The Dangerous Lure of Austerity to Progressives Seeking to Reduce Pentagon Spending

By William K. Black

William K. Black

I spent today in Washington, DC presenting and attending a conference put together by Ralph Nader on left-right convergence.  The theme was that there were many issues on which large elements of the left and right agreed and could change existing policies if they worked together.  I spoke about the desirability of effective financial regulation to break the Gresham’s dynamic and prevent or at least minimize the damage of future financial crises and the desirability of prosecuting the elites that run financial “control frauds.”

The disturbing aspect of the conference was on the left.  The irony is that the disturbing nature was hi-lighted by Grover Norquist’s talk.  Norquist’s theme was that the standard for such collaboration should not be compromise and quid pro quo agreements to create a winning coalition, but strong agreement by both sides on a common policy.  Both of the speakers from the “left” on cutting Pentagon spending emphasized the need to do so due to “the budget” and “the debt” crisis.  Several members of the audience who identified with the “left” expanded on that theme.  The representatives of the “right” eagerly pushed the same meme.  One added his supposed shock that younger Americans were not enraged by the crushing debt the baby boomers were supposedly bequeathing them.  No one on the “left” or “right” pushed back against these odes to austerity.

I report this as a wake-up call about the extent to which the “left” has embraced economic myths and policies that have cost millions of Americans their jobs (including the millions who have become so discouraged that they have ceased looking for work) and ten million Europeans their jobs.  They ignored Norquist’s standard for convergence and the statements of earlier panelists about the critical need for jobs paying a living wage.  In their zeal to cut Pentagon spending, they championed austerity policies that cost millions of jobs and are designed to severely cut blue-collar wages.

It is, of course, perfectly possible to cut the Pentagon budget and increase net spending by making larger spending increases for higher priority government programs.  Jamie Galbraith has long run an organization of economists, which I support, that takes this position.  The “left” should never support austerity or adopt its myths of a “budget” or “debt” “crisis” and should be particularly vigorous in rejecting the right’s effort to turn children against their parents and grandparents on the basis of the lies about “burdening our kids.”  The thing that devastates children is austerity.  I am asking Ralph Nader to add his voice in opposition to austerity.

15 responses to “The Dangerous Lure of Austerity to Progressives Seeking to Reduce Pentagon Spending

  1. John Casper

    Thank you. Completely agree.

    Per Jane Hamsher, left and right agree on three issues: prosecuting Wall Street, legalizing marijuana, and withdrawing from foreign occupations. While withdrawing from foreign occupations would reduce DOD spending, that’s not, as I understand it, the intent. It’s the growing understanding that those occupations will provoke more terrorism against the U.S.

    I continue to hope that Lockheed Martin, Raytheon, Boeing, Hewlett-Packard and the rest of the DOD contractors throw their full weight behind Modern Monetary Theory.

    Back in 2009, Jane signed this letter with Grover.’s-resignation/

  2. golfer1john

    Austerity ceases to make sense only after gaining an understanding of MMT. Simply railing against it is futile. You may as well rail against gravity; everyone “knows” you have to just man up and live with it. We do it in our families and our businesses, our towns and cities and states. How can the Federal government be exempt?

    Of course, everyone reading this knows the answer, but the world is mostly unaware of it. That is the crux of the problem.

  3. Nick Bradley

    As an MMTer who is also a defense contractor, I wholeheartedly agree with what I read here.

    Also, from an MMT perspective there is nothing wrong with buying additional security goods when resources aren’t scarce.

    We aren’t running out of shipyards. Or LMCO assembly lines, or able bodied young men without college (but willing to learn a trade and skill in the military!)

  4. I must first say that I fully support Bill Black in his constant and unrelenting attempts and advice to sternly regulate the banks properly by law in both his books and his many articles. I fully support his work in this respect.

    But what I can’t reconcile or agree with is Mr Black’s constant support of QE policies.

    First let me dispense with the taxation and small or big government fiscal approaches depending on whether you are a Republican or a Democrat. These government disagreements, it’s plain to see, will never be agreed upon either way in a month of Sundays by the Houses unless the next President has a majority in both Houses. So please forget these distractions.

    Next, we move on swiftly as to whether QE will help the economy or not. My opinion is that it could help the economy but for the megabanks and other particular reasons which I present here:

    * The first stop for all Fed QE money has always been always the megabanks. For the last 6 years we’ve pumped out about $4.4 million in TARP, QE etc. And we’re still pumping it out every month now. This has pushed up the stock market but has done little else to improve the poor economic situation for US citizens or small and medium sized companies in the US. Unemployment has also not recovered sufficiently probably due to lack of demand and poor liquidity which has mainly been caused by megabank policies as described below. That’s why such wishful trickle-down economic policies are such a poor joke. So we may perhaps fairly conclude so far that massive QE has not properly worked to resolve any part of the situation(except for the stock market — which was a completely false economic indicator in this instance) over the last 6 years.

    * These insolvent megabanks initially used their QE money just to help resolve their dangerously insolvent positions. So they bought US Treasuries initially. Then, when they were suddenly deemed too big to fail or jail, these banks were then able to throw their QE windfall out onto the stock market at no risk via fund manager loans and via their own investment arms. Hence the false economic stock market indicator which is ongoing even now. My feeling at the time was that the Administration really wanted the megabanks to do this because Obama could then point excitedly and say, “Hey look!! The stock indices are going up to record levels — Yipee!! We’re recovering !!” But like I said, this was a very false and heavily manipulated indicator for the economy at the time — therefore, a mere distraction.

    * Massive QE over several years inflates away the dollar fairly quickly. Just have a look at the food, energy and metals commodity indices if you want proof. This dollar inflation, of course, inflates away all the US Treasury savings of the BRICs, ASEAN nations, the Middle East oilers and other developing countries. Their reaction, over the last 6 years of QE in particular, has been to deliberately avoid the trade dollar by arranging direct swaps between themselves. Only a month or so ago, both the EU and UK also arranged large swaps with China. So this is not trivial for the importance of dollar influence. And if the petrodollar falls, as I believe it eventually will, then its game over both for the trade dollar and dollar influence internationally.

    So, in conclusion and to clarify my viewpoint here are some further thoughts:

    Before QE stands any chance in hell of working to help the US economy, the megabanks must FIRST be fully and strictly regulated with full transparency, checks and balances. This includes abolishing mark-to-market accounting, to big too fail and jail and strictly regulating derivatives and dark pools, separation of investment banks from commercial banking as per Glass-Steagal, new CEO severance contracts with lower payouts and new government laws that punish bank fraud(CEOs) equally as hard as corporate or Wall Street fraud etc etc.

    In my eyes, QE has simply no chance at all of succeeding if these banks aren’t properly reined in and regulated by the law.

    Just allow the megabanks as much leeway as any other corporate entity like Wallmart, Apple or GE and level that financial playing field as fast as you must. Then, perhaps, QE might work.

  5. Jerry Miller

    As a senior leftie/hippie/family man, I second your plea to Mr. Nader. He remains one of the few semi-radicals spokesperson that is sometimes taken seriously by the left-leaning press, and is very occasionally sought out by the main stream media. His “conversion” to at least some of the realities of MMT (deficits don’t matter, there is enough for all to have a good job and/or have their needs met) might be a leverage point to get these ideas in front of some in the nation. I assume some in the forefront of MMT did or will approach him? Is an introduction necessary?

    I share your horror, Mr. Black, at seeing how ignorant/brainwashed/unthinking virtually ALL of the liberal faction is, on the subjects of money, deficits, and federal funding. It happened to me. Over the last several decades, I was, and the rest of the left were, somehow been drawn away from the discussion of what should be the birthright of human beings in America, and into the discussion of how a limited pie should be allocated. And now, as you saw at your conference, many seem to think we can further the path to peace by “strangling” the Pentagon from $700B to $500B, or whatever the numbers are. (You can kill a lot of folk with half a trillion a year. And all you need is an real or invented attack, or other start to a war, to blow the cap on such spending.)

    It seems we MUST have a public figure undergo a public conversion to MMT. And there would have to be a kind of growing cadre of such conversions. – folks who are not just willing to tell the matter-of-fact truth as do our Fed chair people, but to highlight the unassailable socio/politco/economic conclusions that must be drawn. Perhaps it could start with Mr. Nader, pass through the Warren Wing, and become an “Obama Evolution”. Hey, it happened for same-sex marriage!

    Seriously, who is talking to Ms Warren & her economists? (Who ARE her economists?)

  6. Tadit Anderson

    I have to disagree. The “progressive” ideology in the US has been based upon the supposition of morality without either financial or political literacy. The structure of nominal progressive (faux) leadership has been corporate by nature for a very long time. In MLK’s proposal for a merger between the US “Peace” movement and the US Civil Rights movement, the peace-niks regarded the potential as something threatening to their occupation of the podium. This is both an emulation of the corporate narrative and blow back to the suppression of the economically literate socialists and the reproducing of the corporate meme of “leadership.” The active occupation of academic economics by nonsensical econo-theo-crats also contributed to the present bollixing. There really isn’t any recognition of the historical precedents most notably the WPA, which demonstrates also historical illiteracy. With few exceptions, Bill being one, the econo-technocrat posture seems to lack a full investment in the democratic functionality or instrumentality of MMT’s legacy. Grover Norquist’s sense of morality is contrarian at best largely because his “moral” posturing has enabled the broad spectrum kleptocracy we now have. It seems at least disingenuous to advocate for “small” government while actively facilitating criminality. The supposition of the event could be “visionary,” but without an informed vision it seems like parceling out seats in the lifeboats of the Titanic by posturing authority and leadership. Austerity seems inevitable given the acceptance of the pre-framed discourse. There are times when the cake has to be put into people’s mouths before they will understand that the capacities for an alternative narrative are there just waiting for recognition. If the soire was about forestaying mob violence, it is possibly already too late. It all revolves around Arendt’s proposal that conditioning to capacities are important toward progressive change as well as toward toward the institutionalization of banality. Putting the majority of the uber class into jail for their serial criminality might help, but short of a re-envisioning. The blather about “depends how you define ‘if,” ” a’la Billie Clinton pretty much epitomizes the full spectrum lack of integrity. It seems that the primary lesson learned from the S&L scams was how to make fraud and elite criminality even more protected by legalized enabling. Thanks to Victoria Nuland we had a glimpse of the esteem in which the ruling class has for democratic functionality. Wishing it to be otherwise even in a controlled context of nominally polite conversation. That there is little moral outrage in the US over the current economic dysfunctionality seems banal to the level of horrific.

  7. golfer1john is right. Few people are aware of MMT. I’ve tried introducing it to friends and they just aren’t interested. They believe they know how finances work but they confuse it with their finances. I did get one friend to read part of the primer and it found it to be counter intuitive. What people know about finances is deeply ingrained and very difficult to change.

    • Just tell them that spending more that its income is the way that goverment issues money into the economy. Thats why we need the deficits, to give us money. It’s not magic, it’s not voodoo, it is just accounting.

  8. The ‘inflation’ faulty syllogism (the more units of ‘something’ there are around, the less ‘valuable’ each unit of that something is, the strict rarity theory of value, apparently) also has to be effectively combatted and deconstructed. In my own attempts, I come on too strong and my interlocutors shut down and tune me out.

  9. Tadit Anderson

    “Wherefore, if there be any humility towards the creator, if there be any praise and reverence towards his works: if there be any charity towards men, and zeal to lessen human wants and suffering; if there be any love of truth in natural things, any hatred of darkness, any desire to purify the understanding; men are to be entreated again and again that they should dismiss for a while, or at least put aside, those inconstant and preposterous philosophies, which prefer theses to hypotheses, have led experience captive, and triumphed over the works of God; that they should experience captive, and triumphed over the works of God; that they should humbly and with a certain reverence draw near the book of Creation; that they should then make a stay, that on it they should meditate, and that then washed and clean they should in chastity and integrity turn them from opinion. This is that speech and language which has gone out to all the ends of the earth, and has not suffered the confusion of Babel; this men must learn, and, resuming their youth, they must become again as little children and deign to take its alphabet into his hands.”

    from 1623 History of the Winds by Francis Bacon

    In the contemporary situation the alphabet of economic science begins with MMT and its lineage.

  10. Thornton Parker

    An analogy: everyone knows that the Sun rises in the East and sets in the West, just as it did when the world was flat. And for most of us, that knowledge gets us through a normal day quite well.

  11. I suggest that rather than call for cutting defense spending, we call for the DOD contractors to be hired to build infrastructure. I really don’t think the corporations care whether DOD cuts the check or the Department of Energy, Housing or Transportation. They just want the check. New electric grid, compete with the Chinese for buildout of highspeed rail, rebuild urban density, water management for anticipation of sea level rise, energy efficient housing and so on. And most of this stuff can be framed as a national security issue. Everyone could be put to work bring the country up to 21st century standards.

    • John, I think this is a very compelling idea! Just begin to shift the definition of “defense”–and point out how the U.S. mobilized for WW2, how it was paid for, what it did for our economy, and how we could do it all over again if we just decided to. How to break into people’s minds with this is a mystery to me….I keep looking for ways to do it.

      • Liberty Street Diner

        I 3rd the motion. Use the perceived “weakness” of Congress’ proven inability to defund the military, and turn it into a method for re-inventing the old CCC.

        Even more daring — in the name of national security, demand one year of mandatory military service for all 18 year olds, in the manner of Israel and Norway. At the end of 18 months of training and service, the kids earn two things : the right to vote (full citizenship) and a check for 10 thousand dollars to begin their adult lives.

  12. “I report this as a wake-up call about the extent to which the ‘left’ has embraced economic myths and policies that have cost millions of Americans their jobs (including the millions who have become so discouraged that they have ceased looking for work) and ten million Europeans their jobs.”

    I think you mean the “pseudo-left,” which is those who pose as being on the left but are in fact bourgeoisie, i.e. the better-off stratum of the middle class, whose interests are not the same as those of the ordinary working-class people. One example is labor union upper management, whose interests align with finance capital (e.g. pension fund capitalism) rather than with the rank and file workers.