-Covid history.

Private sector deficits are "unsustainable, irresponsible, and dangerous". Public sector deficits are sustainable, responsible (subject to their impact on inflation and the balance of trade), and safe. It's time for the "Deficit Hawks" to worry about private sector deficits, not the public sector deficit.