I blogged on the opening slide of the Catfood Commission Co-Chairs’ Proposal just a couple of days ago, so when I checked out BillyBlog, as I do almost everyday, last night, I was particularly pleased that a part of his great post was devoted to the same slide I commented on. I’d like to dialogue with Bill’s treatment now, both for fun and also to introduce my readers to not just the substance, but the flavor of Bill’s views on austerianism, the increasingly serious threat to the well-being of both working Americans and the world’s working people.
In my estimation, Bill is one of the world’s leading economists practicing right now. And with Warren Mosler and L. Randall Wray he forms what I think of as the big three of the Modern Monetary Theory (MMT) movement in economics. In these times when so-called “progressives” talk about the “Catfood Commission” in grave tones, as if it is trying to deal with a serious and intractable problem employing great intellectual and moral courage, when what it is really doing is addressing a manufactured issue, employing old economic theories that were discredited in the 1930s, with monumental stupidity to boot, it’s very important to have a real humanist like Bill on the side of working people everywhere.
I have been reading the Co-Chairs Draft Proposal from the US National Commission on Fiscal Responsibility and Reform, which was released on Wednesday (November 11, 2010). If I was religious I would be saying Please god, help us all. As I am not, I will say it anyway!
I will provide more detailed analysis of the material they are starting to pump out in due course. But in the accompanying presentation, the opening slide caught my eye immediately. It said:
– We have a patriotic duty to come together on a plan that will make America better off tomorrow than it is today
– America cannot be great if we go broke. Our economy will not grow and our country will not be able to compete without a plan to get this crushing debt burden off our back.
– Throughout our history, Americans have always been willing to sacrifice to make our nation stronger over the long haul. That’s the promise of America:to give our children and grandchildren a better life.
– American families have spent the past 2 years making tough choices in their own lives. They expect us to do the same. The American people are counting on us to put politics aside, pull together not pull apart, and agree on a plan to live within our means and make America strong for the long haul.
I recommend they redraft that slide prior to deleting the remaining 47 slides that follow. Perhaps something along these lines:
- We have a responsibility to come together on a plan that will make America better off tomorrow than it is today given how bad the state of the real economy is now and how weak the government fiscal response has been.
- America cannot be great if the private sector goes broke. Our economy will not grow and our country will not be able to compete without a plan to get this crushing private debt burden off our back. Given the government has no solvency risk (and cannot go broke) and that fiscal policy has the unique capacity to support spending and employment while the private sector restructures its balance sheet, it is our responsibility to recommend a further (jobs rich) fiscal stimulus.
- Throughout our history, Americans have always been willing to sacrifice to make our nation stronger over the long haul. That’s the promise of America: to give our children and grandchildren a better life. And if we succumb to the maniacal protests of the deficit terrorists and cut back net public spending now and drive millions more workers out of jobs then we will be guilty of crimes against our children and grandchildren.
- American families have spent the past 2 years facing tough choices in their own lives because the market system failed due to lax government regulation and dishonest and irresponsible entrepreneurial behaviour. Their situation has worsened because the government did not have the courage to provide enough fiscal support to ensure there was enough spending to support their their jobs. They have been lied to by the press, the conservatives and we have gone along with these lies – the buck stops with the President on this who had shamefully lied to the American people when he told them that the government had run out of money. The American people are now counting on us to stop lying and to face up to the basic macroeconomic rule that spending equals income. The American people know that they have to live within their means but they know the government has no such financial constraint and should be spending so that they can be employed and save and that will make America strong for the long haul.
I think that might be better although PowerPoint would probably split the message onto two slides. But it is better to tell the truth on two slides than to lie on one.
It certainly is. Not that the Co-Chairs have any particular concern for brevity in presentation, since as Bill says, all the rest of their presentation may just as well have been deleted since it was full of falsehoods. In this short statement Bill hits at the following deadly innocent frauds. First, that the Government is fiscally constrained in the sense that it can run out of money and that there therefore exists a solvency risk. That is a falsehood. In the mouths of some who know better, it is a lie, and a very damaging one because it provides an excuse for not increasing private sector income through Government spending.
Second, that it’s the Government going broke. It’s not. It’s the private sector gone broke after the great recession, and the Government’s proper role in such circumstances is to ADD financial assets to the private sector by deficit spending which directly ADDS to private savings.
Third, that we must have austerity or else create a burden for our grandchildren. Actually, it’s the opposite. To make things better for our grandchildren we must create real and equitably distributed private sector wealth now, and the role of increased Government spending to create jobs in doing that is critical. The future is about what we build now. And if we fail to build now, if we fail to repair the damage done by the market fundamentalists who created our economic mess, we will then be betraying our children and grandchildren.
Bill’s commentary also moved a bit beyond the opening slide:
On Slide 6 the heading is “Cut Spending We Simply Can’t Afford, Wherever We Find It”. Who is We? Answer: the private sector should never spend more than they can afford. That means they should only run sustainable debt burdens and probably not be in debt overall as a sector. But the US government can always afford to buy whatever there is for sale in US dollars on any given day.
But the US private sector has enormous debt today, and when the private sector is saving to pay down debt as it is doing, rather desperately, right now, and the external sector is running a trade deficit, then it is true by accounting identity that the Government will run a deficit whatever we do. As Bill has said many, many times. The only choice here is whether there will be good deficits that result in jobs and real wealth and eventually recovery, or whether there will be bad deficits that result solely from economic losses and a spiraling down of tax revenue, which is the path which the austerians want us to travel.
A sovereign government like that in the US is never revenue constrained because it is the monopoly issuer of the currency. It is nonsensical to talk about the US government as if it is a budget-constrained household.
It is. And that is what you see all the illustrious Senators and Congresspersons, the President, a good many of the economists, corporate CEOs, the mainstream media “serious” people. and loudmouth cable pundits doing. These people think the US government is like their own household that must “fund” expenditures. They think the Government must either tax or borrow money to “fund” it’s spending, so that it is limited by what it can tax and what it can borrow.
You see people saying that everyday. Obama says it. Pelosi says it. Chris Matthews, Lawrence O’Brien, and Ed Schultz all say it. The serious pundits at CNN like David Gergen intone this bit of wisdom in a solemn voice as if it were an obvious article of self-evident truth. But, in fact, it’s another deadly innocent fraud. The Government is not a household in the economy that uses somebody else’s currency. It is the issuer of its own currency. It is not just a player in the economic game. It is the scorekeeper. It never can run out of points.
Bill continues:
That doesn’t mean (all you goldies out there) that the US government should spend without discretion or control. It should only spend to ensure its socio-economic program to advance public purpose is being progressed and only in net amounts that ensure that nominal spending growth doesn’t outstrip the real capacity of the economy to absorb it with output increases. If the two aims are mutually inconsistent (that is, the implied size of government to deliver this program and the current size of the private sector overall add up to more than the real economy can support) then the government can either reduce its program ambitions (a political issue) or reduce the size of the private sector (via taxation increases etc). But none of these choices and decisions are financial in nature. They are mostly of a political nature.
Even though the Government can never run out of points, can’t become insolvent, and so has no financial budgetary constraint that is not political, it does have the very important real world constraint that if it spends beyond the productive capacity of the economy it can cause inflation. When inflation happens we can and will respond to it. But right now there’s no inflation. In fact, we’re in danger of deflation and are operating at roughly on 70% of capacity.
So, first things first. Forget about running out of money. That can’t happen. We have several real problems. The first is huge unemployment. The second is the need to reconstruct our economy to create a new energy foundation for it. The third is an education problem. The fourth is a health care problem. The fifth is an infrastructure problem. The sixth is a climate control problem. The seventh is an environmental problem.
These are real problems related to the economy. Let’s grow up and have the real courage necessary to take care of them.
And let’s dismiss the Catfood Commission and its fantasy nightmare problems of running out of money, getting too much debt, having bad debt-to-GDP ratios and so on. Those are just bad dreams from which we better awake quickly before our futures and democracy are gone.
(Cross-posted at FireDogLake and Correntewire).