Michael Hoexter is a policy analyst and marketing consultant on green issues, climate change, clean and renewable energy, and energy efficiency. Originally published at New Economic Perspectives
We have come to accept in the Orwellian world of mass communication and media spin that pressure groups and political organizations name themselves in ways that contradict their actual mission. We have become cynical about truth and about good intentions, trusting only after long observation certain political actors and then only reservedly. There is now such an alphabet soup of organizations in Washington, a veritable smorgasbord of lobbyists that only political junkies and Washington insiders will know every acronym and player.
However there is a constellation of particularly influential groupings in Washington that should be known by every American for what they are and what they are not. These groups form a powerful hub at the center of the fiscal austerity campaign. Purveying an economics based on political pose and hunch, these groups have relied on the deep pockets of Wall Street billionaire Pete Peterson and others from the financial industry to fund their activities involving sometimes massive lobbying, publicity, and astroturf “grassroots” activism. Utilizing strategies reminiscent of the mid-20th Century American Communist Party, Peterson’s overall tactic has been to found and/or fund a number of front organizations to create the illusion of a broad consensus arrayed in favor of his personal views, which are shared for the most part by a wealthy few within the financial and political elites. These views in turn are extremely unpopular with the electorate, particularly as regards cutting or partially privatizing universal social programs like Social Security and Medicare.
The current “Central Committee” of the fiscal austerity drive is the Committee for a Responsible Federal Budget that has been cleverly sited at the liberal New America Foundation. The directors of the CRFB include Peterson, Erskine Bowles, Alan Simpson, Alice Rivlin, as well as a number of conservative Democrats and “centrist” Republicans. The composition of the board overall reflects a cross-section of Washington elite opinion that is ignorant of basic macroeconomics but attempts to portray this ignorance, or apparent ignorance, as virtue. The menagerie of political opinion collected there shares a common belief in the private or non-government ownership of the US dollar, which according to them, is either taxed away from private citizens for government use or is borrowed from foreigners.
The greatest coup of the deficit hawks so far has been fostering an alliance with President Barack Obama, who has turned out to be as committed to fiscal austerity as almost any Democrat and more than many Republicans. Obama appointed two of Washington’s deficit hawks, Erskine Bowles and Alan Simpson, to head his bipartisan “National Commission on Fiscal Responsibility and Reform”. Obama’s true belief in the fiscal austerity “meme” may come from a number of sources: a naturally conservative character, a belief in bipartisanship as an end in itself, a long-term political strategy of protecting his right flank, endorsement of neoliberal principles altogether and perhaps, an interest in graduating to a comfortable post-Presidency mingling with the Washington and Wall Street elites. Overall Obama has governed as a moderate conservative rather than the liberal that his right-wing critics portray him as and that progressives wish he had been. Obama seems entirely in his element satirizing the now marginalized “Left” in the US and is hesitant, surprisingly inarticulate, and a little awestruck when he is attacked from the Right. The deficit hawks’ apparent victory consists not only in having an ideological ally in the White House but furthermore having that ally be the leader of the “left-ward” major political party in the US. This has pacified the resistance to austerity in the US so far.
Mishandling the Tool of the Currency and Government Spending
At its heart, the Peterson campaign is based on common misconceptions about what money is and where it comes from. It bases its popularity on the psychology of the abandoned gold standard, which still has a following in the right-ward side of the electorate. Unlike the mental model of money that goldbugs promote, the value of money is not fixed in a set of objects, especially in our current era of fiat currencies, but a representation of what people owe each other and the real value to people that can be obtained by spending it; it is a tool most often provided by governments to market participants but also applied by governments to achieve the public purpose, i.e. the fulfillment of “the social contract”, however construed. Governments with their own currencies must be free to respond to economic conditions and spend on vital programs and in quantities depending on how the public purpose is defined by the polity as a whole. One of the pillars of the American social contract has been social mobility enabled by economic growth. While the Peterson-funded campaigners would claim that they too are “for” economic growth, their preferred policies stifle economic growth by throttling government spending.
Economic growth and broadly shared prosperity are a matter of simple arithmetic that escapes Peterson, those who are in his thrall and/or those who have inhaled of the myths of market fundamentalism too deeply: all of the net gains in wealth of the private sector on an annual basis are the sum of the balance of trade plus the sum of the government budget deficit. All net gains made by the private sector, which includes private businesses and households, are the sum of the deficits of the government and the rest of the world. If the government runs a surplus, i.e. taxes more than it spends, it takes away in net from the domestic private sector and the “rest of the world”. Peterson and his retinue claim that government budget balancing will lead to the reward of “confidence” from the private sector, which obviously an examination of the numbers doesn’t support. In reality, actual business confidence, rather than the ideological-cudgel version favored by Peterson and his lackeys, would require greater government spending than taxation, and more so in the present conditions of lowered private demand and private over-indebtedness.
Government is responsible for upholding the social contract, which involves consideration of a number of social and environmental factors that private businesses in their activities and contractual negotiations do not generally account for or encompass. One aspect of that social contract is “meta-business ethics” the legal and regulatory structure that “referees” business transactions. Sometimes the social contract must be renegotiated because economic and social conditions change: this renegotiation process most often costs money (mobilization of real economic resources) which is sustained by government spending. Disguised as “conservatives” or “centrists”, the deficit hawks are attempting to radically rewrite the social contract with the assumption that it is just another business contract, with a similarly narrow focus and without regard for the “meta-business” framework which government must provide in order for a workable civilization to be maintained.
The narrative that the Peterson groups purvey suggests to federal legislators that they do not have the policy space to spend beyond taxes collected when this is in fact not the case, as the Treasury in combination with the Federal Reserve under Congress’s supervision can “mark up bank accounts” with no meaningful affordability constraints. The government has the ability to spend in “deficit” unlimitedly because the government does not need to tax or borrow the currency which it creates by spending. Whether it should do this for one or the other expenditure is a matter of political discussion but the arbitrary limit of expenditure to taxes collected or, even worse, efforts to collect more taxes than spending, hampers the stabilizing effect and leadership role of government in our inevitably mixed economy. Real economic considerations that would limit spending are
a) inflation above a certain politically determined limit (not continually predicting hyperinflation when government spends money),
b) currency depreciation/appreciation beyond a certain politically determined limit,
c) the diversion of real resources from the private sector into the public sector beyond some political-economically determined limit. i.e. how large a public sector do you need to fulfill the public purpose but not larger?
None of these constraints are arrived at via counting how much money has been collected in taxes. Instead, their determination requires actual macroeconomic analyses and serious, reality-based political-ethical discussions, analyses and serious discussions which the deficit hawks are unable to produce.
Now more than ever, the real effects of increased government spending, particularly on projects that produce public goods of high value and also increase employment, have a very high net positive value for the economy. The budgetary rule that Peterson and the so-called Center for a Responsible Federal Budget would like to impose leads American legislators exactly in the direction of the mistakes of the founders of the Euro-Zone when they agreed to limit deficit spending to 3% of GDP, not thinking that a financial crisis could hit, requiring governments to counteract a downturn in the private economy. Equally their efforts to lame the spending capacity of government so that it conforms to rules that ordinary households must use could not meet the enormous challenges of disasters such as Hurricane Sandy. The Peterson crowd would have Washington tailor government’s spending to fit a self-satisfied businessman’s fantasy about government’s economic role rather than its real economic role. Thus the Center for a Responsible Federal Budget and allied organizations like the Concord Coalition preach a deep fiscal irresponsibility.
“Responsible” Only to a Misinterpretation of Financial Market Sentiment
The deficit hawk narrative has become all too familiar in the times when there is a Democrat in the Presidency, nominally the leftward of the two main political parties in the US. People like Peterson warn that “entitlements” are bankrupting the government or making financial markets frown on buying the debt issued by the US Treasury. The President of Peterson’s Committee for a Responsible Federal Budget, Maya MacGuineas, has called herself at other times in her career a “bond vigilante”, and has a background in financial services. The “bond vigilantes”, supposed enforcers of rough “justice” in the bond markets, talk up their displeasure at government embarking upon ambitious programs of spending that benefit ordinary people rather than elites.
As it turns out, bond markets are only too happy to buy the bonds of the US, Japan and other nations that control their own currencies, whatever the level of indebtedness of those national governments. The notion that bond vigilantes are frowning on the deficit spending of governments is only true in circumstances where a government does not control its own currency or pegs its currency to a foreign currency. The story that they are particularly opposed to social spending is a political fabrication that may reflect the social outlook of financial market speculators and investors but not necessarily their bond-buying behavior.
The focus on bond markets and their sentiments inverts the priorities of government, tuning fiscal policy to a side-effect, the selling of bonds in the amount of budget deficits, of the current deficit spending arrangements of the US government and a hold-over from the era of convertible currencies. Peterson and CRFB would have misplaced fears about bond market sentiment and the opinions of foreign investors about the US rule the fiscal arrangements of the US government. He would trap legislators and political discourse in the era of the gold standard while attempting to sequester the power of the fiat currency issuing government for the use of the financial elite. Ultimately national sovereignty is at stake and Peterson’s and the deficit hawks’ advice jeopardizes national sovereignty, while falsely claiming to do the opposite.
Irresponsible to the American People
One of the primary purposes of the fiscal arrangements of the US government is to enable the pursuit of happiness for the American people as a whole, however that is defined at a given point in time in the political, social and ethical development of the polity of the United States. The rules that Peterson’s deficit hawks would impose on the federal government would short-circuit this mission of government and tie the fiscal operations of government to the short-term interests of the speculative and rentier financial interests that helped bring down the world economy in 2007-2008.
Wall Street has for a long time, had its eye on privatizing the markets for old age pensions and insurance, which are currently anchored by Social Security and Medicare. Furthermore Wall Street titans fear government will re-regulate them as happened in the period after the last great financial crash in 1929. Re-regulation of Wall Street in favor of the real economy and ordinary debtors would under many scenarios mean credit writedowns or some form of devaluation of the asset holdings of Wall Street to enable repayment of these restructured debts from the reduced incomes of our current era relative to the valuation of these assets dating from the peak of the bubble. These bankers are unwilling or unable to take losses in their portfolios in order to start the economy on a new path. In some scenarios banks would be nationalized, their managements thrown out, and then broken up and restructured. The austerity drive, originating among the Wall Street elite and popular there, is a way to distract from these issues of the real economy and lame government as a potential regulator, as well as prospectively weaken the provision of social insurance by government to enable the eventual takeover of these functions by Wall Street.
Resurrecting and re-regulating the private credit system is not the only or most important responsibility of government at this time. Since the invention of macroeconomics in the wake of the last Great Depression, it has been government’s role to be relatively generous in a downturn, to spend in a counter-cyclical manner, when people are unwilling or unable to invest in the future. While war-time government spending on both sides in the World War II were some of the most dramatic forms of economic stimulus of that period, governments have continued since then to spend more in times when businesses were spending less.
Critical public goods, like schools, public services, and transport systems are decaying in America while unemployment is at high levels. Median and below median incomes have stagnated. Investing in public infrastructure is crucially important both during times of prosperity and times of crisis. Investment in public education is declining. All of these investments are necessities for America to decisively enter the 21st Century and these necessities require not just rhetoric but spending to succeed. The path of direct investment in these public goods has yielded the most success in countries around the world, yet we in the United States continue to avoid the obvious. Vainly, some call upon the private market to provide public goods at lesser public expenditure but this path has proven to be an ideological sinkhole. In the years in which Americans have played around with “market solutions” to the provision of public goods, its world ranking in areas like infrastructure and healthcare have sunk in international comparisons. In a recent rankings of prosperity of nations and cities, the United States did not make the top ten in either category, a sign of the failure of the market fundamentalism/neoliberalism to deliver on its promise of riches for the many, rather than simply for the few.
While many of these investments would re-employ skilled workers, there is also a broader category of the unemployed which require more support in entering the workforce. Government should create a WPA style jobs program, a job guarantee for all who are willing to work for a reasonable minimum wage. This program would provide the work environment necessary for some of the long-term unemployed to get a foothold in the labor market to enter the private sector or public sector job markets if they so chose. Such a program could offer additional social services like day-care that would enable parents with young children to participate in the job market if they so chose.
This government spending, above the amount of taxes collected, would have the additional, though critically important virtue of spurring aggregate demand for both the goods and services directly purchased by government but also to stimulate the economy more generally as that income was re-spent throughout the economy. A necessary element of economic growth in all nations, especially those with trade deficits will always be government spending more money than it collects in taxes, a fact of macroeconomics that has escaped those who have not thought it through.
The pursuit of budget balancing and reducing public debt is then an abandonment of responsibility of government to enable the pursuit of happiness as some form of broadly shared prosperity, enabled by government provision of basic social insurance and maintenance of full employment levels. In claiming that they represent responsibility to the phantom demands of bond markets or the arbitrary amounts of taxes collected in a given year, Peterson and the Center for a Responsible Federal Budget are asking lawmakers to abandon now or at some future point in time, most of the current responsibilities of government as regards the real American economy.
Irresponsible in the Face of the Climate and Energy Crises
The pursuit of an irrelevant budgetary rule to suit the vanity of an old man is the height of fiscal irresponsibility in the face of the most important challenge for the US and the world as a planetary civilization. The calamity of Hurricane Sandy is only the latest reminder of a climate becoming increasingly hostile to the designs of human beings, an indication of the role of rising global temperatures in spurring extreme weather events. These rising average temperatures are in large part driven or accelerated by human activity, most often emissions of greenhouse gases like carbon dioxide.
To reduce carbon emissions substantially and make lines of communication and the commons more resilient to the effects of climate change, government will play a crucial role, spending billions and trillions to build new infrastructure that will utilize renewable energy and draw lesser amounts of energy overall to achieve a comfortable standard of living. The spending to build these types of public goods is best motivated not by profit for specific individuals and families but by a desire to invest in a common future, much as the road network has been built in the United States. To privatize public infrastructure, as is sometimes currently advocated, is a kneejerk reaction to local governments starved of federal funding in a recession and would yield a neofeudal tollbooth economy with higher transaction costs and still greater social inequality.
With adequate explanation by political leaders about the necessity to insulate society from the depletion of fossil fuels as well as reduce their negative effects on the natural basis of our livelihoods, we, the members of the private sector, would be all too willing to accept these fiat issued dollars to build that infrastructure through our labor and exchange of goods and services. We would with excitement await the day when we or our children would be able to use this infrastructure in the conduct of our lives in a society that was wiser for the excesses of the 20th Century.
Such a society would be hard at work in caring for itself as well as creating the basis for a post-carbon civilization as an expression of care for future generations. If the spending of government on these projects were to create unacceptable levels of inflation in concrete or steel or other construction materials, targeted taxation or price controls could be brought in to dampen inflationary pressure. A mixture of market mechanisms, regulation, and government direct investment would yield the quickest results in our time of increasing need to simply save our society and a functioning economy.
The irreplaceable benefits of the climate in which our species evolved are far more valuable than the imaginary storehouse of monetary treasure, modeled after the bullion reserves of old, with which the deficit hawks would like us to think the government operates. The currency issuing power of government enables resources to be mobilized to help save the most valuable real assets we have, the environment which enables us and future generations to keep on living.
68 comments
Comments are closed.
“At its heart, the Peterson campaign is based on common misconceptions about what money is and where it comes from… While the Peterson-funded campaigners would claim that they too are “for” economic growth, their preferred policies stifle economic growth by throttling government spending.”
The world will start making a lot more sense when you understand that growth in the market economy is not only done and over with, but that growth was also an evil and disgusting thing that we are all better off being rid of.
We have the choice of transitioning to an ethical and sustainable lifestyle (and many of us are), or of blindly going down the path of self-destruction that every other self-deluded, doomed civilization has heretofore.
This response is not for the author, but for those of you reading who still have some hope. And grats to all the in the northeast who stocked up food, solar panels, ammo and other essentials that anyone would be a fool to be without. Look at your neighbors who are whining about the government not coming to save them quickly enough and congratulate yourselves for being prepared. In the end, it’s not government or corporations who are going to come save you: it’s you and your neighbors.
It would have been nice if Bloomberg had told the NYers about the New York Bight he found out about in 2009 New York City Natural Hazard Mitigation Plan. The New York Bight amplifies any storm surge. Just look at the figures in this report.
http://www.nyc.gov/html/oem/downloads/pdf/hazard_mitigation/section_3f_coastal_storm_hazard_analysis.pdf
Let’s say he did tell NYers about the Mitigation Plan. What should he have done to address it? Increase the sales tax by 15% points to construct some type of wall?
So many plans to address climate change.
So few plans that don’t involve increasing the tax burden on the already overtaxed middle-class.
Hi, Neat post. There’s an issue together with your web site in internet explorer, might check this? IE still is the market chief and a huge portion of other people will omit your excellent writing because of this problem.
When No Growthers talk about growth, they are referring to growth in INPUT consumption (and its attendent growth in waste by-products, of course). When economists are talking about growth, they are talking about growth in OUTPUT value. These are not the same. I have no idea why No Growthers constantly confuse the two, or why they insist on displaying their confusion on economics blogs.
Amen to this Benedict!
It is painful to hear this confusion repeatedly. I think the the core problem is no growthers really look forward to denying others the pleasure of consumption. Some people love suffering.
I would be surprised if the last 300 years have seen examples of sustained output growth achieved wihout increased inputs, especially of energy. I suspect the “no growthers” you beat the straw out of are critiquing growth pursued as an end in itself. Will we grow our output through efficiency rather than increased input if we continue to worship growth without regard for how it is accomplished?
Is it okay if I just stock up on the ammo? I figure it will get me the other stuff soon enough…
Dear as;
Stocking up on the ammo is just one leg of an effective survival strategy. More important I believe is to forge local ties. Cohesive communities survive.
Yes but it’s the leg that can be stored and transported most efficiently. ( joking)
Full disclosure I am highly skeptical of a survival strategy that includes massive deployment of deadly force. The data doesn’t support it, notwithstanding sensational thriller movies.
…close relative involved intimately with satellite spy scenario advises you, you are being observed (and heard), and easily tracked and disposed of..(after initial
destabilization has caused call for “order”)
sure……. the more ammo you have the more cohesive the community —-brilliant
Okay, Amateur Socialist will be on the Naked Capitalism Ark’s ammunition committee. Who wants to be on the cooking committee with me?
Agree with who will save us; small community and return of neighborliness.
Also agree on transition to sustainable and productive lifestyle.
Disagree on growth; that which does not grow dies. This is biological fact and applies to civilizations and cultures as well.
Industrial growth based on oligopoly and monopoly has begun its dying process, although it will trash around terribly in its death throes.
While I greatly appreciate and thank Mr. H. for this most excellent blog article posting, I must take mild exception with one remark and add comments to another.
At its heart, the Peterson campaign is based on common misconceptions about what money is and where it comes from.
Many of us firmly believe there is no misconceptions on Peterson’s part, his long range agenda has been consistent: at the Rockefeller brothers’ insistence, was placed to head the commission on foundations, and subsequently made those most superficial suggestions, allowing for foundations to remain as tax-exempt places to hide and obscure ownership and wealth (the commission was in response to crusuading populist Wright Patman’s outstanding investigations into foundations and trusts).
The current “Central Committee” of the fiscal austerity drive is the Committee for a Responsible Federal Budget that has been cleverly sited at the liberal New America Foundation.
Perhaps “clever” — but more so logical, given that Peterson (co-founder of Blackstone Group) and Pew oil money funds the New America Foundation.
Is it really such a coincidence that Steve Coll, president of that foundation, writes a book on ExxonMobil, focusing on their CEOs, when ExxonMobil is simly the Rockefeller family’s Standard Oil reconstituted?
Is it really such a coincidence that Barry Lynn writes his godawful conglomeration of drivel, called, Cornered, which conveniently completely misses (Lynn claims ignorance in the matter) the Blackstone Group’s obvious theft of retirment funds and pension funds during an LBO takeover, while pursuing the lesser — although admittedly still vile — David Stockman fiasco, when Lynn is also a fellow at the New America Foundation?
Most of their members write quite misinformation tracts regarding the oil industry and its speculation in the past.
No, Peter G. Peterson, after getting expelled from MIT for massive cheating, has continued doing so ever since — via various memberships with deleterious foundations, at the CFR, following his mentor’s footstps there (David Rockefeller), the Peterson Institute — with its longstanding agenda to privatize Social Security, end Medicare/Medicaid, and absolutely supportive of the WTO’s Financial Services Agreement, etc.
Rockefeller, and Peterson and Kissinger (and Richard Perle) and Hank Greenberg (remember that guy who claimed to GAO auditors in the late 1990s that he fully understand credit derivatives, then Greenberg would later testify before congress that as CEO of AIG he found them completely “exotic” and difficult to understand?) — the Usual Suspects…..
Very well done. Please explain how we can simultaneously enable our political cartoon characters to spend without constraint yet somehow avoid an endless acceleration in corporate boondoggles, bridges to nowhere, graft, cronyism, etc., etc.
Hi Jake
Not sure this actually answers your question, more likes poses another — related — one.
When I was a youngster, I lived near the original “bridge to nowhere”. It really was — people actually said at that time it “linked nowhere to nowhere”. Here it is in all its glory: http://www.humberbridge.co.uk/ I can still remember the day we were bussed on a school trip to see this engineering marvel shortly before opening. While we all enjoyed a day out of the classroom as much as anything, the effect of seeing this new wonder of the world on a bunch of 7-year olds was — just a little — inspiring.
It cost a fortune. It never made economic sense. It will never cover it’s costs. It remains to this day substantially under-loaded in terms of traffic.
But at the time it brought substantial employment — employment at every level from construction labor to highly skilled draughtsmen, steelworkers, cement suppliers, quantity surveyors, civil engineers and so on. All at a time of economic recession that was very severe (1975 – 1977 was especially bleak).
It kept 10’s of thousands of men (at that time, it was usually men) in work and communities were given a purpose that would otherwise have been decimated. It also kept construction companies up-skilled in this type of project. Yes, there were corporate boondoggles aplenty. But they were spread around thickly and widely. Again, at the time, even if the CEOs of the enterprises which benefitted from this state largesse got the gravy, they didn’t earn much more than 20 – 30 times that of the lowest paid (and there weren’t that many of them in the C-suites that there seems to be now) so the exploitative aspects of the cronyism weren’t so outrageous.
No, it wasn’t the “free market”. Yes, it did encumber the nation with debt. So too though were the bank bailouts. I know that two wrongs don’t make a right, but that bridge was better value than a load of crappy CDOs which the state has backstopped. It will at least be there as a product asset in 50 years time, which is more than can be said for the aforementioned CDOs.
My experience of Japan (the King of Bridges to Nowhere) suggests the same. Yes, it’s classic porkbarrel. Yes, it’s a sometimes unhealthy mix of crony capitalism and populism. Nonetheless, on balance it is a possibility that it does more good than harm. And I’d rather have Japan’s infrastructure engineering on the state’s books than the financial engineering which is on the US of A’s. Which would you rather have, AIG, Fannie and Freddie plus your dodgy bridges and pockmarked roads or Japan’s infrastructure ?
I know my argument is full of flaws (because as you rightly say, state spending has all sorts of pitfalls). But in an imperfect world, which imperfections would you rather live with ?
Clive.
Clive,
You make a lot of sense. But imagine the result when politicians can repeat your example ad infinitum. We now have an irresponsible financial elite, an irresponsible corporate elite and an irresponsible political elite. We have enabled the predation of all of them. My own preference is for reigning them in, and enabling those without money simply by issuing them a one time bonus. Had we done this in 2008 the most egregious results of the crash might have been avoided. Instead we rewarded the criminals and the predators with bailouts, and we punished the prudent with ZIRP and the marginal with unemployment.
Why not attack marginality directly? MMT is just trickle down IMHO.
Jake is right. We’ve already had a preview of how MMT would be applied in the US in 2008. Bailouts for the rich, austerity for the many, and belief in the tooth fairy of trickle down economics to come to the rescue of all. It’s the major theme of Romney’s campaign and a major undercurrent of Obama’s. It’s the only economic game plan in either party’s play book, and it’s time to recognize that fact openly and deal with it.
That’s not MMT. Austerity? Bailouts? What is your source for MMT that you would think that?
You have no idea what MMT is. Absolutely ZERO idea. The only thing you appear to know about it is the acronym. It is the exact opposite of bailout and austerity.
For those who don’t know what MMT is, and who have the time, this is an excellent primer: http://www.modernmoneyandpublicpurpose.com/seminar-2.html
Uh oh. I’ve offended the true believers. MMT as it would be applied to the real world we actually live in would mean “deficits don’t matter,” and let the printing presses roll. From there, it’s only a matter of where the money would go. Surely you’re not stupid enough to believe that any “bottoms up” solutions would be forthcoming thereafter, are you? Be careful what you wish for.
Reigning them in? Excuse the Freudian slip. Of course I meant reining them in.
“But imagine the result when politicians can repeat your example ad infinitum.”
You mean, when they keep borrowing money to build projects that boost the economy resulting in an uptick in tax revenue allowing them to pay back the money they borrowed? Horrors.
We should all just sit around the fire clutching our gold, waiting for more to be found so we can tinker with our failing society at the margins.
MMT is when the govt (ie, politicians) doesn’t borrow the money. They just spend on whatever feels good. That may be an improvement over borrowing to create risk free assets (bonds) for inheritors and other plutocrats, but you still have the problem of controlling their spending decisions.
On the other hand, a bailout of the population (the 99%) would eliminate most of the debt constituting a drag on demand, would at least be fair to those who did not pile up debts they cannot service, would offer a chance to those who as things now stand will never own anything but lottery tickets. MMT simply continues the prosperity equals jobs fantasy. Everyone who has ever held a job knows it is a treadmill ticket 95% of the time.
True, true. “Borrowing” was not the best word.
You’re taking two ideas and saying they’re the same, I think. How money is spent is, of course, a vital point, but MMT is no worse on that than any other program. MMT tells us where money comes from and how to get it. Well, let’s put it this way: traditional money says that there’s no way to bail out the 99% since “the money isn’t there” so let’s just convene a committee to create a program to foster incentives to blah blah blah. MMT says that if we spend money wisely there’s virtually no limit to how much money we can create and spend.
Adding: just because a process can’t be carried out ad infinitum doesn’t mean it’s a bad idea. You shouldn’t sleep forever, but you should sleep.
Clive-U.S. economy values $6.5 trillion, world economy $16.5 trillion per year, destroyed now by Wall $treet fraud, for over 5 years on the way to 10-20 more,
unless as M Hudson and WK Black acknowledge, accountability is prioritized. These numbers, contrasted with “derivatives” (at full 100% paper value) on bank ledgers, show government could in no way have profited from, nor caused (deregulatory legislation aside) this amount of economic pillage. Follow the $$$, from “securitization” of mortgages, to MERS, to offshoring mortgages to be broken into parts and pieces=”tranches”, to be combined with credit card debt, student loan debt, car loan debt, etc….then falsely rated “AA” or “AAA” by raters banks themselves paid…thus formulating “MBS” or “mortgage backed securities”, which remain on bank ledgers at full face paper debt value…and are being “bought back” by FED at taxpayer expense (QE 1,2,3) at full face value, which is ridiculous. FORECLOSURE FRAUD is related to FACT Wall $treet banks do NOT hold title-deed, which is now broken into parts and pieces. Washington State Supreme Court has found “MERS” foreclosures ILLEGAL on this basis, and as MERS substituted for legal registration of mortgage documentation.
You want to claim “equal criminality” by government? To the degree they haven’t (William K Black-M Hudson) held Wall $treet ACCOUNTABLE, yes…but this is financial sector “criminogenic accounting fraud” (WK Black).
Wanted to reply to TK21,whose last post has no reply button.
You are right about MMT. I was arguing against government spending to create jobs. That is a second best idea, because it enhances the power of those who are already robbing us. Why not let the people spend the money a soverign currency allows us to create? Those who waste it will have no complaint. Use the taxing power to finance needed public goods, and tax on the basis of ability to pay.
I have no problem with that either. The debate should be between “job guarantee or income guarantee” rather than “cut social security now or later.” This just shows how bereft american politics is these days.
” “Medieval” is derived from Latin medium aevum (Middle Ages). This term comes from the idea the Middle Ages was an interruption in the advance of classical learning.” Wikipedia
Comes to mind.
Thoughtful and welcome piece. My favorite bit of rank hypocrisy from these self-same deficit hawks is their cry to Think-About-the-Children! as they urge the destruction of the social safety net and refuse to acknowledge that AGW is consigning those children to a planet of unimaginable misery. Even the meanest beast knows better than to foul its own home. We don’t.
Whether or not MMT/deficit spending makes any sense at all is kind of beside the point. In the current economic environment it’s simply never going to happen, so the only issue to be considered is what’s going to be the long-term impact of current policies and how are they all going to end. As no one yet has even attempted to define what a “proper” federal budget would look like (Would deficits ever be allowed again at all? How much of the debt should be retired? How long would it take, what would the *magic number* be that would satisfy the debt/deficit hawks? Who would the resultant budget be targeted to benefit the most? Etc.), this has all the appearances of the so-called *War on Terror* – an open-ended war on an ephemeral, ill-defined *enemy,* conducted for the sole purpose of terrorizing the population. I can think of only one possible solution to such a state of affairs, especially given that BOTH major political parties now march in lockstep on the issue and have completely captured the electoral process. Civil insurrection and the removal of the state-sponsored terrorists who have usurped control of OUR government, OR, complete rejection and dissolution of that government. That’s the proverbial 1000 lb gorilla in the room that no one will acknowledge, but that surly beast ain’t going nowhere until someone does.
I gather regulary with a small group of reitred college professors. They, to a person, are socially and economically liberal, and yet every one of them buys into the notion that the governemnet is going broke and some form of austerity is warrented, even if that implicates SS and Medicare. I’ve attempted to enlighten them on the merits of MMT, but largely to no avail. I leave these meetings feeling hopeless. They more or less parrot Obama, which I suppose most old school “politcal” liberals are conditioned to do. The only hope that I do harbor is that if elected, Obama will have an ephipany, and govern as an activist. Not holding my breath on that prospect, however. How depressing.
But if the bond market doesn’t believe the US is going broke (10-year at 1.68%), how can anyone argue otherwise?
The only way out of this loop is to bottom out. There is no limit to greed and lust for power and that is what is driving this, certainly not some reasoned fiscal policy determined by rational people.
..which is what historically was allowed to occur-Bernanke’s PhD doctorate featured “great depression”-defined a “different” way of handling-here we are..a good read on history of, is “WALL $TREET-A HISTORY”, by Geisst…
Sheer Insanity: On Nov 1, I made this reply at NC to a comment very similar to yours (concerning a Varoufakis post) —
“You are entirely correct about political realities. However, violent revolutions don’t have a good historical record either. How to Bell the Cat is a continuing problem, but we must keep trying even in little ways. From little acorns…”
Whether or not MMT/deficit spending makes any sense at all is kind of beside the point. In the current economic environment it’s simply never going to happen, so the only issue to be considered is what’s going to be the long-term impact of current policies and how are they all going to end.
Since MMT is simply, and only, an explanation of how the economy actually works, your comment makes no sense. You goose-step from an incorrect co-joining of “MMT/deficit spending,” as if it were correct (which it’s not) to a backhanded remark that “it’s simply never going to happen.” What’s never going to happen? An understanding of how federal accounting works? And this unthinking remark leads to a variant of the definition of insanity: keep on doing what we’re doing and expecting a different result. The ‘ole “long-term impact of current policies.” You don’t even exhibit the basic ability to define current policies properly; you can’t define the underlying processes accurately, you’re loose with facts and definitions.
The thing to watch for is when pundits start pushing the US government to issue debt in a foreign currency. It’ll probably start as a call for “fiscal discipline.” You can be sure that whomever is pushing it will be getting money from the guys who expect to make major fees on the new foreign denominated US debt.
the thing to watch for is IMF involvement…and PRIVATIZATION due to SHOCK DOCTRINE…
nonclassical, it doesn’t require Naomi Klines’ kind of shock doctrine. Read David Malone’s post today:
.Why are we bailing out the banks? – Part Four – What happens now?
By Golem XIV on November 5, 2012 in Austerity, Bail-outs, debts, fire sale, latest, mark to market, mark to model
In part one of this series I suggested that the simple reason we were bailing out the banks and simultaneously cutting public spending was because,
If the banks were to be wound up it is their [the wealthiest 10%’s] credit/debt backed ‘money and the assets held in it, which would burn to ash….So the simple reason our rulers insist on bailing out the banks is that by doing so the wealthy and the powerful are simply bailing out themselves and guaranteeing the continuation of a system which suits them perfectly.
In part two I argued that while the simple selfishness answer is true there are also theoretical justifications (albeit flawed ones) for the bail and cut policy.
The two aspects of their policy ‘bail and cut’, they will insist are not contradictory at all. Simply put, they will say they are loosening or increasing the money supply (QE) in order to invest in growth (classic Keynesian) while simultaneously cutting those expenditures which they feel do not generate growth and which are in fact ‘drains’ on productivity – in their view any ‘public’ expenditure (Classic Free-market). Growth, for them, equals the free-market/private sector, while drains on growth equal government, public spending….Basically – Private Debt good, Public Debt bad.
I argued that one of the legion problems with this world view is the fact that whatever the ideology says should happen, the reality is that giving money to the banks for them to invest has simply not worked. It was never going to work because it is founded on a misapprehension about the nature and business of modern banks. Namely – that they invest for growth. They do not – certainly not in the broader economy during a recession. Banks used to ‘invest’. Today they much prefer to speculate. Investing is long and slow and does not make big bonuses. Speculating on food prices, currency fluctuations and sovereign debt, lending for leveraged, debt ladened buy-outs – now these things can all provide the quick returns and big bonuses which old fashioned investment does not.
The idea that ‘we are all in this together’ coupled with the other idea that the banks are there to help – or are ‘there for the journey’ as a UK bank advert claims, is wishful thinking at best. These notions may make snappy sound bites but that is all they make. Banks are not there to help. They are NOT a service industry. Banks exist to make a profit as fast and as often as possible for those who own them and large bonuses for those who run them. Which is fine. They are a business. As long as we remember that and treat them accordingly I have no problem. I have a massive problem when, in the good times, the banks insist on being recognized as a business in the free market, to be treated with a laissez faire, light touch. But then in bad times insist even more fervently that they are not just a business to be allowed to live and die by the rules of the market like any other business, but claim instead to be an essential, – no, THE essential public service which must be protected above all else. So essential, in fact, that all ‘other’ public services must be cut in in order to better save the banks.
Let’s be clear the banks are not a public service. Banking – rather than the banks – could be a public service, but it is not run as such today. The banks are run as ruthless businesses. They exist according to an almost entirely selfish philosophy which extends from how they imagine human nature to be – no one, they think, would even turn up for work let alone do a good job unless rewarded more than anyone else – to justifying any and all fraud on the basis that if it makes a profit then who could blame you for trying. Be that as it may…
In part three I suggested that the official policy with its armature of ideological justifications and soundbite explanations was today’s Big Lie and looked at how and why Big Lies work.
In this last part, having looked at the origin and ideological justifications for the ‘bail the banks and cut everything else’ policy, I want to look at where the policy goes now. Because I believe the policies of the last four years have brought us to a critical and unstable juncture.
From crisis to opportunity – The top of the hill
For the last four years our Dear Leaders, political and financial, have been labouring to push everything back up the hill from which it slipped. As they have neared the top, however, I think they have come to see that the policies they have forced upon us can do much more for them than simply restore what they had before. Why stop there, they now wonder? The top of a hill is a place of fantastic opportunity. l think our leaders have come to see that shoved hard in the ‘right’ direction they could propell our societies in almost any direction they desired.
But this state of potential is also perilous. The top of a hill is the place and the moment when the forces are all finely balanced and almost any ‘unauthorized’ push could send the system off in a direction the Dear Leaders would not like. Victory for the powerful and wealthy seems so close at hand and yet the crisis, far from being over, is also at its most critical juncture. So many possibilities exist together, like overlaid quantum states, in this one moment.
Just as our rulers prepare for one last push, to enforce one more round of austerity and bank bail outs upon us, to propel us more firmly to their desired future, they find there is a building and spreading opposition to everything they are doing. I believe we are at, or very near, that place of maximum potential and maximum uncertainty where things could tumble down any number of quite different paths. Irreversible victory is within our leader’s reach. Yet at the same time they are only a stumble, a determined opposing push away, from irrevocable disaster.
This place we are almost in, echoes with triumphant proclamations of imminent success while also being full of suspicion, fear and coercion. It is a moment that speaks of victory and a better future while feeling like the cusp of repression and paranoia, where free speech becomes seen as subversion and disagreement as dangerous dissent. This is the fascination of the non-linear moment when the pencil that writes our history is balanced on its end.
Fire sales and fire storms
When a business is so short of operating cash that it must sell assets in order to raise cash just to stay alive, and buyers know it, then the buyers hold all the power and prices tend to plummet. This is called a fire sale. On the high-street we would call it a ‘Closing-Down’ or ‘Everything Must Go’ sale. It is a perfectly normal part of the workings of the ‘free-market which the banks profess to be so keen on. Keen when it doesn’t apply to them, that is.
One of the many things hanging in the balance right now, I think, is who is going to be forced to sell their assets in a fire sale – the banks or us? No prizes for guessing the bankers preference. More revealing is to ask yourself who our current political leaders think should have them.
During the first two years of the bank debt crisis it was the constant worry of the banks and our Dear Leaders that without large and on-going injections of public cash, the banks would become so short of operating cash, or assets they could use as collateral for loans, that it would be the banks who would be forced to sell their assets in fire sales, which would burn the banks. And as I discussed in part one whose wealth do you think would turn to dust with them? As this 2012 paper from the BIS (Bank for International Settlements the central bank’s central bank) notes,
At their peak, bank funding strains exacerbated fears of forced asset sales, … fears that funding strains and other pressures on European banks to deleverage could lead to forced asset sales,….
These fears were at crisis level globally in 09 and became a crisis again in Europe throughout ’11 and ’12. Each moment of renewed crisis resulted in our leaders releasing a flood of bail out money for the banks, so they did not have to sell their assets at any price, let alone at fire sale prices. On top of which the banks lobbied hard for and got two other measures both of which ‘protected’ the banks and the wealthy from having to sell anything at a price they did not like. Those measures were the suspension of mark to market accounting which they got in 2009 after some very heavy weight lobbying ( I wrote about it in Liar’s Lexicon – Mark to Market) and then being allowed to transfer all sorts of dodgy assets they had been holding in their Trading Books, where they have to be valued, to their Banking Books where they do not.
The amount of effort that has gone in to ‘protecting’ the banks from having to have fire-sales is a direct measure of the threat it posed and still posses to the banks and the wealthy. But that is only the first strand of the ‘bail and cut’ policy. While ‘bail’ is still very much on-going and about to be implemented again with another round of large bank bail outs, the second strand, ‘cutting’, is where we are now.
The official justification for cutting everything, as I argued in part two of this series, is that they are only cutting non-profit making, therefore non-essential things like welfare, and we should see the pain of those cuts as ‘our’ contribution, our part, of being ‘all in this together’.
It may be that this was indeed how they justified it in their own minds…at the start. But things have moved on. Today, the situation is that national central banks and behind them the Fed and ECB have made sure the banks have cash to operate. The ECB paper on bank funding again,
Euro area banks raised large amounts of funding via the ECB’s three-year LTROs [Euro area bank bail outs in 2012] , covering much of their potential funding needs from maturing bonds over the next few years. Across both operations, they bid for slightly more than €1 trillion. This was equivalent to around 80% of their 2012–14 debt redemption, more than covering their uncollateralised redemptions.
The bail out has bought time. Time for the next part of the evolving plan to take its effect.
It is now nations that are short of cash and finding it hard to borrow. And who is now clamouring for nations to reduce their debts by selling assets, even above investing for growth? The banks.
The banks who refused to have their assets sold at recessionary prices in a fire sale are delighted at the prospect – which they have helped bring to fruition – of arranging a fire sale for ours. The banks who did not want to see their assets valued in the teeth of a recession are happy to value ours. No mark to model for our assets. They will go to the lowest bidder.
And who do you think that bidder will be? Yes you got it. The same financial class who own the banks. The banks will bid and so will the leveraged buyout businesses the banks lend to. And what money will the bank use for this? Right again. The bail out money.
Those who keep assuring us that if we give the banks enough money they will start to invest in the real economy again are lying. The banks are not here to invest. They are here to predate, to scavenge. And our leaders have given them our money with which to do it.
This crisis has seen the paper wealth of the banks and the wealthiest 10% imperiled. The securities, derivatives and shares that make up so much of what the wealthy own, have all lost a great deal of their worth. That has left the banks with large holes in their balance sheets and for the wealthy, whose assets they hold, large losses if ever they were forced to admit them. Let’s not forget, when the banks are allowed to not mark to market it is not just the banks whose wealth is protected. The top 10% of all our nations also own huge swathes of this paper wealth. If the ‘assets’ – were marked to market or forced in to the market to be sold then those people, the people who own and run the banks, insurance companies, accountancy firms, law firms, media companies, the Senators and Members of Parliament, the Cabinet Ministers, lobbyists and experts would also see their ‘wealth’ go up in smoke.
But then along came the story which says nations are now in terrible debt and these debts are so large they cannot be carried, are in fact stifling growth (though how is never made clear) and must be paid down even if it means not only taxing the middle classes and cutting benefits to the poorer, but also also – sad though it makes us to tell you – also selling state assets.
Austerity is a wonderful thing if you want to force a fire sale. And not just any old fire sale either. It will be, if the banks and our leaders get their way, a fire-sale fire-storm.
A fire storm is created when a fire becomes so hot that it creates a self sustaining feedback loop of in-rushing air which super-charges the original fire causing it to suck in even more air and so on. They have been known where brush fires have spread in tinder dry forests and famously in the carpet bombing of German and British cities in WWII.
If the banks had been forced to sell their assets, as each bank brought its assets to market they would have exposed the worthlessness of similar assets at other banks and the fire would have spread. An empire of debt backed wealth, that had long since ceased to be worth more than the paper upon which it was written, would have been lost. This did not happen.
Instead we now have banks who have secret losses; Vaults full of paper wealth whose value is still eroding. The question for the banks and our leaders has always been, not how to rescue us, but how to replace all that lost value?
The answer to start with was just to buy time. Give the banks cash flow with bail outs. They thought that might be enough. But the rot was too deep. The paper assets could not be re-animated. Four years in, a new answer has emerged – an epic-fire storm fire-sale of public wealth and assets. Such a fire sale, if it can be made to sweep from nation to nation, will allow the banks to buy up assets, real ones, electricity grids, power stations, ports, water companies, telecoms companies, airports and roads. Things which produce real wealth not just paper valuations of derelict properties and derivative claims on other people’s debts. The ‘cut everything’ austerity part of the official plan allows the banks to move from simply staving off admitting their losses to replacing their losses with real wealth producing assets. If the austerity plan can be maintained long enough, the fire will become self sustaining.
The Greek people already rejected the terms of the Austerity programme being force upon them once. This week their rulers will try to vote it through anyway. The plan whose details you can read here is to sell off Greece’s main airports and ports, its Gas company, Nickle industry, Phone company and mobile phone company, its water companies, its power company, Post system and motorways, plus sundry state owned properties, land and investments.
If the Greek fire-sale goes ahead it will set a bench mark, a low one, and a pressure, for similar sales in Portugal, Italy and Spain. And it will not stop there. The fire will be spread, welcomed, enforced, in Britain and France and Belgium and Holland. Only Germany may escape. For a while.
A fire will have started and the banks will fan its flames. If the banks can force a fire sale they will have created a buying opportunity the likes of which only Russia has seen when it it was looted by the Oligarchs. And our banks and their owners will become the Oligarchs of the fading twilight of our democracy.
This is the bank’s chance to replace the shrinking value of their paper assets with new, ‘real’ assets that produce real wealth. With these assets they can rebuild their paper world of virtual assets and start their game over. All they need is for austerity to reach critical so that the fire storm takes hold.
Could they have acted differently?
I think they could. Still could. They could have put money in to the economy without using the banks. For example the UK has put up £1.4 trillion. There are about 70 million people in the UK. The government could have ‘given’ £20K to every person earmarked to pay off their debts, with any remaining to be used as the person saw fit. Or if you balk at funding for large families, and prefer something more modest how about £20K for each adult. My family would have got 40K. That would have paid off our mortgage. I would then have had more of my income to spend on other things. I would have bought double-glazing for my house. The result would have been the banks having 40K paid off most household’s mortgage debt. That is 40K going in to the banks. So the banks would have still got their pound of flesh. But this way round would also have help the ordinary citizen. I think it was Steven Keen who first suggested this idea and it could still be done.
How different such a scheme would be. Giving money to the banks to lend means if we borrow it we owe them. If the money was given to us and we deposited any of it in the banks, then they would owe us.
“Moral hazard!” I hear someone crying. Why should we bail out the feckless who got themselves in to debt? Yet our leaders are happy we should reward the reckless and feckless banks. Moreover we apparently do not worry about the moral hazard of making those who did not create this mess pay to clean it up. What about those of us who did not partake of the orgy of credit and debt? What about those who saved and now see those savings and pensions being eroded? Apparently the banks and our rulers are sensitive to the moral hazard of giving to us but not of taking.
Had we used stimulus money to pay off peoples’ debts, rather than the banks’ debts, that money would have still made its way to the banks. It would have shrunk their balance sheets, reduced their risk and made them safer – for us. They would not have had the chance to divert the money to use it for speculating on food and currencies. All good so far. It would have left ordinary people with fewer debts and with more money to spend. This would have helped industry and therefore employment.
….But it would have come from the bottom up. People, ordinary people, would have decided what to do with whatever part of their bail out they had left. That, to me, IS the market deciding. It is as Free Market as it comes. Financial decisions by the people for the people. Giving the money to the banks and asking them to lend to us, is letting them – just a few huge corporations and the handful of billionaires who own and run them – decide. That is NOT free market. It is banana republic cronyism.
In our present policy of bailing out the banks, they can then lend to us and we owe them interest. In the bottom up bail out we would be lending to the banks. Remember putting money in to the bank is lending it to them. They would therefore pay interest to us. Funny how the banks and the wealthy, rentier class who own them prefer the present arrangement where they get the money for cheap and IF they lend it to us, we owe them. In the other version, the heretical version, they would be paying us.
Wealth management and Povert management
The future our leaders see from the hill top is one where banks are there to manage the wealth of the wealthy and governments are there to manage the poverty of the rest. Wealth Investment and Austerity Enforcement – a perfect division of power.
Okie, where have you been all this time. It is nice to hear from someone who understands what’s what. Clearly, you are not an economist, right?
@Okie. That is the most cogent explanation of what’s happening that I’ve read yet. Thank you for posting it.
Yeltsinization.
It is quite simple (wow, how arrogant of me). We have endless energy resources that have not come into the public sphere due to as yet discovered technological advances. Those energy advances can be directed into the remoulding of natural resources into products that real people can benefit from (wealth creation) that any civilization requires. Instead of squandering these resources we can build out infrastructure, both macro and micro (in house manufacturing – pardon my lack of proper definitions) to capture and eliminate the environmental harm done. I do believe that technology (and I don’t mean the manipulations of binary code) will be capable of pollution less production and consumption of even our most dirty energy resources – we just have not advanced our technology enough and, our incentives are still aligned with quick and dirty exploitation – read maximization of current profit over global human sustainability. I suppose our metrics and economics have been blinded by survivalistic short sightedness. The public investment required to achieve global sustainability (the good incentivised jobs created therefrom) would dwarf other industries and probably eliminate joblessness.
It is not the lack of resources and meta resources that prevents us going forward but, the lack of a proper economic structure which now encourages exploitation and survival greed as opposed to human sustainability.
An imbed needed is recognition that increased productivity needs to properly reward labor – the people who actually make something out of our raw materials that other people buy (consumers are workers and workers produce wealth from raw materials)
Laborers knowing that science and invention have increased enormously the power of labor, cannot understand why they do not receive more of the increased product, and accuse capital of withholding it. The employer, finding it increasingly difficult to make both ends meet, accuses labor of shirking. Thus suspicion is aroused, distrust follows, and soon both are angry and struggling for mastery.
It is not the man who gives employment to labor that does harm. The mischief comes from the man who does not give employment. Every factory, every store, every building, every bit of wealth in any shape requires labor in its creation. The more wealth created the more labor employed, the higher wages and lower prices.
But while some men employ labor and produce wealth, others speculate in lands and resources required for production, and without employing labor or producing wealth they secure a large part of the wealth others produce. What they get without producing, labor and capital produce without getting. That is why labor and capital quarrel. But the quarrel should not be between labor and capital, but between the non-producing speculator on the one hand and labor and capital on the other.
Co-operation between employer and employee will lead to more friendly relations and a better understanding, and will hasten the day when they will see that their interests are mutual. As long as they stand apart and permit the non-producing, non-employing exploiter to make each think the other is his enemy, the speculator will prey upon both.
Co-operating friends, when they fully realize the source of their troubles will find at hand a simple and effective cure: The removal of taxes from industry, and the taxing of privilege and monopoly. Remove the heavy burdens of government from those who employ labor and produce wealth, and lay them upon those who enrich themselves without employing labor or producing wealth.
Nice article and visit my blog from Spain Carlos 16 years old Economy student.
I’ve been living in Japan as a permanent resident since 1986, though I and my wife have a home in a small town north of the capital, Salem. Oregon in currently engaged in a long-term infrastructure upgrade that it funded several years ago. Even the main arterial streets in my town of Keizer have been resurfaced along with the state’s bridges and the main highways. The streets in downtown Salem are also being resurfaced, as I watched last summer during my usual research and writing vacation. Meanwhile, the infrastructure of California continues to collapse, even in wealthy areas like the South Day’s Hollywood Riviera, where I was born. And talk about bridges to nowhere, California has a bullet train to nowhere in one of the most ludicrous public projects the state has ever attempted. I doubt it will ever be finished.
The American Society of Civil Engineers grades the US infrastructure at mostly Ds and Fs with a handful of Cs. It estimates that $2.2 trillion must be spent simply to bring the infrastructure up to snuff, not modernize it say with a smart grid. That money will never be available so long as we waste it on illegal wars and a bloated DOD. Andrew Bacevich has suggested we cut the military budget in real terms 6% a year for 10 years and use the money for the public good. North America faces no external threat outside nuclear war, and probably will not for centuries, while the US military does nothing to defend us: its sole purpose is projection of force for geopolitical sway and terrorism.
I agree completely with Clive: who would want to live in a country with a third-world, steadily decaying infrastructure. Japan’s is the finest in the world and constantly being upgraded. I’ve been reading for over 20 years how Japan will imminently implode because of its 230% debt to GDP ratio. Well, Japan owns 95% of its debt: banks, citizens, corporations, pensions and other institutions fund it. When the government pays interest on the debt, the money cycles back into the economy. California’s debt flows into foreign countries. Something will have to be done about the debt, and the first step with be to increase the consumption tax to 10% in stages. The government is also looking at ways to encourage an increase in the birthrate, with France the best model. We don’t have our head in the sand, but progress comes slow here. When, however, Japan decides to act, it acts with overwhelming effort and speed. Consider what happened between the Meiji Restoration in 1868 and the Russo-Japanese War.
Back to silent reading.
The most clever thing any of these thieves have done so far, similar to the devil convincing people he doesn’t exist, has been to sell the idea that the Democratic party in general and this Democratic president in particular in any way shape or form protects or supports those who protect and support them.
Absolutely.
Pete Peterson is the Koch Brothers of the Democratic party. Ignored at all our peril. (with few noteworthy exceptions such as N.C.)
They must all be sitting at a billionaire breakfast table in a constant state of belly-laughs this morning.
I hope tbogg, balloon juice and Charles Pierce et. al. are getting a bonus check this week.
You are right about Peterson, although when you consider how much the Koch brothers must be profiting off of Obama’s conversion of the US into a petro-state, the Koch brothers seem to be the Koch brothers of the Democratic party. Follow the Keystone XL pipeline which Obama wants to happen and eventually you’ll strike Koch.
Tbogg and John Cole don’t need checks just so long as their president sings at the Apollo theater and Tim Tebow loses more games than he wins. Which is worse, I wonder, trading your integrity for thirty pieces of silver or for nothing at all?
While the Koch brothers are truly dangerous, I suspect David Rockefeller’s personal familiar, Peter G. Peterson, has actually done even more, albeit subtle, harm than the more obvious Kochs and their ALEC, etc.
His purchases of refineries, then shutting them down, his cornering of the anthrax vaccine market, his financing behind a large segment of the privatization of prisons, his long affiliation with Rockefeller, Kissinger, Hank Greenberg (AIG) and Richard Perle, and various astroturf firms, his Peterson Institute’s long-term promotion of the offshoring of as many American jobs as possible……
Stopped at, “While the Peterson-funded campaigners would claim that they too are “for” economic growth, their preferred policies stifle economic growth by throttling government spending.”
Holy crap it takes a lot of cognitive dissonance to read this and continue. Govt except in very limited terms does not and cannot create growth. It can declare emminent domain and build a road, or force Indians off their land at gun point. It cannot create meaningful growth, only it’s pre-conditions. Currently it maintains a pyrrhic status quo, which shields vast swaths of the electorate from it’s own poor previous choices, but that’s not what this story is about.
In a climate where no one in the private sector is spending, how is it wrong to assert that cutting public sector spending will stifle the economy? SOMEONE has to spend.
We can trim Social Security checks and reduce heating subsidies to the poor and dump the saved money into paying off the national debt, and sit back with a satisfied smile on our smug faces, but that’s not going to get any money circulating.
Now that you have given me such an awesome choice. I vote for massive funding of the “preconditions” that you mentioned! I recognize that they don’t — in an of themselves — create growth, but they sure as hell do provide a lot of publicly financed aid and capital to private industry, and to us peasants.
Those “preconditions” include a host of minor things that we know as our interstate highway system, federally financed power generating dams, irrigation systems for agriculture in semi-arid areas, public parks (our national parks are a gift from the New Deal), our internet backbone and protocol that came out of government funding, and don’t forget the research funding that resulted in satellites that allowed today’s communication systems — and on and on. None of these things would have come from private companies on their own because they cost so darn much. And, probably the most important thing, is that the government has hired (and continues to hire) private companies to actually perform the work.
I like and appreciate government spending on “preconditions” ! Plus I can bitch, moan, complain, and ask for help from my congress people if they screw up. You could complain to the Koch’s or Pete Peterson if they mess up — but good luck to ya in that!
In retrospect my comment was a bit too much of a rant and a defense of government spending, only in general. Currently, I have many misgivings about how well our representatives would conceive of and implement major infrastructure projects. However, if I have to choose between the government and the likes of Peterson, the Kochs, Dimon, Blankfein, Romney — I would choose our imperfect government, but I would vote for Jill Stein (and my local politicians that I know better than those on the national level).
LOL! I could have sworn that war creates growth. How about investments in computers, the internet, satellites, cell phone technology, civilian aircraft, R & D funding of biotech breakthroughs? The US had the highest tariffs in the world for about a century and a half, from about the war of 1812 until WWII roughly. Even after we increased protectionism massively. Then there is the highly protectionist agricultural sector. Throw in, in most market economies, state owned and run enterprises that are the heart of actual production. China, even today after its market reforms, has relied heavily on state owned enterprises. While there are fewer SOE’s, each individual SOE has grown and the “commanding heights of the economy” have never left state hands. On and on. Without the US protecting domestic industry, it would have never passed Britain by. Without government spending and support for technological breakthroughs, there would be no internet, computers or anything else I mentioned (and there is plenty more).
If you are talking about the corrupt government we have NOW, maybe you have a point. Historically however, market economies without active government support and protection turn out like El Salvador. Market economies without these types of things crumble quickly and the market itself proves completely incapable of meeting the needs of the vast majority of people. There is a reason why the libertarian nonsense simple minds always puke out has never once, in modern times, been attempted and lead to actual development and increased living standards.
Ah! Ha! Democrats and Republicans playing for Main Street to lose and eventually the country as a whole. See comments thread:-
http://www.parapundit.com/archives/007840.html
This idea that certain nations have the ability to create money to spend while others don’t based on that country printing its own currency is a very shallow interpretation of money.
Money has value only if perceived as so by the public.
Our dollar value is based on the full faith and credit of the U.S. Government.
To think that that faith and credit reside primarily in the ability to create money provides a very shaky foundation for the full faith and credit of the dollar.
And, to disassociate the value of credit from the budget process simply denies the value and definition of credit itself, and thus money.
This philosophy of no constraints other than the 3 scenarios portrayed is not related to our pursuit of happiness. Rather, it implies we deserve to be happy, dammit, and thus if the private sector cannot provide the money so we can consume and be happy, then the government should do it.
Don Levit
I agree the value of our currency demands an ongoing faith the united states will be here tomorrow and into the foreseeable future……that is why everyone buys to hold onto our debt…but really, the story is that people put their faith in the people of the US, holding it together somehow,and staying on the hook to repay that debt….as it has been since the US usurped the role of the british empire during the twentieth century….if only they realized the extent that the “money” used in the united states actually belonged to the federal reserve,a consortium of banking intrests, who are the same lot of international banking houses that owe each other the hundreds of trillions of dollars in unsecured debt, they write for each other to derive fees and intrest from,,,,keeping their ponzi scheme world currencies afloat.Then that faith would be shaken to its core….
and for us, the american public,to protect ourselves in the future, we need to reclaim our currency,and let the treasury of the united states, be the only source of monetary creation,so as to impose control of what our good name in standing ,gets us…. a fiat currency that others believe in.
And while not an MMT adherent, the real plan on the table is dennis Kucinich’s HR2990, “the NEED act”…It is the only blueprint I am aware of, that has historic precedence,as it is the new version of “the chicago plan” of the thirties,that has economic modeling showing benefits to the economy.as well as respected economistsfrom institutions around the world including from the IMF,that argue for its viability.It is not MMT,but the idea of money being a social construct , as opposed to a unit bearing direct value of a fixed resource/commodity ;is the same.
the need act is another way out, austerity isn’t our only option. neither is run amok deficit spending with a tab being kept…. by whomever our overlords and their assigns happen to be…
“is a very shallow interpretation of money”
Is it correct or incorrect? Does it match how commerce is actually conducted or not?
When the US does business with other countries, it spends US dollars, a situation both sides agree to. This is unlikely to change any time soon. So, why not use this to our advantage?
You are correct about the result of the dollar being the world’s currency.
The question I would ask is “How did we get to that position, and how can we maintain that status?”
I have read many times that our ability to deficit spend is based on the federal authority to tax. This makes more sense to me than our ability to create money, for at least the taxation angle provides a tangible resource to suppport that power to deficit spend.
But there needs to be a healthy ratio between deficit spending and taxation., for the taxation to really be a powerful force to deficit spend.
Actually, it seems to me that Peterson’s philosophy is to defcit spend, as has been pointed out up above. Not only with the bailouts, but also with the enormous leverage that banks have been able to use, based on assets which are not really worth what the books represent. Here, we have a situation of so much leverage, that the assets are not really a viable form of collateral. The same can be said for taxation, when the government deficit spends “excessively” in relation to taxation, its “collateral.”
Is spending 42 cents more for every dollar collected sufficient collateral, when you combine that annual deficit with $16 trillion of unpaid, rolled-over debt principal, and interest which is paid, not in cash, but in issuing additional debt principal?
Don Levit
What are the moral resonances of MMT economic policy?
Do the economic policies of MMT accelerate our contemporary cultural crisis– which seems both to demand ever less of ourselves and to permit more and more for ourselves?
Can MMT be seen as an attempt both to re-moralize our capitalist economy by pointing out that depressions are the wages of the sin of spending too little while simultaneously ignoring our greater contemporary cultural crisis in which our biggest sin appears to be fewer and fewer limits, of any kind, on our behavior?
Does this MMT type of attempted economic re-moralization of our economy, in our present cultural situation, only lead to an acceleration of a trend in which there are fewer limits on the race for status and satisfaction?
Could present MMT monetary and fiscal policy options be considered a defense of the cultural status quo where more always seems to equal better?
Do MMT theorists believe in any taboos?
Does MMT theorists see all prohibitions as primitive and unjustifiable?
At this point, does the anti-credal cultural message of MMT serve, as perhaps, an unintended endorsement of the bureaucrat, the party functionary and the apparatchik?
I am in my early thirties. It seems to me that my parent’s generation were given a flawed country, but a country in FAR better shape than the one they are handing my generation. The health care system, educational system, the national infrastructure, the environment, the economy, everything was in far better shape when my grandparents handed them the country than the one they are handing me. Now, after they underfunded and destroyed everything, after they neglected everything and watched everything slowly crumble, after they rule out forcing the rich bastards and multi-national corporations who benefited from these policies (the only ones over the long term) to pay higher taxes, they say, “sorry, WE will have what is left, you’re screwed. We won’t pay anything to clean up our nihilistic mess, we won’t sacrifice a fraction as much as our parents did for us, and you are screwed”. If anyone has a problem with this, and if anyone articulates how rotten the damn system is and how unfair this all is, if anyone god forbid points out that there ARE option available if we were only willing to tax the parasitic bastards at the top (especially finance), we get called “ideologues” or “radical”. It’s such an illogical, irrational and destructive situation. In addition to being furious at those in power who have caused this and could give a damn, I am angry at all the middle and working class folks who fall for this. Our system IS corrupt and fundamentally flawed, our economy looted and destroyed. We however didn’t have to elect these out of touch rich assholes into office. We didn’t have to buy into Reagan’s nonsense. We didn’t and don’t have to continue to support and vote for the two rotten parties in power. We need to also take responsibility for this mess. There are always going to be soulless, sleazy bastards who want to get elected. We don’t have to elect them and yet we do, over and over again across the country.
People have lost faith in every single economic and governmental institution, they have lost faith in the media, they have lost faith in corporations (although amazingly less so than other institutions). We are either going to have a violent right wing counter-revolution or a societal breakdown. The left’s ideas would be popular, at least on economic issues, if it actually existed in the US. The left would be a real threat to those in power, if it actually existed here in the US.
Here, the “left” is on the “left” because they are cool with gay folks and are supportive of a woman’s right to choose. Other than that, many of them (especially in power), are to the right of Nixon on economic issues.
I wish there were an actual left with some power. I would love to really make the bastards in power pay for what they have done. Unfortunately, given the power structure in this country, the right may actually GAIN power in the coming years as democracy is incrementally peeled away.
Can’t wait for more “centrist” comprimises coming.
By the way, the “centrist” folks always demean the left. However, the left was correct about global warming (remember that phrase?) decades ago, they were right about Iraq, they were right about austerity here and elsewhere, they were right about NAFTA and similar deals, they were right about deregulation, they have been proven correct about privatization (take Chicago’s wonderful parking meters), they were right (going way back to Cheryl Payer and Michael Hudson in the early to mid 70’s) about the horrible Bretton Woods institutions like the IMF. On and on. Funny that the “center” and the right wing can have such horrible, failed ideas, yet still find time to lecture the left for being so irrational and illogical. It’s maddening.
@Me — great posts by you, and tightly written!
Yes it is maddening. But when you realize that the bulk of the electorate (both Romney & Obama followers) will vote for “… such horrible, failed ideas…” it is beyond maddening, and more in the realm of stupefying. In the aggregate, we humans are truly a perplexing species. If one believed in a Creator of our dear human species — she would have to be the perverse god of the “Farside” comics series of Gary Larson. Powerful, and possesing a wicked sense of humor.
” All net gains made by the private sector, which includes private businesses and households, are the sum of the deficits of the government and the rest of the world.”
Um, no? It’s not zero sum.
First Order Wealth, Fractional Reserve Banking, hypothecation, derivatives, etc. do far more for net gains than government deficits. And those gains are relative, able to be wiped out by withdrawal of private credit.
Speaking of which, the massive losses in the housing market, realized or not, occured in periods of massive deficit spending by the government.
One might argue that guarantees are a form of government deficit spending, but that only takes effect if default occurs, and even then the net is still negative as far as gains are concerned.
Last, simply marking up bank accounts and unlimited fiat creation (and as I’ve commented before, there will be no limit to such, once begun) will not result in any net “gains” for the private sector. Currency merely keeps score of value, and value cannot be adulterated. Hence, whatever amount of currency can be created that you might want, but the amount of currency required for exchange to a given value item will only go up. This will swallow all gains, as there will be a percentage that will be skimmed off the top by the power brokers, plutocrats, and lobbyist clients.
At this point government will implement price controls, or wage increases. The theory of scarcity will begin to make itself felt, as will mass unemployment. Interconnectivity of markets and nations will ensure that capital flees or is stored in goods that have a productive or baseline value.
In short, things fall apart when you disconnect money from value.
There’s a lot to this post, and I can really only touch on the overall idea. You had me up to the end of the first paragraph, and I definitely agree with you there. You might also change the main name to Soros, and discuss his use of the exact same strategies to weaken US currency so he can make a killing in the forex market. That would ensure that you cover all the bases.
More extreme stuff, it should be understood that only the extreme of the extreme now gets attention.
Folks like this are not associated with a solution but are part of the problem.
Educated beyond their ability to comprehend.