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What Happens Now?

7:12 pm in Uncategorized by letsgetitdone

In the aftermath of the great 2013 government shutdown/debt ceiling crisis, and the kicking of the can down the road while maintaining austerity once more, the subject on many minds is where do negotiations over fiscal policy go from here? Will the new “budget committee” produce more austerity and do a grand bargain including the “chained CPI”? Will Congress finally turn towards economic growth and job creation, or will we continue to have more shutdowns and debt ceiling crises in 2014?

Chained CPI and the “Grand Bargain”

Let’s begin with “chained CPI” and possible “Grand Bargains.” The President seems to still want one, but the question is, does anyone else? And, if they don’t, can he still get it through?

It’s dangerous for anyone running in 2014 to vote for chained CPI. Surveys show that overwhelming majorities of all Americans want no cuts to Social Security and Medicare, and also that 40% of tea party respondents are 55 or over, and are not likely to support such cuts, either. Nor do they appear to be anti- “their” Medicare. It’s the corporate Republicans who oppose these things. So, I don’t think the corporate Republicans would get much love from the tea baggers for supporting entitlement cuts, apart from Medicaid, which I think the tea party views as welfare. Certainly any credit the Congressional Republicans would get from their tea party base for voting for “chained CPI” would not outweigh their having given in on the CR and the rise in the debt ceiling just passed.

So what can the corporate Republicans in Congress gain from voting for chained CPI? Very little, I think, unless the Democrats get behind it, and then they can run against the Democrats as having sold out Social Security, as long as not many Republicans vote for it. In that case, however, the Democrats won’t have enough cover to vote for it, so they are unlikely to do so.

So, then we have to ask, what can induce the Democrats to vote for entitlement cuts knowing it will hurt them in the elections? Will the President be a big factor in the Congressional elections? He wasn’t in the elections of 2012, and, he was a negative in the 2010 wave election. Can he deliver votes by campaigning for other Democrats? Does he even want to? Does it matter to Congressional Democrats if he gets annoyed at most of them? I doubt all of these things.

Why will Patty Murray and Harry Reid (both of whom may want to run again in 2016) vote for chained CPI? To end the sequester? As Joan McCarter says, the coming second round of the sequester hurts the Republicans more than the Democrats. So, where’s the incentive for Democrats to go along with the President on chained CPI? I don’t think there is any.

If the President wants chained CPI this Spring, then he needs to assemble a corporate, Wall Street-supporting coalition from both parties, and that has to be large enough for a majority in the House. Since many Republicans would see passing the chained CPI as a victory for the President if he continues to support it, and the Democrats in Congress don’t, then we’re talking about a situation where the Tea Partiers and their allies would be called upon to pull the President’s chestnut out of the fire. How many votes do you suppose he’d get from the Tea Partiers and other Republicans for this? Keeping in mind that they just got 144 votes in the House to continue the ruinous shutdown/debt ceiling crisis, maybe 40, or 50? Or even that many, given that they’ll want to run against the Democrats on Social Security in 2014, if possible, and won’t see any political gain in holding hands with him as everyone jumps off the “I voted against SS” cliff?

And how many House Democrats would he get to play along? 150? 100? More? I think if he can’t get 200, an almost impossible outcome with at least 90 “progressives” very uncomfortable with the proposal, then this dog won’t hunt. The more he’s likely to fall short, the more likely it is that Democrats will see themselves as walking the plank for nothing, and will just run away from the proposal, and vote against it if need be.

Now you may see this scenario as far-fetched, because you may be thinking there would be some big omnibus deal with the Republicans that chained CPI would just get tucked into, and that would be irresistible for “progressive” Democrats. But what do the Republicans have to give? They certainly won’t offer any additional taxes on the wealthy. That’s poison to them. And they certainly won’t offer any increased deficit spending, say on infrastructure, because that would weaken the deficit/debt play they plan to run for all they’re worth in the election, and also because they know that infrastructure spending will reduce unemployment, and perhaps improve prospects for Congressional Democrats in the elections.

So what can they offer? Only concessions on the sequester. But here, if Pelosi, Murray and Reid play tough, as they certainly ought to do, then as Joan McCarter explains, the Republicans either have to shoot themselves in the foot again by keeping in place the sequester, or they would have to come to agreement. Then, if the Democrats know what’s good for them in 2014 (not a sure thing by any means, but still likely, in light of how well refusal to budge has served them over the past two weeks), then they won’t accept anything less than full lifting of the sequester. It’s harmed the economy for long enough, we need them to get rid of it, and they need that too.

The Republicans will then play games proposing lifting the parts of the sequester they don’t like, while giving the Dems nothing or only very little. At this point the Democrats need to take an all or nothing position on the sequester, rejecting the Republican’s salami tactics, and calling on the public for an end to the sequester nonsense, which has hurt the economy so grievously already.

The Rs will respond either by agreeing to lift it, or they will refuse. If they refuse, then the Democrats get to blame them for the down economy, we will surely see in the run up to the election, and the Democrats can run against that down economy which they would then claim was caused by the Republican shutdown, multiple debt ceiling crises, sequester, and blocking of any efforts to lower unemployment with jobs programs. (“They promised us “jobs,” “jobs,” “jobs,” and what did we get? Debt ceiling crises, sequesters, a government shutdown, more unemployment, and an economy in the ditch.)

Given that CBO projections will probably show the deficit going down to $400 Billion or less in FY 2014, which is about 2.5% of GDP, the Republican emphasis on “teh debt” and the deficit will not trump a Democratic campaign blaming Republicans for the lack of recovery and calling for jobs programs. Add to the above themes the Republican War on women, and suppression of voting rights of seniors, blacks, hispanics, and urbanites, and we have a Democratic victory in 2014 large enough to get back the House and keep the Senate.

Given all this, I don’t think there will be any Grand Bargain or chained CPI “compromise” in the near future and in the run-up to the election. It just makes no political sense for most Democrats and many Republicans. It may come up again in the lame duck and possibly in the next Congress, Republican or Democrat, if the President continues to push it. But I don’t think we’ll see it again this fiscal year.

Continued Austerity?

What we will see however, is continuing austerity from CRs or budget agreements, whether or not the sequester is lifted. Where a trade deficit exists, Government austerity is either running a surplus, or a deficit so low that it doesn’t make up for the leakage in demand due to the trade deficit. Let’s say one’s trade deficit is 3.5% of GDP, then the Sectoral Financial Balances (SFB) Model (whose terms refer to flows of financial assets among the three sectors of the economy in any defined period of time):

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

tells us that the domestic private sector, taken as a whole, can’t increase its net financial assets, unless the Government has a deficit greater than 3.5%. And, if we wanted to provide for the domestic private sector to save 6% while it was running that 3.5% trade deficit, anything less than a Government deficit of 9.5% of GDP would not meet that objective.

Of course, no budget proposed by anyone in Congress or the White House envisions a deficit this large. Patty Murray’s Senate Budget proposed in the Spring of 2013 envisioned a 4.2% of GDP deficit for FY 2014, just a bit more than the austerity boundary of 3.5%. Paul Ryan’s House Budget proposed a 3.2% deficit, which is an austerity budget, in the precise sense that given a 3.5% trade deficit, it would entail the private sector running a deficit and losing 0.3% in net financial assets.

Will either a compromise bill coming out of the budget committee, or a CR, after a failure to agree on a budget, be closer to Ryan’s or Murray’s deficit figure? I think it will be closer to Ryan’s; partly because the Congress just passed a CR for the first approximately three months of the fiscal year that is closer to Ryan’s view than to Murray’s and which maintains the sequester, and partly because I doubt that the Democrats will even propose a more expansive budget involving a deficit, but will just focus on getting the sequester removed in early 2014, and will then turn to other problems and to positioning themselves for the fall elections.

Growth and Jobs or Shutdowns and Debt Ceiling Crises?

I think the answer is neither. We may have shutdown and debt ceiling threats before the 2014 elections; but we will not have either of these types of crises, because the cost in public opinion, if it keeps trending the way it has been, will be too heavy for many Republican candidates, except for those in the reddest gerrymandered districts, to bear in 2014. I believe they know this, and that many of them are increasingly willing to chance getting primaried by tea party candidates in order to avoid probable defeat from Democrats, if they toe the tea party line and then try to run.

So, I think the shutdowns and debt ceiling scares are over until after the elections. That means there will have to be an agreement on a CR for the first part of FY 2015 by next October 1. That will happen because there’s no way the Republicans will chance another hostage-taking taking a month before the next elections.

That’s the good news. The bad news is that there will be very little growth and very few new jobs. If the sequester remains in place for the rest of FY 2014, unemployment is likely to increase, not decrease, because Government will continue to be a fiscal drag on the economy, and the private sector is likely to avoid expansion without increased demand. That demand could be manufactured by a credit bubble; but it doesn’t look like that is in the offing for 2014. So, the shortfall in demand produced by the Government will not be made up from private sector spending.

On the other hand, if the sequester is lifted, then this will make some difference. We will probably see declining unemployment if that happens, but since the deficit was much too small to sustain a vigorous expansion, even before the sequester, the decline in unemployment, increased job creation, and economic growth, will all happen only slowly, and by election time we will still see an unhappy public, but maybe one that is a little more hopeful about the future than we are now seeing.

I don’t know yet whether the falloff in economic activity due to Government austerity or near austerity, will be enough to produce another recession in the middle of this long stagnation period, Richard Eskow has aptly named “the long depression.” But there is some chance that this will happen before the fall elections. If it does, then we will see a messaging war on who bears the blame for the downturn, and the outcome of the elections will hang on the outcome of that war.

(Cross-posted from New Economic Perspectives.)

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.)

A Plague on All Your Budgets

8:39 pm in Uncategorized by letsgetitdone

The Sector Financial Balances Model:

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

is an accounting identity that provides a focus for macroeconomic analysis, explanation, and prediction by economists applying the Modern Money Theory (MMT) approach. It leads to a very critical line of thinking about the budget deficit projections produced for our consumption by the Congressional Progressive Caucus (CPC), Congressional Budget Office (CBO), the House, and the Senate. The US has recently had a sharp decline in its balance of trade deficit. It now stands at about 3% of GDP; which means that the rest of the world has a surplus, a balance of +3% of US GDP in its annual trade with the United States.

Assuming that surplus is unlikely to shrink anymore, we can see from the equation that unless the Government balance is less than -3% of GDP, the Domestic Private Balance in the United States economy will not be positive (a surplus, and addition to nominal financial wealth) and is very likely to be negative (a deficit, a subtraction from nominal financial wealth). So, the private sector taken as a whole will be losing rather than gaining Net Financial Assets (NFAs), every year for as long as the situation lasts.

The Table below presents the CPC, CBO, House and Senate budget projections through 2023.

2013 Budget Projection Comparison
The table shows that any space for the Domestic Private Sector to accumulate Net Financial Assets would quickly disappear if any of these deficit projection plans were actually adopted and worked as advertised. The CPC projections are OK for 2013 and 2014. They provide some space for continuing repair of private sector, including household, balance sheets after the crash of 2008. But by 2015, the space for savings in the private sector would be nearly gone, and from 2016 – 2023, we see nothing but deficits small enough that the domestic government balance doesn’t even cover the aggregate demand leakage due to the foreign sector balance, much less any demand leakage that the private sector desires in the form of savings. Sooner or later a budget course like that projected by the CPC would, in the absence of the banking system blowing a big credit bubble the way it did during the Clinton and Bush 43 Administrations, result in a new crash.

The CBO projections are worse than CPC’s from 2013 – 2015; but thereafter, its larger deficits are less damaging to aggregate demand than the CPC’s deficits. But they are not large enough to provide for anything but economic stagnation, unless, again, there’s a credit bubble, which would then mean a crash from mere stagnation somewhere down the line.

Read the rest of this entry →

Ryan’s Follies: Back to Liberty

5:46 pm in Uncategorized by letsgetitdone

More on liberty from Ryan’s reply to the President’s 2011 SOTU. These are about that old Republican hypocritical favorite, “small government.”

”The President and the Democratic Leadership have shown, by their actions, that they believe government needs to increase its size and its reach, its price tag and its power.”

What planet does Congressman Ryan live on? The Democrats have done very little to increase the size of Government. The measure of that is that the average annual growth in Federal Government spending is the lowest it’s been in the period since Dwight Eisenhower became President. In addition, Federal spending as a percent of GDP is still extremely low compared to National Government expenditures by the nations mentioned in my last post, and has only risen about 5 percentage points from Bush Administration levels, in response to the economic crisis, which, remember, was caused by policies avidly supported by Paul Ryan and conservative Republicans.

In addition, the President, much to his discredit, has done all he could to keep Government expenditures revenue neutral or revenue positive, beyond expenditures for defense, the stimulus, and increases in social safety net expenditures resulting from the recession. His health care reform bill is a disgraceful attempt to bailout the insurance companies without taking them over, because he would not entertain Medicare for All, since it wasn’t “revenue neutral.” Never mind that enhanced Medicare for All would have saved the private sector $900 Billion per year in Medical Costs, and that the stimulus involved in an additional $800 Billion of Federal deficit spending would probably have created an addition 2 million jobs, at least.

”We believe a renewed commitment to limited government will unshackle our economy and create millions of new jobs and opportunities for all people, of every background, to succeed and prosper. Under this approach, the spirit of initiative – not political clout – determines who succeeds.

“Millions of families have fallen on hard times not because of our ideals of free enterprise – but because our leaders failed to live up to those ideals; because of poor decisions made in Washington and Wall Street that caused a financial crisis, squandered our savings, broke our trust, and crippled our economy.”

The history of America is largely the history of extending initiative from the economic sector to politics and gaining advantage in both sectors. We’ve seen that with the railroads, the steel and oil industries (including Paul Ryan’s sponsors, the Koch brothers), coal, the mass media, telecommunications, the software industry, the FIRE sector, and most other industries that have scaled the economic heights in this country. There is no way to separate economic initiative from its extension into politics. The idea that these two can be separated is a myth to persuade Americans without much power that what is happening to them is due to impersonal economic forces, rather than the use of previously accumulated wealth and political power to rig the context of the economic system so that the already wealthy can reap even greater rewards in the future.

So, unfortunately, as much as we would like to believe that a company’s success in America has nothing to do with politics. It, most often, is intertwined with either favorable political conditions, political influence, or both. Congressman Ryan knows that very well because he, and his Republican and Democratic colleagues, are the recipients of attempts to “fix” the political system, so that certain private sector businesses can profit.

So, I don’t know whether Congressman Ryan thinks that’s the “spirit of initiative” or not. But I think it’s just as much, if not more, about buying political clout than it is about economic initiative, innovation, and ‘”free enterprise.”

Ryan goes on to blame Washington and Wall Street for decisions that caused the financial crisis. I certainly agree; But I also think that the wrong decisions made by Washington include de-regulating Wall Street, so that the spirit of “free enterprise” and the influence of the FIRE and energy sectors reigned supreme.

That happened during the Clinton Administration under the influence of Robert Rubin and Larry Summers, and then the Bush Administration saw to it that the SEC would not enforce the inadequate regulations that still remained. Unregulated “free enterprise” produced unprecedented accounting control frauds and bubbles in the Real Estate markets which eventually led to the crash of 2008. Then the Obama Administration bailed out the banksters/fraudsters and until now has refused to investigate and prosecute the perpetrators, while moaning about how we have to look forward and not backward.

Meanwhile, Paul Ryan, along with Mitt Romney, are responding to all this by telling us that we need to back off regulation of the private sector, and that will make everything all right. But anyone with an ounce of common sense knows that the only thing that will clean up the banking system, and restore public faith in it, is cleaning up the frauds and punishing the people responsible.

Why isn’t Paul Ryan calling for that if he wants people to have faith in “free enterprise” again? He needs to keep in mind that there’s no freedom without responsibility and accountability, and that his prescription, and that of the Republicans is to put responsibility and accountability aside, and to let working people bear the burden of the failings of the Wall Street FIRE sector and the corrupt Congresses and Administrations that failed, and still fail, to regulate them.

Finally, Congressman Ryan’s plea for a return to limited Government would be far more credible if he were as much concerned about limitations on the size and intrusiveness of Government when it comes to privacy, a woman’s reproductive rights, civil liberties, rights of habeas corpus, protections against torture, and the right to a speedy trial, as he is about the non-existent rights of businessmen to subvert markets through fraudulent activity hiding beneath the skirts of the ideal of “free enterprise. He would also be much more credible in his concern for liberty, if he were concerned that “necessitous men, are not free men,” and were willing, in the interests of liberty, to strengthen, instead of weaken, the social safety net by making its provisions as generous as the safety net in other civilized nations. He would, further, be still more credible, if his concern for liberty were great enough that he would support Medicare for All, so that employees in the United States would no longer be tied to jobs that they don’t like, and were free to move to other employment without having to worry about interrupting or degrading their health care coverage, and risking their lives in the process.

He would, further, be even more credible, if his concern for liberty extended to providing a Federal Job Guarantee (see posts 42-50) to everyone who wanted to work, so that they had the freedom to do so. And he would, finally, be even more credible that that, if he recognized that liberty is not about small sized Government or big Government, but is, instead, about Government that is the right size, to do those things that will maximize the liberty of as many people as possible in our nation.

It’s about recognizing that the liberty of individuals is often in conflict with the liberty of other individuals, and that you can’t maximize liberty across all individuals by giving some people (big business people and FIRE sector people) complete economic liberty from any reasonable rules, when that means removing or restricting the liberty of many or most of the other people in the United States, by chaining them to the wheel of extreme economic insecurity.

Joe Biden just famously accused Romney of wanting to “let the big banks once again write their own rules. “Unchain Wall Street!” And then continued: “They gonna put y’all back in chains.” Biden was right.

For most of American history, farmers and small businessmen have been chained to the banks. The New Deal ended that. But the banks are back, more powerful than ever, and they do want to chain most of us to the wheel of economic insecurity for their own profit. Ryan, Romney, the Republicans, and too many Democrats are their agents in this. They must be stopped!

Government does need to be limited, but only a simpleton can fail to recognize that its limits have less to do with its size, and much more to do with its having processes that are just and fair and maximize liberty, rather than processes which enshrine arbitrariness, favoritism, exposure to political influence, and special favors for one group, placing them above the law.

Does Congressman Ryan understand that it is not about size, but about justice and activities that maximize liberty? If he does, and if he were really interested in justice and liberty, then he would be worth listening to when he talks about limited Government, and his Party would gain the trust and honor among the American people that it has not had since the time of Teddy Roosevelt, and before that Abraham Lincoln.

But don’t hold your breath waiting for either that interest in justice and liberty, or that understanding about size to happen. It’s just not in the DNA of the 21st Century Republican Party, the party of injustice and of serfdom for the 99%.

(Cross-posted from Correntewire.com.)

Ryan’s Follies: Limited Government, Liberty, and Effective Government

6:01 pm in Uncategorized by letsgetitdone

More Ryan’s follies from his answer to the President’s 2011 SOTU. These are about that old Republican hypocritical favorite, “small government.”

”So I’d like to share with you the principles that guide us. They are anchored in the wisdom of the founders; in the spirit of the Declaration of Independence; and in the words of the American Constitution.

They have to do with the importance of limited government; and with the blessing of self-government. . . .

We believe, as our founders did, that “the pursuit of happiness” depends upon individual liberty; and individual liberty requires limited government.”

I find myself in general agreement with this position; but I think it raises a very big issue, and that issue is: in exactly what ways ought the Government to be limited? Unfortunately, the Constitution doesn’t tell us that in a completely clear way. It leaves it up to us to figure it out. It isn’t so much that individual liberty requires limited government; but that it requires government that is limited in the right ways. So let’s see what Congressman Ryan thinks about this issue.

”Limited government also means effective government. When government takes on too many tasks, it usually doesn’t do any of them very well. It’s no coincidence that trust in government is at an all-time low now that the size of government is at an all-time high.”

Well, suddenly we’ve moved away from “liberty” to talking about effective government, trust, and the size of government. OK. Let’s talk about that!

There are a lot of factors that determine the effectiveness of Government. It’s pretty clear that Government won’t be effective if it’s badly led and managed. So, since 1981 we’ve seen that Government wasn’t very effective in many of its functions when managed by Ronald Reagan and the two Bushes. I wonder why. Could it be that these Republican Presidents wanted Government to be ineffective in the various areas of Government activity established by legislation they disapproved of?

It’s also clear, that Government won’t be effective if the people chosen to lead it by our presidents intend for it to perform poorly. So, when presidents have appointed Secretaries of Labor who were anti-labor, it’s not surprising that the Labor Department performed poorly. Nor is it surprising that when they appointed people to head the FCC, or the Equal Employment Opportunity Commission that the work of these agencies suffered. And how about their record of appointments to the SEC, or the Treasury or the Fed. If presidents appoint people to these agencies that look the other way, and refuse to regulate accounting control fraud, then you get accounting control fraud run rampant. Or take the EPA, the Republicans keep appointing EPA Directors who are opposed to environmental regulation. Clearly, they are there to stop the Government from performing not, to manage its enforcing the law.

As to the Government having too many tasks to do anything very well, it’s quite clear that the size of the Government is not as important as the size of the units of Government performing the tasks they need to perform, and as the communications among units that need to coordinate to perform tasks well. Also, whether units perform well is a function of the resources available to them to perform particular tasks.

For years Republicans and, to a lesser degree, Democrats, as well,have been trying to shrink the Government (because small government is better, don’cha know?), so that much of its work, has to be contracted out to the private sector. Of course, this introduces incentive problems in doing the contracted out government work, and also communication problems, between the private contractors and the government supervisors, which interfere with both efficiency and effectiveness.

After 30 years of this, there is no evidence that the policy of shrinking Government’s permanent civil service employees, and contracting out government work to the private sector has been either less expensive for the Government, or more effective than Government operations of the 1950s and 1960s, which used many more civil service employees, and fewer private contractors to perform Government’s work. In fact, it’s likely that contracting out has been far more expensive and less effective than the old way of doing things, because private contractors have a tendency to stretch out work, and continue it as long as they can, so that their billings are extended.

In any event, the size of the Government doesn’t necessarily correlate with effective performance. We can see this by comparing national governments across the World. Many nations spent more, and some far more, as a percentage of GDP than the 34.6% the United States spent on Federal, State, and local Government in 2007; for example: France; Sweden, Denmark, Sweden, Belgium, Norway, The Netherlands, Austria, Finland, the UK, Germany, Canada, New Zealand, Australia, and Switzerland. Arguably all of these Governments performed more effectively than the US Government in that year. But, even if you don’t believe that, it’s hard to deny that they performed at least as well.

On the other hand, many nations that spent more on Government as a percent of GDP than the US, performed much more poorly than we did. My point is that there is no clear, strong, correlation between nations whose Governments are obviously effective, and nations with a particular size of Government, and certainly there is no empirical evidence that smaller Governments work better than larger ones.

Finally, the size of Government, viewed in terms of Government spending as a percent of GDP, is not at an all time high relative to the rest of the economy. It was larger in WWII for one thing. For another, its recent increase is due to the effects of the recession and additional Government expenditures made to combat it. Nor does this increase take into account Government spending at the State and local levels. At these levels, Government spending has been cut drastically inhibiting economic recovery by introducing fiscal drag, exactly when we needed the Government sector to step up and inject funding into the private sector.

Trust in the Government may be at or near an all time low, but that is due to the failures of the Bush and Obama Administrations, the crash of 2008, the Federal bailout of the banks without a corresponding bailout of Main Street, and the actions of a Congress paralyzed by deficit hawkism and small government ideology. That is, the Federal Government hasn’t performed very well, in large part due to the role of the Republicans, including Congressman Ryan, in opposing the passage of Government spending sufficient to create full employment, and in supporting the continued bailout of the banks, the payment of undeserved bonuses to FIRE sector personnel. And also in taking Federal spending hostage through paralyzing the Federal budget process and using the debt ceiling to force spending cuts, and block income tax increases on the wealthy, and in opposing investigations of the mortgage and accounting control frauds that have put so many out of their homes.

This lack of trust, isn’t due to too much Government action, except perhaps in the areas of trans-vaginal ultrasound procedures and onerous voter ID laws, and won’t be fixed by Mr. Ryan’s preferred policies of ineffective, or no regulation of the FIRE sector and fiscal austerity. On the other hand, it may well be fixed by:

– an effective Federal Job Guarantee program,

– a Federal Revenue Sharing program restoring and saving state and local government jobs,

– a full payroll tax holiday for employers and employees including Federal reimbursement of the Social Security account,

– ending the wars in the Middle East completely,

– passing an enhanced Medicare for All bill,

– forgiving student loan debt,

– prosecuting accounting control frauds in the FIRE sector, and

– doubling Social Security benefits.

In other words, if the Government starts doing some things that actually benefit the majority of the population, then it’s very likely that people will trust it a lot more. That’s not rocket science, is it?

(Cross-posted from Correntewire.com.)

Ryan’s Follies: Bureaucracy, Austerity, and Depression

7:21 pm in Uncategorized by letsgetitdone

Here’s the next group of Ryan’s follies from his answer to the President’s 2011 SOTU.

On bureaucracy and innovation:

”Depending on bureaucracy to foster innovation, competitiveness, and wise consumer choices has never worked – and it won’t work now.”

That may be. But depending on the big banks and big US corporations to either get lending going again, or to bring innovation and jobs to the United States also won’t work. What will work is for the Government to increase aggregate demand by deficit spending in areas of the economy we want to grow.

“Bureaucracy” is just a scare term. The big corporations that Ryan, the Republicans, and many Democratic Congresspeople serve are all just as bureaucratic, and in the case of the health insurance companies, even more bureaucratic than the Government. The dirty little secret of the social sciences is that bureaucracy comes with large size whether we’re talking about private or public organizations. So, unless Ryan has plans to break up the large banks, insurance companies, pharmaceutical companies, telecommunications companies, and exporters he loves so much, he really ought to shut up about “bureaucracy,” because his precious private sector has absolutely nothing to crow about when it comes to that feature of large organizations.

If we don’t like bureaucracy, then what we need is regulation that will break up large organizations, making them illegal beyond a certain size. Then perhaps we might create functioning markets and be able to shrink the Federal government too. But this kind of solution is off the table for Ryan and Romney since regulation is a no-no from the standpoint of their ideology.

On other nations acting soon enough when they rising debts:

”Just take a look at what’s happening to Greece, Ireland, the United Kingdom and other nations in Europe. They didn’t act soon enough; and now their governments have been forced to impose painful austerity measures: large benefit cuts to seniors and huge tax increases on everybody.”

First, I’ve heard just about enough of the mindless comparisons of Greece and Ireland to the United States and other nations that are sovereign in their own currency. Greece and Ireland use the Eurozone’s currency, so they have solvency risk not shared by nations like the United States. They can be driven into insolvency by the bond markets. Currency-wise Euro nations are like the states of the United States, and not like the Federal Government which is the creator of US currency. These cannot avoid insolvency by simply creating Euros, because they have given up their power to issue currency. We, on the other hand, can spend dollars, and in the act of spending create high-powered money in private sector accounts.

Second, Ryan may say that the British Government was forced into its austerity measures. But this is nonsense, no one forced it into its austerity moves. It just decided to follow the policies that Ryan wants for us here. And what’s happened to Britain since they introduced austerity policies should be a lesson learned for every other nation in full control of its currency that decides to ape Euro austerity.

Contrary to Ryan’s neoliberal economic theory, austerity has created economic contraction in the UK, since the fourth quarter of 2010. The UK National Accounts show a decline of 0.5% in real GDP growth in that quarter, a little over 6 months after the new coalition took office and passed its austerity program. That decline was prior to the implementation of some of the heaviest austerity measures, and reflected the attempts of UK households to anticipate the bite of austerity. The UK VAT was then increased by 2.5%. And its impact has been another decline in GDP caused by the Government’s removal of private sector financial assets through the increase in the VAT, and its spending cut policies since the Spring of 2011.

Everyone in America should be watching Europe very carefully. Ireland and Greece had the choice of austerity or withdrawing from the Eurozone. They chose austerity. Both economies continue to struggle with Greece on the brink of collapse, and Ireland still mired deep in depression. In addition, Spain, Italy, and Portugal are also choosing austerity, and all of them are in trouble as the Euro crisis treated with austerity policy, gradually kills the economy.

In the UK, the British public is suffering from the stubborn Tory-liberal experiment in austerity, with the ruling parties continuing to deny facts obvious to everyone about how their experiment is working out. Let’s hope that the deficit hawks and doves in this country watch that carefully, so that they can see that austerity won’t work, before they subject Americans to one of their variety of unnecessary long-term deficit reduction plans.

On endless borrowing and spending cuts:

”We believe the days of business as usual must come to an end. We hold to a couple of simple convictions: Endless borrowing is not a strategy; spending cuts have to come first.”

I believe that business as usual has to end too. For the past 30 years or more we’ve heard nothing but economic theory that confuses the Government with a household or other economic units that cannot create their own currency. And we’ve heard all through that time that we cannot keep borrowing, and that spending cuts must come first, while we’ve kept borrowing largely to provide lower tax rates for wealthy people, in the hopes that greater disposable income for them would trickle down. Ryan and Romney are giving us that same ideology again.

If endless borrowing is really not a strategy, than why won’t Ryan work to restore the marginal tax rates of the 1960s and close all loopholes? We all know why; because he doesn’t believe in shared sacrifice; only in sacrifices by the poor and the middle class so he can further enrich his supporters. Congressman Ryan, the Republican’s young guru is exactly the same as their old gurus. His one prescription for everything is to leave the poor little rich people alone, so they can, out of the goodness of their hearts, leave the rest of us a few scraps.

Apart from this however, while ending borrowing and cutting spending may increase the well-being of a private sector household, if everyone does that in the private sector, then there will be rapidly declining demand, and as surely as night follows day there will be a double-dip recession harming everyone, unless Government spending takes up the demand slack coming from the private sector.

The Government can borrow endlessly if it wants to, as long as its accompanying Government spending doesn’t cause demand-pull inflation. Or, alternatively, if Ryan and Romney are as bothered by the debt as they claim, then they can work to repeal the Congressional mandate forcing the Treasury to issue new debt when it deficit spends. That way, the debt will gradually be reduced to zero as time passes and they won’t have to worry about it anymore.

Even better, if Ryan and Romney hate the debt so much, they can propose that the Executive cause the US Mint to issue a $60 Trillion proof platinum coin, deposit it at the Fed in return for electronic credits which will end up in the Treasury General Account. With the $60 T in credits, the debt subject to the limit can be paid off entirely as it falls due, leaving $44 T in credits to use for deficit spending over the next 15 years or so. Romney and Ryan will never do this however, since if they did and also implemented this plan, then they’d have no excuse for cutting Federal spending that benefits the poor and the middle class.

The more important point is that cutting the level of Government deficit spending is not what ought to be done when we have an economy that is operating so far below its full capacity. If we do that and move to balance the budget as Ryan/Romney want us to do, then we will take financial assets out of the private sector, reduce aggregate demand and further decrease our use of the economy’s productive capacity. That is, we’ll have greater unemployment, greater suffering, and much less growth.

That’s because Government deficit spending, other things equal, increases net financial assets in the private sector; while Government surpluses decrease net financial assets. There’s just no getting around that macroeconomic identity. So, spending cuts and budget balancing are a strategy that won’t effect the Government’s capacity to spend at all, but it will impoverish the private sector.

If that’s really what Ryan, Romney, the Republicans, and a variety of Democrats, as well, want to do, then let them try to do it. But I guarantee that sooner or later the American public will have its revenge for their bringing back Herbert Hoover’s nightmare.

(Cross-posted from Correntewire.com.)

Ryan’s Follies: Health Care Reform, Bankruptcy, and Tipping Points

7:53 pm in Uncategorized by letsgetitdone

Still more Ryan’s follies from his answer to the President’s 2011 SOTU.

On the Affordable Care Act (ACA)

”Then the President and his party made matters even worse, by creating a new open-ended health care entitlement.

“What we already know about the President’s health care law is this: Costs are going up, premiums are rising, and millions of people will lose the coverage they currently have. Job creation is being stifled by all of its taxes, penalties, mandates and fees.”

Well, Congressman Ryan’s right about most of this. The ACA doesn’t contain direct measures to prevent insurance companies from raising premiums, but relies on exchanges that won’t be fully operative until 2014, by which time insurance companies will have raised rates far higher than they were when the ACA was passed in 2010. On the other hand, Paul Ryan and the Republicans wouldn’t support any cost-cutting measure that would be effective anyway, such as, for example, prohibiting increases in premium costs greater than the rate of inflation in the rest of the economy, because the Republicans and Ryan himself, along with many Democrats are bought and paid for by the health insurance companies and big Pharma.

Ryan’s claim that job creation is being stifled by the ACA bill, is currently unsupported by evidence. And his claim about job creation is pure theory, especially since most of the bill isn’t operational yet and its impact can’t be assessed. One thing’s certain, however, and that is that there’s no way that either the ACA, or alternatives based on the free competition and confidence fairy theories Ryan favors will produce the 2.5 million new jobs predicted by the California Nurses Association study if the Democrats had rid themselves of the filibuster in January of 2009 and passed Medicare for All, rather than collaborate with the Republicans and the Blue Dogs to cut the heart out of health care reform.

On the ACA and bankruptcy:

”Businesses and unions from around the country are asking the Obama Administration for waivers from the mandates. Washington should not be in the business of picking winners and losers. The President mentioned the need for regulatory reform to ease the burden on American businesses. We agree – and we think his health care law would be a great place to start.

“Health care spending is driving the explosive growth of our debt. And the President’s law is accelerating our country toward bankruptcy.”

Health care spending is driving the explosive growth of debt, both public and private, but as we saw in my first Ryan’s Follies post, the public debt accompanying health care deficit spending is reducing debt in the private sector and also increasing demand. Unfortunately, the explosive growth of private debt from health care costs visited upon individuals is causing great suffering in the form of bankruptcies and foreclosures. In addition, these costs result in deaths when people can no longer afford co-pays and decide to forgo treatment they need before illnesses or injuries cause serious damage.

I don’t believe that Ryan is right that “the President’s Law” is accelerating the Government towards bankruptcy, because it has no risk of “bankruptcy,” unless Congressman Ryan and his colleagues decide to force insolvency by not using their constitutional authority to appropriate Government spending or to raise the debt limit. The “explosive growth” of the public debt is, for reasons stated in my first Ryan’s Follies post, of little or no concern. However, I do believe that the growth of private sector debt due to health care costs is a major issue, as is the portion of the US GDP spent on the health care sector, which is way out of line with other industrial nations, and which at the same time produces much worse outcomes for too many Americans whether they have insurance “coverage,” or not.

Of course, the Congressman is not concerned about these real problems, but only about his imagined “problem” of the Government becoming insolvent due to excessive spending. That is, one of the reasons, why, I suppose, he opposes Medicare for All. If he and his Republicans were to join with Democrats to pass that, it would relieve both the increasing private sector debt problem, and also reduce the GDP proportion of health care spending by perhaps one-third. But, I guess we should just expect this kind of public service out of someone who proposes to return the United States to 19th century economic rules and behavior.

Congressman Ryan, criticizes the waiver process, by saying that Washington should not be in the business of picking winners and losers. But, this is one of the most hypocritical remarks in the history of politics coming from Congressman Ryan, since he has gone out of his way to see to it that lack of regulation would ensure that the health insurance companies, big Pharma, the FIRE sector, and businesses in his and other Congressional Districts that wanted to move jobs to other nations would be big winners while American workers and people needing Medical insurance would be big losers. The Congressman has always picked winners and losers.

Unfortunately, for America, however, he has never picked them in the public interest; but only to benefit his own political career. And this has meant, when it comes to jobs, that he has picked foreign winners and American losers while always wrapping himself in the flag.

And back to public debt:

”Our debt is out of control. What was a fiscal challenge is now a fiscal crisis.

“We cannot deny it; instead we must, as Americans, confront it responsibly.

“If we act soon, and if we act responsibly, people in and near retirement will be protected.”

As shown in my first Follies post, the national debt isn’t out of control at all. But Ryan is right to think that we have a fiscal crisis that we have to confront responsibly. That crisis is that the Government including Congress, the Federal Reserve, and the Executive Branch isn’t using activist fiscal policy to achieve the public purpose, even though there is no solvency risk and little inflation risk in the United States doing so. The United States has so many problems right now that letting these problems go unsolved, by kicking them down the road is the real meaning of fiscal irresponsibility.

When it comes to fiscal irresponsibility no one is better described by that term than Paul Ryan. Of course, he has a lot of company in Peter G. Peterson, the Koch brothers, and all the advocates of balanced budget amendments, Republicans and Democrats who think it’s responsible to manage the US Government’s spending as though it were a household or still on the gold standard. These people, who have, apparently been joined by Barack Obama, will destroy the economic foundations of the United States, and create a nation where everyday life is “nasty, brutish, and short,” and the sick “die quickly.”

And, of course, “tipping points” into dependency:

”Our nation is approaching a tipping point.

“We are at a moment, where if government’s growth is left unchecked and unchallenged, America’s best century will be considered our past century. This is a future in which we will transform our social safety net into a hammock, which lulls able-bodied people into lives of complacency and dependency.”

Anyone who has experienced unemployment, or living on Social Security alone, or Medicare, not supplemented by other medical insurance, knows that the social safety net is no hammock, and that it is not nearly as generous as social safety nets in other modern industrial nations. Our social safety net is the most stingy and mean of all these, and also the one most immersed in false economies that undercut demand and prevent the social safety net from doing its job of making recessions less punishing for poor people, people out of work, the sick, and most of the 99%.

Congressman Ryan makes Mr. Potter, the banker in “It’s a Wonderful Life,” look like a generous man, for he means to drain America of real wealth so he can serve the job exporters he loves so well better. If he has his way, the social safety net will become a bed of nails. If we simply leave it where it is, there’s no danger of hammocks anytime soon. And even if we were to extend it by passing enhanced Medicare for All, and say, doubling Social Security payments in recognition of the fact that the financial sector of the economy has, by now, nearly destroyed both the savings, and the pension legs of the proverbial three-legged retirement stool for a very large percentage of the middle class, there is no way that even that would tip us all over into “hammocks.”

A strong, generous, social safety net is not a social invention that will make people dependent. Instead, it is an invention to make them more free. FDR wisely said that “necessitous men are not free men.” What angers me so much about Romney, Ryan, the Koch Brothers, Peter G. Peterson, and all who follow him, is that they want to make most of us “necessitous” while they lack for nothing!

(Cross-posted from Correntewire.com.)

Ryan’s Follies: Oy! Taxes, Decline, and Austerity

5:16 pm in Uncategorized by letsgetitdone

More on Ryan’s follies and the overall quality of thinking we find in this young “guru”! Here’s more from his answer to the President’s 2011 SOTU.

”On this current path, when my three children – who are now 6, 7, and 8 years old – are raising their own children, the Federal government will double in size, and so will the taxes they pay.”

It will be roughly 19 years until Ryan’s children are raising their own children, and guess what? GDP will be between two and three times what it is now, and, as we’ve already seen there’s no reason why taxes should be any higher as a percentage of income for most people, unless of course, people like Ryan keep lowering taxes for the rich and raising them for everyone else in order to achieve a damaging budgetary surplus.

Hopefully, the tax rates for the top 2% of the population will be far higher than they are now, and estate taxes will return to their levels in the 1950s, so that gentlemen like Congressman Ryan can begin to pay their fair share again, and the United States can once again have a wealth distribution that is more equal than the likes of Russia, China, Turkey, and Jordan.

I recently blogged on some Credit Suisse data related to the inequality problem. My analysis showed that the US was 24th in the world on Median wealth per Adult. Our Median Wealth per Adult was about $53,000. The nation that ranked first, Australia, had a Median Wealth per Adult of about $223,000 or 4.2 times ours. Also the ratio of the Mean to the Median Wealth per Adult, an even better measure of inequality, was 4.71 for us, and 1.79 for the Australians. One thing’s for sure it won’t be very good for most of our grandchildren if Romney/Ryan tax policies, which will make this situation even worse, are inflicted on us in 2013. Four years of that and we could very well see that Median Wealth number go down to $46,000 or so and that ratio up to 6 to 1. The political and social unrest that will cause here is anybody’s guess. Here’s another folly:

”The next generation will inherit a stagnant economy and a diminished country.”

That depends on Congressman Ryan, the Republicans, President Obama, and other Democrats who think we have a deficit/debt problem, which must be treated with Government austerity and tax cuts for the rich. That’s a sure recipe for condemning the United States to a stagnant economy and a diminished country. We’re seeing the results of such policies now in Europe and in the UK, which is fast becoming the laboratory case illustrating why austerity isn’t the thing to do to a down economy.

How do these exponents of Hooverian crackpot economics expect the economy to grow when they are going to drastically lower the aggregate demand provided by Government deficits? By blowing more private sector debt bubbles leading to a new collapse produced by lack of regulation and corporate account control fraud, he further impoverishment of the American Middle Class, and then more lemon socialist bailout?

That’s sarcasm, of course. But that kind of pattern is probably a feature, rather than a bug of the Romney/Ryan plan. Their grand design isn’t morning in America. It’s the New Serfdom with themselves and others like them as our new feudal lords.

”Unfortunately, instead of restoring the fundamentals of economic growth, he engaged in a stimulus spending spree that not only failed to deliver on its promise to create jobs, but also plunged us even deeper into debt.”

The Democrats have failed to end the recession, at least for most Americans; but Paul Ryan’s austerity policies, if followed in 2009, would never have restored “the fundamentals of economic growth.” Balanced budgets at the Federal level would only have depressed demand to such a degree that we’d be in a second Great Hooverian Depression right now. Really, Ryan’s version of economic science is at the very least 115 years old. Some whiz kid! Between he and Eric Cantor, they’d have the economy flat on its back for the next 100 years.

”The facts are clear: Since taking office, President Obama has signed into law spending increases of nearly 25% for domestic government agencies – an 84% increase when you include the failed stimulus.”

Much of this “spending” is a result of the operation of the automatic stabilizers in the safety net helping people get through the recession, created by the FIRE sector and its control frauds — spending over which the Obama Administration had no control that was also necessary. And much of it was due to Homeland Security and its expenditures, “domestic spending,” which I’m quite sure Ryan would be opposed to cutting? In any case, numbers like the ones just above don’t mean anything, unless one thinks these expenses increase the solvency risk of the Government. Since we’ve already seen that they don’t, these “facts” of Ryan’s are of little or no importance.

”All of this new government spending was sold as “investment.” Yet after two years, the unemployment rate remains above 9% and government has added over $3 trillion to our debt.”

Of course it’s now 3.5 years, 8.3%, and more like $5 Trillion in additional debt, otherwise known as world savings of USD in the form of Treasuries. As I said in my last post, the addition to debt doesn’t matter. And, again, much of the new Government spending was due to the response of the automatic stabilizers to the crash of 2008, and wasn’t “sold as ‘investment’” at all.

As for the stimulus package, only a relatively small part of it was justified as “investment,” as Paul Ryan very well knows. By the time the Republicans, the Blue Dogs, and the President got through with the ARRA, the tax cuts in the package and spending geared toward maintaining the States, ate up more than half the stimulus over a two year period, and were in no way “investment.”

The stimulus itself was also only one-half as large as it needed to be in volume of spending to end the recession (as many asserted, including myself, at the time), and was less stimulative than it should have been, due to the fact that low-multiplier tax cuts were such an important component of it. So, it wasn’t any surprise to many of us that it failed to lower unemployment below 8.3%, or that the deficit remained high, since the primary cause of big deficits was the combination of high unemployment and the operation of the social safety net.

Congressman Ryan is a rising star in the Republican Party, and is often characterized as their foremost policy wonk and budgetary guru. But his performance over the past two years, indicates that if he’s their guru, and if the Republicans remain in charge of the House, then we’ll all be in trouble; because while Paul Ryan may be better at adding and subtracting than most of his colleagues, there are very important things that he apparently fails to understand, or at least to heed, about Macroeconomics and its relation to fiscal policy.

In particular, Congressman Ryan, seems to have no clue about the sectoral balance model of macroeconomics. One of the things that model implies is that if the US is running a negative trade balance (imports exceed exports), and the private sector needs to save to pay back debt, the Government budget deficit must be equal to the value of the trade deficit plus the value of private sector savings. If the Government tries to work against the dynamic implied by this model, by taking active steps to reduce that deficit, as Paul Ryan and the Republicans so vigorously advocate, then the private sector is going to have to reduce its imports, its savings, or, most likely, both, because a reduced Government deficit will lessen demand in the private sector.

So, Government austerity is not going to create private sector prosperity as Ryan, and sometimes, President Obama and many Democrats, suggest, but private sector privation, instead. Less private sector savings, less real wealth, and a stagnating economy. Paul Ryan may actually want that, and the President may too, so he can say that he left a legacy of hard and courageous decision making, but most of the rest of us don’t.

We wish that our political parties and their leaders would leave that legacy of courage and sacrifice that they, their families, their friends, and the wealthy people and corporations they deal with daily, are calling for, to themselves and their families; while leaving us with things like enhancements of the social safety net including Medicare for All, and greatly increased Social Security payments, as well as with a Job Guarantee program. After 30 some-odd years of policies promoting extreme wealth for them, and stagnation for the rest of us; it’s time for them to make the sacrifices, and for us to get our share of the productivity gains in the form of a Green New Deal.

So, let’s have some really hard decisions from them. Decisions that involve their giving up some of the extreme wealth they’ve accumulated, very often through political influence and manipulation, and sometimes control frauds, rather than from honest work. Decisions that recognize that an America that is unusually unequal among the world’s wealthy nations cannot long stand without civil strife for everyone. Let those who have benefited disproportionately from the past 35 years not continue tempting fate. There must be a peaceful return to social and economic justice and fairness in America now, before we go any further down the road to plutocracy and the new serfdom. The alternative is too terrible to contemplate.

(Cross-posted from Correntewire.com.)

Ryan’s Follies: A Crushing Burden of Public Debt

8:43 pm in Uncategorized by letsgetitdone

Paul Ryan (photo: love4utah / flickr)

In celebration of Paul Ryan’s nomination, and in consideration of his reputation among Washington, DC villagers as a fiscal guru, I thought it might be fun to do a series of posts, of which this is the first, critiquing examples of Ryan’s past wisdom. Here’s the first example:

”We face a crushing burden of debt. The debt will soon eclipse our entire economy, and grow to catastrophic levels in the years ahead.”

The debt referred to here by the Congressman is the accounting construct of the national debt subject to the limit, or the face value of the debt instruments the Government has yet to redeem. But just why the “burden of debt” is so crushing, or even a burden at all to you and I really needs to be explained carefully by Ryan and the other deficit hawks to the rest of us.

I don’t see any public debt burden on myself or any American people at all either at present or in the future. Why? Because a burdensome debt is one that you and I will personally have to pay back, and we just won’t ever have to pay the public debt of the US back from taxes that we are asked to pay to the Government. That is, we won’t unless Congress and people who believe the things Mr. Ryan believes, decide to pay the debt by levying taxes, cutting Government spending, and running Government surpluses until it is paid.

That was done once in American history during Andrew Jackson’s Administration, when the public debt was paid by raising more taxes than spending. The result was that Martin Van Buren, Jackson’s successor became a one-term President, following the panic and very serious depression of 1837. That depression was caused, in great part, by a shrinking of private demand caused by Government austerity, the successful pay back of the debt, and the continuing policy of balancing the budget. In addition, every sustained attempt in American history to run budget surpluses was followed by either a depression or a recession. A summary of the depressing record is here.

Vice-Presidential candidate Ryan either believes himself, or wants you to believe, that the “crushing debt” will have to be paid for out of taxes levied on you and I. But there are a number of different ways to handle the national debt that don’t place any burden on us at all.

First, there’s the way we’ve been handling it up to now, namely by rolling over previous debt and paying interest on it as it comes due. We’ll always be able to do that because a debt instrument is the functional equivalent of a savings account, and frequently those who hold USD including foreign nations have the effective choice of keeping their USD in a reserve account, or buying a debt instrument that pays higher interest. They’d rather buy the debt instruments, of course. However, low the rate of interest is, it’s better than the rate they’ll get on reserves.

Can our national debt increase indefinitely? The short answer is: yes it can. The reason is that a Government like the United States with a fiat non-convertible currency, a floating exchange rate, and no debts in any other nation”s currency, has no solvency risk because it can always create money to pay its obligations. Its debt instruments are therefore nearly risk-free. So, they’re a safe harbor for investors who’d rather earn a better return on the USD they hold than interest on reserves or no interest at all.

Second, in lieu of simply rolling over our debt and increasing it, as needed, Congress can decide to get rid of all the public debt, by simply removing its mandate forcing the Treasury to issue new debt when it deficit spends. Congress needs to replace it by granting authority to the Treasury to spend Congressional appropriations by directly marking up private sector bank accounts, or if it continues to spend through its Federal Reserve Accounts, Congress will have to give it authority to mark up its Federal Reserve accounts when it wants to deficit spend Congressional appropriations. If this is done, then Treasury will be able to make all its debt payments when they become due, and most of the public debt will be gone within 10 years, except outstanding longer-term instruments. If Congresspersons like Paul Ryan think the debt problem is so burdensome, then there is nothing preventing them from giving Treasury the above authority and getting rid of the debt. is there?
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Can’t Believe He Thinks “Shared Scarcity” Will Make It Better!

7:23 am in Uncategorized by letsgetitdone

This morning cable media shared images of Paul Ryan talking about “shared scarcity” instead of “shared sacrifice.” I just can’t believe his handlers thought that this would make it better. Do they really believe that when he calls for “shared scarcity” people won’t reply “Let’s see Paul Ryan, the Koch brothers and the rich share some scarcity for a change”?

Give me a break! There are some things that you can’t get away from by changing the messaging. You’ve got to change the reality. Quit proposing tax cut giveaways for the rich, an end to Medicare, emasculating of Medicaid, privatizing Social Security, outsourcing jobs, and killing unions. You want fiscal responsibility? Then start trying to figure out what it would take to use Federal spending to create full employment, and to make America’s emerging plutocracy sacrifice the gains they’ve made for the past 40 years of screwing working and middle class people.

Maybe then, after you’ve proven you care about them, people will listen to what you have to say about “shared scarcity,” “shared sacrifice,” “shared austerity,” or whatever your flavor of the month is for calling on people to cooperate in their own shafting. Until then, you’d be best off just shutting your big, stoopid mouth!

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