Yves here. In an analogy to Putin remarking how he has found US presidents make genuine-sounding commitments to improve relations with Russia, then renege due to presumed bureaucratic undermining, Satyajit Das argues that both the US presidential contenders have limited freedom of action on many fronts. Readers who understand MMT can dispute his view that our rising Federal debt levels are a big impediment. But countering that is that MMT advocates point out regularly that too much deficit spending relative to economic capacity will generate inflation, and so that constrains spending. In addition, the US has this bad proclivity to effectively use MMT principles for spending largesse (deficit spend when deem necessary, like giving Ukraine oodles of weapons and budget) and not consider the other part of the equation they stress, the importance of using what they call net spending to boost the capacity of the economy. None other than the staunch neoliberal Larry Summers has pointed out that infrastructure spending boosts GDP by as much as $3 for each dollar spent, meaning it more than pays for itself. But engaging in that sort of prioritization on a widespread basis would require verboten industrial planning.
By Satyajit Das, a former banker and author of numerous works on derivatives and several general titles: Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives (2006 and 2010), Extreme Money: The Masters of the Universe and the Cult of Risk (2011), Fortune’s Fool: Australia’s Choices (2022). His latest book is on ecotourism and man’s relationship with wild animals – Wild Quests (2024).Originally published at The New Indian Express
Modern US politics follows Roman satirist Juvenal’s prescription of “panis et circenses”—bread and circuses. After the soap opera surrounding President Joe Biden’s candidacy—John Kenneth Galbraith held that anyone who says he won’t resign four times will do so—the contest has been re-energised, but voters have few meaningful choices.
First, the candidates’ policies are similar. Neither candidate will address the budget deficit. The Congressional Budget Office projects that the 2024 shortfall will be $2 trillion, growing to $2.8 trillion by 2034—6-7 percent of the US GDP. The ability to control outgoings is limited.
Three-quarters of the total spending is mandatory—with social security, major health programmes and interest nearing $900 billion, around 3 percent of the GDP and nearly 18 percent of government revenues. With the untouchable defence constituting over 40 percent of the rest, only 15 percent of spending is discretionary. Politicians, irrespective of ideology, are reluctant to raise taxes to levels required for sound public finances.
Debt will rise from the current 99 percent of GDP to 122 percent by 2034. Like Ronald Reagan, modern leaders think government debt is big enough to take care of itself.
Inflation outcomes depend on energy and food prices as well as geopolitical and climatic events. The theoretically-independent Federal Reserve sets interest rates.
Democrats are cautious about the effects of globalised supply chains on employment. Republicans have abandoned their free trade roots. They embrace victimhood—America is taken advantage of by the world—and their new blue-collar constituencies. Trade barriers implemented by Donald Trump and maintained by his successor are like to increase under either candidate.
Both candidates espouse industrial policy, which is really rebadged protectionism. Sanctions, tariffs, trade restrictions, incentives for domestic procurement and subsidies are designed to re-, near- or friend-shore industrial production. It is unclear whether ‘Make in America’ is even possible, or how reduced access to and increased prices of products will restore greatness and prosperity. Restrictions on cheaper electric vehicle imports and solar panels from China are inconsistent with the planned shift away from fossil fuels.
The need to keep the lights on and feed energy-intensive lifestyles will mean, irrespective of campaign promises, both candidates must rely on fossil fuels.
Business regulation may not be eased. Trump initiated the probe into Google that has led to it being branded a monopolist.
America’s immigration policy is to drain foreign talent educated in and at the cost of their home countries to supply skills. It pays lip service to being tough on illegal immigration, which provides essential cheap labour to various industries. The flow of refugees at the US’s southern border results from deep-seated security and development problems in Latin America and further afield, often related to US adventurism. Neither candidate has a workable solution.
The candidates’ position on defence and national security are similar. They are based around American exceptionalism and a unipolar worldview that allows the US to venture forth to slay foreign monsters when it chooses. After a few top-secret security briefings, all US presidents, irrespective of ideology, succumb to the demands of the military-industrial complex.
For both candidates, China remains the primary threat. Any retreat from an adversarial approach seems unlikely. Ultimately, both sides are committed to preserving the US empire. International cooperation to strengthen global institutions, including reworking of international monetary arrangements to reduce the role of the dollar, will be resisted.
Second, even where there are policy initiatives, it is questionable whether they will be implemented. The elected president may not have a majority in the House of Representatives or the Senate. Given the lack of bipartisanship, legislation will be difficult to pass. Even if the same party controls the White House and Congress, there is no guarantee that new measures will be passed due to procedural subterfuge by politicians skilled in the dark arts.
On budgetary matters, the US Congress has completed appropriations before the start of the fiscal year only four times in the past 40 years. The last time Congress passed all budget bills on time was nearly three decades ago in 1996. There is the ongoing problem of raising the debt ceiling. Recent presidents have sought to govern more through executive orders that are vulnerable to legal challenge, which limits the scope for policy initiatives.
An activist Supreme Court keen to expand its authority limits the scope for a new administration. Ideologically rigid positions and an arcane emphasis on textualism based around interpretations of the founding fathers’ intentions cannot deal with issues that did not exist centuries ago.
The president’s ability to appoint judges and key officials to bodies such as the Federal Reserve is limited by tenure and the timing of vacancies. Congressional approval of appointees, which increasingly resembles a mediaeval inquisition, is a lottery.
Unlike in a command economy, market-driven systems are built around decentralised decisions by businesses and households. Government power is naturally limited. Many crucial choices, such as those on energy and climate, are now increasingly driven by corporations and individuals with their own agendas.
Third, as UK PM Harold MacMillan held, politics is about “events”. Presidential power is constrained by international responses to US actions and geopolitical events. Most administrations find themselves reacting to events like those in Ukraine and West Asia, or emergencies like the pandemic.
Democracy, as the cliché states, is messy. But the lack of differentiation between contestants and policies results in celebrity ‘American Idol’ politics and divisive culture wars focused on difficult issues of gender, identity, religion and personal freedoms. Campaign pitches degenerate into “I may have problems, but the other guy is far worse”. Many voters would agree with Henry Kissinger’s observation: “It’s a pity that both of them can’t lose.”
It feeds growing disillusionment with the political process. Low US voter turnouts—just over half the eligible population votes; 2020’s 66 percent participation was an outlier—make a mockery of universal suffrage and democratic engagement.
The problems are not unique to the US. Galbraith was right: “Politics is not the art of the possible. It consists in choosing between the disastrous and the unpalatable.”
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The clock needs to be turned back about 120 years on the Executive Branch.
Both campaigns keep the stupid turned up to 11 so that it becomes the focus of debate.
“Most administrations find themselves reacting to events like those in Ukraine and West Asia, or emergencies like the pandemic.”
The party line. In fact the US created the Ukraine crisis out of whole cloth and did so to weaken Russia–an “adversary” only in the minds of Nuland and assorted kooks. The kooks get to run the show because the American public are both passive–bread and circuses indeed–and the upper class is increasingly devoted to wealth via financialization.
Our fish is rotting from the head, whether that happens with real fish or not. Dukakis proclaimed this decades ago and was widely derided by the elite media. It has only gotten worse since then.
And btw I believe we would not have had this Ukraine war if Trump had remained president. There is a party difference in that the Dems are preculiarly reckless and united and shielded by the media.
I go along with Carlin’s basic notion that it is the public that is the problem not the ruling-elites. The System is rotten from the head down and the body up at the same time. Our problems are cultural not political. We do not know who we are collectively, and for the most part individually. We are one of the few empires that lacks any sense of spiritual coherence either in religious terms or nationalistic terms. Our religion is consumerism and our nationalism is confused at best because it’s diffused in identity politics which is easily manipulated by the elite.
I go along with Carlin’s basic notion as well. It seems a significant part of the public adheres to the credo that “ignorance is strength”.
The current fracas is but one phase of the ‘Ukrainian War’, which started before Trump assumed power, and which he continued to enable. It was Democrat Obama that limited Kiev’s actions. IIRC , it was Trump (or his government) that reopened arms sales, and legitimized Nazist elements within and outside the US, paving the way for recognition of Banderites and such as ‘freedom fighters’. I would be surprised if he understands what’s going on there sociopolitically, with the appreciation of what is required to do so (lots of hard work).
US recognized Bandera himself as ‘freedom fighter’, so you are a bit off with determination of the start.
There’s always Jerusalem; but let me stop beating that horse.
Not a word wasted here. Heartily concur.
Excellent summary on the state of the union.
https://fiscaldata.treasury.gov/datasets/debt-to-the-penny/debt-to-the-penny States the FY2024 deficit at $2.5 trillion and a total national debt of of $35.7 trillion. A GDP of $28.7 trillion puts the current debt-to-GDP ratio at 124% of the economy. For some curious reason the CBO debt numbers are usually less than the Treasury’s. It might be that the CBO doesn’t include intergovermental holdings when they calculate the debt.
“How much” is significantly less important than “what are we spending on”.
See https://www.amazon.com/Deficit-Myth-Monetary-Peoples-Economy/dp/1541736184
I have heard Stephanie talk, and the one thing I would like to ask her is why the US used to have 4% Real GDP growth, increasing standards of living for the average person and a national debt that was declining as a percentage of GDP and now real growth is 2%, standards of living for the average person are at best stagnant and the debt is 120% of GDP? How does calling the deficit a myth fix that? The US national debt is $1 trillion when Reagan took office and is now almost $36 trillion – we are talking about 44 years of MMT from both parties, I need to see more upside to this economic theory.
When I say that a country has sovereign money, that means it can create money and use it to pay for goods and services that it uses. Instead of taxing incomes or increasing productive capacity, the US pays for its trade deficit by handing over money, it is a liability to the US, an asset to trade partners – it is debt. That is not a myth. When other countries run up their debt too much, the IMF comes in and they are structurally adjusted. MMT saying that debt doesn’t matter for a country like the US is just another example of the American Exceptionalism fable and it allows someone like Donald Trump to walk up, talk about stopping the American Carnage, making the country great again and getting elected on that story – even though the guy is a crank.
44 years of Neoliberal austerity and financialisation will do that. MMT has been employed solely to enrich the MIC and the banks.
When the US hands over money for foreign goods who will it have to pay it back to? It created it out of nothing. It is recorded in the accounts as negative equity, not even a liability let alone a debt. (Equity is traditionally on the liability side as it is notionally owed to shareholders should the company be wound up. The government is not a company and has no shareholders.)
Countries suffer IMF attention when they borrow foreign money. Japan’s ‘debt’ to GDP ratio is 260% but if the IMF came calling it would be laughed out of town.
When the US hands over money for foreign goods, trading partners either hold the money – with no return, they buy American debt to earn interest, or buy other assets like real estate and shares in corporations to earn a return. I agree debt seems to be created out of nothing, it is a promise to pay and a liability. Every US dollar out in the world is potentially a claim on the US economy.
Countries suffer IMF attention when they can’t pay back the interest and or principal for what they have borrowed. They could offer their national currency to pay it back – but not when that currency is no longer acceptable as a settlement of debt. What they essentially need to do is to sell more goods or services to earn foreign currency that is acceptable for settlement or sell off national assets to keep the IMF away. The main point for these countries who can’t pay back their debts is that they are not productive enough to export in sufficient quantities to service their debts.
The US dollar is accepted world wide, but that does not mean the US economy is productive or competitive enough to run a trade surplus and to pay down its debts. It is not a sign of a healthy economy. I agree with you that Neoliberal MMT has been focused on making the wealthy even wealthier and that has come at the cost of economic health for the country.
“Every US dollar out in the world is potentially a claim on the US economy.” True, but it’s a conditional claim. Remember when the Arabs wanted to buy the port of New Orleans, but were turned down by the US? On the other hand, they could buy as many Treasury bonds as they wanted. Treasury bonds are US debt, payable in US dollars, so … no problem! It’s as though you could pay your mortgage with autographed Post-it notes. It’s not a burden.
The countries that can’t pay interest on their debts either owe the debts in some other currency (neo-colonialism of non-monetary-sovereigns) or are targets for the “Economic Hit Men” who want to roll their debt into a bigger, unpayable debt (typically in some other currency, too).
The US doesn’t have that problem. It’s “debts” are payable in dollars. The trade “deficit” means the US gets real goods and services for the dollars that are of limited usefulness to the exporters. Perhaps it’s not an ideal situation since the US has been shooting itself in its own productivity foot by exporting the manufacturing that made its economy “productive.”
It’s also useful to remember that the dollars in your wallet (“Federal Reserve Notes”) are part of that national “debt,” just as your bank account, while it’s your asset, is the bank’s liability. You can march down to the bank and demand it reduce its debt. The banker would then make your account smaller. You could do it, but it wouldn’t be very sensible.
See also: Randall Wray’s article here.
It’s also worth remembering that Andy Jackson paid off the entire debt in 1835, shutting down the US central bank. There was no public currency. People did their business with specie (monetized gold) and over 7,000 varieties of private bank notes of varying reliability. As you might imagine, impairing people’s savings (dollars are the financial assets of the public) this way led to a massive wave of asset forfeitures and foreclosures as people couldn’t pay their obligations. It was called the “Panic of 1837″…and was awful. The Great Depression also followed a reduction of national debt.
Sure thing, the US can just say no for certain asset purchases, the party holding the debt can either buy something else or shop for a different country to invest with. The US by saying no, or by grabbing the assets of other countries – to teach them a lesson – has been a great incentive for countries to join the BRICS.
The US has a similar problem to countries that can’t pay back their loans because the very action of paying with dollars instead of tradeables means incurring debt, it also means the country is less competitive. Like I said above, economic growth is half of what it used to be, also if you look at how fast the debt is growing, it used to be less than 2% of GDP and I would say that in the last 10 years the annual deficit is averaging north of 5% of GDP. Like you said, the country has been shooting itself in the foot by offshoring production. I am saying the fact that the debt is growing so fast is a result of feet being shot – many times over.
Yes theoretically, the US can print as much as it wants and pump as much into the economy as it feels like. Theoretically, doctors can keep someone who is bleeding profusely alive by pumping blood into the person. Big deal. Is the patient healthy? Is the patient reaching their potential? I think it would be wiser to stop the bleeding.
How much actual economic growth does a country have that experiences Real GDP growth of 2% and a deficit of 6%?
“Politics is not the art of the possible. It consists in choosing between the disastrous and the unpalatable.”
Galbraith was an optimist.
Indeed, what are called “tough choices” are usually ones which are both disastrous and unpalatable.
One outcome a threat, and the other, compromised. The man was a *realist. The Black demographic, eg. has been voting for a lifetime now.
From a historical perspective we are in a different era where the standards of old no longer matter except in myth. We are not “a democracy” except, to some extent, de jure.</em. De facto, we are an oligarchy. That’s just the way it is. The elections are based on negative campaigning almost exclusively to hit people’s emotions only because we live in a strictly post-rational age where intellectuals lack both the propensity and ability to reason and the public is, of course, all about entertainment and worship of consumer culture, our national religion (every other religion is of secondary importance).
For me, Presidential politics reflects who we are culturally so we just have to face the old adage “it is what it is” and it isn’t going to change. Fortunately or unfortunately, we’ve left it to the oligarchs which, I hope, transform into a aristocracy (the difference is that the first does not care about the public other than to take their wealth, the second cares about the public). I think the election, this year, could potentially move us into a new dispensation less filled with the extraordinary amount of bullshit in the media–never has the media been as far away from reality as it is now. Anyway, the factions supporting Harris are not that different from the ones supporting Trump except I think those that support Trump are less rigidly ideological and more interested in truth–but power will remain the same though we are more likely to see some cultural change with Trump.
It’s time of madness . Empty suits,demogogues and outright madmen are in seats of power. Something has profoundly changed in the world in last 15 years. Even in the presence of sane choice, people are voting for crazy people (Erdogan,milei).
15 years ago things weren’t working for the majority of people. In the US wages have been stagnant for 50 years. At some point people look for whomever promises to change things, even if they are full of sh*t. This explains the shift to right wing extremists.
The United States can only continue to sell assets and financial assets are not enough. The sale of oil and natural gas is essential to maintain the value of the currency and the loyalty of allies, but they are finite resources. Oil production will not grow anymore, it can remain stable for several years with increasingly gaseous shale fields. One day this will not be enough for foreigners, no matter if they are allies or not. Being a debtor is always a losing proposition in the long run. Being the largest debtor in history and having become the most hated nation leaves no doubt about the point of arrival except one: will they also lead the others to hell ?
Frank, you are apparently unfamiliar with double-entry bookkeeping. Every debt is also someone’s asset. If you have a mortgage–or in California a note-and-deed-of-trust–that’s you’re liability (debt), but to the people collecting the payments, it’s an asset. Similarly, your bank account is your asset, but the bank’s debt–it owes you the money.
You can march down to the bank and demand it reduce its debt, and it would comply by making your account smaller. Not very sensible. And is being “a debtor…always a losing proposition in the long run”? Really, even if your bank’s debt is your asset? The dollar financial assets of the population are *exactly* what national debt is. (see Randall Wray here)
All of the debt is owed in dollars, which the US makes literally without limit at a trivial cost. It’s not necessary to sell anything.
I doubt that either of the two Skunk Party candidates will have the capacity to initiate or bring about policy. Besides, I doubt those who control the u.s. government would trust either of them too near the levers of power. This is not to suggest I believe that U.S. President is not an extremely powerful and important job, it is. Neither of the Skunk Party candidates impress me as wise or powerful leaders. As for concerns about … immigration, defense and national security — endless warfare, China, budgetary matters, Presidential appointments, or dealing with what ‘events’ may come, any policy of substance … neither candidate promises the capacity to be much more than an animated talking head reading from a script or ranting to the moon to reverberate in muted echoes in what passes for our new media.
I am deeply disillusioned about the u.s. political process. What remains hardly seems deserving of being called ‘political’ process.
Everyone these days seems disillusioned about politics in the USA. This is one of the best possible results of all these crises. This reality will result in some kind of change but that change has to be cultural and moral before it can express itself politically no matter who is elected next month.
I think it might be important to make a distinction between becoming disillusioned with the political process and becoming disillusioned about politics. I believe people remain political animals. The powers-that-be should be very concerned with the growing disillusionment with the process of u.s. politics.
> In addition, the US has this bad proclivity to effectively use MMT principles for spending largesse (deficit spend when deem necessary, like giving Ukraine oodles of weapons and budget)
#Exactly
When it comes to the MIC, there’s never a question of “how do we pay for”. The populace is too steeped in the “taxes pay for fallacy” to realize that the real issue is “what is the government choosing to spend on“. If/when that unknotting of the nation’s cognitive dissonance on the federal government’s true fiscal capabilities ever happens, we will see a true revolution in this country.
Google ‘branded’ a monopolist? Ahem, Mr. Das. Both a jury and a federal judge, in separate trials, judged Google to be a monopolist under applicable laws. And I suspect the same outcome in a third trial before a federal judge.