In MMT, we see public debt as private wealth and the interest payments as private income. The outstanding public debt is really just an expression of the accumulated budget deficits that have been run in the past. These budget deficits have added financial assets to the private sector, providing the demand for goods and services that have allowed us to maintain income growth. And that income growth has allowed us to save and accumulate financial assets at a far greater rate than we would have been able to without the deficits.
Before we even get to the fiscal madness of this reasoning, let us take a quick look at the other side of Mitchell's equation, namely government debt as a source of income for households.
I have not looked at Australian national accounts data, but in the United States, government debt is not a very large source of income for households. In the latest personal-income data from the Bureau of Economic Analysis - second quarter 2018 - only 15.7 percent comes from assets. Of that, 6.5 percent is from dividends, leaving 9.2 percent as interest.
Of this $1.6 trillion, only a small portion is derived from household ownership of U.S. government debt. According to the Federal Reserve, federal government debt accounts for only 2.3 percent of all financial assets held by the U.S. general public. If we assume that this debt pays a three-percent average interest each year - a very generous assumption - then households only receive about $56.6 billion per year in interest on those Treasuries.
This means that the income effect that Bill Mitchell talks about, accounts for a bit more than 0.2 percent of personal income in the United States.
Barely even a blip on the macroeconomic radar.
To make U.S. debt account for just one percent of personal income, the MMT theoreticians would have to motivate America's families to buy another $9.4 trillion in debt. Surely, the MMTers don't see this as a problem, but households probably do. After all, they own ten times as much corporate equity as they do government debt; they have almost six times more money in time-savings deposits as they have in government debt. They own five times as much in mutual fund shares as they do government debt.
If the MMTers are going to sell their theory that government debt is good for the general public, they are going to have to do better than the guy who sold the Brooklyn Bridge to an unsuspecting immigrant back in the day.