Blyth impressively dispenses with the question-as always very impressive.

Jeff Spross writing in Democracy Journal with the excellent read You're Hired 

"Americans didn’t always worry so much about debt or even distinguish between paper money and government bonds."...from Nathan Tankus at Jstor:

Many Americans worry over paying off “the debt,” and our politicians are more than happy to stoke those anxieties. Rand Paul, of course, is obsessed with the subject, calling our national debt “reckless” and “unsustainable.” But all the 2016 presidential candidates agree that the debt is bad. That results in some surprising statements: This summer, Hillary Clinton claimed that if a Democrat had been elected after her husband’s two terms, the national debt would now be paid off.
In Treasury Notes, finance writer Nathan Tankus will discuss money in its historical context.
However, even Paul and Clinton don’t urge us to worry about the federal government paying off the paper money in our pockets. Indeed, the idea seems strange; if I were to show up at the Treasury, present ten 100-dollar bills and demand “payment,” I would likely not get much else besides strange looks. Yet the dollar bill in my pocket is a debt, because my creditors (especially the government) are obligated to accept it in payment to them. The difference between a government bond and a dollar bill is that a dollar bill doesn’t pay interest and it’s value doesn’t vary with interest rates and time. Why do we happily accept this form of government debt but fret so loudly about the “national debt?”
Americans didn’t always worry so much about debt or even distinguish between paper money and government bonds. In fact, the American colonists saw no difference between the two. They were the same object, both called, in the language of 18th-century America, “bills of credit.” They were both debts.
Bills of credit could be used to pay off specific sets of loans and future taxes. At the same time a bill was spent or lent, the government would announce the future tax, principal, and interest payments that those bills were meant to pay off. Because the point of the taxes was to redeem the bills, the bills were usually burned on reception. It was only when a legislature had not yet decided to print more money and wanted those bills reissued for some other purpose that their incineration was delayed.
We are used to paper money being worth the same amount over time. When you hold a 100-dollar bill, you know you can pay $100 in taxes you find yourself owing, either 30 years from now or five minutes from now, with that same bill. When a storeowner tells you that the meal cost 10 dollars, you, without thinking about it, hand over a note that says “10 dollars” printed on the front. This is what it means to say that the “face value” and the “present value” are the same. In 1763, when a storeowner told someone his meal cost “10 pounds,” the customer would have to give him notes with a face value of 12.5 pounds. Prominent colonial legislator and printer of paper money Benjamin Franklin explained this clearly in 1763:
The true Value of the promisory [sic] Notes, or we call them, Bills of Credit, which is always 20 per Cent less than their nominal Value [i.e., face value]; and if People should compute the Interest at 6 per Cent instead of 5, and have withal any reason to doubt the Punctuality of the Government as to the Time of Payment, their Value would be proportionally lower. We have thus considered the Fund of our intended Bills, the full real Value that Fund can give them, and how much less that real Value is than the nominal Value we mark upon them.
It is this property that made these “bills of credit” like a bond with a maturity date even as they were used for everyday transactions, just as modern paper money or credit cards are today. Rather than continuously spending money as needed by the colonial governments, they would legislate that discrete amounts of paper money be printed and put into circulation (the term for these discrete amounts is “emissions”). At the same time, the governments would announce which specific future taxes bills from those emissions could be used to pay. Colonial legislatures would announce contemporary budget deficits usually to finance wars–most expensively, the American Revolution–and adjust taxes and emissions accordingly.
Colonial governments saw the advantage of having bills of credit in circulation. Given our current debt-phobic political culture, this will seem odd to contemporary readers, but another way of saying this is that colonial legislators often saw the value in not paying off their public debts. When they came close, they were quick to print more money and, consequently, change the terms and schedule of its redemption. Thus, the question colonists asked themselves when thinking about whether or not to increase or decrease their government’s debt was not, How will we ever pay this off? Nor did they ask, How can we avoid more debt at all costs? The question, rather, was whether the debt served a public purpose.
It is tantalizing to think about what a colonial legislature would have to say about our comparatively simplistic debates over deficits and the national debt. It would have found our anxieties about debt puzzling. We constantly hear all kinds of objections to necessary government spending—whether on education, rebuilding our rotting infrastructure, or investing in greener forms of energy—on the grounds that our public debt is already too high. If colonial American leaders had thought this way, they’d never have been able to create a new nation. And today, that debt phobia is profoundly hampering that nation’s ability to evolve.

Despite recent electioneering posturing not enough public discussion about continually increasing monopoly power of corporations happens among policy regulators. So it was refreshing to read about research toward that end.

Below from MATT STOLLER at Vice:
A wave of new research shows how as corporations get bigger, the share of money out there going to actual workers declines...."experts are coming up with data showing just what it's costing Americans. And last week, economist Simcha Barkai presented his recent paper at a conference at the Stigler Center at the University of Chicago, suggesting corporate concentration leads to substantial declines in money going to workers across the country.

According to the paper, there's been roughly a 10 percent decline in what's known as "labor share" over the past 30 years. (Barkai's paper looked at the non-financial corporate sector, which encompasses roughly 80 million workers.) What this means is that out of the total number of goods and services produced by corporations, less of it by percentage terms (10 percent less) is going to pay for salaries and benefits—a.k.a. income.
What's behind this significant drop in this percentage of wealth going to labor? Various arguments have been presented over the years, like cheap Chinese imports displacing workers; there is some evidence for this. But perhaps the most popular explanation is that robots are taking jobs. This idea comes in part from Silicon Valley and was popularized by venture capitalist Marc Andreessen in a 2011 essay titled "Why Software Is Eating the World." 

Is it Education?
..."no evidence for this in his study, which used government data from the Bureau of Economic Analysis. In fact, he found that spending on capital inputs, which includes robots, is declining even faster than spending on labor. As Barkai put it, "Measured in percentage terms, the decline in the capital share (30 percent) is much more dramatic than the decline in the labor share (10 percent)."
So where is all the money going? "Profits have been rising over time," Barkai said last week. And he put a number on it. "To give you a sense of how large these profits are, if you look over the past 30 years... per worker, how much have these dollars increased? It's about $14,000 per worker. And that's a really big number because, in 2014, personal median income was about $28,000." Barkai's models show that this effect is more pronounced in concentrated industries and less pronounced in competitive ones. Had concentration remained at the levels we saw 30 years earlier, one model in his paper suggested that wages, output, and investment would be substantially higher.
....among others, one trend that has puzzled some economists is why productivity, or the amount that an American worker produces with the same amount of machinery, isn't increasing as fast as it once did....corporate concentration may reduce firm investment and could potentially explain that, too.
Likewise, economist John Kwoka has shaken up the antitrust profession with work showing that mergers allowed by the Federal Trade Commission in concentrated industries lead to price hikes. And Justin Pierce, an economist at the Federal Reserve, found that companies that acquire manufacturing plants simply raise prices for the products those plants make, without increasing the efficiency of how those plants operate. Mergers are often justified as bolstering the efficiency of the companies being bought; Pierce's paper may undercut this rationale.
... In 2016, Federal Reserve Chair Janet Yellen noted that the 2008 financial crisis might prove a "turning point" for thinking in the economics profession....She suggested that the failure of small business to recover as quickly as larger corporations was a potentially significant factor in the ability of the Federal Reserve to organize an economic recovery.
"These findings bring to the fore critical and troubling trends that would otherwise be hidden from view," said Sabeel Rahman, a professor at Brooklyn Law School who specializes in the intersection between money and democracy. "Economic power and concentration increases inequality while also undermining economic dynamism. We need findings like these—and hopefully there will be further such studies to build on these papers—to shape a new wave of policy reform and debate over how to make the 21st-century economy inclusive, fair, and vibrant."

Two powerful voices of dissent meet at NY Public Library event to discuss "financial collapse, the euro, and "the sickest joke in the history of humankind."

Below from the NYPL blog post where a link to a podcast version of the event can also be found.
​
"Chomsky spoke of an unholy marriage of private interests and the US government. One example he cited was the way in which American banks have profited from government support and how taxpayers have, in the form of government subsidies, invested in the tech sector without gleaning profit:
"You recall the IMF study of the leading American banks, which determined that virtually all their profits come from their implicit government insurance policy, cheap credit, access to higher credit ratings, incentives to take risky transactions which are profitable but then if it’s problematic, you guys pay for it, or just take the basis of the contemporary economy, which actually I’ve been privileged to see developing in government-subsidized laboratories for decades. MIT, where I’ve been since the 1950s, is one of the institutions where the government, the funnel in the early days was the Pentagon, was pouring in money to create the basis for the high-tech economy of the future and the profitmaking of the institutions that are regarded as private enterprises. It was decades of work under public funding with a very anticapitalist ideology. So according to capitalist principles, if someone invests in a risky enterprise over a long period and thirty years later it makes some profit, they’re supposed to get part of the profit, but it doesn’t work like that here. It was the taxpayer who invested for decades. The profit goes to Apple and Microsoft, not to the taxpayer."
Echoing Chomsky's point, Varoufakis critiqued widespread beliefs about the relationship between the free market and government intervention:
"I mean the whole notion that there can be a market system which is at an arm’s length separated from a state, which is the enemy, is the sickest joke in the history of humankind. If you think that this narrative of private wealth creation which is appropriated by the big bad wolf, the state, on behalf of trade unions and the working class that need a social welfare net, is just a preposterous reversal of the truth that wealth is being created collectively and appropriated privately but right from the beginning. I mean, the enclosures in Britain would never have happened without the king’s army and without state brutality for pushing peasants off their ancestors’ land and creating the commodification of labor, the commodification of land which then gave rise to capitalism. Just half an hour ago, we were being shown, some of us, the magnificent collection of maps of the city of New York in this wonderful building and you could see in one of the maps of Alabama, the precise depiction of the theft of land from Native Americans, the way in which it was parceled up, commodified. Now that would never have happened without the brutal intervention of the state and created the process of privatization of land and therefore of  commodification."
Varoufakis also pointed out the way in which lessons have not been learned from previous failures. He framed the euro as similar to the gold standard and therefore doomed to repeat the same type of financial collapse:
"The euro is a carbon copy of the gold standard of the 1920s. It was created in the image of the gold standard of the 1920s. So you know what happened to the gold standard of the 1920s. It gave rise to the roaring twenties, to immense financialization, immense concentration of industrial power, funded by the consolidation of the financial sector, and then Wall Street 1929 [and] of course enormous inequality which is the result of this easy private money minting by the financial sector. And when the chickens came home to roost in 1929, the common currency of that era, the gold exchange standard, collapsed, started fragmenting, very soon."

Simon Wren-Lewis​ posting on his blog doing what more economists should be doing: pointing fingers at policy makers!  His post correctly highlights how central banks got the response to the crisis right, and while our representative policymakers got it very wrong. Central banks responded with literally extraordinary policy measures while our democratically elected reps ignored similar pleas for fiscal policy inputs to the money system. 

Attacking economics is a diversionary tactic:

Forgive the numbered note form. For some reason it seems appropriate to me in this case

1. The financial crisis in the UK was the result of losses by banks on overseas assets, originating from the collapse in the US subprime market. It was not a result of excessive borrowing by UK consumers, firms or our government. As the Bank’s Ben Broadbent points out, “Thanks to the international exposure of its banks the UK has been, in some sense, a “net importer” of the financial crisis.” This overseas lending caused a crisis because banks were far too highly levered, and so could not absorb these losses and had to be bailed out by the government. 
   
   
2. This is why UK macroeconomists failed to pick up the impending crisis. They did routinely monitor personal, corporate and government borrowing, but not the amount of bank leverage. Macroeconomists generally acknowledge that they were at fault in ignoring the crucial role that financial sector leverage can play in influencing the macroeconomy. There has been a huge increase in the amount of research on these finance-macro linkages since the crisis.
   
   
3. But supposing economists had ensured that they knew about the increase in bank leverage and had collectively warned of the dangers of excessive risk taking that this represented. Would it have made any difference? There are good reasons for thinking it would not.
   
   
4. The main evidence for this is what has happened after the crisis. Admati and Hellweg have written persuasively that we need a huge increase in bank capital requirements to bring the ‘too big to fail’ problem to an end and avoid a future banking crisis, and the work of David Miles in the UK has a similar message. I have not come across an academic economist who seriously dissents from this analysis, but it has no impact on policy at all. The power of the banking lobby is just too strong.
   
   
5. So the response of economists to the financial crisis has been as it should be. The error in neglecting bank leverage is being addressed. Economists have come up with clear proposals about how to avoid the crisis happening again. And these proposals have been pretty well ignored.
   
   
6. In terms of conventional monetary and fiscal policy, academic economists got the response to the crisis right, and policymakers got it very wrong. Central banks, full of economists, relaxed monetary policy to its full extent. They created additional money, rightly ignoring those who said it would bring rapid inflation. Many economists, almost certainly a majority, supported fiscal stimulus for as long as interest rates were stuck at their lower bound, were ignored by policymakers in 2010, and have again been proved right. 
   
   
7. So given all this, why do some continue to attack economists? On the left there are heterodox economists who want nothing less than revolution, the overthrow of mainstream economics. It is the same revolution that their counterparts were saying was about to happen in the early 1970s when I learnt my first economics. They want people to believe that the bowdlerised version of economics used by neoliberals to support their ideology is in fact mainstream economics.
   
   
8. The right on the other hand is uncomfortable when evidence based economics conflicts with their politics. Their response is to attack economists. This is not a new phenomenon, as I showed in connection with the famous letter from 364 economists. With austerity they cherry picked the minority of economists who supported it, and then implemented a policy that even some of them would have disagreed with. (Rogoff did not support the cuts in public investment in 2010/11 which did most of the damage to the UK economy.) The media did the rest of the job for them by hardly ever talking about the majority of economists who did not support austerity.
   
   
9. The economic costs of Brexit is just the latest example. Critics have focused on the most uncertain and least important predictions about Brexit, made only by a few, to attack all Brexit analysis. The fact that this prediction involved an unconditional macro forecast, while the assessment made by a number of groups about the long term cost involves a conditional projection based largely on trade equations, seems to have completely escaped the critics. More important, the fact that the predicted depreciation in sterling happened, and is in the process of already causing a large drop in living standards, is completely ignored by these critics.
   
   
10. Attacking economists over Brexit is designed to discredit those who point out awkward and uncomfortable truths. Continuing to attack economists over not predicting the financial crisis, but failing to ignore their successes, has the effect of distracting people from the group who actually caused this crisis, and the fact that very little has been done to prevent a similar crisis happening in the future. 

The history of economics is that of predominant narratives. Or as Keynes put it: “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back”. 

Indeed, the 20th century is marked by who's narrative fits the times best and who's in power to capitalise. FDR incorporating Keynesian principles in response to the Great Depression. The Reagan era dominated by the Ayn Rand, Milton Friedman libertarian style banking centric narrative now internalised by all major political parties. The limitations of its practical application layed bear by our most recent financial crisis the global electorate has responded with a reactionary request to reshuffle the deck.

Which "defunct economist" will instruct our current crop of "madmen in authority" is still largely uncertain though prospects at the moment look reactionary and ill suited. Any correction to the existing orthodox narrative must originate in a more democratic and equitable reponse to economic and social concerns something Mr Trump does not have a history of pursuing. Will our elected representatives acknowledge their role in supporting a more equitable and sustainable economy is the only constant question required. 
  
As a first principle toward that end, the functional finance framework deals directly with the lifeblood of the economy, money. A topic orthodox economics still considers to be exogenous. Below is our poorly funded and executed effort to provide a simple narrative for understanding. Please distribute and contribute for developement of a better quality whiteboard animation.

​Thanks,

With the Trump Presidency fast approaching, campaign promises and administrative appointments ready for action. What follows from Tim Duy struck a chord. In part because I'm slightly obsessed with policy narratives that continue to manifest as the orthodox long after they're proven inaccurate-ie sound finance:(.

While the matter of the  poorly informed or discerning electorate is low hanging fruit. The "get your government hands off my social security" types have only failed to put the pieces together because they've not been forced to run through the ideologically inconsistent policy response or practical implications of their argument. 

For good reason, much has been made of the rust/coal belt voter this election cycle in facilitating a Trump victory. He championed their cause for a return to the days when their towns and counties were viable, productive regions and the pride and income they derived. Realistically, however, not withstanding the impractical, inefficient return to coal in the renewables age or the constant evolution of manufacturing automation, these voters need to be told the truth. Where you want to live and work and where the jobs exist for you to work and support your family may not be the same. Your grandpa's job isn't here anymore and you may have to find other work elsewhere too. Surely we're expecitng too much of our elected officials to go there-to look that voter in the and tell them the hard truth. But at the very least they can craft public policy that will provide direct incentives providing direct long term benefits. 

The point as Duy highights however we got here, whatever this election means and Trump voters are hoping he will do in office. The reality is the old neoliberal narrative promoting markets over government is making a turn. What direction that takes and who benefits is becoming clearer as the Trump administration takes shape. One thing is certain voters on the left and right, expect direct action on behalf of their elected represenatives. A marked change. 

Tim Duy:
Responsibility:
I have been puzzling over this from Paul Krugman:
Donald Trump won the electoral college at least in part by promising to bring coal jobs back to Appalachia and manufacturing jobs back to the Rust Belt. Neither promise can be honored – for the most part we’re talking about jobs lost, not to unfair foreign competition, but to technological change. But a funny thing happens when people like me try to point that out: we get enraged responses from economists who feel an affinity for the working people of the afflicted regions – responses that assume that trying to do the numbers must reflect contempt for regional cultures, or something.
Is this the right narrative? I am no longer comfortable with this line:
…for the most part we’re talking about jobs lost, not to unfair foreign competition, but to technological change.
Try to place that line in context with this from Noah Smith:
Then, in the 1990s and 2000s, the U.S opened its markets to Chinese goods, first with Most Favored Nation trading status, and then by supporting China's accession to the WTO. The resulting competition from cheap Chinese goods contributed to vast inequality in the United States, reversing many of the employment gains of the 1990s and holding down U.S. wages. But this sacrifice on the part of 90% of the American populace enabled China to lift its enormous population out of abject poverty and become a middle-income country.
Was this “fair” trade? I think not. Let me suggest this narrative: Sometime during the Clinton Administration, it was decided that an economically strong China was good for both the globe and the U.S. Fair enough. To enable that outcome, U.S. policy deliberately sacrificed manufacturing workers on the theory that a.) the marginal global benefit from the job gain to a Chinese worker exceeded the marginal global cost from a lost US manufacturing job, b.) the U.S. was shifting toward a service sector economy anyway and needed to reposition its workforce accordingly and c.) the transition costs of shifting workers across sectors in the U.S. were minimal.
As a consequence – and through a succession of administrations – the US tolerated implicit subsidies of Chinese industries, including national industrial policy designed to strip production from the US.
And then there was the currency manipulation. I am always shocked when international economists claim “fair trade,” pretending that the financial side of the international accounts is irrelevant. As if that wasn’t a big, fat thumb on the scale. Sure, "currency manipulation" is running the other way these days. After, of course, a portion of manufacturing was absorbed overseas. After the damage is done.
Yes, technological change is happening. But the impact, and the costs, were certainly accelerated by U.S. policy.
It was a great plan. On paper, at least. And I would argue that in fact points a and b above were correct.
But point c. Point c was a bad call. Point c was a disastrous call. Point c helped deliver Donald Trump to the Oval Office. To be sure, the FBI played its role, as did the Russians. But even allowing for the poor choice of Hilary Clinton as the Democratic nominee (the lack of contact with rural and semi-rural voters blinded the Democrats to the deep animosity toward their candidate), it should never have come to this.
The transition costs were not minimal.
Consider this from the New York Times:
As the opioid epidemic sweeps through rural America, an ever-greater number of drug-dependent newborns are straining hospital neonatal units and draining precious medical resources.
The problem has grown more quickly than realized and shows no signs of abating, researchers reported on Monday. Their study, published in JAMA Pediatrics, concludes for the first time that the increase in drug-dependent newborns has been disproportionately larger in rural areas.
The latest causalities in the opioid epidemic are newborns.
The transition costs were not minimal.
My take is that “fair trade” as practiced since the late 1990s created another disenfranchised class of citizens. As if we hadn’t done enough of that already. Then we weaponized those newly disenfranchised citizens with the rhetoric of identity politics. That’s coming back to bite us. We didn’t really need a white nationalist movement, did we?
Now comes the big challenge: What can we do to make amends? Can we change the narrative? And here is where I agree with Paul Krugman:
Now, if we want to have a discussion of regional policies – an argument to the effect that my pessimism is unwarranted – fine. As someone who is generally a supporter of government activism, I’d actually like to be convinced that a judicious program of subsidies, relocating government departments, whatever, really can sustain communities whose traditional industry has eroded.
The damage done is largely irreversible. In medium-size regions, lower relative housing costs may help attract overflow from the east and west coast urban areas. And maybe a program of guaranteed jobs for small- to medium-size regions combined with relocation subsidies for very small-size regions could help. But it won’t happen overnight, if ever. And even if you could reverse the patterns of trade – which wouldn’t be easy given the intertwining of global supply chains – the winners wouldn’t be the same current losers. Tough nut to crack.
Bottom Line: I don’t know how to fix this either. But I don’t absolve the policy community from their role in this disaster. I think you can easily tell a story that this was one big policy experiment gone terribly wrong.

Francesco Saraceno's A Plea for Semi-Permanent Government Deficits on the limitations to current discussion toward returning to historical the European Monetary Union with 

"Because of its depth, and of its length, the crisis has triggered an interesting discussion among economists about whether the advanced economies will eventually return to the growth rates they experienced in the second half of the twentieth century.
One view, put forward by Robert Gordon  focuses on supply-side factors. Gordon argues that each successive technological revolution has lower potential impact, and that in this particular moment, “Slower growth in potential output from the supply side, emanating not just from slow productivity growth but from slower population growth and declining labor-force participation, reduces the need for capital formation, and this in turn subtracts from aggregate demand and reinforces the decline in productivity growth.”
In a famous speech at the IMF in 2013, later developed in a number of other contributions, Larry Summers revived a term from the 1930s, “secular stagnation”, to describe a dilemma facing advanced economies. Summers develops some of Gordon’s arguments to argue that lower technical progress, slower population growth, the drifting of firms away from debt-financed investment, all contributed to shifting the investment schedule to the left. At the same time, the debt hangover, accumulation of reserves (public and private) induced by financial instability, increasing income inequality (on that, I came first!), tend to push the savings schedule to the right. The resulting natural interest rate is close to zero if not outright negative, thus leading to a structural excess of savings over investment.
Summers argues that most of the factors exerting a downward pressure on the natural interest rate are not cyclical but structural, so that the current situation of excess savings is bound to persist in the medium-to-long run, and the natural interest rate may remain negative even after the current cyclical downturn. The conclusion is not particularly reassuring, as policy makers in the next several years will have to navigate between the Scylla of accepting permanent excess savings and low growth (insufficient to dent unemployment), and the and Charybdis of trying to fight secular stagnation by fuelling bubbles that eliminate excess savings, at the price of increased instability and risks of violent financial crises like the one we recently experienced.
The former IMF chief economist Olivier Blanchard has elaborated on the meaning of Summers’ conjecture for macroeconomic policy. If interest rates will remain at (or close to) zero even once the crisis will be over, monetary policy will continuously face the Scylla and Charybdis. The recent crisis is a good case study of this dilemma, with the two major central banks of the world under fire from some quarters, for opposiite reasons: the Fed for having kept interest rates too low, contributing to the housing bubble  and the ECB for having done too little and too late during the Eurozone crisis.
Drifting away from the Consensus that he contributed to consolidate, Blanchard concludes that exclusive reliance on monetary policy for macroeconomic stabilization should be reassessed. With low interest rates that make debt sustainability a non-issue; with financial markets deregulation that risks yielding more variance in GDP and economic activity; and with monetary policy (almost) constantly at the Zero Lower Bound, fiscal policy should regain a prominent role among the instruments for macroeconomic regulation, beyond the cycle. This is a very important methodological advance.
Nevertheless, in his plea for fiscal policy, Blanchard falls short of a conclusion that naturally stems from his own reading of secular stagnation: If the economy is bound to remain stuck in a semi-permanent situation of excessive savings, and if monetary policy is incapable of reabsorbing the imbalance, then a new role for fiscal policy may appear, that goes beyond the short-term stabilization that Blanchard (and Summers) envision. In fact, there are two ways to avoid that the ex ante excess savings results in a depressed economy: either one runs semi-permanent negative external savings (i.e. a current account surplus), or one runs semi-permanent government negative savings. The first option, the export-led growth model that Germany is succeeding to generalize at the EMU level, is not viable, except for an individual country implementing non cooperative strategies, because aggregate current account balances need to be zero. The second option, a semi-permanent government deficit, needs to be further investigated, especially in its implication for EMU macroeconomic governance
There are a number of ways, not necessarily politically feasible, to allow EMU countries to run semi-permanent government deficits. A first one could be to restore complete national budget sovereignty, (scrapping the Stability Pact). This would mean relying on market discipline alone for maintaining fiscal responsibility. As an alternative, at the opposite side of the spectrum, countries could create a federal expenditure capacity (which would imply the creation of an EMU finance minister with capacity to spend, the issuance of Eurobonds, etc.). Such an option is as unrealistic as the previous one. In an ideal world, the crisis and deflation would be dealt with by means of a vast European investment program, financed by the European budget and through Eurobonds. Infrastructures, green growth, the digital economy, are just some of the areas for which the optimal scale of investment is European, and for which a long-term coordinated plan would necessary. The increasing mistrust among European countries exhausted by the crisis, and the fierce opposition of Germany and other northern countries to any hypothesis of debt mutualisation, make this strategy virtually impossible. The solution must therefore be found at national level, without giving up European-wide coordination, which would guarantee effective and fiscally sustainable investment programs.
In general, the multiplier associated with public investment is larger than the overall expendituremultiplier. This is particularly true in times of crisis, when the economy is, like today, at the zero lower bound. With Kemal Dervis I proposed that the EMU adopts a fiscal rule similar to the one implemented in the UK by Chancellor of the Exchequer Gordon Brown in the 1990s, and applied until 2009. The new rule would require countries to balance their current budget, while financing public capital accumulation with debt. Investment expenditure, in other words, would be excluded from deficit calculation, a principle that timidly emerges also in the Juncker plan. Such a rule would stabilize the ratio of debt to GDP, it would focus efforts of public consolidation on less productive items of public spending, and would ensure intergenerational equity (future generations would be called to partially finance the stock of public capital bequeathed to them). Last, but not least, especially in the current situation, putting in place such a rule would not require treaty changes, and it is already discussed, albeit timidly, in EU policy circles.
To avoid the bias towards capital expenditure that the golden rule could trigger, we proposed that at regular intervals, for example in connection with the European budget negotiation, the Commission, the Council and the Parliament could find an agreement on the future priorities of the Union, and make a list of areas or expenditure items exempted from deficit calculation for the subsequent years.

The Huffington Post, November 13, 2016
It looks like we will have to get used to the idea of Donald Trump being president for the next four years. In his campaign he pushed many outlandish proposals, like banning Muslim immigrants and deporting 11 million immigrants without documentation. We will have to do whatever we can to block such flagrantly inhumane measures.

There are many other items on his campaign agenda and that of the Republican leadership that will have to be resisted, but at least one part of his agenda could actually offer real gains. Trump has proposed large infrastructure spending and also tax cuts that will hugely increase the deficit. Both offer real benefits, although with substantial risks.

The infrastructure story is straightforward. Roads and bridges in many parts of the country are badly in need of repair. This is both an economic waste, as people needlessly get caught in traffic, and a health hazard when bad roads increase the risk of accidents. Ideally, infrastructure spending would also go to repair schools and improve water systems so that we don’t have more Flints with people drinking lead in their water. It would be great if some of this funding also went to mass transit and clean energy to reduce greenhouse gas emissions, but that might be expecting too much from a Trump administration.

The infrastructure spending would also create jobs. Public construction has traditionally been a source of relatively good paying jobs for men without college degrees. In recent years, the construction workforce has been disproportionately Hispanic. Spending in this area benefits a segment of the labor market that badly needs help. Of course the benefits are considerably less if projects are privatized, as Trump has suggested, and this will have to be part of the battle.

The other useful part of Trump’s agenda is that he clearly does not care about budget deficits. His tax cuts could add more than $400 billion, more than 2.0 percent of GDP, to the annual deficit. These tax cuts are not a good use of money. They will overwhelmingly go to the rich who have been the main beneficiaries of economic growth over the last four decades.

In addition to not needing the money, if the point is to boost demand, giving tax breaks to the rich is the worst way to do it. If a poor or middle class person gets $1,000 from the government they are likely to spend most or all of it. But if we give another $1,000 or even $1,000,000 to Bill Gates it is unlikely to affect his consumption at all.

Even though the bulk of the Trump’s proposed tax cuts do go to the rich, there are still substantial cuts for the middle class, which will provide a real boost to consumption. This boost to consumption, along with the increased demand from his infrastructure spending, will mean a large increase in demand in the economy. The result will be more jobs and a reduction in unemployment.
The strengthening of the labor market will also leave workers better situated to get pay increases. The only time in the last four decades when workers at the middle and bottom of the wage distribution saw sustained gains in real wages was the tight labor market of the late 1990s.

The irony in this story is that it might take a Republican president to give us a tight enough labor market for workers to get their share of the benefits of growth. This is partly due to Democrats having come to idealize the virtues of balanced budgets. Many have wrongly concluded that the prosperity of the 1990s was due to the budget surpluses of the time, which were in fact the outcome rather than the cause of strong growth. In her campaign, Clinton repeatedly promised that her spending plans would not increase the deficit.

However the bigger obstacle to larger deficits under a Democratic president is the Republican Congress. The Republicans routinely screamed bloody murder over any effort by President Obama to stimulate the economy with larger deficits. Several times they have balked at raising the debt ceiling, arguing that this routine maintenance measure was somehow a threat to our children’s well-being. In fact, the burden posed by servicing the debt, at 0.8 percent of GDP, is near a post-war low.

But Congressional Republicans will no longer care about deficits with President Trump in the White House. This means that he will be able to run deficits large enough to get the economy to full employment and quite possibly beyond.

We may once again see issues with inflation and a need for higher interest rates to slow the economy. That will have some negative effects, but at least it will put an end to the long period of high unemployment and secular stagnation. This will be a good thing; it’s just unfortunate that we needed a Trump administration to get there.