Thanks for calling out the CPC, Masaccio.

The next step is to offer constructive suggestions for a truly progressive economic system.

Myself, I lean toward the post-Keynesian school such as Steve Keen, Warren Mosler, and Randall Wray, excepting for their position on free trade.

We need a bigger deficit and at the moment, the most politically viable way to achieve that is by suspending the FICA tax.

I’m certainly not opposed to taxing the rich to redistribute wealth, but 1) it ain’t gonna happen with R’s controlling the house and 2) we don’t need the revenue to reduce the budget. The deficit is only an issue when it is so large that it creates inflation. In the mean time, forget about it.

Thanks so much for posting this on FDL, Masaccio. Agree 100%.

I keep suggesting that the CPC change its name to “Congressional Neoliberal Caucus” to better reflect what it actually represents.

Dayen falls for Milt Friedman’s theories, since they have been working so well in Japan for the past 20+ years.

The Fed controls neither inflation nor unemployment. At best, it has a slight influence, and only some of the time, not all of the time.

What the Fed does control is the price of money — interest rates. That’s it.

Most inflation is due to commodity speculation, not to anything the Fed does or does not do.

Most unemployment is due to fiscal policy or lack thereof, not to anything the Fed does or does not do.

Bernanke’s speech twice called on Congress to put the budget on a “sustainable path,” which is bullshit. That makes Bernanke pro-austerity, not anti-austerity. There is no such thing as an unsustainable budget path.

He claimed the Fed should not try to influence fiscal policy, yet FDR’s Fed Chair, Marriner Eccles, played an active role in shaping fiscal policy, encouraging the creation of policies that became known as the New Deal.

He claimed that raising rates would increase the deficit. That’s right, AND INCREASING THE DEFICIT STIMULATES THE ECONOMY. Bernanke’s ZIRP policy is sucking money out of the economy and making the recession worse.

Bernanke is part of the problem. He didn’t get anything right.

Progressives will continue to fail until they understand economics.

There is nothing the Fed can do. The Fed only controls interest rates, which are already at record lows.

QE may actually be disinflationary, because it removes interest income from the economy.

Robin talks about the politics of austerity, not the economics, which is fine considering Robin doesn’t pretend to be an economist.

However, we must talk about the economics, too.

According to post-Keynesian theory, the deficit needs to be large enough to offset “demand leakages,” as per the equation Federal Deficit = Net Private Savings + Trade Deficit.

Since people usually wish to save a percentage of their income, and since we have a trade deficit, that means we MUST run a budget deficit. The only way to sustain a a balanced budget is with a large trade surplus, which is not realistic.

Temporarily balancing the budget, as Clinton did, forced households deeply in debt and eventually crashed the economy.

The deficit is not a problem. The debt is not a problem. What is a problem is that politicians don’t understand that the deficit needs to offset demand leakages.

The Federal government pays bills with keystrokes. Federal spending is not limited by tax revenues. Federal spending is not limited by trust funds. Congress may impose artificial limits on spending, like the debt ceiling, but the only economic limit on spending is demand-pull inflation, which we haven’t had since the 1950′s.

When you accept the conservative framing of the issue, as David Dayen has done, then you automatically lose the argument.

Money is no object. We could and should pay for health care with keystrokes.

*If* we ever get past that mental hurdle, the real limitation on health care services will be resouces — the number of doctors, the number of nurses, the number of hospitals, etc.. So if we were smart — ha ha ha — we’d have a national plan to figure out how many doctors and nurses and hospitals we should have and go about creating them.

Its tough to change a culture. How about we focus on the things we can change ?

We KNOW murder rates correlate to economic inequality.
What causes gun violence ? The evidence.

We KNOW that extremist groups like the Nazis spring up when there is a bad economy. So maybe we should do something about fixing the economy and inequality ?

– use the existing Humphrey Hawkins law to justify an executive order creating a WPA

– use the existing platinum coin law to mint a $60 trillion dollar platinum coin to pay off the national debt and fund WPA

– push for a $12 minimum wage (Australia has a $16 min)

– push to replace free trade with fair trade

– push to eliminate the regressive FICA tax, pay for SS with FTT instead.

– push to decriminalize drugs, since much violent crime is drug-related

And so on.

We’ll never completely eliminate violence. But I’m pretty sure we can reduce violence significantly.

The filibuster hasn’t been all bad. Populist Huey Long filibustered against the pro-business NRA for 15 hours, inspiring the “Mr. Smith Goes To Washington” story.

Later Long led a 3 week filibuster against the original version of Glass-Steagall, which was pro big bank at the expense of state banks. Long’s opposition eventually resulted in Glass-Steagall being amended to provide FDIC insurance to all banks, not just big banks.

Populist Wayne Morse filibustered for 22 hours against the Tidelines Oil Bill.

But Jon is right, the filibuster has mostly served us poorly.

Dayen accurately describes the conservative moral opposition to food stamps, but fails to counter with a constructive solution.

If we liberals accept the conservative economic system, only differing by our willingness to toss the poor some crumbs, then we are doomed to fail. It’s the economic system that is the problem.

Economist Hyman Minsky predicted that LBJ’s “War on Poverty” would fail because popular support for a welfare state would not be sustainable. Minsky advocated a jobs program instead, particularly a Job Guarantee program, where anyone who wanted to work would be given a Federal minimum wage job, including health care (I would add that the minimum wage would need to be enough to live on if you want to eliminate food stamps).

http://www.slideshare.net/MitchGreen/war-on-poverty

I don’t believe for a second that O-care will reduce the deficit, but if it did reduce the deficit, that would be a drag on the economy. Reducing the deficit is a bad thing, contrary to conventional wisdom.

We do know that O-care will redistribute income, from the working class to the corporations. It’s hard to see that helping the economy.

Beowolf, I’ll pass on the horrible Ryan-Wyden plan. It wouldn’t expand Medicare, it would destroy it. Private insurance adds no value to health care. NONE.

Democrats lost the moral argument when they went with a for-profit health care plan that has stiff deductibles and co-pays.

If we want to claim, as FDR did, that everyone has a moral right to basic health care, then that requires single payer, financed by general revenues, so that anyone can walk into any medical facility and be treated with worrying about who will pay the bill.

Coach Bill and Jon Walker both make great points.

The conservative governors do have a valid point about unfunded Federal mandates. The Feds can print money to pay for these things, while the states must raise revenues, all too often through regressive taxes.

A broker has a contract with the treasury to buy the bonds, so selling the bonds is never a problem.

Bond sales are only necessary to comply with an obsolete 100 year old statute. We don’t actually spend the money from bond sales, it just sits in a savings account and earns interest, so bond sales have nothing to do with government spending.

Government spending is performed merely by marking up bank accounts with a computer keyboard.

As Bluedot12 mentioned, the Prez already has legal authority to mint trillion dollar platinum coins which could be used to not only circumvent the ceiling, but also pay off the entire national debt.

“would save state and local gov’ts approximately $75 billion a year”

Good info about the Fed having authority to buy munis.

Bear in mind that one person’s interest payment is another person’s interest income. States and cities would save money, but pension funds who invest in munis would lose income. Overall, there would be no net stimulus effect. None.

There are only 3 ways to pump more dollars into the economy 1) Federal deficit spending 2) private loans and 3) exports. That’s it.

The private sector is already drowning in debt, so increasing private loans a bad idea. Not much we can do about exports. That brings us back to Federal deficit spending.

All this talk about what the Fed should or shouldn’t do is a diversion from the real issue — that we need to increase Federal deficit spending.

Increasing taxes without a matching increase in spending will take money out of the economy. Anyone who thinks it is a good idea to take money out of the economy in a balance sheet recession doesn’t understand economics.

I’d be fine with letting the Bush tax cuts expire as long as we increase spending to match. The budget deficit needs to be larger, not smaller.

http://strubelim.com/wp/the-problem-with-the-deficit-its-not-big-enough/

What eCAHNomics said.

Fed merely controls interest rates, which are already as low as they can go.

Fed does not control inflation, except to the extent that interest rates influence inflation (debatable). The Fed has no way to “turn up” inflation, even if it wanted to.

QE is disinflationary for Main Street because it removes billions in interest income from the economy.

Zero interest rates give investors an incentive to move out of safe government bonds and into stocks, commodities, and derivatives. This drives up the price of stocks so the 1% get richer. Until recently, it was driving up the price of commodities so you and I had to pay more for food and gas. The move to riskier investments may result in a financial bubble that eventually crashes.

David Dayen, I enjoy many of your posts, but you lose me with your Milt Friedman-like assumptions about economics. Please educate yourself on MMT economics instead.

http://moslereconomics.com/mandatory-readings/