By William K. Black
March 24, 2016 Bloomington, MN
Representative Nancy Pelosi has just written the latest effort by a prominent Democrat to bash Republicans for the high crime of not being financially illiterate. The Republicans are frequently financially illiterate on budget issues and they bash Democrats for the high crime of not being financially illiterate. The leaders of both parties share the hypocrisy of bashing the rival party for supporting budgetary stimulus in circumstances in which stimulus is vital. Particular forms of budgetary stimulus can be simultaneously desirable (relative to austerity) and inferior relative to alternative forms of budgetary stimulus. The Republican‘s favored form of budgetary stimulus – large tax cuts for the wealthy – is a remarkably inefficient means of providing stimulus that makes income inequality worse. Those two points are the correct bases for criticizing their proposed tax cuts. Far too many Democrats, however, cannot pass up the political opportunity to bash the Republicans for supporting stimulus when further stimulus is vital. When Democrats like Pelosi launch these myth-based political attacks on Republican stimulus programs they help to enshrine economically illiterate austerity policies that make it even harder for Democrats to make the case for stimulus even when it is essential.
THE long-endangered Republican Deficit Hawk is now extinct.
In December, the Republican Congress passed into law a huge permanent package of tax measures as part of the tax and spending deal. However, Republicans refused to pay for the legislation, thereby adding a thunderous $2 trillion to the deficit over the next two decades, according to an estimate from the nonpartisan Committee for a Responsible Federal Budget [CRFB].
The title of her article is “Shouldn’t Congress Tell Us How We’ll Pay for Tax Cuts?” The Republican (and Democratic “blue dog”) “deficit hawks” inflicted great harm on our Nation by preventing the larger stimulus program that would have led to a far quicker and stronger economic recovery. They used the same rhetoric that Pelosi now uses. Indeed, Pelosi’s misleading rhetoric about “adding a thunderous $2 trillion to the deficit” (over 20 years) sounds exactly like Donald Trump’s misleading rhetoric in his campaign speeches.
The CRFB is a group composed of extreme deficit hawks extolling “mindful austerity.” It spawned the notorious Simpson-Bowles group and the even more odious Campaign to Fix the Debt. Both of these groups were exposed long ago as fronts for Pete Peterson, the Wall Street billionaire who has dedicated his life to destroying the safety net and privatizing Social Security. The CRFB is “nonpartisan” solely in the sense that it represents the interests of Wall Street CEOs – whose great dream is the hundreds of billions of dollars of additional fees their firms would receive were Social Security to be privatized. There are, of course, “New Democrats” like the Clintons who have devoted their careers to serving Wall Street. But Peterson’s front groups need to be described accurately as pro-Wall Street rather than “nonpartisan.” They exist to spread myths about the supposed virtues of austerity and the supposed depravity of budgetary stimulus – hyper-inflation is always just about to break out (as interest rates and inflation fall).
Pelosi then goes full-Pete Peterson in the remainder of her myth-filled article.
[T]he cost of this tax package is casting a long shadow over America’s future, threatening to crowd out essential investments for hard-working American families.
Why isn’t there a rule requiring lawmakers to account for new expenditures by finding offsetting budget cuts or revenue increases when Congress enacts them? In fact, there is.
In 1982, George Miller, a progressive Democratic Congressman from California, had a simple but transformative idea to cut the deficit and restore fiscal responsibility to Washington, which he called pay as you go, or paygo. Under this rule, when Congress wanted to pass a new law that would increase the deficit, legislators would have to pay for the cost with matching revenue increases or spending cuts.
Paygo still allows for flexibility in overall discretionary budget increases and in times of emergency, but it forces lawmakers to account for the impact of laws that have consequences for federal revenues or mandatory spending.
It’s so common-sense that most people would be surprised it hasn’t always been the rule. After all, even the priorities we want and need must still be paid for.
No, “paygo” is not “common-sense” – it is based on an economic myth that our nation has to “pay for” budget increases or tax reductions just like a private household. A nation like the U.S. with a sovereign currency that borrows in that currency and allows that currency to “float” is nothing like a household when it comes to budget. No, paygo does not provide proper “flexibility in overall discretionary budget increases and in times of emergency.” Its constraints prevent adequate stimulus and would produce recurrent recessions and long-term reductions in economic growth. Paygo is a disaster that prevents adequate funding of social programs. No, paygo does not create “fiscal responsibility” – it typically does the opposite. The failure to adopt a much larger federal budgetary stimulus plan was fiscally irresponsible and inhumane.
No, the Republican’s proposed tax cuts are not “casting a long shadow over America’s future.” Pelosi is spreading the same myths that Republican deficit hawks spread about hyper-inflation being just about to break out (while interest rates are actually only barely above zero). No, the tax cuts will not “crowd out” “essential investments.” The correct argument, and the far better stimulus, would be to increase government spending now on “essential investments” that are not and will not be made by the private sector. But that correct argument is impossible to make under Pelosi’s myths.
Pelosi gets the economics all wrong in the effort to score political points against the Republicans.
President Clinton handed his successor, President George W. Bush, a projected $5.6 trillion 10-year budget surplus and eight years of economic expansion. But Republicans quickly abandoned any measure of fiscal responsibility and began a catastrophic spending spree. The completely unpaid-for tax cuts, including huge tax cuts for the wealthy in 2001, and two completely unpaid-for wars shattered our multitrillion-dollar surplus and created a vast new deficit.
After President Bush left the White House, President Obama was faced with a staggering $1.2 trillion projected budget deficit in his first year alone, according to estimates from the Congressional Budget Office, and an economy in free fall. Under President Obama, the paygo law was reinstated, and we’ve brought the annual deficit from $1.2 trillion when President Obama took office to $544 billion today.
Clinton’s budget surpluses did not constitute “fiscal responsibility.” They were wildly imprudent for a Nation with a huge trade deficit. For a government with a sovereign currency, the budget surplus or deficit is not a matter of morality. A surplus is not “virtuous” and a deficit is not irresponsible. Depending on the circumstances, a deficit or a surplus may be desirable. Large surpluses are, throughout U.S. history, very likely to be the preludes to severe recessions or Depressions. Clinton’s budget surpluses were generated in substantial part by twin bubbles in the stock and real estate markets.
Bush’s deficits, which were small in historical and international terms prior to the Great Recession, did not create the Great Recession. The Great Recession caused what Pelosi falsely labels the “staggering $1.2 projected budget deficit” for 2009. That projected deficit was far too small rather than “staggering[ly]” too large given the depth of the Great Recession. A much larger deficit in 2009 (via a much larger fiscal stimulus) would have produced a far quicker and stronger economic recovery. President Obama’s action in reinstating paygo was one of the harmful actions he took that prematurely reduced fiscal stimulus. Obama’s endorsement of paygo weakened the recovery and made it far harder to increase vital spending on infrastructure and training. We have reduced the federal debt too rapidly and by too much. This slowed the pace and the breadth of the economic recovery.
Pelosi admits in her op ed that paygo made it exceptionally difficult – even seven years too late – to provide support for the 9/11 first responders. That is a national disgrace, as is her call: “To contain and reduce the national debt, we must return to a simple rule called pay as you go.” No, we need to return to non-simplistic, real economics, and stop spreading simplistic myths about money and federal deficits spread by Wall Street vultures eager to profit from the destruction of the safety net.
I have to send Peloci a copy of Mosler’s 7DEF. 🙂
Bravo Bill Black! Is there any way we can get Bernie Sanders to take up this fight and make the points you have drawn? This is, in my opinion, the defining characteristic of a true progressive, and a real distinction between Bernie and Hillary, echoing all the foolishness coming from the other party.
Great post. I sometimes fall into the same trap as Pelosi does when talking politics. That tax cuts for the wealthy is a poor stimulus compared to more spending on investment is the much better argument and leaves room to actually support deficit spending as needed.
What effect does Stephanie Kelton have on Bernie Sanders?
The “deficits are bad” meme is so deeply ingrained going back at least as far as the Eisenhower era that it’s hard to see how to change it. Saying we need “bigger deficits” is a complete political non-starter. Somehow, we need to take them on on their own ground: “Few families would ever get to buy a house or get their kids into a good college if they followed a rule that they had to pay cash for everything . Prudent borrowing is a good thing, especially when we have high unemployment and huge infrastructure needs that can put millions to work and make the country a better place to live.”
Democrats who do what Pelosi is doing are incredibly stupid. It’s really stupid to keep jabbering about Bill Clinton’s surpluses. Who cares, really? People have been brainwashed (literally) to think they should care about deficits, but what really matters is what actually affects them. What matters politically from that era is that unemployment was very low. Every time anyone talks about “deficits” or “national debt,” the immediate response should be that we need most to create full employment and higher wages — and emphasize that we’ve never had any problem lowering deficits when the economy is strong, so don’t listen to the chicken littles.
I don’t know exactly how to say it. Whatever it is, a shortened form that conjures up a full layperson’s explanation needs to fit on a bumper sticker.
Can MMT’s put their heads together and come up with one, or several, bumper stickers that will fulfill that need? Boiling a full theory down to a few words will be tough, but it should be an achievable goal.
Re the bumper sticker.
Crazy, but how about getting Stiglitz to agree to this: “US dollars are created out of thin air – the government can NEVER run out of money” ~ Joseph Stiglitz (or another figure famous to the mainstream. Is there another with credibility? I can’t think of one.) #jobsnotausterity
Q: Is that tax money that the Fed is spending?
A: It’s not tax money… We simply use the computer to mark up the size of the account”
Ben Bernanke (Fed chief) on how US money is created. #wecantrunoutofmoney #jobsnotausterity
If we want to go in the direction of quoting authority, how about: “Ronald Reagan proved Deficits don’t matter.” Dick Chaney or Alan Greenspan telling Paul Ryan that the government can fund Social Security without taxes? Does anyone have the exact quote?
Is this what you are looking for James
Yes, thank you Mark for the link. If you listen to the entire segment, you will notice that most of it is typical Greenspan parsing and mincing of words, but the relevant quote: “There is nothing to prevent the Federal Government from creating as much money as it wants and paying it to somebody” rolls of his tongue like a commandment from God. It is interesting to speculate why the admirer of Ayn Rand is so at ease with a basic MMT concept. Perhaps it is because it is a valid statement of fact.
Great! At last we have stopped claiming that the banks achieve this miracle and blame it on the government. Another way of expressing it is that printing excess currency which cause inflation.
“It’s really stupid to keep jabbering about Bill Clinton’s surpluses.”
Not when you’re running for president and have the same last name. Ditto for hammering on how unrealistic your opponent’s plans are because [fill in neoliberal excuse here].
I’ll also argue it’s less brainwashing than simple ignorance. I knew zip about economics until I recently started boning up on the subject, and even with my depth of interest it’s still the kind of subject that will start most people’s eyes to glaze over. That’s why this piece is so useful—it explains things in language most people will grasp, even if they refuse to accept it.
If we’re going to fix this, those who understand that brainwashing is going on have to learn how to counteract it, and it won’t be easy. The resistance, usually couched in the form of “oh, good grief, another conspiracy theorist” runs deep. Still, seeds have sprouted years after they’re planted.
I hear you. Unfortunately, nothing seems to appeal to the modern liberal psyche like being able to lecture others about being “adults” who pay their bills. Plus, the politicians get to please their big supporters in the financial institutions.
It was suggested here some time ago that instead of “deficits” we should talking about “government contribution” to the economy, because deficit means that sum that government spending exceeds it’s income and that contributes to savings, economic well-being and growth in the private sector.
Right. We don’t need bigger deficits. Saying we need bigger deficits is like Krugman saying we need 4% inflation. We don’t need 4% inflation. What we do need is broader activity throughout the economy, so that more people can get what they need to live well. (If this were achieved and led to 4% inflation, then fine. We needed that activity, right?) So who starts the activity? Private business isn’t doing it. What sector could do it? I see no Interplanetary Sector. How about public? Could the republic use its government to spend and generate some action?
Still not a slam-dunk. The spending will have to be directed in ways that “reverberate” to create more action. Not like the huge stimuli of 2008 ff.
Actually, we do need bigger deficits if want to economy to expand because it expands through deficits. I like to think of it as analogous with grades: thinking about all the students who have graduated, getting their various grades, have left a huge ‘grade deficit’ in the educational system, which hardly ever takes the grades back.
Being too stingy with grades — giving every student a ‘D’, yields problems, and so does too easy grading, like giving ‘A’s to everyone. But a ‘grade deficit’ isn’t real — just like a sovereign currency deficit isn’t real: they are both just some numbers keeping track of what happened. The more high grades given out (the bigger the grade deficit), if they reflected the actual learning by students, the better; the more dollars created, if they reflect actual wealth production, the better.
You can’t get that on a bumper sticker, but maybe it will explain the situation for some people. I think we need to find some analogies that are less abstract than money for people to wrap their minds around at first.
Deficit numbers put out as raw numbers are meaningless without accompanying numbers to give the context of where employment, inflation and private wealth are at. Currently we have relatively large numbers of unemployed as the number of people who are working is only at %62.9; we could expect something more like 72% as long as inflation was not a problem. Inflation is nominal but since the government does not really know how to measure a realistic cost of living for households we’re next to clueless here. My guess is inflation is actually at or near zero. Interest rates are at a disaster-pending level and wealth distribution is akin to banana republic level.
An elected official must balance between representing his or her constituents and working toward his or her other goals. The Koch brothers, Pete Peterson, and others have spent millions to mislead the general public. No official or candidate dares to take on the job of combating what voters think they know. I see just two ways to change the situation.
First, get someone like George Soros or a PAC to fund a major educational program that develops and promotes a simple explanation of the basics of federal finance at no higher than the sixth grade level. When this is out there, the media can be forced to cover this “alternative” explanation as part of responsible journalism.
Second, get this explanation to organizations that need federal funding, such as infrastructure, educational, environmental, and safety net defenders. When they see that some of their needs can in fact be met, they will carry the message and their elected officials. Ideally, they would join in a consolidated effort. This form of “demand pull” is most likely to break the deficit hawk’s log jam. It is the only way I see to counteract the deliberate misinformation campaign of the ultra right wing.
If started now, this two step program can produce results in time for the next election in 2020,
When it is crucial, the money is simply created, and spent into the economy. Such as in the World Wars.
So it’s not as if we don’t know what can be done to improve the economy. A big problem is the issue of the spending channels. If we leave the spending decisions up to the campaign contribution compromised congress, we’ll get the same old interest groups getting the lion’s share. And the same low participation rate in the economy.
The government can spend money on increasing public infrastructure capital. This lowers system wide costs. But this won’t be enough, the US is a high cost economy. Recapturing unearned income with progressive taxation, returning the economic surplus, and arresting capital flight are needed also.
The oligarchs are not interested in things being economically alright for we the people. And so things will simply get worse.
Pelosi is fundamentally arguing against getting credit, and having debts — the issue of issuer and user of money aside. So let’s talk about paygo for business: no loans for expansion, no getting credit to plant seeds for next year’s harvest, no loans to meet the payroll — and, of course, no banks collecting interest. For consumers, no buying cars or houses or big appliance or furniture for anything but cash.
No investments of any kind except for cash on the barrel head; no credit of any kind. No bonds, no derivatives, no stock offerings, no nothing. How would the financial community like to bite into those apples?
Now put that in the context of MMT and sovereign currency: it gets the government off the hook since they create money and have no need to borrow, but the entire private sector is still paygo and no banks or financial institutions get any interest at all, and no one can buy anything on credit, including entrepreneurs, and won’t that have some interesting effects on the economy. And no money, of course, since all money is some form of debt (“legal tender for all debts public and private”, e.g.). A government would not even issue money without looking towards some future existence.
Taken to somewhat absurd lengths, but with the same principle, one would not even buy a bunch of bananas to eat the next day, but would simultaneously hand some coins to the shopkeeper while wolfing them down … but no not that even but a shop keeper never stock produce because that would be an investment without an instantaneous return of value but require waiting for a customer.
All of this ‘investment’, and economics itself, requires the existence of time, and expectation of return sometime in the future. Why would one buy a house except in expectation of living in it for years to come or being able to resell it or rent it? Renting is closer to pay as one goes, but why put down a deposit if one could drop dead the next day?
The whole scheme is like trying to talk about a car trip’s travel time only in terms of instantaneous velocity. It’s as if the only value of a college education is whatever the student is able to do with it while still sitting in a sophomore classroom, instead of future productivity and earnings — as if neither time nor expectations could apply.
On one hand they talk about time, with debts payable in the future, but ignore growth and the returns from investing in the future, such as in education, building and maintaining infrastructure, or the costs of failing to preserve the environment or having a productive labor force.
Paygo: Oh, what tangled webs we weave when first we practice to deceive. It’s really about transferring wealth from the working class to the rich.
Federal spending is 20-25% of GDP right? Forget about whether its funded or deficit spending for a second and focus on what number will make you happy. 30, 40, 50, 100%? I’ll guess if it was 30% now that still would not be enough… I suppose at 100% you could spend 110% in deficit…
This guy here is interesting. He suggests not to make the conversation about deficits, which is accepting the GOP frame of reference and doesn’t make a positive impression, but to talk instead about the positives you want to deliver.
Really we need to have a truth oriented media empire that could repeat the truth, in terms that the public can relate to positively, more times than Fox News and other Right Wing “news sources” have repeated their lies. And that could repeat the truth to as many people, spread it far and wide. Get country singers to sing it, or whatever way people would listen to it. Expert market researchers would need to be hired.
Frank Luntz has done this for the GOP. See his book Words That Work. Where is the progressive Frank Luntz?
We have our work cut out for us there. Quite a project. But necessary. Makes a lot more sense than preaching to the choir.
“Government spending greater than taxing should not be called a “deficit”, rather, it is government’s contribution to our saving; government bonds are not “debt”, they are our net financial wealth.
Deficits and debts are bad framing; saving and wealth are good framing.
The clock that used to sit in Times Square doesn’t record our national government’s debt, rather, it shows our net financial wealth. President Obama has added trillions and trillions to our financial wealth, making up for some of the losses Wall Street imposed on us. Thanks Uncle Sam!”
From Randy Wray at
List / links of related posts at
We need some simple one-liners such as “government ‘deficits’ is public wealth”, or “government debt is the working people’s credit”, although Lakoff would say don’t use the word ‘deficit’ since it reinforces the erroneous meme — but something is needed to make clear what is being talked about. But also needed is enough people saying these things to break the intellectual hegemony established over decades with big bucks behind it.
We need the people who are good at framing to understand and work with MMT.
(I ust left a link to this post at Jeff Feldman’s frameshopisopen)