Friday, December 3, 2010

Republicans Who Think the FED Should Forego Fiscal Stimulus

If this reporting by CNNMoney is correct, then Mike Pence (Republican Congreesman from Indiana) is clueless as to the role of the Federal Reserve in at least a couple of respects:

But some critics are sick and tired of the Fed prioritizing job creation at the risk of rising prices. They say the juggling act of promoting economic growth while staving off inflation has proven ineffective, and has led to a policy of too much cheap money with dangerous consequences for the economy. "The American people have been witness to an era of unprecedented borrowing and spending by the national government," Rep. Mike Pence, a Republican from Indiana, told CNNMoney Thursday. "I know that the Fed can't spend us back to prosperity." … "The Fed can print money, but they can't print jobs," he said. "Printing money is no substitute for sound fiscal policy and we ought to be looking to the Congress to embrace the kind of policies that will get this economy moving again."


Maybe QE2 has confused the Senator but the Federal Reserve is not practicing fiscal policy in the sense of increasing the Federal deficit. On this claim that expansionary aggregate demand policy cannot reduce the output gap, Paul Krugman today reminded us of something he wrote last summer:

What’s odd, though, is how little talk there is about the way the 70s ended — which I viewed at the time, and still do, as a huge vindication of Keynesianism. Here’s what happened: the Fed decided to squeeze inflation out of the system through a monetary contraction.


Paul continues by nothing that the new classical theory that apparently Pence believes it predicted we would not have a prolonged recession during the early 1980’s. We did. This same theory would hold that our current Great Recession is not happening at all. I hate to say this – but this Congressman is clueless on a couple of macroeconomic fronts.

31 comments:

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MMT said...

Incredible, a Congressman who doesn't know a damn thing about Economics. I am becoming increasingly confident that we do not have a single Congressman who has any sort of understanding of macroeconomic theory beyond the continually dis proven but still continually used Neoclassical framework. How do you improve the system when the leaders have not a clue as to what they are doing with economic policy, and the people they ask for advise are either intentionally misleading them, or have drank the Kool-Aid. It has become an increasingly sad state of affairs.

trucker said...

MMT said, "Incredible, a Congressman who doesn't know a damn thing about Economics".

Where has MMT been? Congress critters know nothing about anything but how to pander to the public along ideological lines. The proper prep school for elected officials is acting classes. Obama is not the pres because he is an econ genius. He has adopted a persona and he plays his role well. Bush was very good at playing roles. Rove wound him up, gave him some lines, and pushed him onto the stage.

The only way to bust this crap is by going to the people themselves. That is how we got where we are. The fomenters of discontent have, for years, removed civics and economic education from the high schools. Most of the public does not attend university. An ignorant people will elect an ignorant representative. Education of the electorate is conducted through propaganda campaigns.

Education of the electorate at this point can be accomplished only through propaganda. Unfortunately, most of the propaganda machinery is owned by those who want to keep the people ignorant.

Quantitative Stupidity.

I am not the world's greatest humorist. But I hope I have made my point.

trucker said...

MMT said, "Incredible, a Congressman who doesn't know a damn thing about Economics".

Where has MMT been? Congress critters know nothing about anything but how to pander to a misinformed public. The proper prep school for elected officials is acting classes. Obama is not the pres because he is an econ genius. He has adopted a persona and he plays his role well. Bush was very good at playing roles. Rove wound him up, gave him some lines, and pushed him onto the stage.

The only way to bust this crap is by going to the people themselves. That is how we got where we are. The fomenters of discontent have, for years, removed civics and economic education from the high schools. Most of the public does not attend university. An ignorant people will elect an ignorant representative.

Education at this point can be accomplished only through propaganda. Unfortunately, most of the propaganda machinery is owned by those who want to keep the people ignorant.

This cartoon makes the national news.

This one doesn't.

Nor this one.

Is humor better?

trucker said...

For PGL:

I do not understand your comment "Federal Reserve is not practicing fiscal policy in the sense of increasing the Federal deficit". I am not sure what this congress critter said, but the FED is messing with the debt. The problem being introduced here is a busting of the mystical belief that the national debt is the sum of all budget deficits/surpluses since the beginning of time. We see that the FED can reduce the national debt owed to the public by QE2. For some, that merely moves the debt from the "debt owed to the public" into the intra-governmental debt sitting right beside the Social Security trust fund. The difference is that SS bonds/bills are markers for debts owed to current and future retirees. The bonds purchased by the FED have no future persons as owners. There is no one to pay. The FED is paying down the national debt, pure and simple. And it is monetary policy simply because it is the FED that is doing it.

Don Levit said...

Trucker:
Can you provide some objective excerpts and links to support your ststement that the FED is paying down the national debt?
In addition, please support your statement that QE2 moves the debt from debt owed to the public to intragovernmental debt.
The nonmarketable Treasuries which are owed to Social Security are not owned to indivividuals, in the same sense that you buy a Treasury from the government. You and the Treasury are 2 distinct entities, you are an "outsider." Nonmarketable Treasuries are not between 2 distinct entities. They are between 2 governmental agencies, the Treasury and Social Security, two subsets of the set, the federal government.
No outside entity is involved. The left hand owes the right hand. The government is borrowing money from itself.
This type of transaction was discussed in deliberations over Social Security, and was seen by many of the Congressmen as a new and dangerous way to encourage reckless government spending.
I can provide governmental, objective links and excerpts to back my statements, for those who are interested.
Don Levit

Jack said...

"This type of transaction was discussed in deliberations over Social Security, and was seen by many of the Congressmen as a new and dangerous way to encourage reckless government spending.
I can provide governmental, objective links and excerpts to back my statements, for those who are interested." Don Levit

Man youare really piling it on high today. It has been the law since 1983, I believe it was, that the excess FICA funs would be accounted for as Special Treasury issues. These notes would bear interest at a fixed rate and would be cashed out of the account as needed if and when the FICA receipts did not fully fund Social Security benefits in a given year. The fund was created, for better or worse, by congressional legislation. It wasn't some accountants trick, or what ever. Your description is the trick. Do you not recall that the purpose was to create a fund by excess FICA collections from the very worker that would be beneficiaries at a time when those excess funds would be necessary to supplement payroll taxes. You and your ilk are creating a scenario that has no basis in fact. Buy a Treasury Note and see if you get anything back better than an entry recording and periodic interest payments, unless the original entry was discounted to account for interest to maturity. Stop your BS about a program that either you do not understand or that you are trying to sabatoge with propaganda.

Don Levit said...

Jack:
I have no problem if the excess funds are invested in Treasuries.
If those funds had stayed intact, and not been lent out to the Treasury, they would still have legitimacy, in that the Treasuries are owed to the people who bought them, those who paid into Social Security.
But the money was not kept intact. It was lent to the Treasury to pay for current expenses.
This is a type of financing transaction between 2 government entities, the Treasury and Social Security. The federal government borrowed from itself!
From a paper entitled "The Design of the Original Social Security Act"
"President Rooszevelt did not want the federal government to subsidize the program - that it was to be self supporting."
'If I have anything to say about it, it will always be contributed on the part of the employer and the employee. It means no money out of the Treasury.'
http://www.ssa.gov/history/genrev.html.
In the deliberations before Social Security was passed, concern was expressed regarding maintaining the reserves in the trust fund to be spent for Social Security beneficiaries:
From the Statement of Noel Sargent, representing the National Association of Manufacturers:
"Serious consideration must be given to the fact that creation of such a huge market for Government bonds establishes an artificial situation, an artificial base for Government credit. It thus encourages further Government borrowing and opens practically unlimited possibilities of reckless public financing, since there would be enormous pressure from without, and perhaps from within, upon Congress to authorize accumulated reserves.
With billions of dollars apparently in the Treasury how great will the pressure be for vast Government expenditures of all kinds from these funds? If such a distribution or spending program should once be started it would grow like a snowball and would lead to practically uncontrolled Government spending and impaired Government credit."
http://www.ssa.gov/history/pdf/s35sargent.pdf.
Don Levit

Jack said...

"But the money was not kept intact. It was lent to the Treasury to pay for current expenses.
This is a type of financing transaction between 2 government entities, the Treasury and Social Security. The federal government borrowed from itself!"

No, it borrowed the money from a dedicated account which had been funded by FICA contributions. You repeatedly try to distort this issue, but fortunately it is a simple matter of separate accounts required by law so that the funds from FICA payments would not be commingled with general tax revenues. What did you expect the Treasury to do with the funds that are and were represented by those Special Treasuries? Choose better legislative representatives if your dissatisfied with what has been done with the funds. They were used to make it easier to make excuses for the Bush tax cuts, but that was only one use to which the funds were put. They helped to hide the dire nature of the deficit for a long while. Don't blame the Social Security legislation for the turgid behavior of your representatives in the legislature.

"From the Statement of Noel Sargent, representing the National Association of Manufacturers:"

Is that meant as a stupid joke? Who the devil cares what a lobbyist for big business says or thinks about anything? He's paid substantially to represent the financial interests of a specific category of people, and a rather rich group it is. His opinion isn't worth any more than the pile of crap that you have been shoveling on this site.

Don Levit said...

Jack:
Back up your statement with the provision of the law, or a reputable governmental cite.
Otherwise, you're just taking up space, and wasting all of our time.
I don't care about your opinions, which are based on your particular perceptions.
If you can't back it up objectively and constructively, You're just one silly fellow out there with opinions.
Those guys are a dime a dozen.
Don Levit
Don Levit

Jack said...

This is the second time I've provided a citation:
http://www.ssa.gov/oact/ProgData/specialissues.html

You can read it on the SSA official site. And you can browse that site for additional citations.

Don Levit said...

Jack:
Your citation refers to the various Treasury securities that are part of the trust fund.
The dollars that were originally credited from the Treasury have been spent on current governmental expenses over the years. In addition, those same dolars have lowered our deficits over the years.
That is why the trust fund has no advantage over any other so-called fund, for it is unfunded, it has spent the money.
Now, you say that was all part of the plan.
Can you provide citations to back that up?
Whether it was planned or not, the result is that to redeem those Treasuries, Social Security goes through the same process as the government pays all federal expenditures - out of current revenue and debt.
Battlships are paid for the same way.
The only difference is that battleships need an appropriation. Aside from that formal recognition, the funding is the same.
That is why the trust fund makes it no easier to pay benefits than if there wasn't a trust fund.
I would be happy to provide citations to support my statements for those who are interested.
Don Levit

Jack said...

Don,
When you learn the difference between money spent and money lent we will be able to continue the conversation. You might want to acquaint yourself with a two other concepts related to the money lent idea. That would be money borrowed and a debt welched.

In case you haven't gotten to today's lesson on pension plan administration provided on
the "Robert Samuelson" thread pay attention here. Pension plans are obliged to invest the funds paid in by the future beneficiaries of the plan. Such plans must grow the money, but in the most prudent ways possible. US Treasury Bills are thought to be the safest of investments. What you have said about "lent and spent" funds has the process ass backwards. The Social Security Trust Fund is an account with as much or more legitimacy as the accounts of any other Treasury investors. It is a legal entity cre3ated by an act of Congress. I don't need to cite the obvious though I have already done so and you continue to ignore that basic information. autrob

Don Levit said...

Jack:
You seem to assume that since Social Security has been paying beneficiaries for 75 years, why should I think we have a problem?
Do you really believe the "full faith and credit" of the U.S. Government is a type of namesake that is a keepsake?
If so, you are very naive, unless you don't want to look at history.
Do you think the U.S. is immune from similar consequences in other coutries throughout history?
Do you really think that paying future benefits just like we pay for battleships is a prudent method?
Don't you think the method should be changed, before we try to extend the trust fund's "solvency" with tax increases and benefit reductions?
Don Levit

Jack said...

Don
What I think this country needs to change is its attitude regarding income distribution and government activities which relate directly to government spending and tax collection. The trend has been the source of this countries current malaise and dysfunction. Reactionary right wing rhetoric sounds good to the red neck ear and the skin head brain. Those fools will find themselves in the poor house along with the currently unemployed and the currently exploited workers that they often mock. The only winners in this "class warfare" are the very wealthy. Even Warren Buffet has been honest enough to acknowledge that fact.

Don Levit said...

Jack:
I agree with you.
The wealth gap now, according to many papers I have read by various economists, is wider than it was during the Great Depression.
Democracies, Republics, societies cannot flourish, even capitalism cannot flourish, when the pie is too unevenly divided.
Don Levit

trucker said...

The Social Security trust fund is an accounting of the money stolen from the wage earners in order to hide the true effects of tax cuts for the rich. The fund tells us what the income tax payers of extreme incomes owe to the working class. The rich will tell any lie and promote any description of the trust fund that implies a reality other then the one I have offered here.

And do not ask me for a cite. I will also not offer a cite the backs up my claim that water is wet.

As to whether the FED is retiring some of the National Debt with QE2, that is also as water is wet. The FED is creating money and paying off the debt as it uses the created money to purchase T-Bills from the private sector or from the Treasury that would have otherwise sold such T-Bills to the private sector. Those who misunderstand this would seem to have some sort of religious problem. As you seem to be among the afflicted I will give you some cites where other people have also noticed the reality:

http://www.bagpipeonline.com/2010/12/08/6687/

http://www.marketoracle.co.uk/Article24443.html

Don Levit said...

Trucker:
The Social Security trust fund has nothing to do with the tax cuts for the rich.
You can't provide a web site, apparently, because you don't have one, not that water is wet.
You may be a bright guy, but without dicumentation from some credible source other than your thoughts, your talk (and writing) is cheap.
The rich paid into the fund just like the poor.
The rich paid more into the fund than the poor.
And, the rich get less money back than the poor, per dollar put in.
The Treasury borrowed from the trust fund to pay for current government expenses, and to artificially make the deficit look lower.
The rich had as little to do with the borrowing from 2 government agencies (the government borrowing from itself) as the poor.
Don Levit

Jack said...

Don,
Get serious. You are the last person who should be giving advice and interpretations of what the Trust Fund is, how it works and what its relationship to FICA and benefit payments may be. Your several comments on two threads on this site have demonstrated very clearly your lack of understanding on these issues. Worse yet in spite of others repeatedly pointing out the erroneous nature of your comments, with reasonable referential citations, you refuse to accept the limits of your understanding onn this topic.

Don Levit said...

Jack:
You are entitled to your opinions.
You are not entitled to your own facts.
The reason I post links and excerpts is precisely because I don't trust myself.
By that, I realize I have biases and agendas (known and unknown).
In addition, I truly believe the biggest room in the world is the room for improvement.
How did your last comment improve our discussion?
Don Levit

Jack said...

Don
Your "links and excerpts" are little more than written opinions from people thought to be experts, but they are not statements of fact. I point you to your reference to the CBO comment about the Trust Fund which you cited on the other thread of similar content. The description of the Trust Fund in that report was an opinion regarding what a bond is and how it is retired. The description happened to be accurate in that case, but it applied to all such debt instruments and said nothing unique to the Trust Fund assets.

This is why the discussion with you is like an argument in a school yard. "Yes it is. NO it isn't." Except you're insisting that your opinions are moore valid than the facts provided by others.

Don Levit said...

Jack:
I never said my opinions were superior to others' facts.I said statements backed by reliable third party sources are more indicative of facts than someone's opinions or feelings.
Check the mirror before responding, please.
Oh, please add something new and positive to the discussion.
Don Levit

trucker said...

There seems to be a Republican dementia; this insistence on a source that is Republican in order to validate the facts that disagree with a Republican religious position. Republicans are not actually capable of thought. They can only take direction from Republican "authorities". The sane and rational people look at the supposed "sources" (otherwise known as Republican oracles) and see interpretations completely different from those observed by a Republican sycophant. The short version is "If it ain't reported on Faux Noise then it just ain't so.

I take great pride in seeing that the FED is reducing the national debt as it pursues QE2. And that pride arises from the fact that I made several cartoons about it before I found any SOURCE that had anything to offer on the subject. I don't actually believe that Republicans are capable of that sort of thing.

The straight poop

Jack said...

"Oh, please add something new and positive to the discussion." Don Levit

Last try here Don. How do you have the audacity to ask others to "add something new" to this discussion when you have assiduously refused to do so yourself and have done so on multiple threads on at least two blog sites. You've been playing the same recorded message ad infinitum regardless of the replies from others which have provided the necessary references of support. Even your use of the term excerpts is absurd, as though someone that you approve of simply saying something that you agree with is sufficient to support any argument you bring to the discussion. You've been answered multiple times by Bruce Webb, Brenda, trucker, dale coberly and me often with initial citations of facts, such as links to descriptions of the law supporting the facts presented to you. You come back with the same tired request for support of what you describe as erroneous opinions after citing some opinion by one "expert" or another, mostly the CBO, as though such opinion pieces exemplify facts. They don't in the case of this prolonged, and now tiresome discussion. CBO offers opinions which are subject to political pressures.

As noted previously, I suspect that your sole purpose is to obfuscate reasonable discussion which wold result in others seeing two sides of a reasonable debate. Your behavior here has been that of a troll, intent on side tracking the facts of the issue as they are brought up. opinions are not validated by their repetition though that seems to be the current political strategy of the Corporatist Party, the party of the One Percenters. Is that you Don?

Don Levit said...

Jack:
The CBO is just one of many agencies i have cited.
None of your cronies has cited an objective third party source to refute any of the significant assertions I have made with third party sources.
Remember the last question, "Is it any easier to pay Social Security benefits out of the trust fund than to pay for battleships?"
Here is an excerpt from the Social Security Administration. Is that "objective" enough for you?
From a paper entitled "SSA's FY 2010 Performance and Accountability Report:"
Page 111 - "The U.S. Treasury does not set aside financial assets (and you said they did) to cover its liabilities associated with the OASI and DI Trust Funds. The cash received from the OASI and DI Trust Funds for investment in these securities is used by the U.S. Treasury for general Government purposes. Treasury special securities provide the OASI and DI Trust Funds with authority to draw upon the U.S. Treasury to make future benefit payments or other expenditures. When the OASI and DI Trust Funds require redemption of these securities to make expenditures, THE GOVERNMENT FINANCES THOSE EXPENDITURES OUT OF ACCUMULATED CASH BALANCES, BY RAISING TAXES OR OTHER RECEIPTS, BY BORROWING FROM THE PUBLIC, OR REPAYING LESS DEBT, OR BY CURTAILING OTHER EXPENDITURES. THIS IS THE SAME WAY THAT GOVERNMENT FINANCES ALL OTHER EXPENDITURES (I guess battleships would be included in all other expenditures - my words).
http://www.ssa.gov/finance/2010/Complete%20Financial%20Section.pdf.
Don Levit

Jack said...

"Treasury special securities provide the OASI and DI Trust Funds with authority to draw upon the U.S. Treasury to make future benefit payments or other expenditures."

As I had said, backed by the full faith and credit of... That is the self same way all government debt is paid. What the devil are you trying to prove? If you or Citibank want to cash in a T Bill where do you think the payment comes from?

trucker said...

What part of this quote from Treasury is it that tells you that it is not easier for the government to service the debt than it is build a new battleship? The servicing of the debt is not a discretionary expense while a battleship is. Now for most sentient and rational humans, that would directly answer the question concerning the ease with which the government pays maturing bonds in the SS trust fund as compared to the difficulty of expensing a new battleship. Why do you need an "authority" to tell you that?

I wish to add that there is a new way to service the SS system that has oh so slowly been creeping into the brain dead craniums of the rightarded. It is that SS benefits can be paid with NEW money as in "quantitative easing". But that method does not directly address the past malfeasance of the over charge of FICA taxes while granting tax cuts to the rich.

As to the FICA overcharge I will direct you to a little essay I wrote in the late 90's:

http://greatervoice.org/econ/glossary/The_Great_Ray_Gun_Rip_Off.php

At the time, there were many that saw the increase in FICA tax for what it was: A means to shift the tax burden from the rich to the middle. But the action was defended by the liars as a means to "save up" for the demographics problem. And it was said that the rich would invest and provide jobs. They did that. They provided jobs for people in China.

Don Levit said...

Jack:
You're right. It is the same way all government debt is paid. It is also the same way all government expenditures are paid.
You conveniently left out the next sentence: "When the OASI and DI Trust funds require redemption of these securities to make expenditures, THE GOVERNMENT FINANCES THOSE EXPENDITURES OUT OF ACCUMULATED CASH BALANCES, BY RAISING TAXES OR OTHER RECEIPTS, BY BORROWING FROM THE PUBLIC, OR REPAYING LESS DEBT, OR BY CURTAILING OTHER EXPENDITURES. THIS IS THE SAME WAY THAT GOVERNMENT FINANCES ALL OTHER EXPENDITURES." (I guess battleships would be included in all other expenditures - my words).
Maybe you inadvertently overlooked that sentence.
I put it in capital letters to make sure you would see it.
Don Levit

Don Levit said...

Trucker:
I did not address whether one payment is discretionary versus another payment being mandatory.
I simply said the financing, the actual paying of dollars, is the same.
Regarding your paper, those statements are obviously opinions.
Do you have any credible objective sources to support your opinions, other than your paper.
Maybe there are footnotes that could provide some evidence.
Go check and see.
Don Levit

Jack said...

Don
You are a hopeless fool, or a deceitful troll.