These Folks are Soooo Clever . . .

Last week, Reps. Michael Honda, Keith Ellison, Raul Grijalva, Jan Schakowsky, John Conyers, Barbara Lee and Lynn Woolsey stalwarts of the Congressional Progressive Caucus (CPC) begged for mercy from “the Gang of Eight” in a letter.

Here’s what they said and my commentary on their “loser liberalism.”

 “Thank you for your work – past and present – towards solving one of the greatest policy challenges facing us today: the unsustainable path of our national debt. We appreciate the bipartisan and collaborative spirit with which you’ve approached your negotiations. . . .”

Thanks vanguard progressives for embracing the major premise of the austerity ideology, namely that the national debt is on an unsustainable path. I’m here to tell you that this idea is false and also terribly harmful to progressive aspirations to end economic stagnation and get everyone, who wants to be, employed at a living wage. You can’t win an argument if you start by agreeing with your opponent’s false premise.

The US has a non-convertible fiat currency which it allows to freely float on international markets. It also has no debts in any currency not its own. It also has the constitutional authority to issue currency and coins in unlimited amounts to pay any debt obligations when they fall due. It also has a central bank, the Fed, that can determine the interest rates paid on new debt issuance unilaterally and in spite of any desire on the part of private markets to raise those rates. So, it should be obvious to you and everyone else that it doesn’t matter how high our national debt, or our debt-to-GDP ratio is, the US always has the capacity to deficit spend what it needs to in order to buy any goods and services for sale in USD, including the services of all the currently unemployed or under-employed who would like full-time jobs at a living wage.

So, why are they agreeing with the austerity mongers? Why are they validating what the deficit hawks have to say? Why are they engaging in “loser liberalism?” How many times do they have to be told that they’ll never persuade anyone that they’re in the right when they reinforce the framing of people who want to impoverish the poor and the middle class?

The right way to do this is to send a letter to the Gang of Eight denying that there is any debt/deficit crisis at all and pointing out that the US has many problems, the most important of which is high unemployment; but that the unsustainability of the debt path is not among them. And you should demand that they quit wasting everyone’s time and report back to the Congress that there is no debt problem; but that there are many other problems that Congress needs to solve.

“. . . .Given reports that a “down payment” is being considered to allow time to negotiate a broader budget deal, we write today to urge you to set a more balanced path and use only revenue for such a down payment in light of the billions in spending cuts agreed to so far.”

The down payment, of course, isn’t necessary because there should be no effort at deficit reduction, but rather a larger deficit than we have now to compensate for the aggregate demand leakage to domestic savings and foreign imports. You need here to point out that the full employment deficit should be more like $1.6 Trillion annually spent on the right things, rather than $1.2 Trillion incurred as a result of doing nothing to get to full employment. There are good and bad deficits. And right now the US is running bad deficits whose fiscal multipliers are relatively small. We need, instead, larger deficits spent on programs that will get people employed.

As far as using only revenue to make that down payment is concerned, it isn’t honest to deny that raising revenue from taxes, absent compensating deficit spending, won’t cost jobs. It will. If the taxes involve ending the Bush tax cuts for the rich, then the impact on the economy will be only $.30 per dollar taxed, while if it’s on the middle class and the poor it will be more like $1.25 subtracted from GDP for every dollar taxed. So clearly, it’s preferable to tax the rich, if one has to choose.

But we don’t have to choose. We don’t need to raise taxes to get money to deficit spend. The government can just create the money in the act of deficit spending. That is what it should do if one is interested in growing GDP and creating jobs.

It does make sense to have higher taxes on the wealthy, if one wants to level the paying field of economic inequality. And I am all for raising taxes on the wealthy for that purpose, since extremes of wealth are destroying our democracy. However, having said that, the issue here isn’t one of deficit/debt sustainability. And we should not pretend that it is.

There are two issues. One is getting to full-time employment for everyone, and the other is getting to greater economic equality so that the very rich can’t afford to influence politics and buy elections so easily that what most of us want becomes superfluous. Let us address both issues, but let us not conflate them by trying to raise revenue on the rich, while costing jobs for those who need them, because we legislate no compensating deficit spending for those tax increases.

 

“Over the past few years, the only lasting and substantial contribution we’ve made to deficit reduction has come from spending cuts. While Democrats have conceded nearly $800 billion in cuts as outlined in the spending caps of the Budget Control Act, this achievement has not been matched by any real commitment on revenue. Not a single cent of our recent efforts towards paying down the debt has come from the revenue side of the ledger. Additionally, because of the lack of specificity in the Budget Control Act, the spending reductions could fall largely to the non-defense discretionary categories. From infrastructure and education to research and small businesses, these investments are critical in keeping our nation economically competitive in the 21st century. Continuing down a course of misplaced cuts is destructive, unsustainable, and an impossible route to the long-term deficit reduction we all seek.”

Right! So since we did the wrong thing by making spending cuts earlier, now we should do the wrong thing again by raising taxes on people without compensating increases in deficit spending? Have the CPC stalwarts ever heard the expression: “two wrongs don’t make a right”?

They should never have agreed to the previous spending cuts and to the ridiculous idea of long-term deficit reduction come what may; and they should not now be supporting tax increases without insisting on compensating jobs programs. They should be calling for State Revenue Sharing of $1,000 per person, a Federal Job Guarantee, and a payroll tax holiday until full employment is reached. They should also be making this pledge for progressive candidates for office.

 “Therefore, we urge you to send a signal that you are truly serious about brokering a balanced deal by breaking through the revenue stalemate. We believe any “down payment” should set the tone for the hard discussions to come by sidelining intractable pledges that are at odds with basic arithmetic. We believe you can send a strong message to the markets, to the credit rating agencies, and – most importantly – to the American people by adopting a down payment entirely of revenue. . . .”

They shouldn’t be doing any deals. Deals on deficit reduction are losers for liberals and progressives. We don’t need a deal on the revenue stalemate. What we need is no more deals that sacrifice the interests of poor people and the middle class. The CPC members are in Congress to represent them, not to beg for mercy from knuckle-dragging neanderthals who want to destroy the safety net.

As for the ratings agencies and the markets, don’t worry about them. They have nothing to say about interest rates. Order the Fed to keep those interest rates near zero. Get the ratings agencies investigated, indicted and prosecuted for continuing fraud and complicity in causing the crash of 2008, and also for blatantly and fraudulently downgrading the ratings of both the US and Japan when neither nation can ever be forced to go bankrupt. That’s what they should be writing letters to the Gang of Eight and doing press releases about, not begging “the Gang” for mercy in relation to further spending cuts.

The CPC letter then goes on to further implore the gang of eight to recognize previous spending cuts falling disproportionately on part of the population to take “. . . . into account the policies and priorities that have shouldered a disproportionate burden in the past.”

To that all I can say is fat chance! You don’t get anywhere by begging tea party folks for fairness and justice, or mercy. The only way you’ll get anywhere is to tell them that the whole CPC will vote against any further spending cuts whatsoever including and especially proposed safety net cuts.

 “We look forward to working with you to pass a balanced, economically responsible deficit reduction plan.”

That’s been the problem from the beginning. They shouldn’t be working with the austerians at all on deficit reduction. The very idea of a long-term deficit reduction plan is stupid because government deficits are private sector savings to the penny, and as long we want to have both more imports than we export and private sector savings as well, we must run deficits or, alternatively, increase private sector debts, and why would anyone in the private economy want to see their debts increase.

Of course, there are times when we might want to decrease private sector savings to dampen demand-pull inflation caused by too much private sector demand. But we haven’t had a situation like that since the US was exporting much more than it imported more than 40 years ago; and it is unlikely that we will see that kind of situation for many years to come.

So, there is no long-term deficit reduction plan over the next 10 years that could possibly be “responsible.” Any such plan would tend to depress the economy or decrease private sector savings as long as we’re still importing 3-4% of GDP more than we export, and as long as private sector households retain their desire to repair the ~40% of the losses in their balance sheets that occurred during and after the crash of 2008.

And that’s why CPC members need to “just say no” to any proposals about long-term deficit reductions, whether those proposals come from Republicans, or whether they come from the President of the United States, himself.

Whoever suggests such a plan is being “irresponsible” and is also being anything but “progressive.” CPC members owe it to the people who elected them to refuse to cooperate, and to commit to that refusal right now, before the election!

87 Responses to These Folks are Soooo Clever . . .

  1. Haha! We should take a hint from Bill Mitchell and denounce borrowing by monetary sovereigns as “corporate welfare.”

    Now those “welfare Kings and Queens” (literally? as in literal Royalty?) are trying to protect the real yields on the sovereign debt they own?

    Money creation should be straightforward and ethical. See the price we are paying because it isn’t?

    • I certainly agree with Bill and yourself. In fact see this one.

      • I’ve shown elsewhere, that all the US needs to do to “grow our way out of the problem” is to return to the historical average decade-long growth rate we experienced between 1940 and 2000 to begin producing surpluses by 2017 and bring the public debt-to-GDP ratio down to 37% by 2020. letsgetitdone’s blog [emphasis added]

        The National Debt should NOT be paid down with budget surpluses. Why do you promote that dangerous myth? We should simply stop borrowing and pay down the debt as it comes due with new Greenbacks or equivalent.

        Paying off the National Debt (a non-problem) with tax revenues would make paying off private debt, the real problem(!), much more difficult or even impossible unless the US runs a huge export surplus to compensate.

        • I didn’t promote surpluses either in the post from which you’re quoting, or in the original post referenced in “I’ve shown elsewhere,” but showed that CBOs projections were BS, and that I could easily generate alternative projection showing that we could have no problem at all reducing the debt-to-GDP ratio under somewhat different assumptions. So, there’s a difference in showing that you can get surpluses back primarily through growth, and in “promoting” surpluses. I never have promoted surpluses defined as tax revenues – Federal spending, and if you think I have then please both quote and link.

          In many other pieces on my blogs, including the original linked to just above, I’ve been very careful to argue that the debt-to-GDP ratio has no impact on the US’s ability to deficit spend, or isn’t important in the abstract, and I’ve also argued that we should not use tax revenues to pay it off.

          I’ve also very frequently advocated paying off the debt without running surpluses by using platinum coins and seigniorage from them to pay off all our debt instruments as they fall due. I don’t advocate this because I think we need to pay off the debt subject to the limit for solvency reasons; but for political reasons, just to get debt language off the political table.

      • OK, I see you finally get to the correct solution:

        It is to stop issuing debt instruments, and, consequently, paying foreign nations and rich investors needing a safe harbor for their funds, interest that we need not pay on debt that a country, sovereign in its own currency, like the United States need not incur. Joe Firestone (LetsGetitDone)

        Still, budget surpluses by a monetary sovereign are the equivalent of destroying money. Even if price inflation became a problem, the worse the monetary sovereign should do is balance its budget to allow growth to catch up to the money supply.

        • No. If there’s price inflation, then the Government may well want to run surpluses, especially since it gives the Government an opportunity to level the economic playing field a bit.

          • especially since it gives the Government an opportunity to level the economic playing field a bit. Joe Firestone (LetsGetitDone)

            If our money system was ethical there’d be little need to level the playing field. So how about we aim for an ethical money system?

            Speaking of levelling, that can be done with a universal bailout, even to the rich. Example: Suppose A has $1,000,000 and B has only $10,000. Their relative wealth ratio is 100 to 1. Now give both A and B $100,00 so that A now has $1,100,000 and B has $110,000. Their relative wealth ratio is now just 10 to 1.

  2. Non-economists rarely phrase things in properly defined econo-speak. Yet most people are savvy and smart about what they want and need even though they aren’t articulate in how they express it. So if we start there, When congress or the public talks about reducing the deficit, what (I think) they mean to say is that they want to reduce the portion of GDP devoted to a program like medicare. It is too expensive. They want to increase the dismal productivity and performance of our medical industry. People see every day the lavish lifestyles of doctors, the gleaming new hospital towers in their communities, along with the thousand dollar a month drug bills and the $50,000 bills for a weekend emergency visit to the hospital that used maybe 20hrs of hospital labor. It IS a worthy macro-economic goal to reduce spending on these programs. Programs that have grown for decades faster than inflation and underperformed in cost, outcomes and inclusiveness have hurt everyone in society. People understand that if we didn’t pay so much for medicare, we could have better schools, better roads, lower taxes, better water, cleaner environment, and a better economy. They call it deficit reduction, even though it isn’t.
    Another perspective might be that if the transfer tax programs, Social Security and Medicare never morphed into running surpluses and deficits year after year; they could have been maintained as pay as you go systems where the tax rate adjusts periodically to reflect expenditures. When the price of medicare quintupled in a decade or two people would have asked for reform earlier.

    • Ryan, it is not “a worthy macro-economic goal to reduce spending on these programs.” It is insane & utterly destructive. Medicare is efficient. Government health care always is. Private enterprise provides crappy care at preposterous prices. That is what is behind cutting Medicare : replacing efficient public programs with inferior, inefficient “privatized” ones that however have far larger scope for corruption & the rich getting richer quick.

      We should spend more on Medicare, not less, have it cover everyone. Spending less would lead to worse schools, roads, water, environment, economy. Spending more on Medicare would lead to improvements of all these other things. Medicare for All would be so much more efficient that we would have to quickly replace all the federal dollars currently wasted on the health care fraud industry with other federal spending to forestall a depression. There are only tradeoffs like the ones you assume when you are running a chock-full employment economy, of the kind barely in living memory.

      You’re partly right about SS & pay-as-you-go. Pay-as-you-go is the highest sane tax rate for SS. SO we’ve had pay-more-than-you-go for 30 years, which just works out to welfare for the rich.

      Upshot: It is not how they are saying it, not that is not “in properly defined econospeak” but what they are saying that is the problem. This kind of deficit cutting will destroy the economy. It is cutting out the healthy parts, to save the cancers. People unfortunately are not savvy & smart, but so brainwashed they believe black is white, up is down.

      • The US health government-funded health insurance system is much less cost-effective than national health services in the UK or even France. So yes they should spend less per capita whilst improving service and coverage by getting better value for money. This means changing the way the system works and the way it is funded.

        • Yes, We should begin with Medicare for All, driving the health insurers out of business, then the monopsony condition created with the Government being the only customer would stop the cost increases from the provider or at least limit them to the rate of inflation, and also encourage reforms in health care delivery. We can be pretty sure of this by looking closely at the cases of Taiwan and Canada which both have single-payer Medicare for All systems

      • “This kind of deficit cutting will destroy the economy. It is cutting out the healthy parts, to save the cancers.”

        This is so spot on I’m stealing it.

      • Let me give you a perfect example. The gov of Florida wants to reduce the state government there so he starts firing people, including a friend of a friend (true story). Now there is no one to do that very specific and highly technical job in IT security.

        So the state, in it’s zeal to “privatize” everything in site (corporate welfare) hires a company to provide them with the talent to fill that now empty job. My friend is now hired to do that job (as there are very few people qualified to do that job), at 1.5 times what he was making, plus the overhead price of the consulting company.

        So in the end it costs the state twice what they were spending for the same service. This is the face of privatization.

    • I am sorry but it is nonsense to say Medicare is not an efficient means of delivering health care and more so than insurance company plans. If anything Medicare should be expanded to cover all of the population. If you want to negotiate better rates with hospitals, doctors or drug companies , have at it.

      And there is no reason SS or Medicare should morph into surplus programs. We are not going to run out of money any time soon. And we can support education as well. In fact it is long past time we made the minimum wage a living wage. Why should this country have fifty million in poverty and even more on the edge? Sillimess. Guess we want to balance the budget and watch that debt limit. Then, I suppose, we can all go back to clipping our bond coupons..

    • Ryan, your view is pure fiction:

      “When congress or the public talks about reducing the deficit, what (I think) they mean to say is that they want to reduce the portion of GDP devoted to a program like medicare.”

      Poll after poll shows that people don’t want safety net cuts, but do want deficit reduction. So, clearly, that means that they don’t want to do what your theory says.

      Also, if you’re really concerned about a solution to increasing health care costs, why not support price increase controls. That is limit the growth of provider costs to the rate of inflation. And please don’t tell me that would undermine the “free market.” There is no “free market” in the health care industry, prices are set oligopolistically by politically powerful vested interests.

      Those interests should be put out of business, starting with the insurance companies which should be replaced by Medicare for All.

      • Exactly! The reason people want “deficit reduction” is because they are told the costs of medicare are rising quickly and that there won’t be enough money for them or their children if nothing is done. It isn’t only medicare, they have been told that social security is insolvent even though it has collected unnecessary surpluses for years. Explaining that we can run deficits larger than we currently do to the caucus is only half the story. We also can improve the productivity of the programs to what other industrialized nations enjoy by expanding them! The poor congress people in the caucus won’t know who to believe.

  3. extremes of wealth are destroying our democracy.

    How is that? Doesn’t each registered voter, even if that voter is a government employee, beneficiary of government benefits or subsidized by the government, have just ONE vote? Doesn’t Warren Buffett have one vote, the same as any dishwasher in a greasy spoon that’s registered to vote? Where does it say in the same constitution that you quote in regard to the government’s right to coin money that democracy means everyone having the same amount of eventually worthless fiat money?

    • Sean_Fernyhough

      Thank you for your economic insights Chuck, just about as enlightening as your views on Islam – I wager.

      • The type of detailed and insightful response that could be expected.

        • chuck, money buys politicians, it funds campaigns, it saturates the media with its messages, it eliminates the opposition by making them ‘invisible’, it buys influence, it buys universities and academics and pundits and think tanks and tv channels and institutions and ‘research’.

    • Ever heard of this little thing called Citizens United? Your next president or congressman may come from the Chinese Politburo. And please tell me why the rich have half dozen houses, boats and planes while others live in tents or are one paycheck away from it. Think those people are voting these days?

    • How is that?

      Geez, where to begin? Fundamentally, there absolute reason for the national debt today in America is the destruction of the national tax base coinciding with the “wealth creation” by incredible debt creation.

      Perfect case in point: Romney’s leveraged buyout escapades at Bain Capital — loading ompanies up with debt with endless dividend recaps to profit the LBO queens (and similar actions), with the outcome of destroying companies and jobs, further depleting the tax base — increase in debt/decrease in tax revenues.

      With the absolute trend over the past 17 years, at least, with ever great number of major corporations and American-based multinationals, refusing to pay federal taxes, while offshoring jobs, and creating new ones offshore — again massively depleting the tax base, while supporting such political activities which they will profit by but only addes debt — not innovation or job creation — to the economy. (Shadow banking via securitizations, credit derivatives, exemption from fraud laws, etc., etc., etc.)

      Today, what few Americans can understand (guess arithmetic is being sufficiently taught or understood anymore???) is that since at least 1999, America is not a consumer-based economy (that was the year America became a net importer of tech services, as well as the year critical mass was reached in terms of jobs offshoring).

      With 70% consumption derived from the uppermost 20% of the populace, and a portion of that 70% consuming figure deriving from goods and services peddled by the top 5 banks, which make up the majority of the GDP, the arithmetical relationships appear rather obvious: a fantasy-financed based economy, which probably accounts for the excellently mentioned political theater by our neolib/neocon “representatives” in congress.

      “The opposite of progress is congress.” (Wish I could remember where I first read this quote?)

      This is why were are forever hearing the same nonsensical contradictions repeated over and over again: (1) Corporations and the top banks are earning record profits, but are too afraid to hire (a subtle contradiction, but contradictory nonetheless), and (2) people have no money and the people are too afraid to spend (fare more obvious, I’m afraid, but equally stupid).

      They aren’t hiring ’cause they dismantled the economy over the past 30 years, and what remains isn’t consumer-based: no demand, no reason to hire; no money on hand, no demand; no jobs, no money on hand, no demand……

      A little arithmetic goes a long waaaaaay…..

      • with ever great number of major corporations and American-based multinationals, refusing to pay federal taxes, while offshoring jobs, and creating new ones offshore — again massively depleting the tax base

        Wait a minute, you guys keep saying that the government doesn’t need the income from taxes to pay its bills, why would you care if these corporations pay federal taxes? Depleting the tax base? Don’t need no stinking tax base, just enter the numbers in the electronic spread sheet. Why do you care if jobs go offshore or are created there? Why do you hate people from other countries?

        • “you guys keep saying that the government doesn’t need the income from taxes to pay its bills”
          TRUE
          “why would you care if these corporations pay federal taxes?”
          Because concentrated wealth destroys democracies
          “Why do you care if jobs go offshore or are created there?”
          Because without jobs, you have no money. Less money ( in the hands of those that actually spend it rather than letting it sit in a Cayman Islands bank account so you can brag to your buddies about the size of the number), less demand. Less demand, slower economy……resulting in a death spiral if allowed to continue.
          “Why do you hate people from other countries?”
          Why do you hate American workers? You are certainly seem willing to let them suffer and starve so the rich can buy shiny rocks from foreign countries.

          • So how many people have you hired today? Or do you feel that putting people to work is the duty of someone else?

            No suffering and starving workers around here. Nobody knocking at the door, wanting to wash dishes or clothes for money, nobody begging to mow the lawn for a few bucks. Not many signs up offering to rent a room. In fact, the people I notice that might be considered poor are all overweight. Soon there’ll be government-sponsored health club memberships, if there isn’t already.

        • There has to be a certain amount of taxation to maintain the value of the fiat currency. In addition, there are questions of equity and fairness involved as well as the ability of corporations to spend to influence politics. Higher taxes would impair that ability, and that’s a good thing if we care about democracy.

    • I never suggested that everyone should have the same amount of fiat money. Between the mal-distribution of wealth we have now and pure economic equality there are many gradations. Economic mal-distribution is clearly threatening our democracy because rich corporations and people are buying our representatives, polluting our campaigns with lies and noise, and are carrying voter suppression campaigns to swing elections to their candidates. If you care about our democracy at all you ought to be for lessening inequality. So what’s wrong with you? Why don’t you care about our democracy?

  4. The government can just create the money in the act of deficit spending.

    OK, if that’s true, and it’s not only a good thing, but required, why do nations at war counterfeit their enemy’s money and attempt to introduce it into the opposing economy? Have they been making a big mistake by doing so? Were they actually helping out their enemy by dumping unrecognizable fake bills into circulation? Were the recipients of the bogus cash being stupid by attempting to intercept it? And hanging those caught distributing it? Or was that all for show?

    • Come on, Charlie. They can do it now.

    • First, the last time I recall nations counterfeiting money in War, a lot of nations were still on the gold standard, so counterfeiting enough money could cause inflation under those conditions.

      And second, the point isn’t to create the money. It’s to provide people with jobs at a living wage WITHOUT removing demand in the private sector through taxation. So, counterfeiting money isn’t the point. It’s how that money gets used that counts. We need to prosecute counterfeiters because we want the government to control deficit spending and use it for the public purpose. We don’t want private entities to counterfeit for their own gain.

  5. @Chuck Martel
    Campaign contributions? Media Influence? FIRE industry ties to Washington?

    Can you seriously be so ignorant as to think money has doesn’t dictate politics?

    • According to the theory of democracy, why should money dictate politics? Isn’t the “one man-one vote” what democracy is all about? For instance, Rep. Keith Ellison, one of the signatories of the letter in question, is a well-educated individual with a law degree. The voters of his district have, just as democracy demands, selected him by majority vote to represent their interests in Washington. I hope you’re not impugning the integrity of Mr. Ellison himself, intimating that somehow he has financial interests that take precedence over his duties to his constituents. Neither should anyone believe that somehow an unfair financial contribution led to Ellison’s election. In a democracy, the voters are perfectly capable of determining who is best suited to represent them. If the elected one doesn’t satisfy them, there’s always another election. If this were not so, democracy would be a sham, would it not?

      • Isn’t the “one man-one vote” what democracy is all about?
        Realistically, it’s about who owns Scytl, what their connections are to Accenture and Bain, etc. Obviously, in today’s realm, the most important fact to know is the ownership of the top three voting machine companies.

        If Northrop Grumman owns a major voting machine company, the next question is who is the majority owner of Northrop Grumman?

        If life truly came down to those who wear the “white hats” as opposed to identifying those who wear the “black hats” — things would indeed be much simpler.

        • OK, so the plebs are qualified to pick which member of the oligarchy gets to be on TV the most but the guys that own and operate the voting machines are the praetorian guard that actually chooses the emperor. Out of a pool of two. Doesn’t the electoral college figure in there somewhere, as well?

      • I think that once again you miss the point. The theory of democracy assumes that there will be a free and unfettered flow of information in society, and that people will have roughly equal weight in the political information market. However, extreme economic inequality leads to violating these conditions, because the rich use their money to dominate the information market and destroy a free information market through manipulation and spreading false information. So, they undermine democracy that way. To restore it we have to deny them the capability to control that market. We can pass laws prohibiting them doing that; but those laws would put great pressure on the first amendment. So, it may be better to remove lot of the excess wealth they use to get that manipulation done.

        • That’s one of the most bizarre paragraphs ever pixelated. First of all, there’s more free access to information at this moment than ever before in world history, an example being my ability to read the most bizarre paragraph ever pixelated. And if free flow of information is good, what about the free flow of other things? Like goods. And money is a good, why can’t it flow just like information? How the rich control the information market, anyway? Sure, they own the major newspapers and other media outlets but that’s always been the case. Could we make journalists take a vow of poverty? I vote for putting Dan Rather on top of the list.

          And since we don’t want to “pressure the first amendment” we’ll just confiscate their excess wealth, the excess being determined by you, maybe? I fear that I’ve responded to satire, like Jonathon Swift’s “Modest Proposal”.

          • The UK doesn’t allow political ads on tv or radio. So you don’t get all that garbage filling up the airwaves as you do in the US.

          • The freedom’s illusory due to information glut and the sheer weight in google searches of the major media sites. Principles of hierarchy apply to Internet attention as much as they do everything else. And there’s a gresham’s dynamic at work here as well. People self-organize around the MSM and related blogs. These then manipulate opinion by dictating the framework of discussion. They in turn are themselves manipulated by the Kochs, Peterson, and many other billionaires whose foundations, “charities”, and PACs provide funding to the MSM organizations. The whole system is hierarchical, and writers further down in the hierarchy can’t get through the information glut. So a few people and organizations are much more equal than others in their “freedom of speech.”

  6. What, the Congressional Progressive Caucus has bowed its head to the superior intellectual might of the Gang of Eight‘s Michael Hudson, L. Randall Wray, Geoffrey Gardiner, Dirk Bezemer, etc. High Time. Oh, damn, another Gang. Should sue them for trademark violation. And economic illiteracy. And failing kindergarten.

    Apparently the Senate gang wants to put the US on the only unsustainable path – of decreasing the national debt. Can’t really go below zero, you know, in any meaningful way. Oh well. What should one expect of America’s native criminal class? :-)

  7. Pingback: Links 9/27/12 « naked capitalism

  8. John O'Connell

    “It does make sense to have higher taxes on the wealthy, if one wants to level the paying field of economic inequality”

    First, you surely can’t mean simply letting the Bush tax cuts expire. You’re not saying that at 35% our tax policy is disastrously wrong, while at 38% everything will be just hunky-dory. What tax rate should the rich pay, in your opinion?

    Second, what exactly do you mean by “level the paying field of economic inequality”? Is it necessary that the JG workers have the same wealth and income as Warren Buffet and Bill Gates? If not, then what? 1/2? 1/10?

    Or is it only equal opportunity that you mean, as the phrase “level playing field” applies in sports, where one team is not going uphill while the other goes downhill. Is it only economic, or are you talking about social issues like racial discrimination or past history of racial discrimintation? What do you make of hundreds or thousands of minority people who have achieved middle class or even upper class levels of wealth and income, for instance our current President? Did they have the downhill side of the field, somehow, or was the field already pretty level, and they just played the game more skillfully?

    If it is skill and hard work (perhaps of ancestors as well as oneself) that makes most of the difference, then how are you going to achieve “economic equality”?

    • Did you really think he meant every person must have the same income? We have had varying distributions of wealth in our history … right now it is more concentrated at the top than at any period since 1928. And, most of the people at the very top in the financial sector are not performing anything useful, they are simply collecting rents from the rest of the country.

      What we want, I think, is a fair and efficient economy. Take it to extremes … 1) One person in the country has most of the wealth (let’s call him the King), the rest are living in a grass hut scratching out a subsistence living by farming (a few are building the Kings castles; 2) Everyone in the country sends their income to the government and and equal share is distributed to all, and it doesn’t matter how smart you are or how hard you work. Either of these sound fair or efficient to you. Somewhere between those we can look for an ideal. This is ridiculously simplified of course. Where that is and exactly how it is achieved leave a lot of room and there isn’t a single ‘best’ system (or we could never identify it). BUT, in my opinion we are clearly not there now, and have too much concentration of wealth. We have a single hedge fund manager, John Paulson, who ‘made’ $5B in a one year.

    • I know you didn’t ask me but at some level of income how about sixty percent? Nice round number.

      I’m sure he meant that everyone should be rich, just like everyone in school is above average?

      • Well, actually I didn’t mean that. I meant what I said. No more and no less.

        But one thing I favor is that everyone who wants to work should be able to get a job offer at a living wage with excellent fringe benefits guaranteed by the Federal government.

    • Money is just a claim to social wealth. “Leveling the playing field of economic inquality,” while perhaps not elegantly stated, means being more vigilant about the distribution of claims to social wealth within the society. Currently, some people have claims to society’s wealth that exceed by orders of magnitude their contributions to society by any meaningful measure while others have virtually no claims to that wealth, despite working as much (or sometimes several hundred percent more) than people who continue to annually accumulate vast claims (e.g., a janitor employed full time as compared to Mitt Romney, who does not work at all yet continues to generate each year additional claims to society’s wealth). We can use the tax power to adjust these gross inequities that no serious, informed, and conscientious person could deny exist.

      • Exactly, but it’s worse than you stated it because we have many people who are allowed to continue to accumulate financial wealth in USD even though their contributions have negative value for the US. I think that Mitt Romney is in this category. On balance, I think his business activities produced much more harm to Americans than good for them, and that he is one of the poster boys for the inadequacy of our system of distributing financial rewards to those who have really earned them by producing goods and services that are socially valuable. Of course, there are many other poster boys including the banksters and fraudsters who have yet to be investigated, indicted, and prosecuted by a government interested in enforcing the law and doing justice.

    • First, I’m not real radical when it comes to economic inequality. I’d just like to see a distribution of wealth of the sort they enjoy today in Australia or in Italy rather than the United States. See the chart in this Post for some data. Or, alternatively, think of it historically. If we could go back to the distribution of wealth we had in the US during the 1960s, then I’d be much less concerned about this issue. And, no, I’m not satisfied with just raising the highest marginal tax rates to 39%. I want to go back to the 90% of the 1950s and the inheritance taxes that applied then; but without the loopholes.

      And, yes, I am for equal opportunity. And, I also believe that you can’t really have it without getting rid of extremes of wealth inequality. As far as:

      “What do you make of hundreds or thousands of minority people who have achieved middle class or even upper class levels of wealth and income, for instance our current President? Did they have the downhill side of the field, somehow, or was the field already pretty level, and they just played the game more skillfully?

      I think the degree of equality of opportunity has decreased a great deal since Barack Obama was born and began his rise, and same goes for other minorities and for many successful people who began life poor. Well-known international statistics show that among major industrial nations today, the US today ranks way behind others in providing opportunities for social mobility. Most European nations, the UK, Australia, New Zealand, and Canada all rank above the US today in measures of economic and social mobility.

      This too, is a function of allowing the rich to keep so much of their wealth and use it to create their own segregated communities, their own private schools while lobbying for lower taxes so that they ensure that public schools can’t compete, and that public facilities of all kinds that level the social and economic playing fields are starved for funds or closed.

      • Good things about the ’60s: a new Chevy for $2200 and gas for 24c/gal
        a glass of beer for a dime
        the Pittsburgh Pirates
        Doris Day
        Betty Hutton
        a house for $12,000
        Bad things about the “60s: black & white TV
        no internet, cell phones or microwaves (could be good)
        bogus feminism
        selective service
        Lyndon Johnson and Walter W. Heller
        The Rolling Stones
        dearth of ethnic food

        • Well, of course, we disagree on the good and bad things of course, especially about Johnson and Heller. But, in addition, you missed the fact that middle class kids could get through Good State universities without bankrupting their families, and without having to incur huge student loan debt.

          • Good point. Somebody like bogus native American Elizabeth Warren making $350,000 a year teaching one class at a school with an endowment larger than the economy of many countries which still receives dump trucks full of federal money does indeed belong on the bad list of the current era. The pseudo-intellectual elite of academia, most of whom don’t know that water runs downhill, have succeeded in joining their cousins in the legal profession as parasites on society. And, of course, the state universities don’t want to be left in the dust when it comes to rewarding their administrators and faculty, especially the administrators.

      • This too, is a function of allowing the rich to keep so much of their wealth and use it to create their own segregated communities, their own private schools while lobbying for lower taxes so that they ensure that public schools can’t compete, and that public facilities of all kinds that level the social and economic playing fields are starved for funds or closed.

        Marx might not have had the guts to come up with a statement like that. First of all, 19th century common folks, who attended one-room country schools where classes were taught by the farmer’s wife from down the road, evidently received a better education than the students in the current monstrous, prison-like indoctrination factories we call schools but are actually support apparatus for football teams. Just check out some of the letters home from soldiers during the War Between the States. But even more money is to be provided for this failed paradigm?

        And “allowing the rich to keep so much of their wealth”? Be a man and take it away from them yourself rather than getting together with other inepts and voting in criminals that will then hire more criminals to do it for them. So you needn’t get your own hands crimson. Indeed, when you see someone that has more than you feel they need, an excess as you put it, take it away from them and distribute it yourself. And, by the way, if you’re worried about unemployment all you have to do is hire some people. Do it now.

        • [Quote deleted by administrator]

          Dysfunctional societies that are designed to give everything to the ruling oligarchy lead to wasted and stunted human lives. Functional societies that properly invest in their populations achieve great things. If the latter requires reducing the extraordinary opulence of the oligarchs by a bit, then so be it.

        • No need to add anything to y’s very good reply to Chuck’s adolescent “be a man” nonsense.

    • “What tax rate should the rich pay, in your opinion?”
      80% over a million/year until the gap has decreased sufficiently, which is essentially the same as after the Great Depression.

  9. The political side of this thing is that the “loser liberals” are using the phony deficit problem to spank intransigent Republicans who will not break their loyalty oath to Grover Norquist. Since they’re not going to get what they propose, they see no harm in pressing the point. However, it does nothing to change the public discourse, and it’s very much in need of change right now. For that, they should be ashamed of themselves.

    • It’s a cheap trick that undermines the truth and commits them to the deficit hawk view of the world. This reinforcement of the rationale for austerity isn’t new. Progressives have been doing it since the 1970s, and it’s gotten much worse over the years. Now they are intellectually disarmed in the fight against safety net cuts. They have to accept some to appear reasonable since they’ve agreed there’s a problem, and they always end up giving stuff away. For example. why did they back away from Medicare for All and later the PO in the fight leading up to the ACA? Because Obama insisted on deficit neutrality for any reform and the progressives wouldn’t call him on it because almost all of them conceded that it was a problem. No one told him Medicare for All, while costing the Government $800 – $900 B more per year would also have saved the private sector $1.8 T per year, a net gain for the private sector of $900 B per year if this had been done through deficit spending.

  10. If the bond market wants higher yields on government bonds, and the government chooses instead to keep yields at zero or thereabouts, the desire for higher yields will manifest itself through a depreciation of the currency. If the desire for higher yields is very strong, the currency depreciation will be very sharp. This will result in inflation.

    • The way you’ve phrased this is tautological. Let’s say the private sector wants 2% on the bonds, but the Government is only willing to pay 0.25%, then will the private sector refuse to buy the bonds? No they won’t, because 1) they want a risk free investment. and 2) 0.25% is better than zero, which is what they will get if they don’t buy the bonds. So, they will buy them and it’s hard to see that there would be a depreciation of the currency.

      You could say at this point, well the private sector didn’t really want 2.0% because it was willing to buy the bonds at 0.25%, but if you assert that then that’s where the tautology comes in because then you’d really be saying that unless the private sector doesn’t buy the bonds at 0.25% then it really means that it never wanted the 2.0% anyway. To get out of the tautological reasoning of silly classical economics, you have to get measures of what people want that are distinct from the measures of their final behavior. Then you’d be able to test the hypothesis that people always settle for what they wanted in the first place.

      Apart from these considerations, it’s also important to ask yourself what would happen if the Government decided to quit borrowing money, but, instead just created it without corresponding debt issuance. Would the currency be devalued then? Well it may be devalued; but it also may not be. Many factors other than money creation are at issue here, including what is happening to other currencies an d other economies. If the US uses its money creation to create goods and services of value, rather than to enrich the wealthy; then I think there’s no obvious reason why the value of the currency would decrease in international trade; though it still may, of course, for reasons other than the money creation.

      • Think about a country other than the US.

        India pays 8% on its 10yr bonds at present. If it lowered that to zero (along with all other bond yields and the overnight rate), that might lead to increased domestic inflation, which the government could potentially control through fiscal policy and tougher lending rules (including higher collateral demands against loans from the central bank, and higher bank capital requirements). However it is likely the zero rate will also lead to currency depreciation, as investors move out of the rupee. They don’t want to hold 0% Indian rupee bonds and would rather hold other countries government bonds that, for example, pay higher interest. This depreciation is difficult for the government to control, and would lead to higher import prices. So you can end up with a situation in which the government has to raise taxes/cut spending if it wants to control rising prices, which will limit economic growth. Or it could just let the currency depreciate to a level at which it stabilizes by itself (let it float), but this would involve accepting a higher level of inflation.

        • Y:If the bond market wants higher yields on government bonds,
          It always does. :-) (When buying)
          ZIRP is not necessarily a detriment for the currency. Look at Japan: ZIRP, strong currency. That they foolishly act to weaken sometimes. Possible currency depreciation from lowering rates, and possible inflation from that is more of a one time thing, especially in a big country like India.

          India pays 8% on its 10yr bonds at present. If it lowered that to zero (along with all other bond yields and the overnight rate), that might lead to increased domestic inflation High interest on bonds can cause inflation in and of itself. The idea that lowering rates is necessarily inflationary & expansionary , raising rates the reverse is one of the least well-founded, but strongest held dogma of the mainstream, embedded into the terminology “loose money” low rates, “tight money” high rates. In the 90s, when Italy was paying 12% (and had a few other economic 12s, I forget what), Wray recommended lowering rates to control inflation. It’s complicated. Many effects going on. Which will dominate? Have to look at each situation carefully & guess, or speak very grosso modo. 8% to somewhat lower, maybe not zero, might be the best for India. Lower domestic inflation can lead to currency strength too. BTW, criticism of India’s high interest rates goes back to Keynes at least.

          But always, the main thing is to maintain full employment, preferably with a JG. If there’s too much inflation for a little while, just take it, or make the JG sector larger while deflating.

          • The idea that lowering rates is necessarily inflationary & expansionary , raising rates the reverse is one of the least well-founded, but strongest held dogma of the mainstream, embedded into the terminology “loose money” low rates, “tight money” high rates. Calgacus

            Thanks for that. I suspected as much. And what difference does it make if interest rates are, say, 12% if asset prices are rising at, say, 15%?

            What would halt price inflation, I would bet, is leverage limits on the banks.

            • You have to distinguish between different types of inflation. You do different things for demand-pull then you do for cost-push inflation.

              Also, I’m not sure what you mean by “leverage limits?” But if you mean the level of reserves required, since the money multiplier doesn’t exist, it doesn’t matter what you set reserve levels at. On the other hand, if you’re talking about capital ratios, then that may help if cost-push inflation is being fueled by bank loans.

              • If government deposit insurance and the legal tender lender of last resort was abolished then the banks would have to be VERY concerned about their reserves.

                I’m not so sure raising capital requirements would suffice because of George Soros’ “Theory of Reflexivity” since the boom would inflate bank equity too.

            • F.Beard makes a good point.

              There is no real reason why certain commercial organisations should have a state-created advantage over others. Yet that is precisely what banks have. They have placed themselves at the top of the economic hierarchy and demanded that the government guarantee their business operations. It is completely wrong, perverse, and not ‘capitalism’ or ‘the market’ in any sense whatsoever. It needs to stop.

        • Y, these are possibilities, but the relationships are complex, and we don’t know what would happen if India developed a truly sovereign currency and then tried to lower their interest rates. Right now they have external debts in other currencies. If they got rid of those, then their deficit spending might overheat the economy leading to de-evaluation of the currency; but we’d have to model it, since a number of other factors, including a booming economy, might make India and even more attractive venue for foreign investors

  11. Apologies for all the typos above.

  12. Fantastic! I hope you have sent this along to all the members of the CPC!

  13. John O’Connell: The rich do not pay a 35 percent tax rate. Capital Gains is around 15 percent, way down from decades past. Quit lying.

  14. Pingback: Epicene Cyborg

  15. Excellent. Just one thing missing from the initial explanations: make it clear that the deficits are one half of the accounting identity: they equal the amount in the private sector to the penny. Deficit spending by definition credits accounts in the private sector. That is “where ‘money’ comes from”–all the money. Unless people get this they never really get MMT. Our system is a spreadsheet system, as has often been noted.

  16. Charles Fasola

    Why continue to validate the comments by individuals, or should I sat trolls, that wish to continue with the same old ideas, policies and economic reasoning that allow for the current destruction of the middle and working classes? That believe in ideas which result in perpetuating the control of our political process by the oligarchy, that believe in discredited ideologies which work only to increase the gap between the elite and everyone else? Who are nothing more than brainwashed servants of the 1%. By simply ignoring their moronic comments, since like most of their ilk they refuse to accept evidence and facts, it might stear them back towards the holes from which they occassionally emerge. One man one vote, for whom and for what? Obviously you are incapable of complex thought if you believe the current electoral process is anything but a dog and pony show.

  17. Wow, a lot of trolls here today! Angry ones too!

  18. This essay is certainly good MMT, but …
    Just as accepting your opponent’s frame as a starting point is a bad way to make one’s case, so too is accepting your opponent’s terminology. Words matter, and the use of the word “deficit” should not be a part of any MMT argument, even when arguing for more spending. There is in MMT no useful knowledge conveyed by the term “deficit”, a name given to the number derived from a subtraction that is uninteresting to MMTers, yet to even include the word in our discussions is to imply it is. It is to imply that one can prioritize expenditures in some absolute fashion agreed upon by all, wherein some spending is non-deficit, awhile other spending is deficit, a differentiation meaningless in MMT. It is to allow the construct that deficits are inflationary into the discussion, and by extension, that some “lower priority” expenditures are inflationary while “higher priority” expenditures are not, an absurd idea ALWAYS used to attack social spending. (While some deficits MAY be inflationary, the fact that they are has nothing to do with the deficit/surplus status of any budget, and interpreting it thusly is to misplace causality.)

    In fact, there is only one use of the word “deficit” by MMTers that should ever be heard, and that is in the sentence: DEFICITS DON’T MATTER. They don’t matter because they are uninteresting. They are uninteresting because they are an interim result that conveys no useful macroeconomic policy guidance. And until MMTers can make that case firmly and successfully in the face of the inevitable assaults by an ossified mainstream, MMT isn’t going much of anywhere. Deficits don’t matter, and MMTers need to stop apologizing for the fact that others believe they do, and in so doing, allow even the concept to enter in the discussion.

  19. “Deficits do matter” in the sense that if you refuse to run them or make them too small you’ve got troubles when you’re importing more than you export and when your households want to save.

    However, I agree with you that it would be good if we could find an alternative way of referring to deficits that would catch on. However, I haven’t been able to think of a good meme. Maybe a short-hand for net government investment (NGI) in the private sector would be good. Perhaps we could talk about levels of NGI spending or the National Government Investment (NGI) subject to the Congressional limit.

    I’d love something like the above; but I suspect I haven’t hot on the common sense meme that will persuade people not to use the deficit/debt language any more.

  20. To the uninitiated, the contemporary disciples of John Law that style themselves as proponents of “MMT” may appear to be simply advocates of a flexible, abstract monetary system governed by technocrats. But that’s not the case. Based on the comments of the followers of this particular blog the MMT folks are just big government socialists with a wildcat Keynesian streak.

    • While its probably true that a majority of MMT advocates are in favor of an increased role for public spending on social programs, this proscription does not follow necessarily from neo-chartalist premises at all, instead it reflects alternative views regarding political philosophy and other areas outside of monetary economics.

      As just one example, the notion that monetary sovereigns are fiscally constrained principally by capacity utilization and the attendant price level rather than involuntary solvency could be stated just as easily by a Paleo-libertarian as by a Social Democrat. That MMT indicates greater fiscal policy space is not a sufficient condition for greater action- you need a host of normative valuations and other economic arguments for that.

      I concede that some on the “left” may be drawn to MMT because it provides room for pet projects – effective and worthwhile though those initiatives may prove to be. Yet I would conversely claim that many on the “right” are repulsed in the opposite manner – that despite any merits, to endorse neo-chartalism “gives ammunition” to those whose liberality would cause social damage or injustice in some other manner ancillary to the propositions at hand.

  21. Benedict@Large

    @ Joe Firestone
    Hmmm …
    Net Government Investment sounds interesting. As in, If the Net Government Investment does not offset the foreign exchange leakage, the federal government is running a contractionary policy set.