Memo to Obama: Don’t tie progressive spending policy to progressive tax policy. Each can stand on its own.
Reported today in the Washington Post:
Obama proposes $600 billion in new spending to boost economy
President Obama on Tuesday unveiled an ambitious budget that promised more than $600 billion in fresh spending to boost economic growth over the next decade while also pledging to solve the nation’s borrowing problem by raising taxes on the wealthy, passing an overhaul of immigration laws and cutting health costs without compromising the quality of care. Obama seeks to raise more than $1 trillion – largely by limiting tax breaks that benefit the wealthy — to spend on building roads and bridges, early childhood education and tax credits for the poor.
Here’s the conceit: Uncle Sam is broke. He’s got a borrowing problem. He’s gone hat-in-hand to those who’s got, trying to borrow a few dimes off them. But they are ready to foreclose on his Whitehouse.
Obama knows his economy is tanking. Five and a half years after Wall Street’s crisis, we still have tens of millions of workers without jobs. Even the best-case scenarios don’t see those jobs coming back for years.
Obama will leave office with a legacy of economic failure.
Belt-tightening austerity isn’t working. He wants to spend more, but he doesn’t have more to spend. He’s run up his credit tab at the local saloon and the bar-keep won’t pour another whiskey.
So he’s got an idea: let’s take from the rich, and give to the poor, homeless and jobless. Robin Hood rides to the rescue.
Look we all love Robin Hood. Almost no one outside the One Percenters disagrees with the view that the rich have too much. It is immoral. It is easy to argue that public policy ought to aim at reducing their income and wealth. And giving some to the poor.
If you have any remaining doubt at all that the One Percenters deserve to be dispossessed of much of their wealth, take a look at this segment by Chris Hayes. Kevin Roose crashed their obscene party and secretly recorded their shenanigans. Their hatred of the 99% just oozes from the video.
Or look here at the Mother Jones piece on the Fabulous Fab, who’s now teaching recruits at the University of Chicago for Wall Street’s fraud machine.
No lesson learned. Or, rather, they’ve learned that fraud pays. Big time.
Now to be clear, I do not know that Obama would win on a tax the rich platform; indeed, I’m not sure I even believe he wants to do it. The top One Percenters are not just Bush’s “base”—they also got Obama elected. Twice. And, of course, they are Hillary’s base, too, so get ready for a couple of years of nonstop of the inevitable.
But why link this to Obama’s plans to spend more? You then automatically ensure that anyone against “soak the rich” schemes will oppose the Robin Hood plan to “take from the rich to give to the poor”. It is bad politics to put a poison pill into your stimulus bill.
And it is bad economics, too. Doubly bad.
First, if you are trying to stimulate the economy, you don’t enact a “trillion dollar” tax increase. I do believe there is something to the “balanced budget multiplier”: if you reduce the income of those who don’t want to spend but increase the income of those who do, you will get some stimulus. But we are literally trillions of dollars of spending away from full capacity. And Obama’s plan is, apparently, to tax $1trillion and spend $600billion. Uhmmm. Can he subtract? I calculate a $400 billion shortfall. I doubt the differing spending propensities involved would make that much of a stimulus.
Second, Uncle Sam is the currency issuer. He cannot run out. He cannot become insolvent. He always spends by crediting bank accounts with High Powered Money. He never spends “taxpayer’s money”. Unless we’ve got a nation of counterfeiters, every single dollar that a taxpayer pays to Uncle Sam came from Uncle Sam.
Uncle Sam can never wear out his welcome. As former Deputy Secretary of the Treasury Frank Newman put it: “The bond vigilantes really have it backwards. There is always more demand for treasuries than can be allocated from a limited supply of new issues in each auction; the winners in the auctions get to place their funds in the safest most liquid form of instrument there is for US dollars; the losers are stuck keeping some of their funds in banks, with bank risk.”
Yep, the winners get the safest asset on the planet and the losers are stuck with Wall Street’s toxic waste. You choose.
Y-O-Y would Obama want to muddy the waters by tying a good plan—spending more on roads, bridges and early childhood education (and cutting taxes on the poor—which of course is not “spending” but rather a reduction of income destruction)—to bad economics?
If he delinked and did manage to get the stimulus package he wants, he can still tackle the One-Percenters. As I’ve argued before, Predistribution is much better than Redistribution. First, it is politically more plausible: don’t let the One-Percenters get the outrageous income and wealth in the first place because once they’ve got it, they have all the wealth and power they need to fight to keep it.
Second, it is more coherent. The currency issuer does not operate like Robin Hood. The Sovereign credits the bank accounts of the poor, and debits the accounts of the rich. While we can link these in a sentence, they are logically distinct operations—and we can do either one of them without doing the other.
Heck, I even don’t have a problem with the 1% per se…some of them are hard working people who earned it and not bubble fed.
Besides, as you said it’s damn near impossible to REALLY get anything out of the top earners anyway, I’d rather focus on helping the 99%, bottom up and if need be…forget the rich. Just try to restrain them from hijacking the economy and consuming all political power. I fear it may be the only way to get any good ideas done in America, by no longer “threatening” the rich. Regulation of the FIRE sector and a JG would reduce inequality on its own and quieter.
Anyway, it’s a damn tough dogma to break free from. Most of us normal people live our who lives as households, it’s just hard to think of any entity as not working the same way. ” That spending has to come from somewhere, we cant have the gov go bankrupt!”
Shame none of the MMTers/post keynesians are masochistic enough to run for office. “Pre distribution not redistribution is simple, and the point can be conveyed in a nice 30 second sound bite.
“It is bad politics to put a poison pill into your stimulus bill. And it is bad economics, too.”
For those in power to make decisions on policies towards full employment, how much of the decision making is based on the lack of understanding of how “The Sovereign” operates and how much, if any, is based on a desire to prevent full employment because it may be bad for business of an entrenched elite? I’m not limiting decision makers to members of Congress.
I’m familiar with critiques by people who don’t fully understand MMT (discussed in the most recent podcast with S. Kelton) but are there critiques from people who understand it but just don’t like it?
It all makes perfect sense if Obamas goal is not to actually do anything to fix the problem but to look like he wants to do something and congress won’t let him. It’s keeps up the appearance that the 1% don’t own him the way they owned Bush.
Just checked out the Roose article, (finally back from work). Wow.
I had thoughts about the elite being not just out for themselves, but downright spiteful of us…but saying this would mean “wah socialist” conspiracies and hating on success or whatever. Now it seems quite certain, this all is a joke to them. The gov, and apparently much of academia, is rigged and they laugh about it all.
brian/chris/daniel: I don’t disagree with anything you’ve said. However a correction: Stephanie Kelton did run for higher office and Warren Mosler ran several times, including for Prez of the USA. You cannot go bigger than that.
Given a choice of one or the other, I’d put my efforts into raising living standards at the bottom. I do not think policy can go wrong by directing most of its efforts to helping the least fortunate. Try trickle up, not trickle down.
However, we have a growing problem especially in the USA with the top 1%. They wake up every morning to wage class warfare. And they are winning every battle. Every single dollar of Obama “recovery” has gone to the top; nothing has trickled down to the “bottom” 99%. The globe has never seen anything like this before.
Never knew that about Kelton, however major mistake on my part…forgot that Mosler ran for CT as well as President.
Agreed about trickle up, and class warfare. It’s getting near impossible to think otherwise, shame that so many actually think it’s being waged against the rich!
Is it realistic to say that this is unsustainable Prof Wray? We prevented another GD and have managed to keep the US barely above water, I guess just enough to keep us all numb but the “real” economy is weak, household debt still high and wealth keeps concentrating at the top. I can’t see how this can be maintained, whenever the next recession comes does that topple the house of cards over?
This sounds right to me. If you are talking about raising taxes on the 1% in the context of bringing down the deficit, you have already lost the debate. On the other hand, why not use the language of the 1% and their errand boys (and they are usually boys) and talk about “unleashing”? They’re always concerned with “unleashing” in the context of deregulation as if that is what is holding back the flourishing of bold new innovations (more like another reservation app). Why not talk about unleashing human capital– as loathsome as that term is– with some spending on job creation?
I have a relative who spends a lot of time carping on the 1%. They make her angry. I wish she would get half as angry about the fact that we aren’t spending money on job creation. I cannot convince her that the Clinton surpluses were not the same as a sound economy.
What a sad group of comments on this article over at Naked Capitalism.
Ummmm….no. We simply CANNOT forget about the 1%, because they have all the power and the revenue.
I’ve generally been a supporter of MMT and fiat currency spending, but this suggestion that we ignore the very people responsible for economic inequality is bogus, and sounds more and more like leaning towards right-wing populism.
Hell yes, we need to expand spending for public infrastructure and social needs; and hell yes, we need to dramatically increase income and wages for the 99% (and especially the bottom 30% who suffers the most). But merely allowing the wealthiest to get a free pass on their theft of the public fisc?? Sorry, but this old school Lefty must put his feet down and say: Hell to the NO. Redistribution along with fiat spending is still the way to go.
(That doesn’t mean I don’t oppose the idea of tax increases merely to feed the deficit scolds, like what the Obama Administration seems to always be promoting. That part of this critique I agree with.)
The top 1% wakes up every morning to wage class warfare, but that’s only after they got a good night’s sleep with tax breaks. One follows the other. The Laffer Curve still gets the last laugh, over 40 years after the neo-con/war-criminal dinner in DC in which it was first laid out on a napkin. In this day and age the you have to double down being a conservative by going neo-rogue, first go a touch left to sandbag the malcontents, then go so far right you get to clearcut any opposition to the real problem, which is capitalism, otherwise known in the USA as a kleptocracy. (Unfurl the flag, hate on Keynes, shout about the Consitution and property rights – as needed when symptoms arise)