By Dan Kervick
For most Americans, the news that the US economy contracted by 0.1% in the fourth quarter of 2012, the first quarter of negative growth since the pit of the Great Recession 2009, has undoubtedly come as a disappointing shock. For readers of this blog and the other MMT blogs, however, the emotion felt is probably closer to bitter frustration, since we have all been warning for a very long time about the danger of the utterly misguided austerity drive that has wrecked the European economy, and was officially imported last year to the United States.
Alan B. Krueger, the White House’s Chairman of the Council of Economic Advisers, sought to put the best possible face on this terrible news. As usual with the defenders of the austerity agenda in both the Republican and Democratic camps, they seek to put the blame on “uncertainty” rather than the actual contraction of the government’s fiscal position. This time the uncertainty allegedly resides in the military sector.
Bad economic news connected with military spending no doubt comes at a touchy time for the White House, which is launching a new effort to reduce defense outlays. The White House will try to convince the public that the economic pain is the necessary price for needed budget austerity and defense spending reform. Republicans will seize on this warning sign of a new recession to block reductions in military spending. The conservative American Enterprise Institute, a leading tank of what passes for Republican thinking these days, is already seeking to reposition Republican forces away from austerity and debt-reduction.
They are both wrong. The White House is right about the need for military cuts but dead wrong on austerity. Born-again military Keynesians on the right are correct about the need for federal government fiscal support for the economy, but dead wrong about the desirability of preserving the bloated Bush-era military. After a decade of war, military spending should be cut. But rather than using those cuts to reduce overall government spending, the cuts should be offset and exceeded by expanded government spending on vitally needed, job-creating public investment projects. Taxes on the rich should be increased. But rather than using those increases to reduce the deficit and push a Shared Painer austerity agenda, every dollar of tax increases on the rich should be offset and exceeded by more spending or additional tax breaks for everyone else.
Americans everywhere, understanding the budgetary constraints on their own households and businesses caused by diminishing incomes and debt overhang, have embraced the Washington-lead agenda of tightening the federal government’s budget through some combination of spending cuts and tax increases. Whether we call this agenda “austerity” or “fiscal restriction” or “tightening the government’s belt”, the impulse behind it, understandable as it is from a psychological point of view, is dead wrong from an economic point of view. It is a matter of fundamental, mathematical accounting fact that the budgetary balances of the federal government sector and the non-government sectors in our economy must add up to zero. If the federal government has a deficit, then the portion of spending in our economy falling outside the federal government’s responsibilities – a portion that includes American households and businesses, state and local governments, and foreign households and firms who do business with Americans in the dollar-based economy – must have a spending surplus. If the federal government moves to a smaller deficit, that reduces the spending surplus of the rest of the dollar-based economy. In other words, if the government reduces its deficit, things get tighter for the rest of us.
We are now seeing the effects of the wrongheaded Washington austerity drive. The White House and Congress spent last summer wrangling over the precise shape of a massive government austerity package and a “grand bargain” on the budget. Although full agreement was never reached, the outcome of the negotiations was a fiscal double-whammy that is being implemented in two further negotiated stages. The first hit came with the fiscal cliff deal, which walloped the economy with a substantial package of spending cuts and tax increases. The impact that was felt right away by most Americans was the cancellation of the payroll tax holiday, which resulted in an immediate decrease in take-home pay after the 1st of the year. Not surprisingly, consumer confidence decreased to its lowest level since November, 2011.
The next hit to the economy will come when the sequestration package of spending cuts and tax increases that was also part of last summer’s provisional budget deal begins to take effect in March. This package will implement a $1.2 trillion reduction in the federal government’s net contribution to the economy. Some Americans might be under the impression that the upcoming battle between the White House and Congress is over whether or not to implement that contraction. Not really. It is an argument over how to rework it so that that the same or greater contraction takes place, but with a different mix of tax increases and spending cuts. The White House has spoken of upping the long-term budgetary wallop from $1.2 trillion to $1.5 trillion. Goldman Sachs estimates an overall fiscal drag of about 1.5% of GDP as a result of this two-staged reduction in federal government support for the economy. Given that we just had a quarter of negative growth, experiencing that kind of a drag probably means a new US recession.
Europe continues to struggle. While Europe might no longer be experiencing an acute financial crisis, they are plunged in a deep crisis of low growth, sagging production and massive unemployment. What optimism there is in Europe lately has seemed to come from the feeling that the US is poised to lead the world into a strong recovery. Recent rises in the US stock market and housing market, fueled to some extent by speculation, along with the surge of US fossil fuel fracking, have given some sense of economic hope to Europeans laboring under their own insane and punishing campaign of disaster capitalism austerity and neoliberal restructuring of national governments by Europe’s financial bosses. The global clown prince of austerity, David Cameron, recently had to try to explain away his country’s own recent news of negative fourth quarter growth. It is almost incomprehensible that US political leaders are now copying Cameron’s comical record of manifest, triple-dipping failure. But the bad news from the US will no doubt come as a further blow to Europe, along with China, whose export-dominated economy had also seemed to right itself and surge recently.
Paul Krugman is now leading a growing chorus of mainstream economists with the courage to buck the conventional wisdom and resist the absurd bipartisan mania for austerity. It remains to be seen whether politicians can show similar courage, admit to the public that the economic strategy they have been pursuing is a mistake, and call for a dramatic change in direction. The major politician who shows this kind of courage first is the one who will reap the lion’s share of the political benefits.
Here is what we must do right away: cancel the sequestration. Don’t renegotiate it; don’t modify it; don’t replace a Republican package of cuts-only austerity or a Democratic package of shared pain austerity. Just cancel it.
Next, we need a new commitment to expanded public enterprise and an expanded net federal government contribution to the US economy. An energetic progressive program of public enterprise will finally enable us to break out of the pattern of stagnation, needless suffering, mass unemployment, feckless drift and visionless neglect to which our two foolish and cowardly political parties have been all too happy to consign it since 2008. We have run out of gimmicks. Federal Reserve financial asset games will not bail us out and save the politicians from their responsibilities. We can’t be pulled out of economic failure by QE, QE2, Operation Twist, and other maneuvers that merely adjust the term structures of assets held by the financial sector without directly impacting the real economy where people work and produce to build the country and build prosperity. There is no central bank fix for a sick economy groaning under persistent public underinvestment. The politicians must act.
And even if we are able to frack ourselves into some sort of recovery, a period of growth fueled by a short-term fossil fuels binge is not what most Americans signed on for in the last two elections. Most Americans want Washington to get to work on re-engineering our energy systems to give us a more sustainable economy and healthier planet. A national project to create that new system will create jobs and prosperity. President Obama passed up a golden political opportunity to launch this kind of national project during the BP oil spill disaster, and instead pressed forward with the deficit-reduction austerity politics being sold by Pete Peterson’s minions: the deficit hawks whom Obama appointed to his woefully mistimed and counterproductive Deficit Reduction Commission. These debt hysteria zombies still walk among us in the form of Fix the Debt, another Peterson-funded outfit run by the same cast of characters. It’s time for these nattering nabobs of negativity to take a hike, and get out of the way of national development and progress. Perhaps Obama can find the courage now that he lacked as he stood on a beach in Louisiana in 2010 to watch the Gulf of Mexico fill up with poison.
In 1937, the political leaders of a US economy that was just beginning to emerge from a terrible depression made a tragic decision. They prematurely reduced the US government’s support for the American economy in a misguided effort to move toward budget balance, and plunged the United States back into recession. The Washington of 2013 has a similarly fatal choice. They can either repeat the mistake of 1937 or they can decide to be real, visionary national leaders for a change, and not the small-minded and economically blinkered bean-counters they have become since the global economic crisis began in 2007 and 2008. If they choose to continue with the pusillanimous bean-counting, they will surely pay a heavy political price for their failure, in addition to whatever further price they inflict on the struggling American people and our future generations.
What we have here is a contest of truth vs. nonsense. And all the money is on the side of nonsense. To the media it’s just he said, she said. Content is not important. It’s how much money you have to spend to get your point across. We have billionaires like Pete Peterson and the Koch brothers pouring millions into think tanks and universities to promote the nonsense on behalf of the one percent. Where are the fund raisers on the side of truth? Truth needs a louder megaphone. Until then it’s just a bloggers debating society.
“Where are the fund raisers on the side of truth?”
Truth ain’t profitable.
Documentary makers should be interested about truth. Somebody e-mail them 🙂
Great post.. was very upset to see the negative GDP growth in the headlines today, although certainly not a shocker. Amazing to have a political body that is actively damaging the economy.
Some are doing it on purpose. Some just know not what they do.
Outstanding article, Mr. Dan, outstanding!
And Mr. Elwood’s, ” And all the money is on the side of nonsense.”
No truer words were ever typed, or spoken.
Stupendous article, Mr. Dan!
Although, I would say that the corporate-media always frames it as a “he said, she said” theater of the absurd — anyone who has listened to NPR for four decades realizes they always report the same superficial shallow manner, never, ever getting to the real content!
I was seriously disheartened to read Barry Lynn’s book, Cornered, a redirectional, misdirectional pile of drivel, which had been proofed by econ profs I once had some serious repect for, Prof. John Galbraith and Prof. Ha Joon Chang — but perhaps they both just had a bad day and made a terrible mistake?
Lynn, (I’m addressing the question: ” Where are the fund raisers on the side of truth?”) not surprisingly is a fellow at the New America Foundation, funded by oil people, the Pew Charitable Trusts, and Peter G. Peterson’s Peterson Foundation (Peter G. Peterson/David Rockefeller), completely ignores a major fraud in his book, lightly touching upon it, proclaiming his lack of comprehension, then moving on to the much less significant fraud by David Stockman.
The bigger fraud was Peter G. Peterson’s Blackstone Group’s thievery of a major pension fund through a diabolical series of transactions — now why ever would Barry Lynn ignore such a thing?
Because he’s content to keep receiving those paychecks, stipends and royalties?
When so-called “environmentalists” (paid-to-play writers) such as Richard Heinberg (Post Carbon Institute), Jeremy Rifkin, etc, ad nauseum, make up fantasy stories about the financial meltdown and the economy to both fully excuse, and apologize, for Wall Street and the banksters, is it no wonder people are abjectly bewildered and confused?
Once upon a time, when I was very young, we had fearless investigative reporters like Larry Stern of the Washington Post and Dorothy Kilgallen, but they paid the ultimate price for their fearlessness, with their lives. Kill off enough real journalists, pay off the rest, and reality becomes seriously mushy! ! !
Isn’t that Alan Krueger the same guy who mentioned that US households lost an estimated $17 trillion of wealth, equity and assets between 2007 to 2009, due to the bankster ultra-leveraged meltdown?
Curious how that works out to be the same figure of the sum of those TARP bailout funds from the Treasury, the fees paid to Blackrock, Morgan Stanley, et al, to oversee their disbursement, ($ .9 trillion)and the those funds pumped out around the planet by the Federal Reserve in the same time period ($16.1 trillion)?
I’m becoming a fan (former critic) lately of Paul Krugman.
I’m sorry, I meant Prof. James Galbraith. My mistake.
GDP is not really a good indicator as to how the average person is doing within the economy.
Most of the drop of 0.1% was caused by a contraction in military spending, which would reduce the US Treasury deficit, which both republicans and democrats are calling for.
The minimum wage has remained static at $7.25 per hour since Obama took office. Raising it would put more money in the hands of consumers and at the same time reduce government spending on food stamps and Medicaid ( which is what subsidizes Walmart’s operating costs.)
By contrast France just raised its minimum wage to the equivalent of $12.33 per hour.
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Now would be the time to create an infrastructure bank. With interests rates low, an infrastructure bank could be set up and well funded. We could begin to address the deteriorating infrastructure in this country. If properly conceived, funded and executed (yes a big if) we could initiate a generation’s worth of investment and growth.
It’s probably not going to happen as long as the austerity monkeys continue to have any credibility with the public. Somehow the average person has to be made to understand that the Federal budget is not the same as their household budget, that the analogies are false and actually damaging.
Mark, why do we need an infrastructure bank? The public should be building infrastructure themselves, and retaining it as publicly owned property – not subsidizing private sector investors to build infrastructure and then charge us all fees for using it. I can see the use of an infrastructure bank for financing state government projects. But the rest sounds like a classic neoliberal privatization boondoggle.
We need an infrastructure bank because our MMT dreams of public spending are only going to come true once there’s a way for the owners of this country to get richer thereby.
Or maybe we should send a deputation to go before each of the American residents of the Forbes 400 list, kneel symbolically bare-headed before them, kiss the hem of their robes, and promise that .25 of every dollar spent on infrastructure and public well being will go straight to their coffers.
If the US Treasury assumed sole responsibility for creating money debt free, who would decide where to spend this money aside from Congress ? And since we all know that Congress is a collection of sociopaths hired by corporations to do their bidding, how could we ensure that this debt free money would be put to optimum use ?
Maybe we should just hand it out equally to every citizen and let him or her decide how to spend it.
But this reminds me of when the shares which were issued by the Russian state to everyone, and the oligarchs ended up with all of it.
Dan,
This will be the best summary response to this “surprise” we woke up to this morning penned in the U.S. It should receive much more recognition and readership than it will…. can you submit to NYT or Boston papers as unsolicited op-ed ? just a suggestion… rsp,
I’ll tweet it to them.
A universal and equal bailout of the entire population with new full legal tender fiat would quickly heal the economy.
Why pretend “public enterprise” is needed when only money from the government is needed?
If all you care about is boosting personal consumption with a one-time subsidy, that’s fine. It definitely wouldn’t hurt. But the problems we have in this country can’t be fixed entirely just by giving people some temporarily increased power to buy more stuff and toys. We need a program of national development and strategic economic re-structuring.
All that is needed is restitution for previous looting by the banking cartel and a ban on future looting by the banking cartel. The banking cartel is the obvious villain in this crisis. Why drag in your pet projects when they are superfluous and only attract opposition from those opposed to bigger government?
Obviously we need generous infrastructure spending to counter decades of neglect but beyond that just hand out money to the population.
“Stuff and toys?” Are you revealing elitist disdain for the victims of the counterfeiting and usury cartel?
The government can hand out money to offset what you think the usury cartel stole from you. But that will only give a temporary boost to the economy and won’t heal the disease. We need that kind of direct support for households, but we need much more than that. The US government is deferring reckoning with an increasingly pressing need for the kinds of structural changes and full employment policies that only government-lead public investment and enterprise can accomplish.
But that will only give a temporary boost to the economy and won’t heal the disease. Dan K
The disease is the government backed banking cartel; in addition to a universal bailout, all government backing for the banks, including deposit insurance* and a legal tender lender of last resort should be abolished.
* The monetary sovereign (e.g. US Federal Government) itself should provide a risk-free fiat storage and transaction service for its fiat that pays no interest and makes no loans as part of the NORMAL duties of a money creator.
1.) The post above refers to an “utterly misguided austerity drive.”
Austerity is not “misguided.” Austerity is a carefully guided means to increase the gap between the rich and the rest. In this it succeeds very well.
Austerity mania now eclipses everything, including the “war on terror.” For politicians, media clowns, and average people alike, austerity is more important than jobs, food, housing, medical care, or anything else. All are trumped by the collective drive to make the rich richer and the poor poorer. Anyone who doubts this lives in a dream world.
2.) The post above claims that the White House is “launching a new effort to reduce defense outlays.” This is an illusion, based on media propaganda. The budget for weapons makers will continue to increase, but will be “reformed,” meaning that politicians will concentrate the money in fewer and fewer hands. Federal spending will go to expensive (and unmanned) weapons systems, (e.g. drones), plus high-priced mercenary firms that work on a contract basis. Meanwhile the Navy, for example, has announced that it will eliminate 136,000 jobs and $2 billion from the Virginia economy alone, even though the Navy will get the same money it always has.
It’s all part of austerity mania: the collective push to widen the gap between the 1% and the 99%.
3.) MMT people adore federal taxes, and the above post is no exception to this MMT foolishness. “Taxes on the rich should be increased.” Oh? Exactly how would this benefit the non-rich? MMT people have no answer to this, since it wouldn’t. Reason: the federal government does not need or use tax revenue. (The revenue is effectively destroyed upon receipt).
What the economy needs is lower taxes and more federal spending. (The rich never pay taxes anyway.)
Regarding the “bloated Bush-era military,” I despise warmongering and imperialism, but federal spending on the military is better than no spending at all. Many U.S. communities have greatly benefitted from hosting military bases and weapons contractors, although the communities will soon lose those benefits, and join the rest of the nation in the depression. (See #2 above).
4.) The post above claims that Europe is “no longer be experiencing an acute financial crisis.” I disagree. In Spain, for example, many people continue to eat out of garbage cans (literally).
The purpose of austerity is, in part to sustain perpetual financial crises, which allow the rich to expand the gap between themselves and the peasants.
5.) The post above claims that the first major politician who openly questions austerity mania will “reap the lion’s share of the political benefits.” I disagree. First, the public has been brainwashed into thinking that austerity is right, good, and necessary. Second, political benefits are a function of money (i.e. bribes from the rich). The politician who screams loudest for austerity gets the most benefits.
The idea that MMTers adore taxes is completely wrong. Warren Mosler has repeatedly said we are overtaxed. In this piece I deplored the end of the payroll tax holiday. I personally want to increase taxes on the rich to pursue socio-economic equality, but completely offset them with tax cuts on everyone else.
And the problems now in Spain are no longer a “financial crisis”. It’s about unemployment, stagnation and people’s everyday lives. It’s not about the government not-being able to re-finance its debt. Draghi ended the “financial crisis” stage of the European depression. But the human misery element still remains.
Veblen is as relevant as ever.
“All are trumped by the collective drive to make the rich richer and the poor poorer”. I think I would re-word that to say “All are trumped by the collective drive to make the rich richer and everyone else poorer”. They have already gone all the blood they can squeeze out of the poor and now have their sights set on the middle class. The changing demographics in this country should be clear to them now and I think this is a last ditch effort to grab what they can before the majority wraps their mind around MMT and ends the rentier/FIRE/oligarchy.
No No No. Reduction in federal deficit does not mean less for the private sector. Think about the faucet model: the drain is taxes, the water out of faucet isfederal spending, and the excess in the sink is private sector liquidity. Reducing fed deficit means either reducing the flow from the faucet, increasing the drain through taxation or some combination of both. If you plugged the drain and shut the faucet so that there is no flow in or out there is still liquidity in private sector and deficits are down: stupid example- this year well tax one penny per citizen and give them back two. our deficit will be three hundredmillion pennies.
itsnot just accounting identities bur scale
Reduction in federal deficit means less flow to accrue in non-govt stock. Who said otherwise?
Stocks and flows. If you plug the drain and turn off the faucet, then off course there is a federal deficit/surplus of zero. But that means the non-government sector also has a deficit/surplus of zero. If you want the non-government sector to have an actual surplus, then the government sector needs to have a deficit. Certainly there is economic activity occurring in the non-government sector even if there is no net inflow of financial assets. But in a stagnant economy you do want a net inflow of financial assets, because that represents a net increase in financial claims on output. If the non-government is doing a high-level of debt service then it has a high level of saving and a low level of consumption. And if it is managing to increase the rate of real output, but without a net increase in financial assets, then that is a deflationary situation: nominal value of claims on product are staying flat while product going up. Deflation will ultimately undermine whatever positive productive momentum exists and cause real wealth destruction.
Simpler: the water in the basin just represents the monetary part of the economy. To get consistent real growth you need more than stable money; you need a continuing net inflow.
The “diametrical monetary connundrum condition” at work……for the non govt sect to be +, the federal govt must go -. When govt goes +, the non govt sector goes -. We need some PCS or direct issue currency, i don’t which at this point, but it has to happen.
Dan, you were spot on about the 1937 situation. Can these people in congress not see the correlation.
I’ll tell ya, the fica thing is hitting a lot worse than i think is currently realized. i know many people who have been remarking on how they now have to cut back on some of the discretionary spending they were using the fica cut for. the owner at my local convience store says he’s been getting killed since the beggining of jan with a big drop off in people getting their coffe and bageles, etc in the morning. add to this the sequester cuts, and they’ll drive this thing right back into recession….just like 1937….sheeeez.
and little technical indicator: the s&p is now just about at a tripple top…..either major move north or the dredded drop off (with fica/sequester kicking in, this could be rge more likely)
Same here Jack. People who don’t work with an among lots of people of modest means who live paycheck to paycheck don’t have a clue about what it means to get that kind of hit. It’s not some kind of hidden drain. It’s an obvious thing that you see right there in your paycheck that immediately changes your behavior.
Regarding the 1937 disaster, Obama clearly said in a speech in April 2011 that his fellow Dems were wrong to regard the sudden fall in GDP and the surge in unemployment in 1937 as fiscally related. That means he must accept Friedman’s explanation (now the official GOP line) that the economic damage was solely due to mistaken monetary policy, especially to too much “sterilization” of funds by the Fed.
Since Obama is closer to Reagan than to FDR and believes the problem in 1937 was monetary, he (and Repubs) will not be persuaded by cogent arguments such as Dan’s. He will simply regard them as misguided. Therefore I urge Dan and other MMTers to spend time carefully deconstructing Friedman’s logic and showing the White House and the public why it was not monetary policy that caused the severe damage in 1937. Krugman doesn’t seem interested in making a powerful critique of the monetary policy explanation, so MMTers should take up the slack if they desire to have an impact and block austerity. Preaching to the choir is not enough.
Robert Frank came up with an intriguing idea for helping try to save the planet and tax the rich appropriately at the same time. He called it a progressive consumption tax:-
http://www.nytimes.com/2011/09/18/business/darwin-the-market-whiz.html?_r=0
Do you really think this congress will agree to anything that might help this President? But even before that do you really think this President understands any of this? He is the guy who set up the first deficit commission and who wanted the four trillion dollar grand bargain in 2011. He and the congress are no different than the rulers of Europe. Hell this is the democratic senate that let the filibuster stand so they would have something to hide behind. This is just more of what Bill Black called the grand betrayal. Whatever good you think MMT could do will be lost in MSM punditry — and that is only if there is a spokesman they think worthy of an interview. Hell mint the coin. Only chance there is and that no so much. Here’s hoping I am wrong. Or maybe there will be another bubble and credit expansion to fuel it.
I don’t think most of these guys have an independent thought in their heads Jonf. They’re politicians, and in the end they’ll go whichever way the wind is blowing. It’s the job of the rest of us, now with people like Krugman on our side, to try to change the Zeitgeist, and break the austerity fever. A quarter of negative growth is bad for all of us, but a political opportunity to argue we’re going in the wrong direction.
It’s not about Republicans helping Obama. If DC engineers us into another recession, the first people to pay the political price will be the Republican-dominated House, every member of which is up for reelection very soon – fall 2014. Obama will be pilloried too, but he’s not running for anything. In 2016 it will be an open race between a Democrat and a Republican for the White House, neither party having an advantage.
” In 2016 it will be an open race between a Democrat and a Republican for the White House, neither party having an advantage.”
Sure about that? Perception is reality and the perception is that Obama is a liberal. Republicans are waiting to win big in 2016 to finish off what Obama started.
Yes it’s blowing in the wind. My point is these people think they are doing the right thing. If I were to hope for anything it would be they cancel the sequestration. But I think they will renegotiate it to allow the defense spending and cut something else. We will know before long which way it breaks.
Realistically, the best we can probably hope for is that they replace sequestration with some phony-baloney package of conditional, very long term cuts that sound like a real number but don’t take much of a bite. But who knows? Washington fads and obsessions have changed before.
Yes, but even that would be a victory. Obama’s legacy is on the line here. He is getting pretty much what he asked for. He started the Simpson-Bowles catfood commission and has wantred to reform SS since before his 2008 election. He needs a road to Damascus moment. But even that would be delayed until after the mid term elections. I am most pessimistic on the republicans doing anything at all to help the economy except perhaps watering down the sequestration to help their cronies.
Agreed. I don’t know what can cause that moment. But maybe looking down the barrel of a potential second recession – this one happening on his watch – will be a motivator for Obama.
The problem is if you look at all of the IMF reports, and the elite discussions form all around the world you see that global neoliberalism, the Davos crowd, are all deeply committed to the restructuring and austerity program. The people with the money, not just here in the US but globally, have let the politicians know that if they keep plowing forward with austerity, they will use their media and political party connections and control to make sure they are rewarded electorally. So its going to take some pretty serious and widespread political dissent and disaffection to change things.
Interesting. All of it. In particular the Quixotic Mr K.
I am really worried about this MMTers worries about deficit if marginal taxes are increased. Deficit per se do not matter right now, right?
If marginal taxes are raised on wealthy, those will not produce increased unemployment, it will only raise deficit which is nominal problem. Reason is that wealthy is almost a closed sector today, they invest in financial instruments which are not reaching real economy. They used to reach real sector but not so today. They invest into stock market and income from that is reinvested back, it is a closed sector. Raising taxes on wealthy will not raise unemployment but it has so many socialy desired effects.
Raising marginal taxes will also reduce fraud incentives, it will also strongly reduce incentives to switch income from workers to management which is the most important thing in my thinking. Raise marginal taxes to 90% is the most effective policy to solve the crisis or at least a basis to solve the crisis of saving glut/ zero lower bound for interest rate/ liquidity trap caused by too much savings from wealthy sector which can not find investable place.
MMT community recently discussed the scenario of paying off all government debt, how it would reduce $NFA into the system, but does it really benefit economy if that new $NFA is going to those that will save it instead go into the economy. You know very well that saving $NFA is the problem, it will further contribute to saving glut.
Raising deficit for infrastructure spending is what matters on its own, not because taxes on wealthy sector was raised. That would be important if muliyear inflation eat up savings/ capital accumulation and marginal taxes needed to be slashed to recover savings of wealthy sector just as it was needed in 1970s. But that lowering of marginal taxes gave strong incentives for management to switch income growth from all employees to management only. That raised savings of wealthy to get more power politicaly and against unions to pass more tax cutts after the inflation crisis has gone. WIth that savings they lend it to consumer sector to provide for agregate demand now that income growth did not support it. Those savings were increasing and pushing down interest rates trough Taylor rule and Philips Curve. $NFA from private and public debt were contributing to increasing the savings further and faster and pushing financial inovation/fraud and incentives for Control Fraud/Money Manager system. It is from low marginal taxes that we came to this point of low interest rate and low inflation, and consumption/AG being supported by debt instead by growwing income of consumer sector.
High marginal taxes are the essential policy to get out of GFC.
They are needed to reduce saving glut, they will not reduce unemployment, they will grow only nominal deficit which doesn’t matter now. Right?
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Tax increases on the rich will not reduce poverty.
Poverty reduction can be achieved if the federal minimum wage is raised. I think it should be raised to $13 an hour.
France just raised its minimum wage to the equivalent of $12.333 per hour. Their unemployment rate is 11% compared with 18% in the US.
However, raising it from the current $7.25 per hour to $13 per hour in one step is probably not a good idea. Maybe by $1.00 per hour per year until $15 per hour is reached and thereafter indexing it to the cost of living. Warren Mosler suggests a wage of $8 per hour even for people out of work.
Marginal Tax increase will not reduce poverty imediately but in time. But it will reduce incentive of managers efforts to claim increase of productivity for themselves only. If managers have confiskatory tax on income over a $ 1milion they would not fight with workers for share of productivity increase once they reach that income.
Higher marginal tax on wealthy will not reduce employment, it will come out of their savings which would be otherwise invested in financial products not in more production.
Remember, Tyler, back when Bush #1, President G.H.W. Bush, disconnected the minimum wage from the productivity index? That was after his inaugeration speech beseeching us to all work for free (as volunteers)! The minimum wage today should well be over $20 (more like $26 to $29), if reflective of the productivity scales.
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Dan’s notable “Public Enterprise” surprise is a novel contrast to the wankish private enterprise assumption that is part of the common catechism. I’ve learned much in the few months I’ve followed discussions here. A good bit of the insight in this economic education has come along as the realization that transformative strategies are essential to economic realism. Dan alluded to mainstream economists like Krugman coming around and not only to rejecting the repercussions of an austerity agenda but to rejecting assumptions of future solvency being an issue that requires immediate attention and inflexible terms of structure having no relevance to natural economic unpredictability and emerging social need. My background related to modeling is in the arts. It might amuse any UMKC faculty reading this comment that I worked with Gerald Kemner and James Mobberly as well as June Jetter and Murkin during my undergraduate stint at that institution.
When reading comments related to many of the posts offered in this forum, I often come away from them with a sense that the complexity of variables hasn’t fully coalesced into a transformative strategy. Economic stability is the weight that Macroeconomics seeks an appropriate fulcrum to more predictably move. As a thought experiment let me offer one form of transformative modeling to suggest approaches where mixed variables can be classed as either more flexible or less flexible and then applying it to the changing terms of resources to provide a more coherent result as they evolve in time. While my example takes the form of poetry, I hope following and playing along with the final result is at the very least amusing. 🙂
Experiments using specific transformative constructs yield limited but predictable projections of sets based on expanding variables and variations. For example, consider two control factors one which allows a single transformation when it is encountered, and one which allows an initial transformation followed by an evaluation and then the option of a secondary alteration. For purposes of visualization, the first control factor is a line segment ( ___ ) and the second factor is two line segments ( _ _ ). Expanding on these factors by randomly choosing six and ordering them vertically, will obtain a result of a single set drawn from discreet permutations of these two variables.
One single construct produced by these selective means would appear like this example and be one of 64 possible constructs, a discreet set of transformative potentials.
____ = t
__ __ = (t)t
__ __ = (t)t
____ =t
__ __ = (t)t
____ = t
If this model were to be explored for potential to generate or restrict growth in less abstract terms each control factor must be reassigned as a resource. An example using words as a resource to generate phrases and a coherent whole illustrates how this can progress. A bare-bones “first thought-best thought” v.s. critical option will be the Zen of the process and the original resources will be projected through the model 4x in transforming units. and the initial development of each resource be considered its 1st transformation. Stable transformations(no observable change) will be considered coherent transformations. [Note: Open screen and comment window fully to accommodate page layout.]
Read = ____ ( t ) =
excursion = __ __ [ (t)t] =
cantilever = __ __ [ (t)t] =
hocus-pocus = ____ (t) =
venal = __ __ [ (t)t] =
corpuscular = ____ ( t) =
Read x ____ = t Read
excursion x __ __ = (t)t all the way to the last period of the final word of the back cover
cantilever x __ __ = (t)t lay it on the table until it almost rocks precariously on the edge
hocus-pocus x ____ =t hocus-pocus
venal x __ __ = (t)t what argument allows it to persist against gravity
corpuscular x ____ = t corpuscular
——————————————————————————–
Read x t = Read what can only be called a kiss
all the way to the last period of x (t)t = (all the way to the last period of the final word of the (book’s)back cover)
all the way to the last period of the final word of the book’s back cover,trace your finger across the flesh of its spine
lay it on the table until it almost x (t)t = ( lay it on the table until it almost rocks precariously on the edge,[spread open the hard cover] )
rocks precariously on the edge lay it on the table until it almost rocks precariously on the edge,spread it open page by page
put your finger on the one word where you understood it completely
hocus-pocus x t = Magic and willingness go hand in hand across the unfathomable
what argument allows it x (t)t = (in agreement they persist against gravity) in agreement they persist against gravity for the sake of “falling in” and falling inward.
to persist against gravity
corpuscular x t = translating inertia into a concept of force, is a quaint sentiment of what now cannot be undone.
——————————————————————————————————————————————————
Read what can only be called a kiss x t = Read what can only be called a kiss. (stable transformation)
all the way to the last period of the final word of the book’s back cover, x(t)t = (stable transformation)
trace your finger across the flesh of its spine
lay it on the table until it almost rocks precariously on the edge,spread it open page by page x (t)t = (lay it on the table until it almost rocks (precipitiously) on the edge,spread it open page by page
put your finger on the one word where you understood it completely)
lay it on the table until it precipitiously rocks on the edge,spread it open page by page,
then put your touch on the one word where you understand completely.
Magic and willingness go hand in hand across the unfathomable x t (stable transformation)
in agreement they persist against gravity for the sake of “falling in” and falling inward. x (t)t (stable transformation)stable transformation
translating inertia into a concept of force, is a quaint sentiment of what now cannot be undone. x t translating inertia into a concept of force, is a quaint sentiment of what now cannot be undone
(by any lesser theory of light.)
——————————————————————————————————————————————————————————-
At this point I’m satisfied to grant stable status to all variables, excepting punctuation changes.
Read what can only be called a kiss,
all the way to the last period of the final word of the book’s back cover.
Trace your finger across the flesh of its spine,
lay it on the table until it precipitiously rocks on the edge,spread it open page by page,
then put your touch on the one word where you understand completely.
Magic and willingness go hand in hand across the unfathomable,
in agreement they persist against gravity for the sake of “falling in” and falling inward.
Translating inertia into a concept of force, is a quaint sentiment of what now cannot be undone
by any lesser theory of light.
By way of an aside, I flunked a inter-disipline seminar final when I answered a specific essay problem with a poem titled a “A Suicide of X’s”. God. I loved Kemner 🙂
An excellent and long overdue article.
The only thing I would differ with is that while raising the minimum wage is most certainly one of the absolute must-do tactics (along with a major public jobs program, Medicare For All, and re-regulation of finance for public good rather than private gain), I’d still go a lot bigger than merely $1/hr incremental increases. Given the state of personal debt today, most incremental gains in wages would simply be eaten up by service to credit card debt, payday loan debt, student loan debt, increased costs and fees for essential services, etc., etc. Without a prolonged campaign to eliminate and repudiate illegitimate debt collection, as well as control if not totally eliminate the usurous price gouging of working class communities via “rent-to-own” and payday loan advance loansharking schemes, any minimal increase in the minimum wage will simply be delayed transfers of wealth upwards.
Also…increasing the minimum wage should not be used as an excuse for business to punish long-time workers who have been productive through their work span; there needs to be indexing of the minimum wage not only for inflation, but also for years of job experience; with protections for workers over 5 years not having to have their wages and/or benefits rolled back to nothing on the whim of management. People who have been in the workforce for over 5 years should not be reduced to making $8/hour working 30 hours a week.
Tax increases on the wealthy (through the return of the “ability to pay” concept of progressive taxation and the belief that income from work should be taxed the same ,or slightly less, than income from playing “casino capitalism”) may not have nearly as much of a fiscal effect, but it would serve to neuter some of the fears of inflation from the use of deficit spending (or the expansion of the fiat currency money supply) for social spending and public infrastructure.
Only question remaining is: what political force is there to challenge the austerity consensus of Center and Right?? Or, will it have to be a new, Independent Left that will have to emerge to put policy to practice??
I’m calling that new trend “public enterprise progressivism”