Tag Archives: neoliberalism

Like a Wasting Disease, Neoliberals, Libertarians & the Right are Eating Away Society’s “Connective Tissue” – Part 2

By Michael Hoexter

Corporatocracy/Plutocracy:  The Neoliberal Compromise with Reality

While there are a certain number of “true believers” in the neoliberal ideal that tend to congregate around the banner of libertarianism or related concepts, a vast swath of the political class and ruling elite has been pulled to the right by neoliberalism without openly embracing its hidden utopia.  These political and economic “realists” or “pragmatists” tend to see the true believers in neoliberal ideology as either an ideological “fig-leaf” that can provide a more appealing cover for the agenda of existing large private interests or, occasionally, as a fanatical embarrassment if they show too strong a belief in libertarian ideals. The notion of defunding public services and reducing public regulation of the private sector has a powerful appeal to many corporate and wealthy interests.  So powerful is this appeal in fact that the label and concept of “libertarianism,”  which is now adopted by the most other-worldly, some would say “idealistic”, individuals in the neoliberal spectrum, was coined by a US business lobbyist in the late 1940’s 

The potentially “messy” idealistic part of what now is called “libertarianism”, tends then in practice to be sidelined or filtered out of actual neoliberal politics and policy.  Monopolies and oligopolies are not confronted or broken up.  Government support and favorable treatment for large corporations are not cut but are often increased or rebranded and enhanced.  The neoliberal ideal is realized only insofar as the interests of the more vulnerable and less wealthy are shunted aside within the policies of government while the interests of the powerful and wealthy are promoted under the cover of the neoliberal ideal of a “streamlined” and “fiscally responsible” government. Tax burdens are cut for the wealthiest while the tax burdens of the middle and lower classes are increased.

With fewer regulatory checks in the way and with the countervailing power of labor diminished, the power of organized money increases within government under the cover of the “free market” ideal.   What results has been labeled using various terms but the words “corporatocracy” and “plutocracy” together describe the result:  a government bought and ruled informally and in some cases formally by wealthy individuals and large corporations.  It can be viewed as a particular form of oligarchy, an oligarchy with relatively fluid membership for the class of oligarchs that nevertheless hold the same sway over government and the national economy that families of latifundistas held in Central America during the late 19th and early 20th Centuries.  In some instances, as with the privatization of publicly financed schools, military functions, prisons and infrastructure, the government also rules through corporations.  The label “corporatism” is sometimes used to describe “corporatocracy” but the former word has origins in political science that do not describe the current rule by large corporations and plutocracy.

Using the word corporatocracy (or “corporatism”) alone also does not fully capture the role of the very wealthy who act primarily for their own private interests and not necessarily in concert with those of large corporations in shaping the agenda of policymakers.  The word “oligarchy” or “incipient oligarchy” are appropriate but not as precise.  The susceptibility of political leaders to the whims of wealthy individuals and worshipful respect accorded to the wealthy currently is better described by the notion of a “plutocracy”, the rule of money and the wealthy.  So, inconvenient as it is from the point of view of political sloganeering, to speak of a “corporatocracy-plutocracy” or an “emerging corporate-plutocratic oligarchy” is more precise.  To use less accurate or partial terms, though occasionally acceptable in my opinion, communicates to the listener a vague sense of “a bad system/thing that the speaker/writer doesn’t like”.

The Neoliberal Preference for Government’s Coercive Apparatus

While within neoliberalism there are conflicts, the broad coalition of right-wing forces that have pushed the neoliberal agenda have generally supported implicitly or explicitly the build out of a massive national security state, despite paradoxically, in some sub-tendencies, basing their world view on a supposed opposition to government “coercion” in any form.  Inheriting an already substantial military and security apparatus from the military Keynesian WWII-Cold War era, the early neoliberalism-influenced leaders (Pinochet, Reagan, Thatcher) all strongly supported reinforcement and use of military force to achieve political and economic ends that favored economic elites.

While via claiming early opposition to the second Iraq War, Obama tried to distinguish himself during his Presidential campaign from his Republican neoliberal predecessor, Bush Jr., Obama has continued the trend of reinforcing the national security state particularly as regards clandestine acts, disregard for human rights and civil liberties, and surveillance of the domestic population.  Even though neoliberal leaders have varied in their aggressiveness in using coercive force, the close relationship with authoritarianism within neoliberalism is ironic but very clearly present in all historical implementations of neoliberal policy and politics.  In the reality of neoliberalism, the call to a maximal unfettered “liberty” as an ideal is paired with a kowtowing to authority if it is dressed in a uniform, speaks in harsh tones, and directs its destructive power against those without property or who are marginal to a particular cultural or national community.

The seemingly universalizing philosophy of neoliberalism which bases its intellectual appeal and moral authority on the notion that it is about defending liberty, particularly liberty of the individual, then encounters a substantial inconsistency when confronted with the actions of neoliberals once they achieve political power.  The central raison d’etre of neoliberalism, defense of liberty, then appears to be more of a “belief of convenience” for most neoliberals, as the attractions of using political and military power to further their own personal agendas or the economic agendas of political patrons becomes paramount.  Even libertarians, who decry “coercion” by government, spend an inordinate amount of their energy criticizing taxation while often ignoring or minimizing the use and abuse of military force as well as infringements of human rights and civil liberties at home and abroad.  The primary liberty which concerns both them and more mainstream neoliberals is the freedom to own and exercise private property rights in as expansive a manner as possible.  It can be reasonably asserted that most libertarians are “propertarians”, focused primarily on real and imagined threats to the private ownership of property.  “Freedom” becomes an ideological excuse for personal acquisitiveness and greed.

The Neoliberal Veil over Acquisitiveness

The “mystery” of the neoliberal preference for the coercive and surveillance apparatus of government then becomes even less mysterious when we understand that in “pragmatic” terms, neoliberal ideals function in practice as an entering wedge for corporate and plutocratic control of government.  As social, political and economic inequality rise, the defense of large private holdings becomes more and more dependent on coercive tactics to ward off even the very distant possibility of political attempts to control, rein in and/or redistribute the accumulated holdings of the wealthy and the corporate sector.  As the “rules of the game” are rigged further and further to the benefit of the already wealthy, the non-wealthy have either the path of political protest and political redistribution of resources or the much less desirable path of criminality open to them.

Therefore, in practice, despite the philosophical distractions offered by professions of interest in liberty, neoliberalism functions as ideological justification for exertion of political, police, and military power in favor of the interests of large property holders, and in the wealthiest countries, financial and corporate interests.  Occasionally there are libertarians of the Right who call attention more consistently to abuses of civil liberties but given conflicts between the private property rights of the wealthy or well-to-do and the non-wealthy, neoliberals and most libertarians will side with policies that favor the already comfortable and powerful.  Neoliberalism then in practice shades into a historical series of “laissez faire” political-economic philosophies that have acted largely as ideological cover for a capitalist ruling elite that sought via free trade and free market ideologies to open the world to maximal exploitation by a, for the most part Euro-American, but now a somewhat more “multi-cultural” and international ruling elite focused on advancing their own interests as property holders.

Clinton, Blair, Obama: The False Neoliberal “Left”

Neoliberalism has seen some of its greatest triumphs in spreading its ideology throughout society by temporarily peeling away the traditional reactionary-Right envelope from which its original leaders emerged.  The early neoliberal leaders, Reagan, Pinochet, and Thatcher had some or all of the marks of the traditional authoritarian Right in their style of speech and the cultural preferences they expressed and represented.  Entirely different in appearance and mannerisms were the leaders of the more leftward parties that accommodated themselves to or adopted wholesale the neoliberal political-economic ideological framework.  Bill Clinton and Tony Blair in the 1990’s provided a younger “cooler” image, the image of the Baby Boom generation, while at the same time supporting a greater “marketization” of the economy and holding out the private financial and corporate economy as the model for all social organization.  Clinton, but also Blair to some degree, was known for his ability to “feel your pain”, to express a theatrical-seeming empathy for others that did not question the fundamentals of the neoliberal vision of society.

Despite Clinton’s susceptibility to the Right’s economic vision, the Right conducted a vicious personalized campaign of attacks against Clinton and his Administration.  In some sense, the Right fell back on its cultural/social conservative hatred of the 1960’s, a decade which had superficially shaped Clinton’s cultural preferences though few of his policies.  These attacks and their viciousness distracted the press and the public from the similarities in Clinton’s approach to policy with those of his Republic predecessors.  The cultural attacks on the false neoliberal “Left” turned out to have valuable functions for powerful political-economic interests like the FIRE sector (finance, insurance and real estate).  Under the guise of being an embattled group, ( Q.E.D. “he must be Left if he is being attacked by the Right”), the supposed neoliberal left’s affinity for the mushrooming financial oligarchy could be hidden away as an assumed characteristic of what was “progressive”, broadly defined.   Clinton, under the influence of Wall Street, became mesmerized by the financial sector and its seeming sophistication, repealing the Glass-Steagall Act that had held the financial sector in check for 60 years, which has set the stage for the Global Financial Crisis of 2007-2008.  It was in this era that the financialized monstrosity of cap and trade was institutionalized as the central policy instrument in the fight against climate change, what is and will be humanity’s greatest challenge to date.  The sham “Left” became a convenient political “alter ego” for the ballooning financial sector, traditionally associated with the Right, to enhance its growing political-economic power.

Importantly, the personal animosities and different cultural markings of the two neoliberal groups have created a sham political discourse which the media has fostered where “Right” and “Left” are characterized by superficial cultural signifiers and the content of their disagreements often devolves to minute differences on issues that reflect and exacerbate cultural divides but not central political-economic dynamics.  The cultural conflict between the two “wings” of neoliberalism is reported as a meaningful difference in fundamental opinion; this obscures the advancing influence and control of the plutocratic and corporate elite over government and over the economy more generally.

If one of the functions of neoliberalism for financial and economic elites is to create an ideological veil over the acquisitiveness of the wealthy, banks, and corporations, the importance of the neoliberal “Left” becomes clearer, as the Left has traditionally advocated for the less wealthy and the downtrodden.  If formerly left-of-center political groupings also adopt a neoliberal policy orientation and manner of speaking, which has been the case on both sides of the Atlantic over the past two decades, then the veiling function of neoliberalism is in many ways “perfected”:  “Left” neoliberals can “decorate” greed and acquisitiveness in the raiments of empathy, moral purpose and high-flown rhetoric.  Furthermore, as mentioned above, the political conflicts between two brands of neoliberalism distract from their fundamental agreement about basic political economic issues, further increasing the opacity of the veil over the acquisitiveness of the ruling groups.

Obama To Date, the Apotheosis of Neoliberalism

The current US President, Obama, has functioned almost perfectly as an ersatz “Left” for media and political consumption, despite his for the most part right-of-center neoliberal policy initiatives and political philosophy.  During his tenure the sham conflict between Right and pseudo-Left has reached a fever pitch that obscures the advancing development and entrenchment of the plutocratic-corporatocratic class as the de facto rulers of the United States.  The neoliberal Right in America has become so ideologically extreme that Obama’s timid forays into corporate-friendly reform are treated as if they represent the cutting edge of progressivism by a media focused largely on politics as a series of culture and personality clashes or a “horse-race”.

Obama’s calm demeanor, attractive, normal-seeming family, African heritage and exotic individual biography have functioned as a screen onto which supporters and nominal opponents alike project either idealizations or wildly negative stereotypes with an alarming freedom.  This has led Obama’s fairly aggressive neoliberal agenda to escape notice in most of the mainstream press, as the press reports largely upon efforts to either condemn or idealize Obama has a leader or a man and not upon the actual import of his proposals. 

Obama’s solid support for corporate- and bank-friendly policy is hidden from the view of many behind his occasional soaring rhetoric and limp efforts at reform which to supporters, so far, have been treated as either progressive or a form of pragmatic progressivism that is the only “realistic” alternative.  A reformer more than Bush his predecessor, Obama is fundamentally a rationalizer of neoliberalism, solidly evincing the belief in the notion that government must remain a handmaiden of corporate interests and beholden to the rich for its supply of money, either for campaigns or via the notion that government acquires its money by taxation.  A generation of progressives that can remember only “identity politics” and neoliberal Presidencies of the Right and pseudo-Left  have been to date adequately fooled or cowed by Obama’s relatively sympathetic personality and cultural identity as the first African-American President to criticize him as openly and roundly as is needed.  The reticence to criticize Obama is as much an expression of racism as is the Right’s tendency to demonize him as a “Kenyan socialist”.

While Obama occasionally engages in flights of soaring rhetoric that with different content might mobilize the population around a popular agenda, the world evoked by Obama’s language is one of cautious individual self-improvement rather than increasing social solidarity and social action.  With an emphasis on mild rational social change, “nudges” as conceptualized by his close advisor Cass Sunstein, the fundamental outlines of the neoliberal world of isolated families and individuals is continuously re-evoked, in tones that sometimes recall the cultural milieu of a Norman Rockwell painting.

“Left” Neoliberalism, Obama and the Perversion of Empathy

Obama, whether by his own intention or by that of others, acts fundamentally as a disorganizer of progressive constituencies as they either follow his lead into political ineffectuality and reinforcement of the neoliberal order or, if they criticize him openly, are marginalized as being of a piece with the hyperventilating, racist Right.  He has effectively dissipated the energies of both his own idealistic supporters and progressive critics, both of which have had good intentions though often haven’t had an adequate analysis and voice to overcome the cloud of uncertainty that he casts over them and their impulse to create a better world.

A world in which empathy and therefore human solidarity is a guiding fundamental principle, what I am contending is a hallmark of a truly progressive vision, appears to be almost as alien to Obama as it is to his rabidly right-wing nominal opponents.  Obama, like Clinton and Blair before him, leads people to “hope” for a better outcome and a better world only to mislead or stifle their impulses to do good.   He may not be aware of his function as a “Bermuda Triangle” for social movements because he may accept as holy writ the fractured “there is no society” vision of neoliberalism. He may or may not recognize that he is, especially in a time of economic and political crisis, the de-facto leader of US society, but he speaks and pretends as if the impulse to do good can only have effect in very circumscribed arenas. Besides rhetorical flourishes, Obama acts as the voice of caution rather than action.  His efforts in the area of reform have almost always taken the form of finding the mid-point between two Establishment “extremes”, with the supposed Left side, represented by moderates within the Democratic Party.

Fundamentally the movement to create a better world is based on human empathy and caring for each other and for future generations.  “Left” neoliberal leaders like Clinton, Blair and now Obama attempt to consciously or unconsciously siphon off people’s empathic impulses to ends that are harmless to the neoliberal oligarchy, the dominance of the large financial institutions, multinational corporations, and very wealthy individuals.  More than even Clinton before him, Obama is a master of temporarily capturing the impulse to do good and turning it to ends that fundamentally will not change the basis of the current corrupt social-economic order.

Connectivity: A Matter of Survival

As I am finishing the writing of this long piece, we have had as clear a demonstration as any of the decades long attack on the connective function of government works in the collapse of the fifty year old I-5 bridge over Washington’s Skagit river.  This bridge and Interstate 5 tie the North America’s Pacific Coast more closely together.  That, in an earlier era, government, a government led by the more conservative American political party, the Republicans, bound Americans closer together via the building of the Interstate system and related infrastructure is an achievement that seems alien in the neoliberal era.  That the existing, outdated infrastructure of the US is now in dangerous disrepair is a tribute to the thirty year dominance of neoliberalism in American politics as well as the faulty, dominant ideas about government’s role and government finance that spring from it.

Neoliberalism is so near complete dominance in (European and) American politics yet so faulty as a ruling political-economic ideology that we may be near the point of it collapsing, yielding a struggle to create a new political-economic framework, preferably more egalitarian, reality-based, and future-looking.  The replacement of neoliberalism with a better framework is a matter of life and death because of coming global challenges, in particular mitigating and adapting to climate change.  An effective movement to transition to a post-carbon civilization will require greater social and political solidarity than we have previously experienced, a wartime type mobilization, decades long, the likes of which we have not yet seen.  We need to together re-design society and civilization now with great haste so as to avoid the worst of a world that is much hotter and particularly damaging to the co-evolved species (think: food)  upon which we depend.  We will need to care about future generations as well as ourselves, a caring that should not be siphoned off and perverted by “Fix the Debt” and right-wing “philanthropists” like Pete Peterson by attaching those concerns to the relatively meaningless levels of public debt issued by governments that control their own currency.

We will require much of the “connective tissue” provided by government to move together towards this fundamental restructuring of the energy, transport and food systems, while dealing with critical shortages in fresh water and other resources.  Building networks of zero carbon transport and energy generation will require coordination within and between nations.  The neoliberal tendency to attenuate and “eat away” the connective functions of government will need to be reversed.  People will have to care enough about themselves and about each other to act to save themselves.  People will need to lend enough legitimacy to a new social contract to remake the economy so the physical earth can be habitable for future generations.  While neoliberals have dismissed social cooperation other than that offered by markets as “inefficient” or “communistic”, we and they will require high levels of coordination in order to survive in a form that is humane and that doesn’t dispose of all that we have come to enjoy about modernity.

After toying with climate change as an issue a number of times during his Administration, Obama is now flirting with the issue once again, calling out the extreme Right in Congress on their denial of human-caused global warming.  Obama could attempt to yoke the issue once again to his neoliberal vision of a government and society beholden to large private interests, while suggesting that it is an impossibility that we would have a government that steers independently of, for instance, the economic interests of the fossil fuel industry, as well as other incumbent industries.  He is capable of perverting this issue as he has others or flirting with and exhausting well intentioned people.  We will need to persist in viewing the world as it is, and resist the pull of leaders who attempt to hijack our better impulses for their own or their patrons’ purposes.

We will need in too short an order, to repair much of the damage that has been inflicted by neoliberal political actors upon our societies’ cohesiveness and ability to coordinate action.  All this needs to happen before it is too late for a recognizable human civilization to thrive on this planet.


Like a Wasting Disease, Neoliberals, Libertarians & the Right are Eating Away Society’s “Connective Tissue” – Part 1

By Michael Hoexter

In an industrial or post-industrial society, a civilization with a complex division of labor dispersed throughout a network of metropolitan regions connected with each other and with smaller cities and rural areas, a class of connecting goods and services is required to keep the society and economy cohesive and functioning.  Unlike the goods bought and sold on markets, these mediating or connecting goods are not themselves often objects of desire for purchase by those who use or otherwise benefit from them. In the hypotheses of social theorists and politicians influenced by neoclassical economic ideals, these goods, they think, ought to be delivered via markets and people ought to pay directly for them in market-like cash transactions. As it has turned out in reality, without a social and political commitment and social pressure to fund these goods and services, individuals in isolation and businesses as a group tend to want to “free ride” and not pay for connective goods and services that are usually the frame but not the focus of everyday consciousness in a modern society. Despite the lack of consistent private markets for most connective goods and services, these “in-between” goods and services are vital and fundamental to the existence and maintenance of something like a civilization, a livable complex society with a strong economy.    Continue reading

And the Last Shall Be First – It Was the Peanut Farmer, Not the Tall Guy or the Iron Lady

Warren Mosler
(Cross-posted with permission of the author from
The Center of the Universe)

(Editor’s note: I think this reaction of Warren’s to the death of Margaret Thatcher is pretty unique and also the best statement I’ve seen of his view of why the “stagflation” of the late 70s and early 80s went away. Hint: President Jimmy Carter had more to do with it than Paul Volcker, and Thatcher is much less important to what happened next, than the Keynesian failure to handle the stagflation, and the resulting shift to monetarist economics. Here’s Warren!)

Here’s how I remember it all.

I didn’t look anything up, with the idea that memories matter.

The ‘golden age’ from WWII was said to have ended around 1973. Inflation and employment was remembered as relatively low, productivity high, the American middle class thriving.

Why? Keynes was sort of followed. The Kennedy tax cuts come to mind. But also of consequence and ignored was the fact that the US had excess crude production capacity, with the Texas Railroad Commission setting quotas, etc. to support prices at maybe the $2.50-$3.00 price range. And stable crude prices, though maybe a bit higher than they ‘needed’ to be, meant reasonable price stability, as much was priced on a cost plus basis, and the price of oil was a cost of most everything, directly or indirectly.

But in the early 1970′s demand for crude exceeded the US’s capacity to produce it, and Saudi Arabia became the swing producer, replacing the Texas Railroad commission as price setter. And, of course, price stability wasn’t their prime objective, as they hiked price first to about $10 by maybe 1975, which caused a near panic globally, then after a too brief pause they hiked to $20, and finally $40 by maybe 1980.

With oil part of the cost structure, the consumer price index, aka ‘inflation’, soared to double digits by the late 70′s. Headline Keynesian proposals were largely the likes of price and wage controls, which Nixon actually tried for a while. But it turned out the voters preferred inflation to their government telling them what they could earn (wage controls on organized labor and others) and what they could charge. Arthur Burns had the Fed funds rate up to maybe 6%. Miller took over and quickly fell out of favor, followed by tall Paul in maybe 1979 who put on what might be the largest display of gross ignorance of monetary operations with his borrowed reserve targeting policy. However, a year or so after the price of oil broke as did inflation giving tall Paul the spin of being the man who courageously broke inflation. Overlooked was that President Jimmy Carter had allowed the deregulation of natural gas in 1978, triggering a massive increase in supply, with our electric utilities shifting from oil to nat gas, and OPEC desperately cutting production by maybe 15 million barrels/day in what turned out to be an unsuccessful effort to hold price above $30, as the supply shock was too large for them and they drowned in the flood of no longer needed oil, with prices falling to maybe the $10 range where they stayed for almost 20 years, until climbing demand again put the Saudis in the catbird seat. Meanwhile, Greenspan got credit for that goldilocks period that again was the product of stable oil prices, not the Fed (at least in my story.)

So back to the 70′s, and continuous oil price hikes by a foreign monopolist. All nations experienced pretty much the same inflation. And it all ended at about the same time as well when the price of crude fell. The ‘heroes’ were coincidental. In fact, my take is they actually made it worse than it needed to be, but it did ‘get better’ and they of course were in the right place at the right time to get credit for that.

So back to the 70′s. With the price of oil being hiked by a foreign monopolist, I see two choices. The first is to try to let there be a relative value shift (as the Fed tries to do today) and not let those price hikes spill into the rest of the price level, which means wages, for the most part. This is another name for a decline in real terms of trade. It would have meant the Saudis would get more real goods and services for the oil. The other choice is to let all other price adjust upward to keep relative value the same, and try to keep real terms of trade from deteriorating. Interestingly, I never heard this argument then and I still don’t hear it now. But that’s how it is none the less. And, ultimately, the answer fell somewhere in between. Some price adjustment and some real terms of trade deterioration. But it all got very ugly along the way.

It was decided the inflation was caused by unions trying to keep up or stay ahead of things for their members, for example. It was forgotten that the power of unions was a derivative of price power of their companies, and as companies lost pricing power to foreign competition, unions lost bargaining power just as fast. And somehow a recession and high unemployment/lost output was the medicine needed for a foreign monopolist to stop hiking prices??? And there was Ford’s ‘whip inflation now’ buttons for his inflation fighting proposal, and Carter with his hostage thing adding to the feeling of vulnerability. And the nat gas dereg of 1978, the thing that actually did break the inflation two years later, hardly got a notice, before or after, and to this day.

As today, the problem back then was no one of political consequence understood the monetary system, including the mainstream Keynesians who had been the intellectual leadership for a long time. The monetarists came into vogue for real only after the failure of the Keynesians, who never did recover, and to this day I’ve heard those still alive push for price and wage controls, fixed exchange rates, etc. etc. in the name of price stability.

So in this context the rise of Thatcher types, including Reagan, makes perfect sense. And even today, those critical of Thatcher type policies have yet to propose any kind of comprehensive proposals that make any sense to me. They now all agree we have a long term deficit problem, and so put forth proposals accordingly, etc. as they are all destroying our civilization with their abject ignorance of the monetary system. Or, for some unknown reason, they are just plain subversive.


It was the blind leading the blind then and it’s the same now.

And that’s how I remember it/her.

And i care a whole lot more about what happens next than about what happened then.


(Editor’s note: So, we have ignorance about the fiat monetary system and “chance” to blame for the displacement of the Keynesians by the monetarists, the victories of Thatcher, Reagan, and neoliberalism, and the ensuing decades of increasing evolution to a new feudalism. This is the broad scope of change over the past 40 years. In viewing this change, we can’t forget what it’s done and is still doing to people. Bill Mitchell’s retrospective on Thatcher is very good on that. Don’t miss it!)

(Cross-posted from New Economic Perspectives.)

Neo-Liberals’ Dismissal of Latin Americans as “Idiots”

By William K. Black
(Cross posted at Benzinga.com)

Alvaro Vargas Llosa (AVL) co-authored the Guide to the Perfect Latin American Idiot with two other journalistsHe revisited the subject with an article in 2007 entitled “The Return of the Idiot.”

“The ‘Idiot’ species, we suggested, bore responsibility for Latin America’s underdevelopment. Its beliefs — revolution, economic nationalism, hatred of the United States, faith in the government as an agent of social justice, a passion for strongman rule over the rule of law — derived, in our opinion, from an inferiority complex. In the late 1990s, it seemed as if the Idiot were finally retreating. But the retreat was short lived. Today, the species is back in force in the form of populist heads of state who are reenacting the failed policies of the past, opinion leaders from around the world who are lending new credence to them, and supporters who are giving new life to ideas that seemed extinct.” Continue reading

An MMT Fiscal Responsibility Narrative: Some Truths After A Second Crowd Sourcing Revision

By Joe Firestone

Many MMT posts and other writings on fiscal responsibility, including my own, focus on the myths of neoliberalism, pointing out why they are myths and developing an alternative MMT perspective in some detail. Off  hand, and I may have forgotten something, I couldn’t think of a brief positive MMT narrative related to fiscal responsibility containing primarily the truths, rather than the myths.

So, here’s my version, revised, a second time, after calling for and receiving comments from readers at New Economic Perspectives, Correntewire, FireDogLake, DailyKos, and ourfuture.org, a second time. Thanks to Tadit Anderson, Mitch Shapiro, Devin Smith, Dan Kervick, Nihat, James M., MRW, Marvin Sussman, joebhed, Clonal Antibody, Calgacus, Ed Seedhouse, JonF, Lyle, Thornton Parker, Sean, Golfer1john, Rodger Malcolm Mitchell, econobuzz, Charles Yaker, Lambert Strether, maltheopia, Ian S., Tyler Healy, PG, for contributing significantly to the critical evaluation of the earlier versions.

More comments, criticisms, recasting in more effective form, are all welcome. But this will be my last round of crowd-sourced revision. I hope all readers will feel free to use this version as they think is best to spread the MMT message about fiscal responsibility. To boil that message down: fiscal responsibility is about the impact of fiscal policy on people; it’s not about the old time religion of its impact on a supposedly limited supply of gold standard-based money.

The Narrative

The first four points in the narrative offer some conclusions

— Austerity requiring budget surpluses cannot work in the United States economy, because surpluses, defined as tax revenue exceeding spending, destroy money in the private sector. Unless these financial assets are replaced through revenues acquired by running a trade surplus; the continuous loss of financial assets by the private sector is unsustainable, eventually leading to credit bubbles, recession or depression, and the return of deficit spending. It is mathematically IMPOSSIBLE for the USA to simultaneously run a government surplus, have a trade deficit and increase aggregate private sector wealth! (h/t  Ian S.)

— It is fiscally irresponsible to frame and follow a long – term deficit reduction plan (limited austerity) when both a trade deficit and an output gap exists, because by definition, such a plan is one that must remove more money from the economy than would otherwise be the case every year the plan is pursued. Eventually, if pursued for long enough, a declining rate of addition to financial assets will exacerbate the output gap by lowering aggregate demand and causing both labor and capital to deteriorate, thus reducing the productive capacity of the economy, and the Government’s ability to sustain greater levels of deficit spending producing outputs of real social value without triggering inflation.

— REAL fiscal responsibility is a pattern of fiscal policy intended to achieve public purposes (such as full employment, price stability, a first class educational system, Medicare for All, etc.), while also maintaining or increasing fiscal sustainability, viewed as the extent to which patterns of Government spending do not undermine the capability of the Government to continue to spend to achieve its public purposes.

— REAL fiscally responsible policy, if it works generally as expected, creates greater real benefits than real costs for people! It has nothing to do with conforming to some standard simple measure like an acceptable debt-to-GDP ratio that has only a questionable theoretical connection to the actual well-being of people. It is political malpractice to give greater priority to that kind of abstraction than to full employment, price stability, a strong social safety net, and Government programs that will help us solve the many outstanding problems of our nation. Let’s put an end to the domination of Washington by that kind of malpractice. Let’s put an end to the current misguided fiscally irresponsible campaign to promote a “Grand Bargain” that is sure to do nothing but destroy more private sector money and jobs than would be the case if we either did nothing or increased the deficit and created a full employment budget.

— Social Security has no solvency or “running out of money” problems. The SS crisis is a phoney one. No solution to this “fiscal crisis,” bipartisan or partisan, is needed. What is needed is a solution to the political problem of getting SS’s funding guaranteed in perpetuity  by Congress, just the way it guarantees funding for Medicare Parts B and D.

— The same applies to the so-called Medicare crisis. It too is phoney, and can be solved easily by Congress guaranteeing funding in perpetuity to Medicare Parts A and C.

— More generally, there is no entitlement funding crisis in the United States, except a political crisis where US politicians are determined to ignore their constituents and cut back on an already inadequate safety net either because they believe in, or want others to believe in false ideas about fiscal responsibility and nature of the Government as a giant household.

And the rest of it provides the reasoning underlying them.

— The US Government can’t involuntarily run out of its own fiat money (USD), since it has the constitutional authority to create it without limit. Congress constrains and regulates this ability. But its existence is still a stubborn fact!

— Greece and Ireland are users of the Euro, not issuers of it. So, their supply is always limited and that’s why they can run out of Euros. The US is the issuer of Dollars; so it’s supply of dollars is limited only by its desire to create them, and its ability to mark up private accounts, and that’s why it can’t become Greece, Ireland, or any other Eurozone nation.

— In addition to taxing and borrowing money, the Government (including the combined activities of the Congress, the Treasury, and the Federal Reserve) has an unlimited capacity to create it. When it taxes and borrows, the Government removes money from the private sector, and destroys it. When it creates money, it adds it to the private sector. A deficit is the net amount of money creation minus the amount of destruction due to taxation. A surplus is the net amount of money destruction minus the amount of creation due to Government spending. (h/t Golfer1john)

— Since this is the case, it’s clear that present proposals to reduce the deficit by an average of $400 Billion/year over the next 10 years are sure to remove money or Treasury securities (assuming deficit spending is accompanied by issuing debt) from the private sector that otherwise would have been created there in the absence of deficit reduction.

— The Government of the United States offers the functional equivalent of interest-bearing savings accounts to investors, usually wealthy individuals, large corporations, and foreign nations. The savings accounts are usually called US Treasury securities, and the sum of their face values is called the debt-subject-to-the-limit; or more colloquially, the national debt, even though comparable savings accounts in banks, are for some reason, not called bank debt. (h/t PG)

— The Treasury can keep accepting deposits (“borrowing money”) and issuing securities if we want it to. There’s no limit on this Government “credit card,” just as there is no limit to the deposits a bank can accept, except the one imposed arbitrarily by Congress in the form of the amount of debt-subject-to-the-limit, otherwise known as the debt ceiling. So, if the US does run out of money, due to a failure to raise the debt ceiling between now and March 31, 2013, it will clearly be the fault of the Congress for refusing to grant further authority to the Treasury to elicit and accept further deposits, also known as refusing to raise the debt ceiling!

— Even though it may seem that foreign nations can place a limit on “the credit card” by refusing to buy Treasury securities at auction, foreign nations holding dollars basically have a choice between continuing to hold them and earning no income, or earning interest on them  by buying securities. So, as long as other nations are exporting to the US and accepting dollars as payment; those dollars are likely to be invested in the interest-bearing “savings accounts” known as Treasury securities.

— Bond markets don’t control US interest rates; the Federal Reserve Bank does by exercising its authority to meet its target interest rates. Bond vigilantes have no power against the Fed. If they fight against its interest rate targets by trying to bid them up; then they will “die” in the flood of reserves the Fed can unleash to drive the interest rates down to its chosen target. The Fed can’t control the money supply. But it does control the price of it with its interest rate targeting.

— The bond markets will buy US debt as long as we keep issuing it; but if one insists on considering the hypothetical case where the markets won’t, the US would still not be forced into insolvency; because the Government can always create the money needed to meet all US obligations.

— The US is obligated by the 14th Amendment to pay all its debts as they come due. Nevertheless, our national debt cannot be a burden on our grandchildren; unless they wish to make it so by stupidly taxing more than they spend. This is true because, assuming the debt ceiling is raised when needed, or repealed, we have an unlimited credit card to incur new debt at interest rates of our choosing. So, we can “roll over” our national debt indefinitely. Or, alternatively, we can create all the money we need to pay off the debt-subject-to-the-limit, without ever incurring any more debt. One way to do this is through Proof Platinum Coin Seigniorage (PPCS). A second way is through subordinating the Fed to Treasury and then using the Fed’s ability to create money out of thin air to pay back all debt instruments (“savings account balance”) when they fall due. The first way is legal now. The second is constitutional, but would require politically unlikely action by Congress to authorize it.

— A fiscal policy that measures its success or failure in reducing deficits, rather than by its impacts on public purpose, is fiscally irresponsible and unsustainable. The deficit is a meaningless measure because the US Government has no limits on its authority to create/spend money other than self-imposed ones, so neither the level of the national debt, nor the debt-to-GDP ratio can affect the Government’s capacity to spend Congressional Appropriations at all.  Also, a deficit/debt oriented fiscal policy ignores real outcomes relating to employment, price stability, economic growth, environmental impact, crime rates, etc. which actually can affect fiscal sustainability by strengthening or weakening the underlying economy, and, with it the legitimacy of the Government and its fiat currency. In short, responsible fiscal policy is not about its impact on Government debt. It’s about its impact on people!

— The Federal Government is not like a household! Households can’t make their own currency and require that people use that currency to pay taxes! So, their supply of dollars is always limited; while the Government’s supply is a matter of its decisions alone.

— However large the Federal Debt becomes, it cannot be a “crushing burden” on our Government, because Federal spending is virtually costless to the Government, if it wants it to be.


Current claims that we have a fiscal crisis, must debate the debt, must fix the debt, and must immediately embark on a long-term deficit reduction program to bring the debt-to-GDP ratio under control, all misconceive the fiscal situation, and smack of a campaign to create hysteria among the public. They are based on the idea that fiscal responsibility is about developing a plan to bring the debt-to-GDP ratio “under control,” when it is really about using Government spending to achieve outputs that fulfill “public purpose.” There is no fiscal crisis that will require “a Grand Bargain” including cuts to popular discretionary spending and entitlement programs. It is a phoney crisis!.

The only real crises is one of a failing economy and growing economic inequality in which only the needs of the few are served, and also one of lack of political desire or will to solve these real problems. MMT policies can help to bring an end to the first economic crisis; but not if progressives, and others continue to believe in false ideas about fiscal sustainability and responsibility, and the similarity of their Government to a household. To begin to solve our problems, we need to reject the neoliberal narrative and embrace the MMT narrative about the meaning of fiscal responsibility. That will lead us to the political action we need to solve the political crisis and eventually toward fiscal policies that achieve public purpose and away from policies that prolong economic stagnation and the ravages of austerity.

An MMT Fiscal Responsibility Narrative: Some Truths After Crowd Sourcing Revision

By Joe Firestone

Many MMT posts and other writings on fiscal responsibility, including my own, focus on the myths of neoliberalism, pointing out why they are myths and developing an alternative MMT perspective in some detail. Off  hand, and I may have forgotten something, I couldn’t think of a brief positive MMT narrative related to fiscal responsibility containing primarily the truths, rather than the myths. Continue reading

An MMT Fiscal Responsibility Narrative: Some Truths

By Joe Firestone

Many MMT posts and other writings on fiscal responsibility, including my own, focus on the myths of neoliberalism, pointing out why they are myths and developing an alternative MMT perspective in some detail. Continue reading

Beyond the Morality of Spending and Saving (Money) – Part 2

By Michael Hoexter

Ethics, Moral Advocacy and Economics (con’t)

If we look at the structure of the discourse produced by academic economists after Smith whether in print or in media appearances, moral frameworks provide a structuring role that often outweighs the technical aspect of the content which is presented.  Well-known among MMT-oriented and post-Keynesian economists are the arguments of austerity advocates, who ignore the analytically obvious monetary and economic consequences of austerity in pursuit of the seeming virtue of every economic actor becoming a “saver” of money.  Continue reading

Beyond the Morality of Spending and Saving (Money) – Part 1

By Michael Hoexter

Readers of this blog will know that the austerity drive is based on faulty macroeconomics and austerity itself is a self-defeating economic strategy.  Austerity relies and capitalizes on critical misunderstandings within economics, misunderstandings that were not conclusively and clearly enough debunked by John Maynard Keynes and others 75 years ago and in subsequent years.  Continue reading

Neoliberal Supply Side versus Keynesian Demand Side Approaches to Unemployment

By L. Randall Wray

Excellent piece up by Bill Mitchell on the Neoliberal “work for the dole” scheme (called the Community Action Programme). Neoliberals first throw millions of workers out of their jobs with fiscal austerity. (Note: the UK is monetarily sovereign, so this is a policy choice–there is no economic necessity to adopt austerity.) Next, they tell those who lost their jobs that if they want to collect the unemployment benefits to which they are entitled, they’ve got to work for the dole–for much less than the minimum wage.

Tom Palley calls this British ELR.

Continue reading