[posted this several months ago and wanted to kick it back up because it is germane again. I hope I am not breaking any rules and apologize in advance if so.]
In my previous piece, Progressive Tea Partying under the Debt Ceiling commenter captjjyossarian and missling expressed curiosity over economist Michael Hudson’s position on the upcoming vote on raising the debt ceiling.
Many presumed that going here meant that I am a right wing deficit hawk because for so many thinking the same thoughts as those well known to have cooties puts oneself at risk of cooties. Far from it, I am a Keynesian and Hudson is a major influence on my understanding of finance due to his razor critical analysis. But there is not going to be any Keyensian fiscal intervention, only Quantitative Easing on the monetary side.
Given that our primary policy tool is not available it is time to consider other options.
Here is a transcript of a deficit hawk video featuring a clip from Obama economic advisor Austan Goolsbee and a live action response from Michael Hudson. Embedding of the youtube.com video wasn’t happening for me. Again, consider the content of the principals, Goolsbee and Hudson, more so than the source, some bizarre deficit hawk channel, she only speaks one line and Hudson changes the subject to what he wants to talk about.
3:05: Goolsbee: If we hit the debt celing, that’s essentially defaulting on our obligations which is totally unprecedented in american history the impact on
the economy would be catastrophic.
Host: How catastrophic would it be in your opinion?
3:25: Hudson: It would be like stepping on a piece of gum and having to get it off your shoe.
Adam Smith said in “The Wealth of Nations” that no government has ever repaid its debt and you can say that today, nothing has changed. It would be a zero problem. People who talk like that are trying to frighten you. And when a politician tries to frighten you, you can think of “what is it that he wants me to do?” How am I being manipulated? This is pure ignorance. And its obvious that if Mr. Goolsbee knew anything about money and credit, he’d wouldn’t have anything to do with the University of Chicago to begin with.
[I love that last line. See: Chicago School of Economics:
Chicago macroeconomic theory rejected Keynesianism in favor of monetarism until the mid 1970s, when it turned to new classical macroeconomics heavily based on the assumption of rational expectations. Chicago economists applied rational expectations to other areas in economics like finance, which produced the influential efficient market hypothesis.]
“The Republicans are being irresponsible!” Claim the Democrats. But what I think we’ve going on here is the Democrats defending a very irresponsible financial system that is consigning Americans to poverty in record numbers while accusing the Republicans of irresponsibly not conforming to that irresponsible orthodoxy.
I’m of the mind that the decline of the reserve currency status of the USD would also suffer were the supply of US debt constrained and dollars began to build up around he world and drive up the value of their currencies. But that is not necessarily a bad thing. The economic armaments that the ability to issue an infinite amount of dollar debt entails are well worth disposing of. Clearly the global south would be much better off without the US commanding their economies through dollar power.
The only ones who would be worse off would be Americans. Our ability to command inexpensive materials from the global south as a matter of right would vanish. We’d need to pay for imports based on the value of our exports, and that would mean more expensive imports.
Such a move needn’t threaten domestic social programs as they are bought and paid for with domestic dollars. And it would automatically rule out keeping the constellation of almost 1000 military bases not to mention bailing out the banks–the economy, even if social security and medicare were abolished, simply couldn’t handle that load. The military and financial behemoths can only be supported by the US government that has the appearance of a bottomless wallet.
There will be no Keynesian solution for the mid term and there does not appear that there is anything that Americans are willing to do to change that. So it is time to look to other options. I’m one to play political jiu-jitsu with my opponents, when they overreach and overpromise, encourage them on further and then call the question on them.
Not only with the debt, but now with health care. The Republicans want to repeal The Health Insurers and Big Pharma Corporate Welfare Act of 2010. The Democrats should call the Republicans bluff, support repealing the unpopular Individual Mandate, and leave the Health Insurers holding the bag for no ban on preexisting conditions and other progressive aspects of the bill which the insurers would only provide if they were guaranteed customers. Of course the Democrats will do nothing of the kind, they’ll continue to act as responsible stewards of irresponsible systems in the face of Republican’s who irresponsibly don’t adhere to the irresponsible orthodoxy that it is a good thing for government to guarantee customers to a sector through tax penalty.
Our only choice now is to unite with those on the right calling for not raising the debt ceiling as a way of cutting off the flow of free public wealth to the banksters that are sucking our society dry and condemning so many of us to poverty.
27 July comment: Blankfein, Dimon, Summers, S&P, Moody’s and the IMF all support raising the debt ceiling and speak of economic catastrophe for Wall Street should it not be raised. In no instance are my interests coincident with theirs. Whatever economic policies they support, we should most likely do the opposite.