Suppose the old Reaganaut-Bushie battle cry, “Deficits Do Not Matter!” turns out to be true?

U.S. orthodox macroeconomists are criticizing the Trump Administration’s proposed business tax cuts for widening federal deficits in the years ahead, by possibly a few trillion dollars.

But why? Do we not live in the Age of Mobius-Strip Economics?

The central bank the Bank of Japan has been buying back trillions of dollars of Japanese government bonds (JGBs) under its ongoing quantitative easing program—in fact, so much that the Japan national debt will be effectively vaporized, perhaps within 10 years. The BoJ owns 42.3% of the JGB market at present. Despite record low unemployment rates, the BoJ has been unable to hit a modest 2% annual inflation target, and at times barely avoid deflation. Add on, the BoJ buys 10-year Japanese government bonds when yields rise above 0%.

It is a topic studiously avoided by the conventional U.S. macroeconomics profession.

Of course, the U.S. central bank, the Federal Reserve, bought back about $3 trillion of U.S. Treasuries post-2008 in its quantitative easing programs, and it has been below its modest 2% inflation target ever since.

We live in the Age of Mobius-Strip Economics. In Japan, whom do taxpayers owe money to? Themselves.  Arguably, the United States has the same option.


Of course, for a certain class of orthodox macroeconomists, there is always resort to Bogeyman Economics.  That is, variations of “There will be consequences, unforeseeable and catastrophic, to mounting national debts.”

Of course, the debts will not be mounting if liquidated—but that should lead to inflation.

Except paying down national debts demonstrably does not lead to inflation. (For some reason, mounting debts to foreigners through chronic trade deficits—debts that cannot be erased by a central bank—do not entice the Bogeyman.)

Other than conventional posturing, what are the arguments against quantitative easing?


In a globe of capital gluts and excess industry capacity wherever one looks, one might think demand-stimulating payroll tax cuts, not Trumpian business tax cuts, are called for.  The supply-side is the least of our worries (except when constrained by property zoning).

But billionaires do not care about payroll taxes, which stop after the first $100,000 in wages (and who works for wages, anyway?).

Still, Trump’s tax cuts are in general a positive, in that they lower taxes on productive behavior.  In general, working and investing should be taxed as lightly as possible, if at all.

The national debt?

Let the central bank pay it down in the next recession.


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