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Is the MSM Blackout on Inequality, Plutocracy, and Oligarchy Ending?

11:29 am in Uncategorized by letsgetitdone

The first occurrence of this I’m aware of was Chuck Todd, reacting on his Daily Rundown show to the spectacle of Republican candidates traveling to Vegas to seek funding from Sheldon Adelson and his well-heeled friends..

All of a sudden MSNBC cable commentators are talking about plutocracy and oligarchy. Surprisingly, the first occurrence of this I’m aware of was Chuck Todd, reacting on his Daily Rundown show to the spectacle of Republican candidates traveling to Vegas to seek funding from Sheldon Adelson and his group of hugely wealthy Jewish Republican donors. Todd began to explore the implications of that event. He seemed exercised, and more than the slightest bit upset, about its meaning for Democracy and used the words plutocracy and oligarchy. Andrea Mitchell also discussed it later and she, too, registered apparent dismay, while using the “p” and “o” words.

Chris Hayes has been on leave during this period, so we haven’t heard from him about this. But Chris Matthews, the “oh so very slightly left-of-center insider” has been making very unfriendly noises about Adelson, the Kochs, and the Supremes, culminating today (April 3rd) with nasty references to plutocrats, oligarchs, and candidates, kissing oligarchs somewhere or other, on both his program and Al Sharpton’s.

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When You Really Look, Financial Quicksand Turns Into Oligarchical BS

9:09 pm in Uncategorized by letsgetitdone

Why do you say that the Government will have a solvency problem?

Abby Huntsman’s first rant about entitlements soliciting generational warfare got a lot of pushback from defenders. I reviewed the main points made in defense of entitlements, and then added “the most important point of all” as well. Abby made a second try, however, this time singling out Michael Hiltzik’s reply to her to respond to and adding a few more points, while withdrawing a bit from her claim that life expectancy has changed very much for seniors since the New Deal period. Hiltzik took issue with that one too. Let’s review Huntsman’s reply to Hiltzik by analyzing the MSNBC transcript of her second rant against entitlements.

Abby Huntsman:

. . . the need for entitlement reform. there was a firestorm of reaction. an article in the ” l.a. times” went as far as to say i want to lead my generation into poverty. come on, man. this isn’t about me. it’s about the major problem.

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Envy or Honest Outrage?

10:01 pm in Uncategorized by letsgetitdone


Catherine Rampell offered a theory the other day, in a piece entitled: “Income inequality isn’t about the rich — it’s about the rest of us.” She says:

People don’t hate you because you’re beautiful. People hate you because they are getting uglier. . . .

Income Inequality
And then later, she says:

Yes, anti-inequality rhetoric has grown in recent years. But it’s not the growing wealth of the wealthy that Americans are angry about, at least not in isolation. It’s the growing wealth of the wealthy set against the stagnation or deterioration of living standards for everyone else. Polls show that Americans pretty much always want income to be distributed more equitably than it currently is, but they’re more willing to tolerate inequality if they are still plugging ahead. That is, they care less about Lloyd Blankfein’s gigantic bonus if they got even a tiny raise this year.

She proceeds to review polling data to show that this is so, and then advises the 0.1% that if they want to be left alone then “they should probably support policies that “promote the upward mobility of other Americans. . . “ such as Pell Grants, higher minimum wages, and early childhood education.

That’s not bad advice, of course, but I wonder what people will think of the 0.1 % when they understand more fully that their efforts to get ahead aren’t independent of the 0.1%’s efforts over the years to manipulate both the poitical and economic systems. And that further, the primary cause of the failure of poor people and the middle class to gain ground over the past 40 years is due to the deliberate efforts of the wealthy to structure both economics and politics in such a way that both nominal and real wealth would flow increasingly from the bottom to the top.

I suspect that the more people come to understand the increasing rigging of the game over a long period of time, the more likely it is that they will be bothered by increasing inequality all of the time, even when they themselves are living through a good year or two when they are making marginal gains. It is also more likely, that when they come to that understanding, the pitchforks and guillotines will come out, because people will blame the rich for the extremes of inequality and will replace any sense of fleeting envy they may have with a continuing sense of honest outrage at the Koch brothers, the Petersons, the Walmart family, and their compatriots, who have created the conditions that have made them periodically unemployed, ill-educated, financially insecure, subject to difficulties in getting medical care without going bankrupt, in staying in their homes, and to lack of opportunities and declining hopes for the future.

In short, I’m saying that:

People don’t hate you because you’re beautiful. People hate you because you are making yourself more beautiful AND are making them uglier.

So, even though the rich are periodically unpopular when the economy falls into bad times, it is nothing compared to what people are likely to direct at them, when they understand who is to blame for the plight of most of the population. That’s when the proverbial s__t will hit the fan.

My advice to the oligarchs is this. You aren’t involved in a low risk, predictable game, here. You’ve ruined people’s lives through your actions for many years now. Once the conditions for them are present, which will happen when people see your role in their plight clearly, mass movements can emerge at any time, and they can easily get out of control, as many seemingly unassailable oligarchs have found out in the past.

The wise thing to do is to give way to the inevitable thrust toward greater economic, social, and political democracy. Play the handmaiden to that transition, because then you may be able to keep most of your ill-gotten gains and have a place of honor besides.

(Cross-posted from New Economic Perspectives.)

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The Most Important Point of All Was Ignored

8:43 am in Uncategorized by letsgetitdone

On Abby Hunstman’s right wing Petersonian “Fix the Debt” rant

MSNBC’s right wing representative on The Cycle, Abby Huntsman, got a lot of pushback from Social Security defenders after her rant last week. They made points similar to the following in countering Huntsman:

– SS is not bankrupt now, it has $2.6 Trillion in Treasury IOUs in the SS “trust fund” accumulated because Treasury has used FICA collections to “pay for” other Federal spending since 1983, when the Government began to collect more from workers and employers than was paid out to beneficiaries. The accumulated IOUs, projected interest on them, and future FICA collections are projected as being enough to “cover” 100% of SS benefits until 2033, and then 75% of benefits thereafter. 100% of benefits could be “covered” from 2033 on, if the payroll tax cap on Social Security were to be removed.

– Huntsman’s claim that seniors have longer life expectancies than when SS first was enacted is greatly exaggerated, because life expectancies at birth have improved due to improvements in infant mortality rates. But they haven’t improved nearly as much at age 65 and older, and apart from that, the improvement that exists after age 65 is reached is primarily concentrated among certain social groups, and that the poorest and most needy groups in our population, who need SS the most, have either seen little improvement in life expectancy, or even a decline in life expectancy in recent years.

– Savings of seniors now average very little more than is needed for them to cover Medical expenses due to aging and there is precious little left over for living expenses beyond what SS spending will cover.

– Huntsman is conflating the SS “Trust Fund” running out of money in 2033, with SS running out of money. The first is happening as it was always planned to happen when the Reagan Administration and Congress agreed to raise FICA payments to almost double the amount previously paid, for the boomer generation to cover its retirement benefits; but the second depends on what Congress will do in the future to close the gap between current projected FICA revenues and projected benefits.

These two are different because the Government can do various things to close that gap. Huntsman mentions only cutting benefits or moving the SS retirement age to either 70 or even 75, so that enough will be left in the fund to close the revenue/benefits gap. But there are other ways of doing this easily; most notably removing the payroll tax cap so that the well-off, or those who are prospering, will pay the same share of their income into Social Security as most of the rest of us, and/or there can also be gradual small increases in the employee and employer contributions that will close the projected gaps indefinitely.Other points of less importance, and moral arguments, which from my point of view are among the most important, about the right to a decent secure retirement for the elderly are made, as well.

But, there is one point, the most important one of all, which is not made in all these “progressive” push back arguments against Abby Hunstman’s right wing Petersonian “Fix the Debt” rant. That is the point that there is no entitlement crisis and no emergency, and neither an increase in payroll taxes, nor robbing from “future generations” is necessary to close the projected gap after 2033 because Congress can pass legislation providing for annual automatic funding of expected costs for all SS and Medicare trust funds.

That’s done now for Supplementary Medical Insurance (Medicare Part B), and Prescription Drug Benefits (Medicare Part D), and the same practice using similar legislative language can be extended to the SS Old Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds. End of story. Once that is done, no gaps between SS revenue and benefits can be projected by institutions, such as CBO, under current law.

You may doubt this solution by pointing out that legislation like this just pushes off Huntsman’s Social Security solvency problem to the Treasury at large, rather than its being SS’s problem, but it doesn’t solve the real insolvency problem. Only it does, because the Government as a whole has no fiscal solvency problem, since it can always use its authority to create the reserves in the Treasury spending accounts to pay all its bills including all those exceeding its revenues.

The customary way of creating such reserves is to sell Treasury debt instruments, destroying reserves in the private sector, and getting the Fed to place an equal amount of reserves in its accounts. But, there is another way it can be done under current law, and still other ways open to Congress, if they want to pay all the SS benefits they would have guaranteed by the proposed change in the law that would solve this faux problem.

The way any gap appropriated by Congress can be closed under current law, is to use Platinum Coin Seigniorage (PCS) to do it. As many of my readers know, I’ve explained how this would work in my e-book. But, the basic idea is that coin seigniorage can be used by the Treasury to require the Fed to use its reserve creation authority to place reserves in Treasury accounts, without Treasury engaging in any additional taxing or borrowing.

So, this capability coupled with Congress providing for annual automatic funding would end the Huntsman, Peterson, Bowles, Simpson, Ryan, and Obama revenue gap problems with Social Security and all other entitlements, for that matter, without these poor folks having to worry about taxing the rich, like them. And, if Congress doesn’t like that alternative way of placing reserves in Treasury’s accounts so it can spend Congressional appropriations, then it can always just go ahead and place the Fed within the Treasury Department, giving the Secretary the direct authority to order the Fed to fill its accounts with enough reserves to cover any revenue shortfalls, without either raising taxes or issuing more debt instruments.

So, these are the easy ways to end the faux crisis which won’t befall us anyway until 2033. Why won’t the “progressives” pushing back against Abby Huntsman mention solutions like these? Why do they, instead, always propose solutions that will raise taxes on the wealthy? Are they afraid to let the people know that the Government isn’t like a household and doesn’t have the same financial problems they have, just written large? Are they so insistent on solutions that will tax higher income and wealthy people, because they must kill the two birds of full employment and greater equality through taxing with a single stone?

Moving toward greater economic equality is a focus we ought to prioritize very highly, but getting that done is a separate issue from defeating deficit terrorism by taking the deficit reduction and faux entitlement crises off the table so full resources can be devoted to strengthening the safety net and legislating programs essential for getting millions of Americans on their feet again and contemplating the future with hope. That, in itself, will lessen inequality.

And after that is done, we can then turn our attention to programs primarily focused on creating greater economic equality. But until it is done, let us focus on stopping the bleeding of working and middle class Americans and restoring them to the economic health and sense of economic opportunity, that we’ve always thought was so important to American life.

(Cross-posted from New Economic Perspectives.)

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Revisiting the Budget Plague

10:08 am in Uncategorized by letsgetitdone

Deficit spending by the government is merely the counterpart of private sector saving. What government deficit spending does is to permit the private sector to achieve its level of desired saving. When the latter changes, government spending ought to be adjusting in the opposite direction to offset it (unless the current account balance happens to do the job).

This very simple statement by Marshall Auerback reflects the Sector Financial Balances (SFB) Model I discussed in “A Plague On All Your Budgets.” The Sector Financial Balances Model:

Domestic Private Balance + Domestic Government Balance + Foreign Balance = 0;

once again, is an accounting identity that provides a focus for macroeconomic analysis, explanation, and prediction by economists applying the Modern Money Theory (MMT) approach. The terms refer to flows among the three sectors of the economy in any defined period of time. Since we’re dealing with an accounting identity, the equation must always be valid.

So, for example, when the domestic private sector balance is positive that means that more financial wealth is flowing to that sector taken as a whole than it is sending to the other two sectors. Similarly when the foreign sector balance is positive that means that more financial wealth is being sent to that sector than it is sending to the other two sectors. When the private sector balance is negative that means that the private sector is sending more to the other two sectors and so on.

In “A Plague On All Your Budgets,” I used the SFB model to show that all four sets of projections of budget deficits then current by: the Congressional Progressive Caucus (CPC), the CBO, the House, and the Senate; all implied austerity over a 10 year period assuming that the foreign balance (the US trade deficit ) would remain at 3% of GDP or greater. Why?

Simple. Look at the equation. If the foreign balance is greater than or equal to 3% of GDP in any year, then unless the Government runs a deficit of 3% or greater, the domestic private balance must be negative. That doesn’t mean every private sector person or organization would lose nominal financial wealth over that year, but it would mean that other than temporary and illusory financial gains due to credit bubbles and accompanying excessive evaluation of assets, the accumulation of financial wealth in the private sector would be a zero sum game, with some people and organizations winning and some losing every year the private sector balance was negative because the foreign balance was at +3% and the government balance was greater than -3%. If the Government ran a surplus of say 2% of GDP in any year, then private sector wealth would decline by 5% of GDP in that year. Of course, three years of that would be an economic catastrophe

Over a period of years, and again, neglecting the effect of credit bubbles, the result sooner or later has to be constriction in aggregate demand, economic stagnation, and recession or depression. In my previous post, I concluded that even under the most “liberal” 10 year projection planned by the CPC we could expect domestic private sector savings losses from 2016 on, and even perhaps in 2015 if there were a slight deviation in the projection. We could not have too many years of those losses without hitting another great recession.

So, the CPC budget may be better than others for a couple of years, but the danger in it is that if the CPC plan were taken seriously and the budget course projected was actually implemented, then it would be deterred eventually only by the inevitable crash. Hopefully this crash would occur in very short order, rather than being postponed by another credit bubble, only to be even more severe later on.

Since my earlier post, the White House has weighed in with its budget and 10 year projection. One item in the President’s budget has received an enormous amount of attention, and that is the chained CPI proposal. I’ve written rather trenchantly about that immoral proposal here and here. But, the overall implications of his austerity budget from a macroeconomic point of view haven’t been widely discussed. The Table below includes these new projections.

2013 Budget Projection Comparison

You can see that the White House budget has increasingly serious austerity implications as the years go by. In my previous post, I said that all four of the budget projections in the earlier table, if implemented, could only correspond to a bleak, stagnating economic future for the United States, with the House Budget producing the worst result by far. The addition of the White House budget as a fifth alternative doesn’t change that conclusion at all.

You can see that, with the exception of the CPC “back to work” budget, the President’s budget is the most expansive of all of them in 2013 – 2015. Still, it doesn’t allow for much private sector savings in a nation still recovering from the crash of 2008, and the CPC budget is quite a bit more expansive in these early years of the projections than the President’s plan. Beginning in 2016, however, the White House budget implies that private savings must be increasingly negative with greater and greater losses of private financial wealth to 2023. Its implications for negative savings in these years are less serious than the CPC budget, but, nevertheless, the fact that the White House either can’t or won’t recognize that its budget condemns the country to a recession within “the long depression” we are experiencing now, only makes the prognosis for the economy that much more serious, because it means that, like the Europeans, the White House is likely to double down on its austerity budget in the future if its deficit/debt projections are wrong. Like Herbert Hoover, and the Eurozone oligarchs, it will believe that “prosperity is just around the corner,” if only it stays the austerity course it has been increasingly setting.

Also, apart from the SFB model’s macroeconomic considerations and their significance for declining domestic private sector wealth over time, the situation looks even worse when we take economic and political power considerations and their likely effect on the economy into account. The history of the US since 1970 shows clearly that when the private sector gets a cold, the household sector gets pneumonia.

Big businesses, the financial sector, and wealthy oligarchs will use their economic and political power to see to it that their nominal financial wealth will continue to increase even as the private sector as a whole is losing 20% – 30% of its financial wealth, over the period of a decade. That will exacerbate the already ridiculous level of inequality we see in American society, and accelerate the movement toward plutocracy in America if we allow any of these austerity plans, or any variations between the “liberal” CPC proposal and the “right-wing” House proposal to be passed and implemented.

I’ll repeat what I said in my previous post with some small changes. All of these budgets are illustrations in fiscal fantasy, or perhaps I should say, in fiscal science fiction using bad fiscal science. In taking a fiscal approach based on reducing budget deficits, all the budgets are doing the wrong thing for the economy and the wrong thing for America. They are all fiscally unsustainable and fiscally irresponsible over a decade unless a credit bubble temporarily “bails out” the Government from experiencing the ultimate effects of its actions, allowing it to run unconscionably small deficits and pretend that everything is hunky-dory until the inevitable collapse of demand forces it to face reality.

The right approach to take to fiscal policy is to design and implement programs that will guarantee full employment at a living wage for everyone who wants to work full time and is able to do so. It is not to try to force small deficits or surpluses onto an economy that is not producing them out of its own robust activity.

The government needs to let the domestic private sector determine what both the foreign balance and the domestic private sector balance should be. If it does that, then these sector balances would drive the government balance. That balance could be a surplus or a deficit of a particular size, though in the case of the United States it would probably be a large deficit, or, as I prefer to call it, a large Government addition, to domestic private sector wealth, for some years to come. But it would be determined by the wishes of people in the domestic private sector, with the Government’s role being one of accommodating the surpluses or deficits.

Seeing this conclusion, I’m sure that some readers will ask: how the United States can afford to run deficit after deficit while continuing to accumulate its national debt? Well, first, it doesn’t have to accumulate and can even pay off its national debt without inflation. I’ve explained how it can do that in my new e-book on Fixing the Debt without Breaking America.

But second, even if the US does the politically unwise thing of continuing to accumulate a larger and larger national debt, when it can avoid doing that by taking advantage of its coin seigniorage authority, it can follow that debt accumulation course without either solvency or inflation problems. Scott Fullwiler has done a very good job of explaining how that can happen in a recent series of his, which concludes here.

Scott shows that deficits can be run indefinitely by nations with non-convertible, fiat currencies, with floating exchange rates, and no external debts in currencies not their own, without either solvency or inflation problems as long as the Government doesn’t deficit spend beyond full employment. That’s the kind of fiscal policy we should be making, not fiscal policy deliberately aimed at deficit reduction. So, to all the fiscal budgeteers in Washington looking to implement long-term plans for deficit reduction, including the President: a plague on all your budgets. You’re ending America, as we’ve known it!

(Cross-posted from New Economic Perspectives.)

The SOTU: He Hasn’t Learned Anything More About the Economy in the Past Year

8:57 pm in Uncategorized by letsgetitdone

Last year I prepared for the SOTU by speculating about the “fairy tales” the President would tell about fiscal responsibility, fiscal sustainability and the debt/deficit problem. That series ended here, and here. Yesterday’s SOTU covered many subjects, but once again, the President paid lip service to the irresponsible religion of fiscal responsibility. Here are some comments on the parts of the SOTU related to it.

“A return to the American values of fair play and shared responsibility will help us protect our people and our economy. But it should also guide us as we look to pay down our debt and invest in our future.”

The President never does say why we need to pay down the public debt, nor does he consider that attempting to pay it down will, other things being equal, constrain our attempts to invest in our future. There is no “winning the future” if we try to pay back the public debt by withdrawing dollars from the private sector through taxing.

Right now, our most immediate priority is stopping a tax hike on 160 million working Americans while the recovery is still fragile. People cannot afford losing $40 out of each paycheck this year. There are plenty of ways to get this done. So let’s agree right here, right now: No side issues. No drama. Pass the payroll tax cut without delay.

Well, he’s right about people not being able to afford ending his payroll tax cut at this point. But he also ought to point out that a really effective payroll tax cut would be a full one on both employers and employees. That kind of cut has the sort of fiscal multiplier that would really bring jobs back. As would State Revenue Sharing, and a Full Employment Job Guarantee Program. (JG)

When it comes to the deficit, we’ve already agreed to more than $2 trillion in cuts and savings. But we need to do more, and that means making choices. Right now, we’re poised to spend nearly $1 trillion more on what was supposed to be a temporary tax break for the wealthiest 2 percent of Americans. Right now, because of loopholes and shelters in the tax code, a quarter of all millionaires pay lower tax rates than millions of middle-class households. Right now, Warren Buffett pays a lower tax rate than his secretary.

I’m all for ending the Bush tax breaks for wealthy Americans but not to “save” more or “reduce the deficit.” The Federal Government doesn’t need to get back and ‘save” money it previously created/spent into the private sector, or enabled the banking system to create, since as the currency issuer it can always make as much as it needs without doing that. The reason why the Government should end those cuts is to reduce the extreme economic inequality that’s developed in the United States since it’s creating political instability and threatening democracy here.

Do we want to keep these tax cuts for the wealthiest Americans? Or do we want to keep our investments in everything else – like education and medical research; a strong military and care for our veterans? Because if we’re serious about paying down our debt, we can’t do both.

Actually, yes we can, though it’s not advisable to keep those tax cuts for “political reasons” in the very broadest sense of that term. Also, we can keep our investments in everything else, and also easily pay off the national debt if we decide to do that. All we need do, if we don’t want to change current law is for the President to use proof platinum coin seigniorage to pay off the Federal debt as it comes due. This course won’t destroy any net financial assets in the private sector, and that’s what makes it much superior to using budget surpluses for that purpose. If, on the other hand, Congress wants to change the law, it could allow the Treasury to deficit spend without issuing debt. This also won’t destroy net financial assets in the private sector.

The American people know what the right choice is. So do I. As I told the Speaker this summer, I’m prepared to make more reforms that rein in the long term costs of Medicare and Medicaid, and strengthen Social Security, so long as those programs remain a guarantee of security for seniors.

Sorry. President O, cuts in these programs are not “reform.” They are pure weakening of these programs and the economy. They mean less money in the private sector economy and less security for seniors at the same time, to the tune of perhaps $100 – $200 B per year over the next decade depending on what you and what your deficit hawk friends like Jack Lew think is “prudent.” Both the private economy and seniors need a strengthening of the social safety net by extending its support for everyone, including seniors. Changes that don’t do that aren’t “reforms,” they are just irresponsible fiscal policy based on false economic theory.

But in return, we need to change our tax code so that people like me, and an awful lot of Members of Congress, pay our fair share of taxes. Tax reform should follow the Buffett rule: If you make more than $1 million a year, you should not pay less than 30 percent in taxes. And my Republican friend Tom Coburn is right: Washington should stop subsidizing millionaires. In fact, if you’re earning a million dollars a year, you shouldn’t get special tax subsidies or deductions. On the other hand, if you make under $250,000 a year, like 98 percent of American families, your taxes shouldn’t go up. You’re the ones struggling with rising costs and stagnant wages. You’re the ones who need relief.

Well, I agree with part of this, but I think it’s much too simple. People making a million a year should be paying 45% of gross income after deductions, and that figure ought to go up incrementally, say by a point for every additional $250,000 in gross income, up to a marginal tax rate of 90% at the top level. How do I know? Because the past 40 years have shown that increasing concentration of wealth in a few hands is dangerous to democracy; and in addition, it’s also true that when marginal tax rates were much higher the economy grew much faster than it has over the past 30 years. So experience also tells us that the old New Deal marginal tax rates don’t prohibit rapid growth, while they certainly are a factor in sharing the benefits of that growth across the whole population. So, I say to hell with the Buffet Rule. Let’s go back to the FDR rule, and really get this “shared sacrifice” thing going.

Now someone will say that at this point, I’m sure that high tax rates will kill the incentives of the rich to work hard and employ us all. Well, my reply is that I don’t consider most of the very rich to be talented geniuses who have created so much value that that they have been employing most of the rest of us at a living wage during the past 30 years. Looking at the Forbes 400 list, most of what I see are people who have acquired a great deal of nominal wealth either through inheriting it, or through manipulating the financial system or both.

So, I’m not in the least worried about their losing their incentive to keep working. In fact, I wish that most of them would just go to their favorite tropical island and leave the rest of us alone.

We Need A Tax and Spend Party Again

7:46 pm in Uncategorized by letsgetitdone

It’s been nearly 35 years since we’ve had a “tax and spend” political party. During the 1970s, the Democrats gave up fighting the Republicans about the “tax and spend” label, and the Carter Administration tried to escape from that charge by making very serious attempts to balance the budget. During the 1980s, more and more Democrats emphasized their concern for reducing deficits and balancing budgets as a way of distinguishing themselves from the Reagan Administration’s unprecedented peacetime deficits. This didn’t work for them during Reagan’s time, but they finally were able to use the balanced budget old-time religion game to get George Bush to violate his no new taxes pledge, which both contributed to the Bush recession and, as a further consequence, was a big reason why Bill Clinton was elected.

Clinton, of course, embraced the philosophy of deficit neutrality. He relied primarily on credit expansions in the private sector to drive the economy, raised taxes on higher income people, and basked in the glory of unexpected budget surpluses in the last four years of his tenure. Clinton’s surpluses withdrew demand from the private economy, and were the proximate cause, along with the collapse of “the dot com boom,” in creating the recession at the very end of Clinton’s term. During the Bush Administration, the Democrats continued to attack the Republicans for the Bush tax cuts from a deficit neutrality perspective, while preparing to run against them in 2004, 2006, and 2008.

And Barack Obama, even after the crash of 2008, ran on a promise of fiscal responsibility in the White House, while also promising to end “The Great Recession.” Since taking office, he’s shown a reluctance to spend more in a way that isn’t deficit neutral. Yes, the stimulus package was pure deficit spending. But it was about half the size needed to end the recession decisively. And, in addition, the President’s health care reform was limited to $800 Billion over ten years, and the Democrats in Congress worked hard to see that it was scored by CBO as likely to have a surplus over a 10 year period. In addition, the President is trying to end the Bush tax cuts for higher income people; everything else he’s proposing that will cost money is apparently shaped with deficit neutrality in mind, while, finally, his “Catfood Commission” is apparently going to recommend deep cuts in entitlements, along with some tax increases, after the election.

In short, the Democrats haven’t been the “tax and spend” Party for close to 35 years now. And the Republicans have mostly been a “spend and spend” Party, though not, of course, on the social safety net, education, infrastructure, or in areas of other public need, but rather on various wars and the military-industrial complex. So, what’s happened to America without a “tax and spend Party” that will do a lot of Federal deficit spending on domestic needs, while complementing that spending with a progressive taxation system with high marginal tax rates?  . . . Read the rest of this entry →

Et Tu Bernie?

10:29 am in Uncategorized by letsgetitdone

Bernie Sanders appeared on Dylan Ratigan’s show yesterday talking about Elizabeth Warren’s appointment. Towards the end of his interview, he said a few words about his opposition to extending the Bush Tax cuts to the wealthiest Americans. His proposal was to end the tax breaks the high income people, take the $700 Billion freed up, spend $350 Billion on sorely needed infrastructure projects, creating millions of jobs over a 10 year period and taking the other $350 million in savings and applying it to deficit reduction.

So, Bernie’s heart is in the right place but he really doesn’t get the economics of it. The Bush tax cuts for the wealthy have some stimulative effect on aggregate demand, namely about $0.29 for every dollar of tax not collected. So, if we extended the tax cuts that would save $203 Billion in aggregate demand over the next decade. On the other hand, let’s say we took Bernie’s proposal and used $350 Billion for infrastructure. That would produce $557 Billion in aggregate demand, clearly better than the tax cuts for the wealthy. However, what if we took all $700 Billion and used it for infrastructure? Then we’d have $1.113 Trillion in aggregate demand and twice as many jobs as in Bernie’s proposal.

But what about the idea of saving half the tax cut and reducing the deficit, isn’t that important? Doesn’t that have value? the answer is no, not in the abstract. It might have value if the economy recovers enough to provide full employment, and we need to fight inflation. But if there is no inflation, then the money “saved,” is of no value to the Government (including the Federal Reserve Bank), or to the economy, since Government tax receipts don’t affect the ability of a Government like the United States presiding over a fiat currency, with full authority to create money through its spending, to spend. Government spends by marking up private sector accounts and adding to private sector assets. It doesn’t spend by using money remitted to it through taxation. In fact, it destroys that money, i.e. removes it as a financial asset of the private sector, and is in no way constrained from future spending because it destroys tax revenue.

So, Bernie’s proposal to “save” half the Bush tax cuts for the wealthy, doesn’t add a bit to the Government’s ability to spend. All it does is remove money from the private economy, and reduce the amount of the aggregate demand that might have been created. In fact, if Bernie had proposed extending only half the Bush cuts for the wealthy and using the other half for infrastructure, this would be better for aggregate demand than his proposal, and would generate an estimated $659 Billion in aggregate demand; $102 Billion or so more than Bernie’s proposal, but less than the $1.113 Trillion that would be generated if all of it were used for infrastructure.

In addition to getting higher aggregate demand, however, there is another reason why we ought to prefer doing $700 Billion in infrastructure spending to extending those tax cuts, and that is working towards economic justice. Over the past 40 years or so, the United States has seen a trend towards the kind of profound economic inequality that has magnified the political influence of the wealthy and threatened American Democracy. To save our Democracy we need to reverse that trend in any number of little ways, and we need to move much faster back towards greater equality, than we have moved towards inequality.

One of the things we ought to do is to move the tax code back towards a situation where those who benefit most from increasing productivity, must also pay their fair share of taxes. What that share is we all have to decide, but there’s a general consensus right now that marginal income tax rates for high income people ought to go up. Over time, political processes will help us to decide what is “fair” in this respect. But it does seem unfair to have an essentially flat marginal tax rate for most upper income people. It’s certainly grossly unfair for a family earning $300,000 in New York City to be subject to the same marginal tax rates as people with incomes over $5 million annually.

The goals of greater economic equality, and greater fairness in taxation don’t have to conflict with the goal of increasing aggregate demand. We simply have to keep in mind that raising taxes on high income people will cause a fall-off in aggregate demand. So, when we do increase those taxes, we need to make sure that Government spending is increased in areas that will produce higher aggregate demand than is being lost from increased taxation. For example, more spent on food stamps, payroll tax cuts, Federal aid to the States, and Federal Job Guarantee Programs are good, because all have very high aggregate demand multipliers.

So, there is no cause for worry that if we raise taxes on the wealthy that we will lose aggregate demand we cannot easily replace. But we do need a Government that can act to implement policies to get high aggregate demand without being diverted too much by the need for political compromise, and that, in the current American context, means a Government willing to get rid of the filibuster in the Senate so that blue dog Democrats and Republicans don’t have to be conciliated in passing economic programs that can end unemployment.

I’d be remiss if I didn’t mention Warren Mosler’s economic program at this point. Warren who is running for the Senate in CT on the Independent Party ticket has proposed a payroll tax holiday, Revenue grants of $500 per person to State Governments, and a Federal Job Guarantee (FJG) to end our economic difficulties in 90 days. All of these, are high multiplier fiscal policies for increasing aggregate demand, and the FJG program will eliminate involuntary unemployment. Bernie Sanders would do well to look at this program and begin to push it himself, rather than suggesting that we “save” half of the taxes collected through ending the Bush tax cuts for high income taxpayers.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

Losing Ground: Neo-liberalism and Hope

7:48 pm in Uncategorized by letsgetitdone

Important changes in societal economic philosophy and policies occurred in the United States during the 1980s, after a transition period covering the Carter Administration, and accelerating after the accession of Ronald Reagan to the Presidency. It’s now nearly three decades later, and we can ask how well the transition from Keynesianism to Neo-liberalism has worked. It’s common knowledge that this period has seen wage stagnation for working Americans, and also growing inequality. In this post I want to present a simple table showing certain changes in key indicators across the decades and discuss its significance for evaluating the performance of neo-liberalism compared to the earlier Keynesian orientation and policies. Here’s the Table. Read the rest of this entry →