The massed ranks of economic illiterates who make up Capitol Hill, the UK’s House of Commons, and most university economics departments (Harvard in particular) don’t seem to understand that a country can perfectly well make a profit out of its national debt. It’s easy. Any MMTer can explain how to do it. So here goes. (By the way, this is applicable to countries that issue their OWN CURRENCY, e.g. the US, Japan, UK, Russia, etc. I.e. this doesn’t work for INDIVIDUAL Eurozone countries, though it does work for the EZ as a whole.)
Basically just ensure that the rate of interest you pay on your debt is less than inflation. That way, your creditors pay a negative real rate of interest. Put yet another way, you effectively CHARGE all and sundry for creating money units (dollars or whatever) and storing those units for the numpties who want said units.
Or put it yet another way, if you adopt the above policy, then you effectivly become a bank: that’s an institution that creates a form of money and (assuming the bank gets it right) makes big bucks in the process.
How are interest rates cut?
Now some of the above mentioned dummies will want to know how to keep interest rates down. Well they really should know the answer to that: whenever a central bank wants to cut interest rates, it just prints money and buys government debt.
But what if the effect of the latter is too stimulatory or inflationary? No problem: just raise taxes and confiscate some of the money you’ve just printed and distributed to the mugs that make up the private sector.
But those taxes mean a cut in living standards.
No they don’t, stupid. All they do (as implied above) is to prevent EXCESS DEMAND and hence EXCESS INFLATION. Thus far from CUTTING living standards, those taxes actually RAISE living standards in that they prevent excess inflation.
Distortionary and distributional effects.
The next predictable objection from the above mentioned dummies is that government debt tends to be held by the better off, while a general rise in tax hits the LESS WELL OFF. Thus the above policy would increase inequalities.
Well that’s actually a reasonable point: it’s not a totally dumb point.
But the answer is easy: design the tax increase so that it primarily hits the better off. That way the inequality effect is ameliorated or totally neutered.
No more monetary policy, shock.
Another possible objection to the above policy (quite an intelligent one this) is that any country adopting the above policy is very constrained as the extent to which it can use monetary policy to adjust demand. Reason is that if inflation is successfully held at the 2% target rate, then interest then has to fall within the 2% to 0% range.
Well the answer to that is that monetary policy is a load of nonsense, and for reasons I spelled out here.So good riddance.
I’ve actually made the above points several times before on this blog. But the only way of getting anything into the heads of dummies is constant repetition. Bill Mitchel (another MMTer) repeats the same points over, and over, and over, and over, and over on his blog. I don’t blame him.