mentoring program dot is that he can't help you with us professor of economics
chair of the department of economics in fact at the university of missouri
kansas city
editor in chief of the new economic perspectives body economic perspectives
dot were
hexagon welcome back
and thank you for staying with us
uh... for for another few minutes here
i'm curious you have you have this graphic uh... in in fact uh... jim has
is a graphic granted a full screen renounced people were watching tv could
see uh... basically what it shows is that
as we generate government deficits that the read below the line
that that's reflected by
private-sector
his blue above the line above the zero
percent line
and that there's some green in there the foreign sector which is our balance of
surplus payments are deficits the money that
yes sure that is either coming or going out as a consequence of our trade
deficit
other other ways that our country makes money loses money
internationally
and at these three sectors saren balance in a looks like when ever
earth are government manages to balance its
but its debt its budget
that the private sector surplus collapses and we have a recession
this seems counterintuitive can you explain this
well ok yes and i'd love this graphic and so glad you're able to put it up
rented folks who are able to learn to take a look at this time watching your
program because
this really uh... is a game changer in so many respects when people begin to
see things
alternative way because we've been so trying to think of the government's
deficit
as a six trillion negative thing
and you know if we could eliminate it loved by god we oughta eliminate the
deficit balance the budget and so forth and what we failed today i think we
recognize so often
is that the government's deficit
has to be considered in context so when the government deficits spends let's say
the government spends a hundred but they only collect back in ninety in taxes
we'll label that deficit
and the word itself sounds like some you've got a negative connotation in
something something you wanted to avoid
but i remember that when the government spends a hundred into the economy and
only takes ninety
backed out of the economy that the extra ten goes somewhere
and where it goes is into the non-government part of the economy so
either into the domestic private-sector u_n_ aida businesses right households
and businesses in the u_s_ or some of it could go on products possible that the
u_s_ contracts with a foreign producer of let's say ya aircraft carriers
and they get a government contract well then we go into the foreign sector
but the big blankets from this graphic i think you see a couple of things going
on here one yes
you can tell it's a perfect mirror image
which means uh... the world is a closed system every payment out of one sector
goes into some other sector in the economy and
what the other thing that you see is that almost all of the time
the government eras
in the negative that's the red that you see below the zero nine weeks of the
government is almost only spending more than it takes and which allows other
sectors to take in more than they spend a night the simple way of saying that
every day languages that allows somebody else to say
and
the people that we want to be able to stay in
money is mutant folks like you and me
here in our are private businesses to be able to
take and more money than we spend
and in fact it's that governments
ability and willingness
to run those deficits that allows the private sector
to achieve those surpluses and you can see what happens when the private sector
isn't allowed to run those surpluses or accuses on its own let's say during that
the clinton years
what happened during the clinton years you had a uh... dot-com bubble you had
an emerging housing bubble you had
american consumers feeling like suddenly they became very wealthy because their
stock portfolios working in terms of value
their home prices were beginning to go out and some people start using their
homes is a_t_m_ machines and they start
saying well i can afford to take on some more debt because the cow wealthy i am
on paper
and so for the first time really as your viewers can see here
the private sector started spending more than it takes an running the deficits
and
and fruit puree it after p reactor period the private sector continued to
we saved a state to spend
more than eight income
and at the same time the private sector was doing that
it's paying more to the government
then the government is putting back in and so we've built those surpluses you
know the democrats would love to point to the clinton years and they want to
say we were the party of fiscal responsibility
we balance the budget we had budget surpluses
as if those were necessarily a good thing
and in fact they weren't you could think they set the stage for v uh... the
economic downturn we had a recession
and then we had forced the mother of all financial collapses her since the great
depression
in two thousand seven seven
the private sector really needs to live in surplus territory it can periodically
go down in and run a deficit but over the long haul
the private sector can't stand more than it takes in
private-sector needs to be in surplus
the government
its willingness in its ability to spend more than it collects in taxes
provides that cushion for the private sector to say so withdrawal in all of
those of
international trade trade and we're interest report systems
literally centuries
and and china
in japan and and south korea
in germany role running very large trade surpluses
right now and it seems to be crushing them from the consequences of any sort
of
public-sector death or for that matter private-sector debt
what would it not be to our advantage the this for a sector the green unseen
is almost all above the line
and yet i thought our foreign sector
balance of trade was negative business a
and and negative are we looking and i want to book even more negatives become
apparent pauses or
yeah i'm missing something other than the trade deficit and would not be too
are dashed over trade
surplus
and with that not allow us to
reduced the government
pro-death end quote
and m_-eighty diffuse some of the the the rand poll hysteria
welfare underwrite in terms of to be
e uh... dekhkar recount or we can just call it a trade surplus for sure can
uh... plays a very similar role to the government's deficit so in countries
like germany
where they were able to run
time tracer classes
it allows their government to run smaller budget deficits in fact there's
an economist by the name of the uh... nicolas caldor who uh... nearly a
hundred years ago said
that trade surplus is like a
artificial government deficit and vice versa that the government's deficit is
like an artificial trade surplus and so in both cases if the government is
spending more money into the economy that's taking out by running a deficit
it has the same sort of impact on the private sector as when the rest of the
world bodies more from us than me buying
from themselves through so well is right we should have a trade surplus
well again
i didn't say that the right i'd be saying in a country like the united
states where you can run needs trade deficits
which allow more dollars to go out in the country that are coming back and get
that straight over
but in the u_s_ you can offset that with the government deficit that allows you
to to to put more money back and then you're taking out
and dampening effects of that trade deficit vocational so that you can
actually use your fiscal policy
too
engineer full employment domestically we could do this we could have trade
deficits
where the rest of the world is producing things more chilling cheaply then we can
produce them here there are some things we can't produce here and so we get
goods and services produced in other parts of the world
and
if we don't get our economic policy right here at home
then yes that tends to increase the level of unemployment and economic
distress and so forth but what would happen ghettos
we actually understood the way the monetary system works we understood that
all of these barriers that we think are they are aren't really there
we took advantage of our fiscal space
we've got our policy right we got full employment here
domestically so that we could
consume all of the things that it's possible for us to produce here at home
class
anything the rest of the world wants to produce and sell
to ask would not be the best of all possible worlds it seems yeah
so it's just a matter of saying of having a government policy of
basically the government being the employer of last resort with that the
original is set if effed up
okay so that's one program that uh... many too many people working in it
in this tradition of this uh... school five-day you know is is often referred
to as modern many theories
one of the things that we've talked about his
how to get the economy to operate even more stable way so stay stability in
terms of the financial side and also inflation
and so uh... what we have done is over a period of twenty years or so come to the
conclusion that
uh... uh... you raise this time you get into this we have just one of them
employer of last resort
a program where the government guarantees full employment by uh...
offering to hired directly anybody who's ready willing and able to work and not
able to find work in the private sector
and so that creates a buffer stockard employing people
beckoned inflow into and out of the private sector as the economy naturally
cycles and that that might actually help to provide price stability and it would
be in inflation control mechanism and so you you will have full employment
you would have price stability and you can have all of this in an open economy
world in which the dollar is still the reserve currency of the world in your
able to run trade deficits as well
doctor steffe kelton economist insurer of the department economics the
university of missouri and kansas city editor in chief of new economic
perspectives dot was blood
on tactical i know you have to go thank you so much for being with us this
morning