Points of Public Interest

1. What’s MMT About Anyway and is the Job Guarantee Crucial to the Project? - Pavlina Tcherneva discusses the subjective policy recommendations that necessarily give Modern Monetary Theory value and offers her view on the recent debate among MMTers about the importance of a Job Guarantee.
2. How Egalitarianism Increases Inequality - Bryan Caplan makes an argument for praising the 1%.
3. The Right Kind of Hope - John Hussman highlights the poor prospects for long-run returns across asset classes and provides an update on the continually worsening European crisis.
4. Does the free market corrode moral character? - Michael Walzer compares the effects of competition on moral character within politics and markets.
5. Bastiat's Insight on Government Inaction - David Henderson explains why disapproving of government subsidies for an action is not the same as disapproving of the action itself.
6. A Challenge for Libertarians Against Federal Recognition of Same-Sex Marriage - Steve Horwitz offers his view on why supporting same-sex marriage “is fundamental to classic liberalism.”

Update (1): Responses to Two Objections to My Challenge - Steve Horwitz responds to a couple comments on the above post.

Update (2): The Job Guarantee, Kleptocracy and Blogging - Edward Harrison posts a follow-up to Pavlina Tcherneva’s comments on the Job Guarantee.

Basic Math Predicts EU Defaults

In his weekly market comment, John Hussman (Hussman Funds) explains why the “Simple Arithmetic” of European sovereign debt forecasts necessary defaults. Hussman demonstrates the severely large portion of Greek GDP simply used to pay interest on sovereign debt given current outstanding amounts and interest rates. While some form of Greece default is now widely accepted, the size of outstanding Italian debt makes it increasingly clear how close interest rates are to rendering principal repayment nearly impossible. Italy announced today that it would forgo planned debt issuance in August due to concerns about prevailing market rates. If interest rates remain heightened in September, we could be looking back on July as the last time Italy had access to credit markets.

Despite focusing on Europe in this week’s comment, Hussman makes a very poignant remark about the maturity of outstanding US debt. Hussman states “it's precisely that short average maturity that makes the debt problematic from a long-run perspective, because it can't be inflated away easily. In the event of sustained inflation, the debt would have to be constantly refinanced at higher and higher yields. Contrary to the assertion that the U.S. can easily inflate its debts away, it is clear that sustained inflation would create enormous risks to our long-run fiscal condition by driving interest costs to an intolerable share of revenues.”

Recent efforts by the Fed through quantitative easing have further shortened the average maturity of outstanding debt. Regardless, many economists and investors argue for betting on long-term inflation because of the US debt burden. As Hussman makes clear, unless the US actively extends the maturity of outstanding debt, attempts to inflate away the problem will more likely exaggerate the risks.

Personally I remain of the view that US inflation is likely to be subdued (below 2%) for several years, with greater potential risk of deflation than high inflation. Long-term treasuries therefore remain a good value at current yields (4.3%) for investors with 3-5 year time horizons.