What? Kelton is observing that, during a recession, tax receipts fall and government spending increases, resulting in larger deficits. She is also observing that, when the economy is not in recession, tax receipts rise and government spending normalizes. Somehow she has reversed cause and effect and construed that to mean that if we only continued to run deficits at recession levels, we would never have recessions, as if that is the goal.

As an analogy, we could plot food intake versus hunger and observe that every time food intake goes way up (because we sit down for a meal), it was preceded by an increase in hunger. If we want to avoid hunger, we should continuously consume food. That is a true statement if avoiding hunger is our one and only goal, if we’re trying to optimize the time we spend with a full stomach. Of course, that’s not our goal, and if it were, we would all become obese, sickly and underperforming. And we’d die without the feedback that hunger provides.

Hunger is as natural a part of making our bodies work as recession is to making our economy work. Only an economist, as fixated on GDP as traffic engineers fixate myopically on traffic flow, would draw such an absurd conclusion from that data.

The Unstated Assumption We Know is Wrong

One of the things that has made me a novel spokesperson for Strong Towns is that I’m an engineer who has been inside the engineering profession and found it lacking, and a planner who has been inside the planning profession and found it lacking. What is lacking is not intelligence—engineers and planners are incredibly intelligent. It’s a lack of humility that comes along with specialization.

Go to a mechanic and they will either be confident or not that they can fix your car. A car is a mechanical device that has a predictable and easily determinable set of outcomes. There is no way your mechanic tinkers with the starter and your rear wheel goes flat. It doesn’t work that way.

Economists, engineers, and planners all work in complex environments, where the systems they interact with form complex feedback loops, not only with other systems they are familiar with, but with all kinds of things they don’t even pretend to understand. I’ve spent a decade pointing out how the professional myopia of engineers and planners is making us poorer and less prosperous, sometimes even killing people. People applaud my bravery—at least, they do as long as I stick to my lane.

Suggest that economists may suffer from a similar human failing, in a realm even more opaque and disconnected from the way people live their lives, one dominated by politics and ideology, and the knives come out. I’m not applauded but branded as simple and naïve. It feels like a religion.

There is one fatal flaw in Keynesian thinking that carries over into Modern Monetary Theory which I have never heard a credible counter to, and that is the underlying assumption that the economy is sound and functioning properly but for increased government spending.

At Strong Towns, we know this is false. We know that, in our current pattern of development, the more we grow the poorer we become. We know that our cities survive based on building wealth, and more transactions does not equal more wealth, especially when those transactions result in the community taking on more long-term liabilities than revenue potential.

In the years leading up to 2008, I was telling all of the cities that my firm worked for that we were overbuilding, that we had too many lots and not enough productivity, and that this was going to end badly. When the housing market was imploding, I saw it as a long overdue correction, the unfortunate pain we had to endure for our folly. I was hopeful for the lessons to be learned.

What we got instead was the Keynesian response: prop up the housing market with TARP and Quantitative Easing, stimulus for more road building and shovel-ready projects, and money sent directly to states, cities, and schools to keep people employed. I was so bewildered I started the blog that eventually grew into the Strong Towns movement.

I don’t want people to suffer. I desperately don’t, and it pains me to watch it happen. I step back and look at what we’ve done since 2008 and acknowledge that it put off the pain for many (though far from all), but it seems to have only delayed it. And in delaying it, increased the potential severity. We’re back to building strip malls, big box stores and suburban subdivisions here in my hometown, for crying out loud! I’m scared of the unproductive economy we’ve built, and of what will happen when that lack of productivity finally bites us.

That’s under a Keynesian mindset. Now insert Modern Monetary Theory, which—according to Kelton—would have had us running even larger deficits in 2004, 2005, and 2006 when those worst imbalances were building up, revving the economy up closer to “optimum” GDP. And if things went bad, rev it up even more. I find this insane. Like, driving-off-a-cliff insane.

Around minute fifty-eight in her lecture, Kelton suggests we deficit spend in order to invest in infrastructure. She cites the American Society of Civil Engineers—an organization I’ve branded part of an “infrastructure cult”—and their demonstration of need. It’s assumed that this infrastructure spending leads to productive growth—growth in excess of the long-term liabilities we will incur. All you supporters of Modern Monetary Theory want to run a massive pass/fail experiment on American society based on that hypothesis?

I’ve said in the past that I understand why the post-war generation embarked on the Suburban Experiment. After the Great Depression and World War II, sitting on top of the world economically, with the world’s reserve currency and abundant cheap oil, it’s folly to suggest we would have done something differently. We’re all human.

Where I start to lay blame—blame which grows gradually into contempt—is the period when the bills started to come due, the decade beginning in the late 1960’s. When we felt that pain—the high inflation, increasing taxes, price controls, energy spikes, a rush on gold—we could have read that feedback as a signal that we needed a course correction, that maybe gutting our cities of wealth to provide GDP-increasing transactions wasn’t a great idea after all. Some did.

Collectively, however, we did the easier thing; we removed the painful feedback. We ended the gold-convertibility of the dollar and put the U.S. on a fiat currency. We ran huge deficits. We encouraged consolidation of financial institutions (and power) and bailed them out repeatedly, just to keep things going. We lowered interest rates and did all we could to bring future consumption into the present (anyone remember Cash for Clunkers?).

We did everything we could to avoid uncomfortable feedback. Even today, those most frantic about the impacts of climate change obsess about massive government spending programs for high speed rail and electric automobile grids instead of walkable neighborhoods and traditional downtowns. That is because their motivations start with spending on programs then move to the process of selling that spending to the masses, not the other way around.

Inflation is the Constraint?