Paul Krugman, well-known for his opposition to the austerity concerns of the deficit terrorists and his advocacy of additional Government stimulus to lower unemployment and end the recession, just ignited a paradigm conflict which promises to clarify for many, the issues dividing “deficit doves” like Paul, from economists who take a Modern Monetary Theory (MMT) approach to economics, which holds, among other things, that Government deficits and surpluses are not, in themselves important, and that Government spending has to be evaluated relative to its impact on public purposes. Paul said:

In the above video, Nick, otherwise known as The Modern Mystic, has raised an important question about applying Modern Money Theory (MMT) -based economics. He asks whether if all nations used MMT-based economics to achieve full employment, truly universal health care, and free public education for everyone, whether the world wouldn’t run up against resource limits, and whether these limits along with competition for resources from everyone wouldn’t cause resource price inflation?

Put another way, he is asking whether even if MMT-based, or as he calls it, “chartalist” economics, is rational at the “micro” level of the nation, it is also rational at the “sub-macro” level of a world system made up of interacting economies, national governments and interacting sovereign currencies, but no world fiscal authority? Or put still another way, is MMT-based economics, which may be fiscally sustainable in the short run in a single nation, both fiscally sustainable and socially sustainable in the longer-run in an international system of interacting, nations, currencies, and economies?

Three weeks ago on April 7, I posted an idea here, here, and here, calling for a Teach-In Counter-Conference on April 28th to oppose the message of austerity in social programs being formulated by the President’s National Commission on Fiscal Responsibility and Reform, and The Peter G. Peterson Foundation, by bringing forward an alternative message based on a coherent economic approach. That approach has acquired the name Modern Monetary Theory (MMT) over the years.

The Fiscal Sustainability Teach-In Counter-Conference happened at The George Washington University’s Marvin Center on Wednesday. It was held in the amphitheater at The Marvin Center and was sponsored and given strong support by the University’s Department of Management and the wonderful Marvin Center Staff. Blogs on the Teach-In Counter-Conference have already appeared here, here, here, here, here, here, here, here, and here, and others will be coming very soon covering different aspects of the event. Also, audio, video, presentation, and other web artifacts will be forthcoming over the coming days.

The administration’s roll-out of its austerity program for Americans fits a pattern we saw in health care reform, in the run-up to the Stimulus bill, in cap-and-trade, in financial reform, whatever. The Administration always operates from the top down, and then tries to mobilize support from the bottom. It decides what it wants to do and then brings interest group/think tanks like the Peterson Foundation to bear to reinforce its narrative in the non-Government sector. The think tanks collaborate with the Administration to set the parameters of public debate in the media. Much of the netroots joins the chorus. If needed parts of the public are mobilized to support the received view through Administration-friendly “progressive” organizations, and real solutions to real problems get shut out of sight and out of mind.

In the fiscal responsibility/reform drive the narrative is that we (the US Government) will run out of money (US Dollars), and won’t be able to borrow it, because interest rates will be too high; or get it through taxation, because raising taxes is deflationary. So the only way not to run out and leave some dollars for our children is to cut Government spending and at least decrease the debt-to-GDP ratio.

When people introduce a new meme into politics, their standard operating procedure is often to just start talking about some label, say that it’s a problem, make various dire predictions, and then keep writing more and more screeds to try to get everyone else to think that it’s a problem. The meme or label used in campaigns like this is value loaded in some way, and the label often has little to do with what the writer is talking about, because the label is rarely explicitly defined and journalists, pundits, or commentators think it’s very pedantic and academic to start talking about definitions. Pretty soon after a process like this gets going, there’s very little connection between a label and what is being talked about under that label. So it is with fiscal sustainability.

In the past few months there’s been a lot of talk about “fiscal sustainability,” and also an assumption that we all know what this means. It refers, of course, to: the annual Federal Deficit (the gap between Federal Spending and Federal Tax Revenues), the public National Debt (the accumulated inflation adjusted sum of deficits and surpluses since the inception of the Republic), and the debt held by the public to GDP ratio. People who write about this then, see things this way: continuing and growing deficits are a sign that fiscal sustainability is going down; continuing and growing increases in the national debt are a sign that fiscal sustainability is going down; and an increasing debt-to-GDP ratio is a sign that fiscal sustainability is going down.

My friend Ralph writes about the fiscal sustainability issue:

”Real. Simple (but accurate). Language. Why should people be scared about the Peterson agenda? What are they trying to distract the public’s attention from? What do the American people deserve from their government’s economic policy? Why is this not “leftist” but in fact mainstream — even conservative — anywhere else in the world?

”Explain it like you’re talking to my grandmother. Make it real, real simple, especially given that she’s dead.”

So, here goes. Let’s have a dialogue with Grandma, but with a real live and skeptical one, who’s far from dead yet.