Ezra Klein did a piece yesterday offering the conventional deficit dove position on deficits and debt. Here’s a commentary on it.

Professor L. Randall Wray of the Department of Economics, University of Missouri, Kansas City is one of the leaders of the Modern Monetary Theory (MMT) approach to economics. His blogs are very clearly and simply written, well-organized, thorough, and generally fairly dispassionate. But the recent attack of the right on Fannie and Freddy really blew his gasket, and he responded with a really passionate rant against all the present attempts by the righties to impoverish the middle class, the old, the young, and generally everyone else except the rich in a post entitled: “The Wingnuts Go After Fannie and Freddy.”

Today, Dean Baker questioned the sanity of The Washington Post, after its editorial staff once again came out for cuts in Social Security to avert a crisis which will not be manifest until 2037. In reply to the Post’s observation that this year is the first in which the Social Security program will pay out more than it takes in, and that this is a warning sign, Dean points out that it:

. . . certainly is a warning sign. The falloff in Social Security tax revenue is a warning that the economy is seriously depressed due to the collapse of the housing bubble. Double digit unemployment leads to all sorts of problems, including the strains that it places on pension funds like Social Security.

He then goes on to criticize the Post for not advocating the urgency of the need to get back to full employment to solve any pending shortfall in Social Security, and for advocating instead for possible Fiscal Commission–recommended “balanced” measures, including Social Security spending cuts to be implemented gradually to avert the projected 2037 crisis.

Dean then advocates that we reject this recommendation and wait to act. He says:

After reviewing the terrible state of our economy and the need to reconstruct it so that people can find work and a vibrant middle class can be rebuilt, Bob Borosage suggests that Congress go back to first principles. he briefly reviews the post- WWII history of employment legislation and says:

That debate was revisited in the 1978 Humphrey Hawkins Full Employment Act, which initially sought to revive the mandate to full employment, and the right to a job. In the end, it too was diluted, offering five ultimate goals: full employment, growth in production, price stability, balance of trade and balanced budgets. It was this act that gave the Federal Reserve the dual mandate of pursing both full employment and price stability. Needless to say, over the last decade, the goals were distorted in practice, with price stability becoming primary, while trade deficits soared, manufacturing was shipped overseas, and budget deficits rose — before the collapse.

The debates between the deficit doves and the deficit owls continued at New Deal 2.0 (ND20) today. Jeff Madrick, a dove, gives us a post entitled: “Stimulate Now: On Inflation and Deficits.” In this post, I’ll evaluate Jeff’s views paragraph by paragraph.

Jeff says:

New Deal 2.0 (ND20) is, well, more New Dealish than other web sites, so instead of the usual conflict between deficit hawks and deficit doves, we might see at, say, the New York Times. Here things are shifted to the left, and we see a debate between the deficit doves and the deficit owls. The doves and owls have posted there for awhile without really engaging one another. But recently, the appointment of Jack Lew as OMB Director and the Statement/petition by Sir Harold Evans called “Stimulus Now,” has ended an uneasy truce between these groups. Paul Davidson, Sir Robert Skidelsky, and Jamie Galbraith replied to the Evans petition with a refusal to sign it and an explanation of the deficit owl position. At about the same time, there was an exchange at Paul Krugman’s blog between deficit doves sharing Paul’s position on the deficit and deficit owls, who don’t agree with the deficit dove prescription of short-term deficits until we get a strong recovery and then a “pivot” to deficit reduction eventually resulting in a surplus when times get really good. The deficit owl prescription is to increase Government spending on programs directed toward the public purpose, until all excess productive capacity in the US economy is used, and then cut back on less valuable spending, or raise taxes as necessary to avoid inflation. Deficit owls also believe that there is no need to worry about deficits as long as Government spending hasn’t helped to created enough aggregate demand to use excess productive capacity, and that thereafter, aggregate demand needs to be cut either by reducing spending, raising taxes or both, not in order to reach some arbitrary deficit or surplus number, but rather to achieve the specific goal of avoiding inflation. Now, at ND20, blog posts have begun to appear where deficit doves and owls have been exchanging points of view.

Congratulations to the folks at UMKC for giving us a new addition to the deficit aviary. Until now the media only had mind space for “deficit hawks” and “deficit doves.” Deficit hawks include folks like Mike Pence, and Judd Gregg, who insist that the Government run deficits only for wars, and tax cuts for rich Americans, but insist on paying for extensions of unemployment insurance, health care reforms, infrastructure, jobs programs, educational programs, transportation projects, and any Government spending for regular folks with taxes.

Deficit doves include folks like many, but not all, Democrats in Congress, Paul Krugman, Joe Stieglitz, Dean Baker, and all the signatories of this recent Sir Harold Evans, “Stimulus Now” petition, who want to run deficits to end the recession but who say:

“We recognize the necessity of a program to cut the mid-and long-term federal deficit…”

Creating a new Coalition in American politics.

News media need to present the facts that will reveal the falsity of arguments by “deficit hawks” who oppose the spending needed to end the recession.

What it says.