Thursday, August 22, 2019
Cheerleading for Austerity
Not content to follow a news strategy that maximizes Trump’s prospects for re-election, the New York Times leads today with a story that combines economic illiteracy and reactionary scaremongering in a preview of what we’re likely to see in the 2020 presidential race.
“Budget Deficit Is Set to Surge Past $1 Trillion” screams the headline, and the article throws around a mix of dollar estimates and vague statements about growth trends, leavened with quotes from budget scolds from both Republican and Democratic sides of the aisle. (That shows balance, right?) After terrorizing us with visions of a tide of red ink, the article concludes with a ray of sunshine in the form of prospects for a Grand Bargain under a lame duck Trump that would cut benefit programs like Social Security and Medicare to put us once again on a stable path.
Where to begin? Should we start by mentioning that nowhere in this lead article does it give the single most relevant statistic, the ratio of the federal budget deficit to the size of the overall economy—the money part, GDP. The raw size of the deficit itself is meaningless, and the trillion dollar line is meaningless squared. As Dean Baker likes to say, the article shows its respect for our powers of thought by informing us the deficit is a Very Big Number. Scared yet?
Measurement aside, the article simply assumes that “large” deficits are unsustainable and bad, and that only irresponsible political motives prevent action on them. In the name of a nebulous, unspecified Evil of Debt, the population of the US must be subjected to a regime of austerity, beginning with cuts in the programs many depend on to keep themselves and family members out of poverty. Worse, it opines, Democrats will run for office next year on a platform of spending increases, demonstrating they are the party of ruin. We can only hope, goes the argument, that they are just saying these things to get votes from the gullible public, and once in power they will join the deficit-cutting crusade.
No reason is given for the assumed Evil of Debt, and it’s no surprise, since it’s based on ignorance, willful or otherwise. To begin with, federal debt is denominated entirely in US dollars, so servicing is not a problem. Countries that borrow in foreign currencies, like Greece (which had no control over the euro) and Argentina, can default; that’s not a problem for the US. Second, government debt is private wealth, and the relevant question is whether there are too many or too few government bonds in private portfolios. If private wealth holders are satiated with public debt and prefer other securities, it would be a problem. But that would be a world in which interest rates on the debt would be high in order to sell them, and rates are about as low as they can go without flipping negative (as they have elsewhere).
Meanwhile, government debt is an injection of spending power into the economy that counterbalances the leakage of a significant, ongoing trade (and current account) deficit. That’s not quite the right way to put it, since private and public net deficits, taken together, are the current account deficit. Once you understand what this means, you can’t avoid the economic shrinkage—austerity—aspect of deficit-cutting, since that’s what keeps the identity identical at any point in time. Of course, that doesn’t mean the government’s deficit is at the right level, just that the pluses and minuses of adjusting it have to be considered concretely. Is it difficult to imagine that, at a time when interest rates are very low and the need for new infrastructure and other public investment is very high, that the current level of borrowing may well above that terrifying $1 trillion figure?
What we have today is just one article, by itself not very significant. We have seen, however, that the drumbeat of repeated media misinformation can create a climate of opinion that makes idiotic policies appear reasonable; just look across the Atlantic at Brexit. The time to expose ignorance and propaganda is always now.
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In today's WaPo there is a column by IN (R) former Gov. Mitch Daniels, widely regarded as a reasonable moderate. He is well beyond the Grand Bargain talk. Not a whisper about either taxes or defense spending. He calls for a Dem "good Nicxon" who will cut SS, Medicare, and Medicaid.
Of course the farce here is that while they have not cut the social safety net it has been Dems taking it on the chin to reduce deficits by raising taxes with zero support from GOP. The obvious example is Bill Clinton, with GOP taking Congress after unanimously opposing his tax raising budget. They all said it would cause a recession, but instead there was a boom. Danlels pretty obviously has forgotten all that.
"What we have today is just one article, by itself not very significant...."
The matter was all over Bloomberg, as I heard on the way to my office. There will be many articles and the attitude created will be a significant problem indeed.
Thank you for the article....the big number will spook the public. But I am sure we will see a lot more as the election gets nearer.
Deficit cheerleaders ― the Oligarchy’s useful idiots
Comment on Peter Dorman on ‘Cheerleading for Austerity’
It is generally known by now that economics is NOT a science and that economists are not scientists but agenda pushers. Currently, economists are given new marching orders.#1 MMTers with their mantra of deficit-spending/money-creation are paraded in the media as the avant-garde of new economic thinking#2
Peter Dorman frames the issue psychologically by evoking the sufferings of WeThePeople:#3 “… the [NYT] article simply assumes that ‘large’ deficits are unsustainable and bad, and that only irresponsible political motives prevent action on them. In the name of a nebulous, unspecified Evil of Debt, the population of the US must be subjected to a regime of austerity, beginning with cuts in the programs many depend on to keep themselves and family members out of poverty.”
Then comes the economic expert with the tranquilizer: “To begin with, federal debt is denominated entirely in US dollars, so servicing is not a problem. Countries that borrow in foreign currencies, like Greece (which had no control over the euro) and Argentina, can default; that’s not a problem for the US.” No need for WeThePeople to worry about public debt because the US gov neither intends to pay it back nor can it default on it.
And here are the really good news: “Meanwhile, government debt is an injection of spending power into the economy that counterbalances the leakage of a significant, ongoing trade (and current account) deficit. That’s not quite the right way to put it, since private and public net deficits, taken together, are the current account deficit. Once you understand what this means, you can’t avoid the economic shrinkage — austerity — aspect of deficit-cutting, since that’s what keeps the identity identical at any point in time.”
Obviously, Peter Dorman refers to the MMT/Keynesian/macroeconomic sectoral balances equation (I−S)+(G−T)+(X−M)=0. Unfortunately, this equation is provably false but Peter Dorman has no realized it to this day. In the equation above the most important balance ― the profit of the business sector ― is missing.
What does this tell us? (i) Academic economists do not know what profit is and how the monetary economy works. (ii) Academic economists are too stupid for the elementary mathematics of macroeconomic accounting. (iii) Academic economists either unintentionally or intentionally push the agenda of the Oligarchy.
The axiomatically correct balances equation reads (I−S)+(G−T)+(X−M)−(Q−Yd)=0 with Q as macroeconomic profit. The macroeconomic Profit Law boils down to Public Deficit (G−T>0) = Private Profit Q which means that the Oligarchy’s financial wealth and public debt grow in lockstep. It is the very characteristic of the free-market economy that it is already for a long time on the life support of the State. Profit is produced by the government through deficit-spending/money-creation. The Oligarchy, in turn, uses the opulent free lunches to corrupt what remains of the State’s legislative, executive, and judiciary institutions.
See part 2
Needless to emphasize that this state of affairs cannot be communicated to WeThePeople. This is why MMT repackages deficit-spending/money-creation as a social program for the benefit of WeThePeople. The propaganda says that deficit-spending/money-creation is the solution for all problems beginning with unemployment and ending with global warming. This is just a political fraud.#4 And there is nothing new about it, actually, this is very old economic thinking.#5 A public deficit of $22 trillion takes two centuries to build up.
The free-market economy runs on profit, and macroeconomic profit comes mainly from permanently growing public debt. To tell WeThePeople that all is just fine is the task of academic agenda pushers. In economics, scientific fraud is traditionally rewarded with the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.#6
#1 See the Tweets from Jackson Hole
#2 Stephanie Kelton: MMT’s public farce
#3 This is propagandistic standard operation procedure since Friedrich Engels’ The Condition of the Working Class in England,
#4 Is MMT good for WeThePeople or for the Oligarchy?
#5 Keynes, Lerner, MMT, Trump and exploding profit
#6 Economics ― not science, not ideology, just useful idiocy
"These bankers (and bondholders) are the main exploiters today. So finance capitalism is overwhelming industrial capitalism. Instead of industrial capitalism evolving into socialism as was expected, it is retrogressing back to neo-serfdom and neo-feudalism.
This is mainly because of the inability to bring debt within the industrial capitalist system to evolve into a socialist economy. That is what neoliberalism is sponsoring by financialization and privatization: the inability to make debt productive."
A public debt of $22 trillion takes two centuries to build up.
karen carpenter sang the song ... "we've only just begun" ... the auserity choir is rehearsing ... tax cut federal revenue double bind is looming "
During electioneering, the GOPers and their conservative backers, in talking to the hoi polloi, often invoke the "household finance" or "kitchen table" model, wherein they declare that "ordinary people must have balanced budgets, so therefore the state/federal govts must have too!!!11!! When I hear this dreck from friends, I counter it by asking them if they paid cash for their house, car, teevee, stereo, whatever. OF COURSE they didn't. They owe for that stuff. Then I ask them what would happen if they had to pay it all off tomorrow...impossible, right? Well, then, why is the indebted, but still paying off the debt in a reasonable time while taking in revenue, government so different? They have no answer, and neither does Fox News or Twitler...HOWEVER, when you cut taxes, you are greatly reducing revenue, and THAT WILL throw monkey wrenches into the works...
The macroeconomic Profit Law entails Public Deficit = Private Profit. Because of this, the Oligarchy and their useful academic/journalistic spokespersons should consistently argue FOR deficit spending and WeThePeople and their academic/journalistic spokespersons should consistently argue AGAINST it. So, it is very easy to test the competence/honesty of economists/politicians. For details see
Austerity and the idiocy of political economists
Austerity and the utter scientific ignorance of economists
Austerity and the total disconnect between economic policy and science
Austerity and the political games Progressives play
Austerity: Who takes the little man for a ride?
We do tolerate Egmont, but do realize that none of us take him seriously. His "profit law" is total bs accepted by no other economists.
You say: “We do tolerate Egmont, but do realize that none of us take him seriously. His ‘profit law’ is total bs accepted by no other economists.”
The non-acceptance of the macroeconomic Profit Law#1 by economists means the non-acceptance of economics as a science. In science, proof counts and NOT the opinion of folks who are too stupid for the elementary math that underlies macroeconomics.#2
Economists are NOT tolerated in the scientific community because of proven incompetence over the last 200+ years.
#1 Wikimedia AXEC143 Macroeconomic Profit Law (with increasing complexity) and Balances Equation
#2 I=S is provably false since Keynes but neither you nor your “other economists” have realized it.
LOL, Egmont, on pretty much everything you said.
Go to the end, your claim that I=S is not true. Sorry, but in terms of US national income and product accounts, they do by definition. You can claim that this is not the right definition all you want, but it is the one that is used. This is a hard fact.
Bottom line is that your profit law is just a definition you made up nobody else agrees with, nobody. You are all alone with your precious tautology. This is why you have been unable to publish a single paper in an actual economics journals, and I note that there are now way over 1000 economics journals, with them having a wide range of views.
As for economists suffering from "non-acceptance among scientists," more rank bs. Yes, economics is a soft social science compared to physics and some others, and there are serious people who declare that it is not a science. But most scientists do accept economics as a science, soft as it is, and you have never really faced up to the fact that especially experimental economics is highly scientific. You are just all wet on this one too.
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