Mark Halperin Was Right

By Marshall Auerback

It may not have been the most felicitous choice of phrase, but Mark Halperin’s characterization of Barack Obama was not far off the mark, even if he did get suspended for it.  The President is a dick, at least as far as his understanding of basic economics goes.  Obama’s perverse fixation with deficit reduction uber alles takes him to areas where even George W. Bush and Ronald Reagan dared not to venture.  Medicare and Social Security are now on the table.  In fact entitlements of all kinds (excluding the myriad of subsidies still present to Wall Street) are all deemed fair game.
To what end?  Deficit control and deficit reduction, despite the fact that at present, the US has massive excess capacity including millions of unemployed and underemployed, a negative contribution from net exports, and a stagnant private spending growth horizon.  Yet the President marches on, oblivious to the harm his policies would introduce to an already bleeding economy, using the tired analogy between a household and a sovereign government to support his tired arguments. It may have been impolitic, but  “dick” is what immediately sprang to mind as one listened incredulously to the President’s press conference, which went from the sublime to the ridiculous.

Discussion of government budget deficits often begins with an analogy to a household’s budget, and the President continues that horrible pattern of misinformation. Obama challenged the view that the government might side-step the debt ceiling constraint by just paying “interest on the debt” and said:

This is the equivalent of me saying, you know what, I will choose to pay my mortgage, but I’m not going to pay my car note. Or I’m going to pay my car note but I’m not going to pay my student loan. Now, a lot of people in really tough situations are having to make those tough decisions. But for the U.S. government to start picking and choosing like that is not going to inspire a lot of confidence. 

Let’s state it again: households do not have the power to levy taxes, to issue the currency we use, and to demand that those taxes are paid in the currency it issues. Rather, households are users of the currency issued by the sovereign government. Here the same distinction applies to private businesses, which are also users of the currency.  There’s a big difference, as all us on this blog have repeatedly stressed:  Users of a currency do face an external constraint in a way that a sovereign issuer of its currency does not.

This key point, which is persistently obscured in these discussions, is that if a government issues a currency that is not backed by any metal or pegged to another currency, then there is no reason why it should be constrained in its ability to “finance” its spending by issuing currency.  Unfortunately, this elementary concept seems to have eluded the President and, presumably, the countless members of Congress involved in the debt ceiling negotiations.  Typical is this statement from the President:

I do think that the steps that I talked about to deal with job growth and economic growth right now are vitally important to deficit reduction. Just as deficit reduction is important to grow the economy and to create jobs — well, creating jobs and growing the economy also helps reduce the deficit. If we just increased the growth rate by one percentage point, that would drastically bring down the long-term projections of the deficit, because people are paying more into the coffers and fewer people are drawing unemployment insurance. It makes a huge difference.

The President has the causation here totally backward.  A growing economy, characterized by rising employment, rising incomes and rising capacity utilization causes the deficit to shrink, not the other way around.  Rising prosperity means rising tax revenues and reduced social welfare payments, whereas there is an overwhelming body of evidence to support the opposite – cutting budget deficits when there is slack private spending growth and external deficits will erode growth and destroy net jobs. Even the IMF (in its October 2010 World Economic Outlook)  recognized that fiscal consolidations, even though they tend to be accompanied by lower interest rates and lower exchange rates, are more frequently associated with economic contractions.  Amazing to think that we’d ever see the day where the President outflanks the IMF.

Expansionary fiscal consolidations are virtually impossible – the initial conditions, as well as the structure of the economy in question, must be right to support a stronger trade improvement, or a more aggressive spending path by domestic firms and households, which largely OFFSETS the impact of decreased government spending.  Again, the key is looking at the impact of government spending reductions within the context of what the other two major sectors of the economy – private households and firms , and the external account (exports and imports) – are doing.  In fact, if we had a balanced foreign sector (i.e. no trade deficit), there would be no way for the private sector as a whole to save unless the government runs a deficit. Without a government deficit, there would be no private saving. Yes, one individual can spend less than her income, but another would have to spend more than his income. It all has to balance in the end, as any accountant can tell you.

To be fair to the President, most of his Republican counterparts are also “dicks.”   Consider the comments of Senate Minority Leader, Mitch McConnell:

What Republicans want is simple: We want to cut spending now, we want to cap runaway spending in the future and we want to save our entitlements and our country from bankruptcy by requiring the nation to balance its budget. We want to finally get our economy growing again at a pace that will lead to significant job growth.

Like the President, McConnell evidently also feels that the US government can run out of dollars or, at the very least, computer keyboards to mark up or down the numbers in our national accounts.  This is the only way one could make sense of his nonsensical bankruptcy comments.  This perverse inability to distinguish between issuers and users of currencies is a disease which  afflicts members of both parties and largely explains the willingness to hack away at what’s left of the American social welfare net (the President unilaterally disarming his party on Medicare before securing a single concession from the GOP).  Change you can believe in!  And the President wonders why his base is totally dispirited!

Let’s be clear: the government creates ‘money’ whenever it spends; it destroys ‘money’ whenever it taxes.  The issue, which the President should be out and front explaining, is whether or not its spending too much or taxing too little.  With a rising unemployment rate, and a huge reserve of underemployed and disadvantaged workers, it is the height of insanity to cut spending overall which is what the US President is claiming is an important and urgent policy goal when there is so much idle productive capacity.  Yet both the President and his Republican negotiators on the other side of this issue take it as a given that public debt per se is an unalloyed evil that should be eliminated as a long term policy goal. That is only possible if the external surplus is large enough. Otherwise, if you attempt to achieve that stage via fiscal cutbacks the policy strategy will undermine employment and growth. The upshot is that the budget deficit is likely to rise because of the slowing economy will undermine tax revenue.

Yes, it’s true that government deficits are not always good, or that the bigger the deficit, the better. The point the President and his equally misinformed economic advisors continue to ignore is that we have to recognize the macro relations among the sectors, much as a surgeon has to consider the impact of removing an organ from the patient in the overall context of how it will affect the rest of the body’s functioning.  Blaming the deficit for our economic woes is akin to blaming the thermometer when it records a temperature from a patient suffering from the flu.  They are both forms of quackery.  To believe otherwise is to be, well, a “dick.”  There’s no other word to describe it.

18 responses to “Mark Halperin Was Right

  1. Hahaha! It's true though. The guy is such a dick!

  2. Please … Please . . . The correct expression is "dickhead!" Also, since Halperin appeared on the Morning Schmuck Show, it's not at all surprising that he became just one more morning schmuck!

  3. It's true, Joe. The correct term of art is "dickhead", but I was quoting from direct sources in our cutting mainstream press. In any case, I see that Mr. Halperin has sadly been suspended from MSNBC. The truth may set you free, but sometimes it gets you suspended!

  4. This comment has been removed by the author.

  5. The mainstream economic profession is broken. For starters, mainstream economists don't recognize the fact that government debt of a currency issuer is not remotely analogous to household debt (ie. debt of a currency user). Why? The issuer's debt is not a burden, it's simply the result of the users' decision to save rather than spend. All savings by users in banknotes, deposits, or treasuries create a corresponding liability with the issuer as a matter of accounting. The more users choose to save the more debt the issuer will have.Kansas City School – we don't need better logic. We need better marketing!

  6. "I do think that the steps that I talked about to deal with job growth and economic growth right now are vitally important to deficit reduction. Just as deficit reduction is important to grow the economy and to create jobs — well, creating jobs and growing the economy also helps reduce the deficit. If we just increased the growth rate by one percentage point, that would drastically bring down the long-term projections of the deficit, because people are paying more into the coffers and fewer people are drawing unemployment insurance. It makes a huge difference."I agree with this article by Mr Auerback. However, if you read this comment by the President, I think he actually does get the causation emphasis right.

  7. Ok, it is twisted. You are right, they don't get this.

  8. Republicans, Democrats, the Treasury secretary, the FOMC chairman, the former FOMC chairman (who just yesterday on CNBC that a short term US default may actually be the jolt that is needed), all of the president's economic advisors, most of the media, and most economists, are all saying the same thing.As Mr Auerback points out it is wrong. But with all that surrounding the president is it fair to say he's the dick? Even if he understood it, and I agree he does not, he would probably use the same language simply because of his audience.Somehow, we that believe in MMT are the dicks, because our thinking is relegated to the sidelines and we read each others blogs and comments mainly preaching to the choir.

  9. Even if the president understood MMT 100%, is it realistic politically for him to go on TV and say, " Well, what the American people have been told for decades is not really right. The leaders in Washington have all lied to you." He would be destroyed by essentially everyone. They would think he lost his mind. Most Americans believe the government is exactly like a household or a business. We, that read this post, know its not true, but the vast majority of Americans and the populations of other nations do not know and they wouldn't agree. And they are not disposed to take the time to study the matter. When you try and make the MMT argument how do you get past, "Well, that is not what Bernanke or Greenspan say." Even for me, who believe in MMT, have a hard time getting past that. There is a far bigger issue than the president and his household speech. Furthermore, for most politicians, MMT doesn't fit their political agenda. Even if the understood and believed n MMT, they wouldn't embrace it because they want to use the fear factor to move their political needle.

  10. ^ You are right on all points. If the economic and political paradigm ever changes it will be an incredibly slow process.

  11. May I add, please, regarding the description of President Obama: "ball-less dickhead" Such a disgrace!

  12. In this regard, I was wondering what y'all might think about this from Treasury in 1981, I believe. interesting stuff begins, " On a daily basis….."Thanks.

  13. I wish this web site would take down this entire blog. I am interested in learning and understanding MMT. I am not interest in reading blogs that call people names and especially calling the president of the United States, any president, a "dick" How does that maintain the seriousness of MMT? Does that encourage serious economists like Stephanie Kelton or Randall Wray from coming here to blog? If I was coming here for the first time and I read "the pesident is a dick" that would be my last time. I am not interested in reading things that Glen Beck or Rush Limbaugh might write. It simply encourage comments like that from rvm above. Its that constructive? I say it is less than helpful. I would like to see all the fine minds that contribute to this site work on ways we can move the MMT ball forward. Getting down in the mud like this blog accomplishes less than nothing and it is frankly embarrassing. I have encouraged my friends to read the blogs here. But if this the trend I won't anymore. By the way I don't wish to be anonymous. I am john1025 on the PragCap site.

  14. I am becoming more convinced that Bush 43 understood our monetary system very well. Now we know why he had that Mona Lisa grin.

  15. Can I just say, because I think that it's so obvious it needs to be said:Presidents — or anyone in government — aren't economists. They're not open to economic argument. This isn't the way things work.Politicians 'go with the flow'. They don't care about anything else. Obama doesn't 'understand' anything economic because, well, to put it bluntly he's a bit of a fool (or a 'dick').The fact is that people have to change the terms of the debate themselves…

  16. No. Call it what it was.You are not wrong. He was not right.It was racist. Period.

  17. Curious thing is that republican presidents seem to always grasp nature of our monetary system better than democratic ones. Is more work being done to inform republicans, and in the case of democrats motivation is lacking because of their 'deficit-dove' positions?If I were given change to give lecture to Obama and his advisers, I would bring pictures of magnetic tapes where all our money is stored at the FED (at least I thik they are on magnetic tapes), and say: "look, all our money is just entryes on these tapes. Anyone with legal authority change these numbers could mark up any number to anyone. And now you are saying government cannot spend because it has run out of money? Are you crazy?"BTW, pictures of those tapes would be great MMT-propaganda material.

  18. jumpoutatree

    Great article, thanks… I’m a newish convert to MMT and I was hoping to get more information from you about exactly how the ‘Clinton surplus’es were harmful to the economy, if that is your contention. I’ve heard this in several different MMT lectures but it has never been explained to my satisfaction, other than to say that a surplus by definition “deletes money” from the economy. I think that Obama is obsessed with deficit reduction because Clinton got so much credit for it himself. How did the Clinton surpluses damage the economy?