Robert J. Samuelson tries to create a moral panic about deficits

By William K. Black

The Washington Post leads the pack when it comes to generating what scientists term a “moral panic” about budget deficits.  As part of that effort they generated the series of myths that Paul Ryan was “serious,” “courageous,” and “expert” about “solving” the “deficit crisis.”  The newspaper’s theme is that anyone who doesn’t fall for their effort to create a moral panic is not “serious” and should be ignored.  The paper runs a column by Robert J. Samuelson that is devoted to generating a moral panic about the deficit.  Like Ryan, his central targets are imposing austerity and cutting Social Security, Medicare, and Medicaid. 

Samuelson’s latest column claims that President Obama and Governor Romney are lying to the nation because they have not sufficiently embraced the moral panic as the transcendent campaign issue that will determine America’s future.  Samuelson demands the candidates implore the American people to urgently adopt austerity and attack Social Security, Medicare, and Medicaid.

We have known for over 75 years that the key to recovering from a recession is to follow a counter-cyclical fiscal policy that will reduce unemployment. We have long exhibited the wisdom to adopt automatic stabilizers that increase government services and decrease taxes when a recession strikes.

What would have happened if Obama had adopted austerity as Berlin imposed austerity on the European periphery?  It would have prevented any recovery, throwing the U.S. into an even more severe recession.  Berlin’s austerity demands have thrown the Eurozone back into a gratuitous recession, increasing the budget deficit in many nations and plunging Greece and Spain into depressions.  Europe has followed Samuelson’s and Ryan’s policy advice and the results have been disastrous.  Samuelson’s and Ryan’s austerity policies violate economic theory, economic history, and a natural experiment in Europe with austerity that has proved catastrophic.  Samuelson, however, makes bizarre odes to Irish austerity, emphasizing the necessity of “persuading ordinary citizens to tolerate austerity (higher unemployment, lower social benefits, [and] heavier taxes) without resorting to paralyzing street protests or ineffectual parliamentary coalitions.”

Samuelson shares Berlin’s belief in the redemptive power of suffering – by others.  He doesn’t even feel a need to explain why any rational government would adopt a policy in response to a severe recession which it knew would cause “higher unemployment, lower social benefits, [and] heavier taxes.”  He admits that Berlin (and Dublin) knew that austerity would make the recession far more severe.  He doesn’t think that adopting austerity programs known to be self-destructive requires justification or even explanation.  Insanity is normal in Samuelson’s world.

Samuelson is most amazing, however, in explaining how the victims of austerity should react to a response to a recession that will make the recession worse.  Samuelson’s world of insane economic policies requires the victims to be political masochists.  Samuelson demands that the victims of austerity suffer in silence without protesting austerity or using their democratic rights to form coalitions to reverse the insane economic policies.  Samuelson is not afraid of “ineffectual parliamentary coalitions” – he is terrified of effectual coalitions that would end the economic insanity of responding to a recession with a pro-cyclical policy of austerity.

Samuelson, in a column decrying politicians who make misleading statements, suggests that Obama make the following statement to voters about ending the U.S. deficit.

“Can’t we just tax the rich even more? Unfortunately, this won’t work either. Third Way — a liberal group, mind you — estimated the effects of top income tax rates of 49.6 percent and 41 percent and a top capital gains rate of 38.8 percent. The budget still doesn’t balance….

“Third Way” is not “a liberal group” – and Samuelson knows it.  It claims to be a “moderate” group, but that self-description is misleading.  “Third Way” was created by, and is run by Jonathan Cowan, a Pete Peterson devotee.  Peterson is a conservative, Republican billionaire who has spent 20 years using his money to create groups that will spread the moral panic about deficits in order to attack Social Security, Medicare, and Medicaid.  Samuelson is a Pete Peterson devotee and journalist quoting Cowan’s group’s paper.  Cowan is a fellow Peterson devotee and journalist.  Third Way published a paper lauding Ryan’s proposals to end public health insurance and denouncing Brad de Long and Paul Krugman’s refutation of Peterson’s faux moral panic.

Samuelson deliberately misled his readers in a column devoted to denouncing Obama and Romney for misleading voters.  It remains impossible to compete with unintentional self-parody.

 

 

41 Responses to Robert J. Samuelson tries to create a moral panic about deficits

  1. The Dork of Cork

    The Key to all this is trade deficits rather then fiscal deficits by simply creating a vaccum of final settlement between nations and former nations.
    The elite withen the trade deficit country can get a free lunch of the worlds exports and the exporting countries local elite can get paid off for allowing the export of real goods abroad rather then sustaining local domestic demand.
    The lower orders withen the trade deficit country have a very bad time of it in general. (see US & UK)
    Its also why the average German or Irishman is not as rich as he should be although the shock of a new rational trade arrangement would disrupt things on a large scale with huge overcapacity in these previously surplus countries.

    In the German case no one would have a hard enough currency to buy cars and stuff en masse and in the Irish case American based multinational companies would probally move back to the States.

    Its a very sick world out there with simply massive artifical trade distortions caused by this lack of settlement.
    This is what a free lunch looks like.

    UK 2011.
    Trade of goods balance : – 88,505m
    Trade of oil Balance : – 11,509m

    Is Europe a victim of unsustainable international trade /energy connections which reduces rational internal / national demand and rational investment ?

    If you compare this to the year 2000 in the UK
    Trade of goods balance : -39,512 m

    Trade of oil balance :+6,536m (peak)

    And Y1991

    Trade of goods balance : -11,497m
    Trade of oil balance : + 1,274m

    – £100 billion is a very large physical good trade imbalance for a medium sized country.

    This year it will be much bigger…..
    UK Current account Net Q2

    Trade in Goods : £ -28.1 Billion ( largest deficit ever recorded)
    Trade in Services : £+ 17.9
    Income : £ -5.2 Billion (largest deficit ever recorded)
    Transfers : £ -5.5 Billion

    The question : is Euroland the Empires new India ?
    The Jewel in the crown.
    Now declining because of a lack of capital investment in its energy sector exposed by the decline in the North Sea.
    UK Balance of trade in oil

    Y2009 : £ -3,426
    Y2010 : £ -4,719
    Y2011 : £ -11,509

    Current balance Q2 £ -20.8 Billion (largest deficit ever recorded)

  2. The Dork of Cork gets it right! Congratulations!

  3. “Third Way — a liberal group, mind you — estimated the effects of top income tax rates of 49.6 percent and 41 percent and a top capital gains rate of 38.8 percent. The budget still doesn’t balance….”

    Fine. Raise those tax rates to near 100%. That should do it.

    We can only tax those that have the money if we don’t want to cripple the economy.

  4. BTW Mr. Black, you are a national treasure.

  5. Meantime as the trade imbalances continue to build the Chinese government attempts to hack the US government’s nuclear weapons launch codes:-

    http://www.dailymail.co.uk/news/article-2211230/Chinese-government-hacks-White-House-office-charge-nuclear-launch-codes.html

  6. The main hope for the US is that Europe is conducting the experiment ahead of us … and it is slowly dawning on more and more people that austerity doesn’t work. Realizing this is only part of the solution, just as important is Mr. Blacks major area of expertise, reining in the criminals on Wall Street.

  7. The National Debt is a moral outrage since it provides welfare to the rich. We should pay it off as it comes due with new fiat and never borrow again. All deficit spending by the monetary sovereign should be financed the same way – with new fiat.

    But whoopie! The more this battle is played on the field of morality the better since the proper solution is a moral one – restitution for theft and a ban on further thieving by and through the banks.

  8. The confiscatory tax suggestions by the ultra-collectivists are actually funny. Why would anyone work at all if their production was commandeered by someone else? That was always the low productivity issue with slavery, why exert any more effort chopping that cotton than necessary to keep the man with the knout away, you’re not going to get anymore grits no matter how hard you work? For you guys taxes aren’t a means of financing government expenditures, they’re punishment for success. Anyone that’s accumulated a significant amount of wealth has to have done it through immoral/illegal means, it must be confiscated by the state for redistribution to those that sleep late. Rich people can’t extort money from the citizenry like the government can, Jeffrey Skilling wasn’t able to make anyone buy shares in Enron or even the electricity and gas they peddled, his scam worked hand-in-hand with government policy and regulations. Bernie Madoff ran his Ponzi scheme for years for years with the blessing of the almighty SEC. Why do you feel that normal humans, subject to all the faults and foibles of the species, don the trappings of sainthood when they sign up for government service? From the highest levels of government to the lowliest cop on the beat, government is rife with corruption, financed through money confiscated from the law-abiding and productive. You live before a fun-house mirror if you believe otherwise.

    • Anyone that’s accumulated a significant amount of wealth has to have done it through immoral/illegal means, chucky the hammer

      How many people have accumulated significant wealth without using or owning the government enforced/backed counterfeiting cartel, the banking system? Very few, I would say.

      But I’m not for Federal taxation (except to control price inflation in fiat). Instead, we should advocate a universal bailout similar to Steve Keen’s plan with new fiat and a ban on further counterfeiting.

    • From the highest levels of government to the lowliest cop on the beat, government is rife with corruption, financed through money confiscated from the law-abiding and productive. chuck “the hammer” martel

      Federal taxation funds nothing. It simple destroys money.

      But suppose YOU had to create your own money and get people to voluntarily accept it. How would you do so?

      • Federal taxation funds nothing. It simple destroys money.
        Hordes of government employees work for agencies at other levels than the federal. Are the wage and pension catastrophes taking place in California, Illinois and other states imaginary?

        • No. They are funded with state and local taxes. I carefully said “Federal taxation funds nothing. It simple [sic] destroys money.”

          A small (relative to GDP) US Federal Government might dispense with taxation altogether and fund itself entirely with seigniorage (money creation).

    • The confiscatory tax suggestions by the ultra-collectivists are actually funny. I hope you realize that Professor Black’s whole article was against the confiscatory tax suggestions made by Robert Samuelson, Paul Ryan, Jonathan Cowan, Pete Peterson and the Eurocrats.

      For you guys taxes aren’t a means of financing government expenditures, they’re punishment for success. … financed through money confiscated from the law-abiding and productive Taxes are not a means of financing government expenditures, because they just damn aren’t. Ushers collecting and ripping up theater tickets, airlines collecting passenger tickets do not “finance” the earlier issuance of these tickets. Governments and airlines and theaters “finance” such expenditures by the spending / issuance. That another means of “financing” is necessary or possible is a bizarre belief only held regarding governments.

      You live before a fun-house mirror if you believe otherwise. Where do those who think that nobody “that’s accumulated a significant amount of wealth” has “done it through immoral/illegal means” or that “Rich people can’t extort money from the citizenry like the government can” live? :-) Or that consumers have any choice for necessities like electricity provided by natural monopolies, who will be predatory if not regulated.

      • Calgacus,

        Confiscatory taxation only applies to taxation of the elites, not us peons. How silly of you!

        It’s a minor technicality that taxing us peons subtracts directly from aggregate demand.

      • chuck martel

        When a patron purchases a theater ticket or airplane ticket or ticket to a Cubs game, they’re renting a seat for a period of time. The patron pays for admittance at the window, receives a ticket, which is a receipt, and presents this receipt to the usher, who rips it in half so it can’t be re-used by someone else. At the end of the film or flight or pathetic excuse for a baseball game, the customer is required to leave, his rental of space is over. There is no comparison, metaphor or allegory involved with tickets versus currency. They’re two different things.

        • Ok, how about this analogy Mr. Martel:

          Taxes are nothing more than government-induced flow. This flow accounts for about a third of GDP. Imagine our economy without such an inducement as your glorious producer-class accumulates all of the dollar wealth and literally sucks all of the oxygen out of the room, destroying the economy and most inhabitants living within it.

          Thankfully, the remaining glorious producer class (the John Galts) will be more than willing to “rent” us a place in exchange for us licking their boots and serving them their squab-under-glass. Those few of us lucky enough to be employed anyway. The rest of us can scrape garbage-can lids.

          • That’s a pretty confusing analogy. But what you seem to be saying is that if the state didn’t confiscate a percentage of the wealth of the “producer-class”, that class would eventually have all the wealth and everyone not of that class would have nothing. Logically, in a free market, that would be impossible, historically we really can’t prove it one way or another because free markets have always been subverted by governments and their rent-seeking cronies. Even in the malformed market that has existed for the last 100 years, there’s been an amazing amount of creative destruction. Over 2500 automobile manufacturers have gone out of business in the short time that cars have been available. Glance through some old copies of a magazine like Fortune. Numbers from the fifties are filled with ads for companies that no longer exist, at least in their form at that time, Pan Am, Western Airlines, Studebaker, US Steel, and many, many others. Corporations that were feared even then to have quasi-monopoly status have disappeared and new ones have taken their place.

            And who are the members of the “producer class”? Entrepreneurs emerge from all classes in America. Not long ago I met a Cambodian that had arrived in the US with nothing but a pair of shorts. He’s now the owner of three successful businesses and his story is hardly unique. While there are many things wrong with the US, and conditions are deteriorating, mostly because of failed government policies, the free market that exists here isn’t the problem.

            • Not long ago I met a Cambodian that had arrived in the US with nothing but a pair of shorts. He’s now the owner of three successful businesses and his story is hardly unique. Chuck Martel

              Sure. One can accumulate a little capital and go to a bank to leverage that capital with what is essentially counterfeit money. But let’s not call that the “free market.” The banks depend on crucial government privileges* in order to extend much “credit” safely.

              * e.g. deposit insurance from the monetary sovereign, a legal tender lender financed by the monetary sovereign, legal tender laws for private debts, etc.

        • There is no comparison, metaphor or allegory involved with tickets versus currency. They’re two different things. Chuck

          No. Movie or amusement park tickets could easily be used as money if deflationary expectations in fiat cause people to hoard it (fiat).

          Conversely, fiat can be seen as a “stay out of prison for tax evasion” ticket.

          • chuck martel

            Sure, just about anything could be used as money. But a movie ticket would ordinarily be good in only one theater or chain of theaters, severely restricting its use as a medium of exchange. Consumers that prefer swilling beer down at the local would be uninterested in exchanging labor or potatoes for tickets to see the latest incarnation of Batman.

            • Consumers that prefer swilling beer down at the local would be uninterested in exchanging labor or potatoes for tickets to see the latest incarnation of Batman. chuck martel

              Cigarettes were used as money in German POW camps even by non-smokers.

        • “When a patron purchases a theater ticket or airplane ticket or ticket to a Cubs game, they’re renting a seat for a period of time.”

          You seem to be overlooking the obvious presence of the publicy funded forum for which the rentiers gain the seats to be rented. That Cubs stadium is largely publicly funded. I’m not going to do the service of explaining how our airways are facilitated by public, in particular FEDERAL taxation. What theater is not on a public street? Don’t go on a fool’s errand to neglect the obvious in the service of your masters. Fun house mirror indeed, look at yourself.

          • Actually Wrigley Field, where the Cubs make their spastic attempt at baseball, is owned by the Chicago Cubs, who pay property taxes for the privilege of staging their losing efforts at that location. The sophomoric idea that air or ground transport would be impossible without public funding based on federal taxation is ridiculous on its face since such activity isn’t allowed to any significant extent.

  9. “The confiscatory tax suggestions by the ultra-collectivists are actually funny. Why would anyone work at all if their production was commandeered by someone else?”

    I didn’t suggest we tax the workers aka the producers. I suggested taxing excess saving which is destructive (the saving not the taxing).The mass of excess saving is held by the parasite…err ultra-wealthy class.

  10. chuck martel

    I suggested taxing excess saving which is destructive

    Determining what is “excess saving” is subjective, which is why Obama’s comment on people who can “afford” health insurance but don’t buy it and will be penalized is arrogance in fish net stockings and high heels. In a free society an individual gets to make his own decisions about the right amount of savings and if he can afford something. But evidently freedom isn’t very high on your list of requirements. Others, however, still cling to outmoded concepts like the freedom to do as they wish with what they’ve earned.

    • In a free society an individual gets to make his own decisions about the right amount of savings …. chuck martel

      I agree we should have such freedom but we should also be free to use whatever we wish for the payment of private debts. That way, if a particular private currency became too scarce (e.g. due to hoarding) then people could switch to another.

      As for the hoarding of government money, that might be problematic in a society with ethical money creation since:

      1) Government money should ONLY be inexpensive fiat.
      2) Deficit spending (without borrowing!) by the monetary sovereign should be the norm, not the exception. Thus the problem of government money losing purchasing power would exist.
      3) The monetary sovereign is the only proper entity to provide a risk-free fiat storage and transaction service and it should pay no interest for the fiat stored with it. In fact, above certain limits, the monetary sovereign might well charge fees for that service to discourage risk-free saving (hoarding).

      So yes, people should be able to save all they want but not in a rigged game. A government enforced gold standard is one such rigged game.

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  15. Chuck: There is no comparison, metaphor or allegory involved with tickets versus currency. They’re two different things. No they aren’t. They are two instances of the same concepts, just as “a Euro” and “a dollar” are instances of the same concept “currency”. As I said, you need to re-examine your theory of money. A dollar bill is a receipt for, a physical manifestation of a dollar, which is an abstract relationship of credit (to the holder) and debt (of the government). The “theater ticket” is from Keynes – I like it because it is one place where the taxpayer/customer physically sees his “tax money”/ ticket being destroyed before his eyes.

    The patron pays for admittance at the window, receives a ticket, This is parallel to government spending. The theater patron gives his dough to the theater, gets a ticket. The government worker sells his labor, the government contractor sells his valuable garbage, to the government. They get tickets / dollar bills in return.

    At the end.. , the customer is required to leave, his rental of space is over. At the end of a year, after he has paid his taxes, the customer of the government is required to leave “Outside-of-Prison-Land”, or pay his rent / taxes again, to get another year in this amusement park by somehow obtaining a “stay out of prison for tax evasion” (F Beard) ticket = a dollar.

    The lunacy called unemployment is caused when the government refuses to issue enough tickets / dollars, refuses to give people any way to earn them (refuses to have full employment / a Job Guarantee) but continues to demand them to stay outside of prison. A natural response is ticket/dollar-hoarding, which only makes things worse, only makes tickets/dollars harder to obtain of course. (Trying to post in 2 parts, may be too long)

  16. See Wray & Bell (Kelton) ‘s “Financial Aspects of the Social Security Problem” at

    http://www.cfeps.org/pubs/wp/wp5.html

    for comparisons involving subway tokens. Which the NYCTA uses to buy dollars (parallel to the federal government buying labor or resources). When it is a matter of private businesses or even the NYCTA, which of course always ran “token deficits” everybody understands MMT perfectly. But people lose their minds when they start talking about “real money” , thinking that there must be something there – that isn’t.

  17. I find it very interesting that noone has suggested that the real reason for high marginal taxation rates on income is that there is a difference between what may be advantageous for an individual and what is advantageous for the society of which that person is a member.
    While it would be considered very advantageous for an individual to have an income of $50 million per annum, we have seen throughout our history that it is NOT advantageous to society because that person simply cannot put a sufficient amount of that $50 million back into circulation; assuming the person even wanted to do that. Concentrating vast amounts of the products of society, in this case dollars, into fewer and fewer hands starves the economy of its use.
    Which is where high marginal income tax rates come in. The uber-wealthy, whether individuals or corporations, but I repeat myself, can, if they so desire, continue to pay 70%+ tax rates. Or, if they have ANY intelligence, will accept smaller amounts of compensation and use the remainder for investments, which for an individual could include increased wages to employees or, for a corporation could include higher wages for employees, increased spending R&D, modernizing plant facilities, increasing dividends or re-purchasing stock or paying off bonds.
    THIS is how one “grows” and economy and as the economy grows, the deficit decreases (see: Clinton administration). What it doesn’t do is soothe the egos of the uber-wealthy and, seemingly, THAT’S more important that the economic health of an entire country.
    Pity…

  18. If not austerity (of course not as advocated by Samuelson) cutting avoiding expenditures and enhancing taxation, then the other option is Quantity Easing ie printing fiat currency – resulting in killing inflation – and then again resulting in less and less supply of goods and services – another situation of partial unemployment. Sanity demands that fiscal consolidation be exacted and also not to hamper the economic growth.

  19. the other option is Quantity Easing ie printing fiat currency – resulting in killing inflation – and then again resulting in less and less supply of goods and services – another situation of partial unemployment. Sanity demands that fiscal consolidation be exacted and also not to hamper the economic growth.

    No, in all respects. That dichotomy is confused. The “other option” to Austerity is: Not-Austerity. In other words, spending sufficient to have full employment, which means deficit spending right now.

    QE / printing fiat currency is different, it is something which could be done in this context, instead of government “borrowing”= printing fiat bonds. Both the UK & the USA have done major amounts of QE – with no inflationary result, because there is simply no reason for QE to be particularly hypersupermegainflationary. The theories which say there are are composed of specious reasoning based on invalid assumptions having nothing to do with the real world. These illogical theories, which have brainwashed many millions, are the main obstacle to economic growth.

    Indeed, right now, it is practically certain that QE is deflationary, as it has been in Japan for decades. There is no serious prospect of inflation, no matter what the government does. So the upshot is: print the money or the bonds or whatever. Just get people back to work – infinitely preferably through a Job Guarantee, which will create chock-full employment of the kind that the USA hasn’t really seen since the 40s (or, somewhat, 1926 a bit before, or the late 60s a bit after).

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