Tag Archives: Marshall Auerback

Upcoming Appearances

Catch our bloggers live and in person.  Bill Black speaks tonight at UMKC and Marshall Auerback will speak at an event in Amsterdam on Wednesday, Sept 21st, and he will speak in Dublin on Thursday, Sept. 22nd.  Visit our Upcoming Appearances page for more details.
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Marshall Auerback on Fox Business: Obama Closer to Tea Party than Democrats

Here is Marshall Auerback’s latest appearance on Fox Business, where he makes the argument that Barack Obama’s deficit cutting ambitions place him closer to the Tea Party than his own Democrats.

Watch the latest video at video.foxbusiness.com

Barack Obama: America’s First Tea Party President

By Marshall Auerback

For all his talk of the importance of averting a debt default, Barack Obama.is increasingly signaling that major deficit reduction has become more than just a bargaining chip to bring Republicans aboard on a debt deal. He actually believes that cutting entitlements and reducing the deficit are laudable goals, which would mark “transformational” moments in his President. Let’s face it: the man is not a progressive in any sense of the word; he’s a Tea Party President through and through.

To be sure, it’s tough to make the case that the Tea Party has anything like a genuinely coherent political platform. They hate entitlements, but one of their leading voices in the Senate, Rand Paul, conspicuously avoided any talk of cutting Medicare during his campaign (unsurprising, given how much of his income as an ophthalmologist involved treating Medicare patients). They also have a Presidential candidate, Michelle Bachmann, pledging never to raise the debt ceiling, yet proposing to slash the federal corporate income tax and eliminate the capital gains and estate taxes.

But for the most part, a common thread amongst the Tea Party is a visceral dislike of “excessive” government spending. Virtually all buy into the notion that the federal debt levels are “unsustainable” and that entitlements, really need to be “reformed” (i.e. cut back). In that regard, their aspirations appear to be more in line with the President, than their ostensible GOP allies, one of whom is, Senator Mitch McConnell. The Senate Minority Leader has proposed giving President Obama the power to raise the debt limit on his own through the end of his first term, but to force Democrats to take a series of votes on the debt limit in the months leading up to the election. This would stave off the threat of defaulting on national obligations, but would make the President politically responsible for all subsequent spending cuts and/or tax increases.

On the surface, this would seem to be a great deal for President Obama. He could in theory simply take up Senator McConnell’s offer, raise the debt ceiling and avoid the self-inflicted insanity of draining $4 trillion of aggregate demand from an economy still reeling from massive underemployment and wasted resources. Or the President could, as we and others have suggested in the past, simply invoke the 14th amendment and refuse to enforce a statute that he believes violates the Constitution.

Professor Scott Fullwiler has suggested an even more creative way around the debt ceiling: Fullwiler notes that Fed is the monopoly supplier of reserve balances, but that the US Constitution bestows upon the US Treasury the authority to mint coins (particularly platinum coins). Future deficit spending by the federal government could thereby continue to be carried out by minting coins and depositing them in the Treasury’s account at the Fed (for more details see here). Curiously, the President won’t pursue any of these options. What’s the problem?

If, for example, the President genuinely believes that the 14th Amendment does not give him the right to ignore the debt ceiling, he has been loath to give any reasoning for this publicly. Why not? He is, after all, a constitutional law professor. Yet, much like the single payer option during the health care debate, the President refuses to put the legal argument on the table, even as a negotiating posture. Is it caution, or does the President genuinely believe this guff about the deficit?

By the same token, the President might well dismiss Scott Fullwiler’s idea as nothing more than a “gimmick”. But if the alternative is something which (in the words of Mr Geithner), could create “catastrophic damage across the American economy and across the global economy”, then why not deploy this “gimmick” to avert a default?

After all, as Bill Mitchell has pointed out:

“[T]he whole edifice surrounding government spending and bond-issuance is also ‘just an accounting gimmick’. The mainstream make much of what they call the government budget constraint as if it is an a priori financial constraint when in fact it is just an accounting statement of the monetary operations surrounding government spending and taxation and debt-issuance.

There are political gimmicks too that lead to the US government issuing debt to match their net public spending. These just hide the fact that in terms of the intrinsic characteristics of the monetary system the US government is never revenue constrained because it is the monopoly issuer of the currency. Which makes the whole debt ceiling debate a political and accounting gimmick.”

The fact is that when a President really wants to spend money, he can almost always find a way to do so. During the Clinton Administration, Treasury Secretary Rubin and Deputy Treasury Secretary Summers did an end-around Congress (which was seeking to prevent the use of government money as support for a bailout of Mexico – or more accurately, a bailout for Wall Street banks which had foolishly lost money investing in Mexico) through the deployment of the little known “Exchange Stabilization Fund”.

Until then, the ESF had been an obscure entity, the Treasury’s own honey pot, established by a long-forgotten provision in the Gold Reserve Act of January 31, 1934 for the purpose of stabilizing the exchange value of the dollar. The ESF was certainly not created simply to help the President go around the backs of Congress. Yet the President did it and in effect called the GOP’s bluff (and, for the record, the Republicans never went to the courts to challenge the decision; they waited for the far more important event of the President having sexual relations in the White House with Monica Lewinsky before going the legal route).

To be sure, one can argue that Mr. Clinton was serving his patrons on Wall Street, when he performed this action. But whatever the motivations underlying the use of the ESF, it made clear that Bill Clinton wanted to spend government money and got his Administration to find ways around the opposition of Congress. Call it a gimmick, but however questionable the motives underlying the action, it showed a President prepared to fight for what he thought was an important objective. Clinton certainly didn’t try to jump ahead of Congress on this issue. He fought them. Arguably, it set the stage for the more aggressive fight to keep the US from defaulting in 1995, during which the Gingrich-led Congress sought to shut down the government by initially refusing to sanction an increase in the debt ceiling.

By contrast, this President has apparently fallen in love with the idea of being the biggest deficit hawk in Washington, DC. In fact, last Sunday, the White House chief of staff, William M. Daley, said on “This Week” on ABC that Mr. Obama would continue to push for a major deal to reduce the deficit. “Everyone agrees that a number around $4 trillion is the number that will make a serious dent in our deficit,” Mr. Daley said. “He didn’t come to this town to do little things. He came to do big things.”

“Big things” – like destroying the New Deal and what’s left of The Great Society. Who knew this is what Obama meant when he said he wanted to be a “transformational President” like Ronald Reagan? He’s gone a lot further than Reagan dared to contemplate on the issue of entitlement cuts. President Obama actually believes this poisonous nonsense about the US on the verge of becoming “the next Greece”. This was confirmed yesterday by Press Secretary Jay Carney, who said of McConnell’s proposal that it was not the President’s “preferred option.”  McConnell’s proposal for avoiding debt default — to transfer full power to raise the debt ceiling to the White House for the remainder of Obama’s current term, cutting Congress out of the process — does nothing to address deficit reduction, Carney said. And Obama is set on making sizable cuts.

Yet again, the President shows profound confusion on the issue of the deficit. He fails to understand that if private spending is lagging then public spending has to fill the gap. Otherwise output and employment growth will be sluggish if not negative. To cut into the huge pool of unemployed and underemployed labor, employment growth has to be faster than labor force growth, which means that real GDP growth has to be faster than the sum of labor force and labor productivity growth.

These facts are very simple and indisputable. Cutting public spending at this juncture is the last thing the US government should be doing. Yet this President is pushing for the largest possible cuts that he can on the Federal government debt. He is out-Hoovering the GOP on this issue. He is providing “leadership” of the sort which is infuriating his base, but should endear him to the Tea Party. This is “the big thing” for Barack Obama, as opposed to maximizing the potential of his fellow Americans by seeking to eliminate the scourge of unemployment. Instead, his big idea is to become the president who did what George Bush could not, or did not, dare to do: cut Medicare, Medicaid and Social Security. What more could the Tea Party possibly want?

Marshall Auerback Interviewed on Squeeze Play

NEP Blogger Marshall Auerback was interviewed yesterday on Greece and the Eurozone on BNN’s Squeeze Play.  Click here to watch.

Tim Pawlenty Blurs the Distinction Between an Entrepreneur and a Rentier

By Marshall Auerback

In a private email exchange, Michael Lind of the
New America Foundation drew my attention to a recent speech by Republican Presidential candidate Tim Pawlenty. Like those of us who blog on this site, Pawlenty thinks we need to cut taxes.  But, as Jon Ward at HuffPost argued, Pawlenty’s justification for tax relief “took him into unusual — and scatological — rhetorical territory.” 

Pawlenty said that about five percent of the population belongs to the entrepreneurial class and that “if that five percent become six, seven percent, we’ve got a very bright future. And if that five percent becomes four, three, two or one percent, we’re in deep doo doo. We are in deep crap.”

He’s given away the Rentier mindset.  He talks about “entrepreneurs” but he’s really talking about rentiers.

About 10 percent of the US population is self-employed, the majority of them lawn mowers and such.  Clearly Pawlenty’s tax cuts aren’t aimed at expanding the group of self-employed lawn mowers by one or two percent of the population. He’s talking about expanding the richest few percent.

He’s talking about capitalists, not entrepreneurs.  There’s a certain overlap, but most capitalists are not entrepreneurs and vice versa.  Most capitalists are passive investors in businesses they know nothing about and most entrepreneurs are unable to fund their businesses without borrowing. 

The rentier right wants to blur this distinction, so 2-year-old Junior Moneybags, whose trust fund is earning money while he barfs on the family maid, is an “entrepreneur.”

Does stimulus work? Marshall Auerback on Deficit Hysteria

Watch it here.

Which Party Poses the Real Risk to Social Security’s Future? (Hint: it’s not Republicans)

By Marshall Auerback
** Originally posted at ND 2.0

New Economics Perspectives contributor Marshall Auerback takes aim at the party of FDR.


RAB Capital’s Marshall Auerback on the CBO’s Report

Watch the latest video at video.foxbusiness.com


By Marshall Auerback

Deficit spending by the government is merely the counterpart of private sector saving. What government deficit spending does is to permit the private sector to achieve its level of desired saving. When the latter changes, government spending ought to be adjusting in the opposite direction to offset it (unless the current account balance happens to do the job).

But consider the implications of what happens if one the economy’s three major sectors – in this case, the corporate sector – retains savings above and beyond that required to reinvest and establish growth in the productive economy.

If one examines recent cases in which the corporate sector remained a net saver, both the Japanese and Canadian experiences spring to mind. Even today, Japan’s corporate sector remains the largest repository of non-government savings, yet employment growth is virtually non-existent. Similarly, during the 1990s, the Canadian household sector was a net lender in the 1980s and 1990s and the corporate sector was a net borrower.  So the biggest adjustment that came via Canada’s export boom was a huge increase in corporate savings during the years of Paul Martin’s fiscal austerity drive.  But these savings were not really deployed aggressively for reinvestment in the productive economy and, hence, job creation.

As Professor Mario Seccareccia of the University of Ottawa has noted in a recent paper, in Canada during the latter half of the 1990s and during the subsequent decade, the corporate sector began to act like Keynes’s economic rentiers (“The Role of Public Investment in a Coordinated “Exit Strategy” to Promote Long-Term Growth: The Keynes Legacy”). An implication to be drawn from this analysis is that even when corporations build up massive savings, as they are now doing in Japan (and as they did in Canada in the mid-1990s), one ought to pose the question: if those profits are not being reinvested to create further job growth, shouldn’t the government tax them, so that it can use the fiscal resources itself to move policy in that direction? 

As Seccareccia notes in the Canadian context, massive build ups of cash flow can and did facilitate all sorts of mischief – zaitech (i.e. financial engineering), accounting frauds, control fraud:   

“[T]his reversal of the net lending/borrowing position of the business and household sectors is of critical importance in understanding the evolution of financial capitalism over the last decade, with much of the speculative drive having been fueled by the growing savings of the corporate sector. It was the rentier behaviour of the corporate sector, with the latter finding it ever more lucrative to engage in financial acquisitions, which largely led to an abandoning of productive investment since the 1990s.”

In this context, the entire economy becomes financialised and therefore far less productive and more prone to fraud and higher rates of unemployment.  We see evidence of this in figure 1, which shows that recessions have been preceded by a build-up of corporate savings. But it serves the interests of the economic rentiers.  This is exactly what happened in Canada and has happened all over the world in the past decade.

It is true that taxing the savings of the corporate rentiers in itself will not necessarily lead to more spending in the economy. And from a Modern Monetary Theory (MMT) perspective, it is also the case that the government does not “need” the so-called fiscal resources to spend. The government is never revenue constrained per se and could easily do more regardless of its take on corporate tax receipts. 

In making this concession, my point was not that corporate tax receipts are required for the government to spend, but more that the threat of taxation might induce the corporate sector to do some of the government’s “heavy lifting” on the job creation front. There’s some political advantage here because, as we are witnessing today, there are profoundly strong forces currently mobilizing against government spending on the spurious grounds of “fiscal sustainability.” 

So let’s call their bluff.

There are additional social benefits to be derived from this proposal. If the government taxes excess corporate savings, it means there are fewer corresponding opportunities for corporate financial engineering, control frauds, etc., and therefore greater financial stability as you have an economy less prone to financialisation. That’s an unalloyed social good.

In effect, this becomes a tax aimed explicitly at the corporate rentiers who are not reinvesting their super profits in tangible capital equipment, except in tech/telecom bubbles, or in Chinese malinvestment schemes, etc. And it serves an ideological purpose of a) forcing nonfinancial capitalists to, well, be capitalists, not speculators, and b) ties the deficit reduction initiatives, which, as we have argued many times in the past, are insane and suicidal, but are nonetheless being carried out, to making the rentiers pay their “fair share.”  

The deficit hawks have gained significant policy traction, but we need to perform whatever jiu jitsu we can to point the finger at the real source of the so called “savings glut”, which is lack of corporate reinvestment in anything but zaitech, payouts, financial engineering, and other delights of casino capitalism. We have to demystify what it means to have the whole system geared to serve “shareholder value,” and we have to demonstrate that capitalists are failing to serve their role before a large consensus behind public and public/private investment initiatives can be rebuilt from the ashes of Austeria.

It appears that massive build ups of cash flow facilitate all sorts of mischief – zaitech (i.e. financial engineering), accounting frauds, control fraud, etc. And this would be about the time modern compensation systems began to change, tying, more and more, management bonuses to share price. So you see firms “investing” their earnings in massive buybacks of their own stocks.

In Canada, the reversal of the net lending/borrowing position of the business and household sectors is of critical importance in understanding the evolution of financial capitalism over the last decade, with much of the speculative drive having been fueled by the growing savings of the corporate sector. It was the rentier behaviour of the corporate sector, with the latter finding it ever more lucrative to engage in financial acquisitions, which largely led to an abandoning of productive investment since the 1990s.

When an economy becomes financialised and therefore far less productive, it becomes more prone to fraud, greater financial instability, and higher rates of unemployment.  But it serves the interests of the economic rentiers.   Minsky was right:  you need a “big government” to act as a stabilising bulwark against the financialisation of the economy.  Taxing retained corporate earnings is clearly another aspect of dealing with the ravages of money market capitalism.

“What Greece’s Bailout Means for U.S. Markets”

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