Eric Cantor weighed in today at Quora on the balanced budget Amendment. This is what he said:
Once created, government programs build constituencies of special interests determined to keep the money flowing, whether or not the particular program is effective. There have been many times when the House has placed wasteful and duplicative programs on the chopping block, only to see pressure from the spending lobby win the day in the Senate.
Near-term spending cuts are necessary to alter the course, but they will not be enough without long-term changes. Likewise, promises of cuts 10 years from now mean little without a way to enforce them. The only way to truly guarantee delivery from future elected officials is for the Constitution to demand it.
To that end, the House has scheduled a vote on a balanced budget amendment that would require supermajorities in both chambers to run a deficit, raise the debt ceiling, raise taxes and spend more than 18% of the GDP. With the balanced budget movement gaining momentum, members of the spending lobby want to argue that Congress and the President already have the ability to control spending. Ability and discipline are not the same. If Washington actually had the discipline to live within its means over the long-term, every American citizen would not owe $46,000 toward the national debt.
In my view, the importance of these upcoming votes cannot be overstated. The adoption of a Balanced Budget Amendment would make reckless borrowing a thing of the past, and will ensure that our children enjoy futures full of opportunity.
Democrats and Republicans should join together to do the right thing, pass this amendment, and make a real difference for the future of our country.
This is the old, false, Government is like a household shtick, limited in its revenue to what it can raise from taxing, and borrowing,with the further claim, that we as individuals owe the national debt, even though it is the Government and not ourselves that contracted to pay back the principal and interest on it. I replied to his comment at Quora in this way (plus a bit of editing below):
As usual you’re talking nonsense. The level of debt subject to the limit or the level of the debt-to-GDP ratio, have nothing to do with the ability of the US Government to pay its debts because the US has a non-convertible fiat currency with a floating exchange rate and no debts in any foreign currency. Since it is the currency issuer it can always pay its debts by creating new money which it does now through the interaction of the Fed and the Treasury.
However, if you don’t believe this, a fact admitted by Greenspan and Bernanke, and the debt bothers you so much, then please pay it off this way, and avoid both higher taxes and harmful spending reductions as well. Of course, spending will still exceed tax revenues, but who will care if the Government pays for the difference without additional taxing or issuing new debt?
Btw, every American does not owe $46,000 for the debt. It’s the Government that contracted the debt, and it’s the Government that owes it. This is a good thing, because you, and I, and very other American are not currency issuers like our Federal Government and so, cannot repay every debt we incur regardless of its size. But, again, the Federal Government can do that.
That’s one very important difference between it, on the one hand, and our households, our corporations, our non-profits, and our State and local Governments, on the other. All are currency users limited in their spending in the end by their income and outgo of a limited supply of currency and reserves.
However, our founders wisely created our nation as a currency issuer. And now, you propose to diminish our sovereignty, by stupidly amending one of their prime achievements. You should be ashamed of yourself, along with all the other Federal office holders who serve corporate and wealthy interests at the expense of this nation and 99% of the American people!
Meanwhile Jack Trammell, the lucky Democrat who benefited from Cantor losing the Republican primary, has decided to run on the same myths about households and balanced budgets that Cantor is supporting at Quora — show once again, that the austerity idiocy besetting much of the nation, is shared by candidates on both sides of the Party duopoly. What’s a voter who wants to vote for someone not buying into any further real fiscal irresponsibility, nay, fiscal insanity, to do?
In answer your closing question Doc, I’ll offer that the answer is NOT to exit from the democratic process. “Millenials” are predicted to abstain from this election (Nov 2014). VOTE, you people! I live in red-state country, so I had no good choices on my ballot, but I pencilled in the names of… persons OTHER than the republicans on the ballot. People who think the best way to change the status quo is outside the democratic process have forgotten that democracy is institutionalized (and scheduled) revolution. And that’s good! The revolution will be televised! So, to hopefully effect a good outcome, I study my economics to be an informed elector, write my congress-persons letters and I slay trolls as deftly as I can manage (the pen is mightier than the sword, pay attention you gun-nuts). It ain’t awluz purty, ‘cuz some economists out there still employ terms of artless-ness — as Carmen Reinhart recently did — like “economic collapse,” which is henny-pennyspeak for inflation (I think). So despite pop-culture’s infatuation with undead zombies, the really pesky zombies are actually troll goldbugs, the hyperinflation hyperventilators, and of course the apologists for laissez-faire economics which is somehow conflated with Reaganomics.
I have a question for the instructors at NEP. Preface: I observe that there is a lot of debate about how money is created in a fiat currency system. There should not be a debate on this question. My question: I would like to see… a bibliography and list of the regulations and laws that memorialize and govern the existing systems. Since the MMT description is posited as , it seems that the Fed and the Treasury should be quite clear in how they work and what their limitations are. We the people should not have to talk about the currency as though it’s something mystical. And economics should not be a religionistic endeavor where knowledge is dispensed by a cabal of theologists like Cantor and his ilk. Cantor… what a suitable name.
Cantors are not theologists or theologians; they are just people who sing prayers. On clear MMT descriptions of the details of money. I think Randy Wray did a very good, and quite accessible, job in his Modern Modern Theory Primer. A preliminary version of the primer is here on the NEP site, but I’d recommend his book, which bears reading and re-reading. There’s also a bibliography on this site of MMT scholarship (See the tabs at the top of the page above for both these references).
Also, I’m not an MMT instructor in the academic sense of the word. My Ph.D. is in political science (MSU, 1965), and most of my post-Ph.D. work has been interdisciplinary, and not in academia since 1975. I am a frequent writer on MMT, but I’m sure you’ve noticed that I work mostly the political side of the MMT street, and leave the heavy MMT economics to my friends on this site and elsewhere.
Something about your blog site ‘bot truncated my sentence. I wrote “Since MMT is posited as ‘the way things are,’ it seems that the Fed and Treasury should be quite clear in how they work and what their limitations are.”
Thanks, -Erick
There are people people at Treasury and the Fed who do understand how the fiat system works. A case in point is former high-level Treasury official Frank Newman, whose book is very well thought of here. Also, both Alan Greenspan and Ben Bernanke made pretty plain statements showing that they understood the mechanics of money creation by the Fed. If you watch some of Stephanie Kelton’s talks on youtube, you’ll find she frequently uses clips of them making it clear that the Fed generates reserves through keystrokes on its computers.
Thanks, Joe. I have seen the Paul Ryan and Alan Greenspan segments. I know what they said is true of course but those remarks are easy to sweep under the rug. I am looking for something with which to build a slam-dunk case, so to speak. I suppose that what we all wish. Wray’s primer is not the text of the law and I think that’s why MMT remains “debateable.” That’s my whole point. This stuff should not be debateable at all. Unless, Joe, you mean to say that Wray provided what I was asking for? I haven’t read the entire primer. I suppose it would be 12 CFR Banks and Banking, 26 CFR Internal Revenue. Geez, I have other homework to do. I can’t get to it!
The rif in national politics is along the lines of what people think about money, what it really is and where it comes from. It is the unspoken disagreement in politics. Someone, somewhere needs to put the issue on the table and have the American people debate the issue.
We’ve been doing that for years; but the mainstream just won’t debate it.
There is too much to lose. The mainstream media will never lead the effort to start the debate. It has to be a leader/politician who forces the issue into a public debate but they are afraid. The “budget like a good housewife” narrative holds sway on too many voters. You need to find a politician/leader who can win and who will make bringing the subject into a debate his mission.
Hi Charles3000 and Joe
I wonder if a more populist super-president might win on the question of financialisation and rents (I understand that Roesevelt was also a man with Wall St backing, and failed rapidly to stem the actions of the deficit hawks. The US was perhaps ”bailed out’ for 30 years by WW2 and Europe’s devastation) rather than winning the house keeping argument? I’m sorry if this sounds flippant. The more I pursue this line of rewasoning the more depressed I feel. I think I’ll just simply say that I can’t predict the future.
Jim
Jim, I’ll give you my answer. FDR saved the banks and bankers by closing the banks and taking away gold backing. If he hadn’t the banks would have been stripped of gold and those people (3 out of 4 per Fed original reserve requirement) who got none may have turned on the bankers personally as they did in England in bygone years. It is a side issue but I think the US was bailed out by the work agencies (CCC, WPA…), the RFC bank and the issuance of US Notes during the war. The real issue, and your reaction corroborates it, is the issue I state above, we need a national discussion about money and wealth, what they are and what they are not.
Charles, the CCC and WPA were federal programs to employ people, build things (some of which have become national landmarks) and effectively stimulate aggregate demand. You seem characterize them as agencies that provided “bailout” funds to rescue a failed… “U.S.” as you wrote. I say there are problematic implications with your word choices. My two cents.
I stand corrected, Erick. “recover” would have been a better choice of words in that context.
Cool. But gentlemen, I’m still craving citations of law that stipulate how the national currency works. Being a friend of MMT, I’m expecting those to verify MMT’s position regarding “the way it works.” Sure, I have to become the change I wish to see in the world (so it’s my homework not yours), but gosh golly I’m not an economist and I don’t know where to look, and I have lots of other “homework” to do. The reason this is important is because I’m still puzzled that there is any disagreement about the national debt. Yeah, I know Greenspan and Bernanke and even Warren Buffet have made remarks indicating that the U.S. will never face a solvency problem, but the deficit hawks surely must think they were being flippant. I believe that anyone who thinks critically about the current state of the nation will see that the national political conversation is distorted by this issue, and that our well-being is also suppressed. I believe I can actually feel (observe) the fiscal squeeze. Mosler would describe the system as being “in default.”