All Life Is Problem Solving

The debates between the deficit doves and the deficit owls continued at New Deal 2.0 (ND20) today. Jeff Madrick, a dove, gives us a post entitled: “Stimulate Now: On Inflation and Deficits.” In this post, I’ll evaluate Jeff’s views paragraph by paragraph.

Jeff says:

”Some have suggested that if a country nears the point that it must consider default, that is, it can’t generate enough tax revenues to pay debt and meet other minimal commitments, then all it need do is create reserves if it has a sovereign (aka ‘fiat’) currency.”

Maybe Jeff is right that “some have suggested . . .” the above, but I’ve never seen anyone do that. The economists I read who write about the capabilities of Governments sovereign in their own currencies say that such countries can’t be forced to default, that they can only do so voluntarily, and that if they do, it’s only because their decision makers don’t understand that they can’t be forced into default by international markets any external authorities.

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New Deal 2.0 (ND20) is, well, more New Dealish than other web sites, so instead of the usual conflict between deficit hawks and deficit doves, we might see at, say, the New York Times. Here things are shifted to the left, and we see a debate between the deficit doves and the deficit owls. The doves and owls have posted there for awhile without really engaging one another. But recently, the appointment of Jack Lew as OMB Director and the Statement/petition by Sir Harold Evans called “Stimulus Now,” has ended an uneasy truce between these groups. Paul Davidson, Sir Robert Skidelsky, and Jamie Galbraith replied to the Evans petition with a refusal to sign it and an explanation of the deficit owl position. At about the same time, there was an exchange at Paul Krugman’s blog between deficit doves sharing Paul’s position on the deficit and deficit owls, who don’t agree with the deficit dove prescription of short-term deficits until we get a strong recovery and then a “pivot” to deficit reduction eventually resulting in a surplus when times get really good. The deficit owl prescription is to increase Government spending on programs directed toward the public purpose, until all excess productive capacity in the US economy is used, and then cut back on less valuable spending, or raise taxes as necessary to avoid inflation. Deficit owls also believe that there is no need to worry about deficits as long as Government spending hasn’t helped to created enough aggregate demand to use excess productive capacity, and that thereafter, aggregate demand needs to be cut either by reducing spending, raising taxes or both, not in order to reach some arbitrary deficit or surplus number, but rather to achieve the specific goal of avoiding inflation. Now, at ND20, blog posts have begun to appear where deficit doves and owls have been exchanging points of view.

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These last couple of days, I happened to see a couple of pieces by Robert Borosage. The first of these called “Kick the Old and Disabled to Show We’re Serious About Deficits,” is about organizing and fighting back against the deficit terrorist movement to cut Social Security, and reported that Borosage’s organization, the Campaign for America’s Future, “has joined with 50 other organizations (and growing) representing 35 million Americans to form a coalition”, called “Strengthen Social Security.” He also refers to a panel on Social Security at Netroots Nation that will be “inviting the bloggers across the country to help fend off the assault on Social Security, and join the debate about priorities over the next years.” Then he ends with this: [Read more →]

Congratulations to Professor Stephanie Kelton at UMKC for giving us a new addition to the deficit aviary. Until now the media only had mind space for “deficit hawks” and “deficit doves.” Deficit hawks include folks like Mike Pence, and Judd Gregg, who insist that the Government run deficits only for wars, and tax cuts for rich Americans, but insist on paying for extensions of unemployment insurance, health care reforms, infrastructure, jobs programs, educational programs, transportation projects, and any Government spending for regular folks with taxes.

Deficit doves include folks like many, but not all, Democrats in Congress, Paul Krugman, Joe Stieglitz, Dean Baker, and all the signatories of this recent Sir Harold Evans, “Stimulus Now” petition, who want to run deficits to end the recession but who say:

“We recognize the necessity of a program to cut the mid-and long-term federal deficit…”

Now, on the occasion of a letter from Paul Davidson, James K. Galbraith and Lord Robert Skidelsky, in reply to the Evans petition, also signed by many very prominent “deficit dove” economists, the UMKC folks say:

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By

Warren Mosler

MISSION:
To deploy an army of MMT proponents to respond to deficit terrorism on the web.
Go to offending articles. Neutralize flaws. Report back to home base.

MERIT AWARDS:
An MMT heart (?) will be awarded for each successful strike. [Read more →]

Paul Krugman, well-known for his opposition to the austerity concerns of the deficit terrorists and his advocacy of additional Government stimulus to lower unemployment and end the recession, just ignited a paradigm conflict which promises to clarify for many, the issues dividing “deficit doves” like Paul, from economists who take a Modern Monetary Theory (MMT) approach to economics, which holds, among other things, that Government deficits and surpluses are not, in themselves important, and that Government spending has to be evaluated relative to its impact on public purposes. Paul said:

”Right now, the real policy debate is whether we need fiscal austerity even with the economy deeply depressed. Obviously, I’m very much opposed — my view is that running deficits now is entirely appropriate.

“But here’s the thing: there’s a school of thought which says that deficits are never a problem, as long as a country can issue its own currency. The most prominent advocate of this view is probably Jamie Galbraith, but he’s not alone.” [Read more →]

These days the chattering classes often converse about how the Democrats can get their base charged up and working for the fall elections. For example, Greg Sargent at the Plum Line blog says:

”As you know, over the weekend Robert Gibbs dropped a political bomb, saying that Republicans just may take back the House. His comments are being widely interpreted as an urgent warning designed to get rank and file Dems to grasp the stakes of the midterms once and for all. [Read more →]

Alan Simpson and Erskine Bowles, the Co-Chairs of “the National Commission on Fiscal Responsibility and Reform,” would have us believe that a deficit and debt crisis threatening the fiscal future of the United States is upon us, that “This debt is like a cancer,” and that unless we begin to make across the board cuts in expenditures, and also raise taxes in a way that distributes the pain across all segments of the population, there is no way we will return to fiscal sustainability. This view is false and also alarmist for many reasons. One is that Bowles’s view that: “We could have decades of double-digit growth and not grow our way out of this enormous debt problem”, is ridiculous, even if one thinks there is “a debt problem.” I’ve shown elsewhere, that all the US needs to do to “grow our way out of the problem” is to return to the historical average decade-long growth rate we experienced between 1940 and 2000 to begin producing surpluses by 2017 and bring the public debt-to-GDP ratio down to 37% by 2020. [Read more →]

In my last post, I continued my analysis of the June 26th AmericaSpeaks Community Conversation event I attended in Falls Church, VA, focusing on Step Five in the decision process used in the meeting. In that post I presented the specific option choice frameworks AmericaSpeaks presented to participants in the categories of Non-Defense and Defense spending, and revenue raising, and also analyzed the biases inherent in the way they were structured. In this post, I’ll wind up this analysis of the AmericaSpeaks event, the materials provided to participants, and the biases in their process as I saw them. [Read more →]

In Part 5, I continued my analysis of the June 26th AmericaSpeaks Community Conversation event I attended in Falls Church, VA, focusing on Step Five in the decision process used in the meeting. In that post the specific option choice frameworks AmericaSpeaks presented to participants in the categories of Health Care and Social Security spending, and analyzed the biases inherent in the way they were structured. Here once again is a statement describing step 5.

Working through the Options Workbook and arriving at decisions about what cuts in Federal Expenditures or tax increase to make in order to cut the projected Federal Budget. Reporting to the group about the choices made by each participants and something of the reasoning behind these choices. Summing up by facilitator highlighting the most popular choices of options for reducing the deficit.

Other Non-defense; and Defense Spending are the two remaining categories of Government spending presented to participants in the community conversation and national meeting processes. In the Other Non-defense spending category, AmericaSpeaks provided a very short summary description of 14 categories of spending and the projected amounts to be spent on them in 2025, including: Administration of Justice ($71 B); Agriculture ($ 20 B); Commerce and Housing Credit ($6 Billion); Community and Regional Development ($21 B); Education, Training, Employment, and Social Services ($159 B); Energy ($3 B); General Government ($39 B); General Science, Space, Technology ($42 B); Health (other than Medicare and Medicaid) ($44 B); Income Security ($552 B); International Affairs ($68 B); Natural Resources and Environment ($37 B); Transportation ($117B); and Veteran’s Benefits and Services ($180 B). [Read more →]