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May the source be with you, but remember the KISS principle ;-)
Bigger doesn't imply better. Bigger often is a sign of obesity, of lost control, of overcomplexity, of cancerous cells
Austerity in a narrow sense is the propaganda tool, the powerful brainwashing mechanism used by neoliberal propagandists to cast government spending as reckless wastefulness that has made the economy worse.
In contrast, they have advanced a policy of draconian budget cuts that affect standard of living of lower 80% of population --austerity -- to solve the financial crisis. We are told that we have all lived beyond our means and now need to tighten our belts.
This view conveniently forgets where all that debt came from. Not from an orgy of government spending, but as the direct result of bailing out, recapitalizing, and adding liquidity to the broken banking system. Through these actions private debt was rechristened as government debt while those responsible for generating it walked away scot free, placing the blame on the state, and the burden on the taxpayer.
That burden now takes the form of a global turn to austerity, the policy of reducing domestic wages and prices to restore competitiveness and balance the budget.
Austerity proved to be extremely powerful brainwashing mechanism for neoliberal propagandists.
In reality it does not work: Infections spread. When any one state to try and cut its way to growth, all states try to follow the same policies depressing the markets and shrinking the economy. In the worst case, austerity policies worsened the Great Depression and created the conditions for seizures of power by the forces responsible for the Second World War: the Nazis and the Japanese military establishment.
As Blyth demonstrated, the arguments for austerity are tenuous and the evidence is thin or non-existent. Rather than expanding growth and opportunity, the repeated revival of this dead economic idea has almost always led to low growth along with increases in wealth and income inequality.
Neoliberalism and austerity
I like to treat neoliberalism not as some kind of coherent political philosophy, but more as a set of interconnected ideas that have become commonplace in much of our discourse. That the private sector entrepreneur is the wealth creator, and the state typically just gets in their way. That what is good for business is good for the economy, even when it increases monopoly power or involves rent seeking. Interference in business or the market, by governments or unions, is always bad. And so on. As long as these ideas describe the dominant ideology, no one needs to call themselves neoliberal.
I do not think austerity could have happened on the scale that it did without this dominance of this neoliberal ethos. Mark Blyth has described austerity as the biggest bait and switch in history. It took two forms. In one the financial crisis, caused by an under regulated financial sector lending too much, led to bank bailouts that increased public sector debt. This leads to an outcry about public debt, rather than the financial sector. In the other the financial crisis causes a deep recession which - as it always does - creates a large budget deficit. Spending like drunken sailors goes the cry, we must have austerity now.
In both cases the nature of what was going on was pretty obvious to anyone who bothered to find out the facts. That so few did so, which meant that the media largely went with the austerity narrative, can be partly explained by a neoliberal ethos. Having spent years seeing the big banks lauded as wealth creating titans, it was difficult for many to comprehend that their basic business model was fundamentally flawed and required a huge implicit state subsidy. On the other hand they found it much easier to imagine that past minor indiscretions by governments were the cause of a full blown debt crisis.
You might point out that austerity was popular, but then so was bashing bankers. We got austerity in spades, while bankers at worst got lightly tapped. You could say that the Eurozone crisis was pivotal, but this would be to ignore two key facts. The first is that austerity plans were already well laid on the political right in both the UK and US before that crisis. The second is that the Eurozone crisis went beyond Greece because the ECB failed to act as every central bank should: as a sovereign lender of last resort. It changed its mind two years later, but I do not think it is overly cynical to say that this delay was partly strategic. Furthermore the Greek crisis was made far worse than it should have been because politicians used bailouts to Greece as a cover to support their own fragile banks. Another form of bait and switch.
... ... ...
Mar 13, 2019 | www.opendemocracy.net
One Born Every MinuteOne of many legacies left by the late cultural theorist, Stuart Hall, in Representation: Cultural Representations and Signifying Practices was to emphasise that to understand "the effects and consequences of representation" we must consider "historical specificity". That is, he writes, "the way representational practices operate in concrete historical situations, in actual practice". With this in mind, we want to consider some cultural trends that have surfaced in British austerity culture and how they are entangled with neoliberal rationalities and philosophies. Our aim is to explore whether we are seeing the emergence of a specific discursive formation that we might call 'austerity neoliberalism'. To suggest this is not only to draw links between austerity and neoliberalism – they are there to be sure – but, more than this, to raise questions about whether they are being put to work in contemporary capitalism in a way that is mutually reinforcing, coming to constitute a novel formation – like Hall's idea of 'authoritarian populism'.
Neoliberalism is a contested term. Gill & Scharff describe it as "a mode of political and economic rationality characterised by privatisation, deregulation and a rolling back and withdrawal of the state from many areas of social provision". In its place is the market – market exchange seen as an ethic in itself, capable of guiding human action , and spreading out across social life so that it reconfigures relations between " governing and governed, power and knowledge, sovereignty and territoriality ". Our own interests have focussed on the role and force of neoliberalism in remaking subjectivity in ways that construct the individual, as Lisa Duggan and Wendy Brown suggest, as a calculating, entrepreneurial and 'responsibilised' subject, wholly responsible for their own life outcomes. We are interested not simply in how this construction erases structural inequalities and exculpates brutal social and economic forces, but also in how it materialises new ways of being in the world – that diminish what it is to be human.
There are clear links between neoliberalism and austerity. As Tracy Jensen and others, such as Kim Allen et al. , comment, the "objectives of 'austerity' align neatly with those of neo-liberalism: to discipline labour, to reduce the role of state and to redistribute income, wealth and power from labour to capital". Britain has seen vast changes to the socio-economic landscape thrust forward under the rationale that austerity measures are needed to pull the country out of recession and place it on the road to recovery. We have seen a devastating increase in social inequality. Increasing changes to welfare provisions like the bedroom tax and cuts to disability and sickness benefits, harsh benefits sanctions and reorganisations and cut backs to state-led services at the same time as rises in homelessness , food bank usage and deprivation have emerged.
However as some scholars have argued, austerity is not only an economic programme of 'fiscal management', but also a site of ideological and 'discursive struggle' – and this struggle plays out across government, public sites and popular culture in particular ways with very real material outcomes. As Tracey Jensen and Imogen Tyler point out in a special issue on 'Austerity Parenting' in 2012, the "public narrative of austerity" increasingly upholds the individual as responsible for their own social and economic status, as well as accountable for their own locality, a bustling economy and increasing independence from the state. Some have explored the emerging importance of thrift , nostalgia or gendered domestic entrepreneurship to show how austerity is shaping current formations of the self in the cultural sphere. Other examples of this are studies on the 'stay-at-home mother' , the 'recessionista' and the book, Gendering the Recession .
We want to briefly consider three other useful ways of thinking together 'austerity' and 'neoliberalism'. First, and continuing our psychosocial focus, we wish to draw attention to the increasing emphasis on 'character' in contemporary Britain. As Anna Bull and Kim Allen have put it in a recent call for paper s, "A growing number of policy initiatives and reports have asserted the importance of nurturing character in children and young people – with qualities such as 'grit', 'optimism', 'resilience', 'zest', and 'bouncebackability' located as preparing young people for the challenges of the 21st century and enabling social mobility." Resilience, in particular, has become the neoliberal trait par excellence for surviving austerity. As Mark Neocleous argues :
"Good subjects will 'survive and thrive in any situation', they will 'achieve balance' across several insecure and part-time jobs, they have 'overcome life's hurdles' such as facing retirement without a pension to speak of, and just 'bounce back' from whatever life throws, whether it be cuts to benefits, wage freezes or global economic meltdown."
Likewise, the new focus on 'confidence' as a panacea for gender inequality operates within the 'psychic life of neoliberalism' turning away from collective resistance against injustice, and towards a remodeling and upgrading of the self.
In turn, looking at the parenting and family policy that emerged under the coalition government there has been an emphasis on how character can solve the ills of 'poor parenting', which constructs working-class families as 'bad' parents in need of monitoring and disciplining. Tracey Jensen argues that the preoccupation with 'tough love' in social policy places increased prominence upon parents' character to realise children's social mobility. This, she asserts, " names the crisis of social immobility as one of parental indulgence, failure to set boundaries, moral laxity and disciplinary incompetence", seeing the responsibility of class inequalities placed on an individual's shoulders.
New forms of surveillance are also a key part of austerity neoliberalism. Austerity has seen a rolling back of the state furthering neoliberal mentalities, such as the increasing withdrawal of welfare support and pushing of individuals on welfare into work . This rolling back of the welfare state has occurred as the state attempts increasingly to observe its citizens and intervene into private life across multiple domains (schools, health, obesity, etc.). Val Gillies explores how, following New Labour's cue, the coalition government gradually increased its intervention into the family at ever-earlier stages. For example, she notes how under the Family Nurse Partnerships certain pregnant women whose unborn child is considered 'at risk' of social exclusion are assigned nurses who will teach them parenting skills to ensure social exclusion of the unborn child does not occur. As Gillies, among others , suggests, these types of surveillance mechanisms and interventional practices often target the most marginalised in society, retaining and reifying longheld inequalities around gender, class and 'race'.
Lastly, austerity neoliberalism has seen a simultaneous idealisation and dismantling of the state in the cultural realm. Recent research on televisual birth explores how Channel 4's award-winning show, One Born Every Minute , obscures the current context and effects of austerity by emphasising the importance of individual narratives of conflict and resolution through the mothers, families and midwives featured. On the one hand, the NHS/state is idealised but, on the other hand, there is a systematic failure to engage with how austerity has impacted on maternal care, midwifery and maternity wards. This one example of recent " spectacular dramatizations of the paradoxes of the political present " sees nurses and midwives depicted through a soft-focus image of self-sacrifice, care and romance, seen as 'angels', whose virtues are put to work to obscure a healthcare system that often seems to be at breaking point. This idealisation of hospital life and silence around austerity effects works to distract attention away from the material effects of austerity, cloaking them in a rosy glow in which 'love' and 'goodness' can seemingly compensate for a crumbling NHS.
In all three examples – the new cultural obsession with 'character', the intensification of surveillance, and the romanticisation of welfare and healthcare workers – we see not simply austerity at work, nor simply the impact of neoliberalism, but a distinctive formation where the two become mutually reinforcing. The UK has been through periods of austerity in the recent past – not least in the 1920s and 1930s and in the post-war period. However difficult these periods were (e.g. marked by considerable economic hardship and rationing), what is significant is that they were shaped by entirely different ideological and cultural framings – not by neoliberalism. It is the systematic and patterned framing of austerity measures through an individualizing neoliberal discourse that distinguishes the current formation as one of austerity neoliberalism. Austerity does not necessarily have to be neoliberal and neoliberalism does not have any necessary connection to austerity. But taken together they represent a toxic combination, one that attacks us body and soul.
Part of the Anti-Austerity and Media Activism series with Goldsmiths.
Mar 13, 2019 | mainlymacro.blogspot.com
Friday, 21 October 2016 Neoliberalism and austerity I like to treat neoliberalism not as some kind of coherent political philosophy, but more as a set of interconnected ideas that have become commonplace in much of our discourse. That the private sector entrepreneur is the wealth creator, and the state typically just gets in their way. That what is good for business is good for the economy, even when it increases monopoly power or involves rent seeking. Interference in business or the market, by governments or unions, is always bad. And so on. As long as these ideas describe the dominant ideology, no one needs to call themselves neoliberal.
I do not think austerity could have happened on the scale that it did without this dominance of this neoliberal ethos. Mark Blyth has described austerity as the biggest bait and switch in history. It took two forms. In one the financial crisis, caused by an under regulated financial sector lending too much, led to bank bailouts that increased public sector debt. This leads to an outcry about public debt, rather than the financial sector. In the other the financial crisis causes a deep recession which - as it always does - creates a large budget deficit. Spending like drunken sailors goes the cry, we must have austerity now.
In both cases the nature of what was going on was pretty obvious to anyone who bothered to find out the facts. That so few did so, which meant that the media largely went with the austerity narrative, can be partly explained by a neoliberal ethos. Having spent years seeing the big banks lauded as wealth creating titans, it was difficult for many to comprehend that their basic business model was fundamentally flawed and required a huge implicit state subsidy. On the other hand they found it much easier to imagine that past minor indiscretions by governments were the cause of a full blown debt crisis.
You might point out that austerity was popular, but then so was bashing bankers. We got austerity in spades, while bankers at worst got lightly tapped. You could say that the Eurozone crisis was pivotal, but this would be to ignore two key facts. The first is that austerity plans were already well laid on the political right in both the UK and US before that crisis. The second is that the Eurozone crisis went beyond Greece because the ECB failed to act as every central bank should: as a sovereign lender of last resort. It changed its mind two years later, but I do not think it is overly cynical to say that this delay was partly strategic. Furthermore the Greek crisis was made far worse than it should have been because politicians used bailouts to Greece as a cover to support their own fragile banks. Another form of bait and switch.
While in this sense austerity might have been a useful distraction from the problems with neoliberalism made clear by the financial crisis, I think a more important political motive was that it appeared to enable the more rapid accomplishment of a key neoliberal goal: shrinking the state. It is no coincidence that austerity typically involved cuts in spending rather than higher taxes: the imagined imperative to cut the deficit was used as a cover to cut government spending. I call it deficit deceit. In that sense too austerity goes naturally with neoliberalism.
All this suggests that neoliberalism made 2010 austerity more likely to happen, but I do not think you can go further and suggest that austerity was somehow bound to happen because it was necessary to the 'neoliberal project'. For a start, as I said at the beginning, I do not see neoliberalism in those functionalist terms. But more fundamentally, I can imagine governments of the right not going down the austerity path because they understood the damage it would do. Austerity is partly a problem created by ideology, but it also reflects incompetent governments that failed to listen to good economic advice.
An interesting question is whether the same applies to right wing governments in the UK and US that used immigration/race as a tactic for winning power. We now know for sure, with both Brexit and Trump, how destructive and dangerous that tactic can be. As even the neoliberal fantasists who voted Leave are finding out, Brexit is a major setback for neoliberalism. Not only is it directly bad for business, it involves (for both trade and migration) a large increase in bureaucratic interference in market processes. To the extent she wants to take us back to the 1950s, Theresa May's brand of conservatism may be very different from Margaret Thatcher's neoliberal philosophy.
Posted by Mainly Macro at 00:54 Email This BlogThis! Share to Twitter Share to Facebook Share to Pinterest Labels: austerity , deficit deceit , Mark Blyth , neoliberalism29 comments:
paul , 22 October 2016 at 14:44
You excellently encapsulate neoliberalism with the motto " That what is good for business is good for the economy, even when it increases monopoly power or involves rent seeking. " -I'd add that it CAN be good for an individual country's economy in a zero-sum way because terms of trade can be so much improved if a country provides lucrative investment opportunities due to rent seeking being streamlined. It may be bad for the global economy and yet good for us at the expense of people elsewhere. We import real goods in exchange for foreign oligarchs holding stakes in our inflating land prices.Anonymous , 21 October 2016 at 02:18
Sorry Mr or Mrs Ms Stone what good for business is bad for all economies,simply what you do to one side of the equation you must do to the other,by favouring on side of the equation you must corrupt the other side ,Hence stagnation,QE,Nirp,Zirp,negative.rates /bonds etc etc,nothing they do will fix the problem until they trade fairly,the two side of the equation are intrinsically too each other,even Helicopter money unless it is targeted at those who have lost out in this what is good for business then it will achieve nothing it can'tPhil , 21 October 2016 at 02:27
You forgot the financiers funding the Tory Party in the 2010 and 2015 elections, so using philosophical conservatism's hatred of those on benefits and immigrants to deflect from investment bankers and hedge funds' once in 300 years incompetence.
Then, in 2015, contrary to financiers' wishes, a referendum is promised for 2016, and subsequently lost.
Will the financiers keep funding the UKIP-Tories?
Will the Leave group fund the UKIP-Tories instead?
Will May keep talking about the 'national interest' as she, in Bentham's phrase, 'chains the living to the dead' with a Brexit the under-50s and better educated never wanted?
Will the woman I saw puzzling over the drop in the exchange rate on the Friday after the vote ever go on holiday abroad again?
Tune in next time...Anonymous , 21 October 2016 at 03:14
We got austerity in spades, while bankers at worst got lightly tapped.
Paging Daniel Davies ...Ralph Musgrave , 23 October 2016 at 10:24
What is the formal definition of austerity, a cut in spending, a cut compared to trend, a decrease in the deficit, something else?stone , 21 October 2016 at 03:49
You aren't supposed to ask awkward questions like that. The important thing about the word "neoliberalism" is that it sounds technical and has no less than SEVEN syllables - which is impressive. Using the word cows your opposition into submission...:-)Anonymous , 21 October 2016 at 05:28
I worry that neoliberalism amounts to a cashing out and unraveling of the broad based prosperity previously built up by social democracy. Current account deficits are willingly funded by investors using rent seeking opportunities to extract from the UK population. But when its all wrung dry that's the end of it.Anonymous , 21 October 2016 at 08:20
Keeping a clear mind this is actually a very good read too.Richard Layman , 22 October 2016 at 05:21
Slavoj Zizek sees this as a crisis in capitalism. We were willing to bail out banks to save it, but let Greeks suffer under austerity.Anonymous , 21 October 2016 at 09:30
YESS a crisis in capitalism. That's why I have always been astounded at the claims that "Obama is a socialist" "The US government is taking over the economy" post 2008 crisis. Yes, government stepped in to protect capital as much as it was able to do so.Anonymous , 21 October 2016 at 10:54
SWL's usual left-wing stuff.paul , 22 October 2016 at 15:31
I find criticisms of neo-liberalism by mainstream economists odd and incredibly hypocrticial. When neo-liberals were king, such as during the 1990s, and they could show that free trade and free and deregulated markets (goods financial and labour markets) were so good, economists were only too happy to show how this was exactly what their theories showed.
Now when it is less fashionable, they say, well we knew that all the time. Well why weren't you saying this during the 1990s and up to 2007?StuartP , 24 October 2016 at 01:56
Anonymous Understand where any cycle is,is very important in real terms there was a vast potential untapped locked into Western economies,which for sometime worked because that is what the economy need to re-balance & go forward,however some felt that that was a linear utopia when it was a cylindrical & was already turning into a strain on the other side of the equation,with previous downturns,that if they realised what was going on would have stopped it.
However because they were taught the earth was flat they never understood the gravity of their actions.All they ever did was re-balance the economies of the seventies only to push them into being un-balanced in the other direction by the 90's & since then it's been downhill all the way.Bobc Mountain , 21 October 2016 at 11:46
The thing to do is this: list the things you don't like, and then blame 'neo-liberalism'.
A bit like the Guardian used to do with 'capitalism'.pewartstoat , 22 October 2016 at 13:22
I am quite unclear what Mrs May's "brand of conservatism" is.
I have seen it persuasively argued that the party's basic purpose for the last century has been to keep Labour out of office.
Considering how varied the approaches of successive post-WWII Tory administrations have been it seems fair to characterize their policies as eclectic.
I have an idea what MacMillan and Thatcher stood for; what does May stand for?
I have no idea.Anonymous , 24 October 2016 at 05:26
The 1950s, as Simon correctly notes.Brett Ruiz , 21 October 2016 at 12:05
"I have seen it persuasively argued that the party's basic purpose for the last century has been to keep Labour out of office."
When it comes to "years in power" the Conservatives have a considerable lead over Labour.
By the time of 2020 election, 75 years will have passed since 1945 when the UK elected its first-ever majority Labour government.
In that time we will have had 18 months of Con/ConDem government for every 12 months of Lab/LibLab.paul , 22 October 2016 at 15:33
This seems like a weak caricature of neoliberalism in need of serious citations.Denis Drew , 21 October 2016 at 13:48
No Brett it's a very good description of what happened & how the mentality of flat earth economist paved the path to ruin.Richard Layman , 22 October 2016 at 05:17
Culture, culture, culture. We have to build an anti-neoliberal culture. How? Unions, unions, unions.
Full scale re-unionization (I don't say "massive" which implies extraordinary -- what is extraordinary is 5% union density in private business; that's like 20/10 BP) will create a broad and deep consensus for (let's call it what it is) normal, grownup economics.
States can add to federal labor protections but not subtract (e.g., minimum wage). In the absence of actually working protection of organizing (not just organizers) states should feel free to impose certification elections where labor market warping is found.
Union busting should be a felony (taken at least as seriously as taking a movie in the movies ;-]) -- but mandating elections could be the most direct remedy for union blocking.
Intimidating union organizing is illegal everywhere -- and nowhere/nowhere practicably. If caught firing an organizer, then, at most you must rehire her. Doesn't matter if you fully compensate her income loss and never fire her again -- you got away with the real bank robbery money; you barred the certification election.
Remedy that would make the clearest economic logic: a finding of union busting should lead to a mandatory certification election. Most would expect this sanction needs to take place at the federal level (NLRB preemption). This could be possible if Hillary pulls enough reps and senators with her. Perfect issue to attract Donald's AND BERNIE'S blue collar workers.
I believe this sanction could be done at the state level because the federal setup protects organizers (in theory if not so much in reality) but offers no protection for the act of organizING itself (except for categorizing it as illegal). If there is no DIRECT protection for organizing to preempt (not in any SUBSTANTIVE way), then I would argue that the states could mandate an election (upon the finding union blocking).
There may even be a tricky (as in convoluted) First Amendment argument: the federal setup cannot constitutionally void state protection of the First Amendment right to associate commercially by the imposition of a setup that provides no (as in zero) protection of it's own.Per Kurowski , 22 October 2016 at 05:39
This is just an aside. I am not an economist. I took a bunch of economics classes in college but I didn't do particularly well because at least then I wasn't so great at graphical reasoning not to mention higher mathematics.
But I definitely learned about the difference between macro and micro economics, and about Keynesian economics and how the government "should" "step in" and spend when the economy is failing.
I understand the general neoliberalism paradigm.
But somehow there is a major failure in economics understanding/education if it is the case that most of us who took some classes in it (especially all those VSPs and the educated people who read newspapers etc.) would reflexively support the application of microeconomic responses ("austerity," "getting your household finances in order" the household being the national government) to macroeconomic problems.עוגן רודן , 22 October 2016 at 11:25
"the financial crisis, caused by an under regulated financial sector lending too much"
I can't believe there is still so much ignorance about what happened and is happening.
Do you think totally unregulated banks could have leveraged their equity over 50 times? Of course not! They did so because regulators concocted the risk weighted capital requirements with which 2004 Basel II allowed banks to leverage their equity, and the support they received from society, 62.5 times to 1, if the asset only had an AAA to AA rating.
And frankly to talk about neoliberalism, and not of non-transparent statism, when since the Basel Accord in 1988, the risk weight for the sovereign were set at 0% and for We the People at 100%, is ludicrous.
Below an aide memoire on some of the monstrosities of such regulations. objections.
http://perkurowski.blogspot.com/2016/04/here-are-17-reasons-for-why-i-believe.htmlAnonymous , 26 October 2016 at 07:19
You wrote above: ..... the Eurozone crisis went beyond Greece because the ECB failed to act as every central bank should: as a sovereign lender of last resort.....
I would put it differently. The European crisis was caused by net importing countries within the Eurozone, like Greece, and to less extent Portugal and Spain, that financed their imports by taking loans from the exporting countries. Most of this loans went to consumption and white elephant projects. This had to blow up one day. So it happened in 2009. The question is after it became obvious that it can't go on forever, what next? Should be the debts annulated, and creating a precedent, that there is no obligation to repay the debts? Or should be cleare to certain extent, that debts have to be repaid even if partly, and when the time of repayment comes, it will be very tough.pewartstoat , 22 October 2016 at 13:18
+1pewartstoat , 24 October 2016 at 00:54
I'd argue that neoliberalism is fairly coherent and very authoritarian, an element you've omitted from your description. David Harvey describes it well. I'd agree with the rest of your analysis though. Austerity was more opportunistic than instrumental: a case of not letting a good crisis go to waste; a form of scorched-earth policy. You're also right about May which is why I predict she'll be out of office in a year's time: she isn't a neoliberal and the party donors won't like that. It would appear that she's been a very dark horse all these years.StuartP , 24 October 2016 at 03:30
For a broader definition of neoliberalism that takes identity and subjectivity into account read this:
http://averypublicsociologist.blogspot.fi/2016/10/theresa-may-and-thatcherism.htmlRandom , 27 October 2016 at 16:42
I think you've got the wrong end of the stick: it is the pro-state control lot that are keen on monopolies. Liberals (neo and otherwise) are keen on markets and competition.
The area where liberals like monopolies is in the support of property ownership, particularly intellectual property. A patent is a 20-year, legally enforceable monopoly on an invention. This is provided in exchange for sharing the knowhow and protects the incentive to innovate.StuartP , 31 October 2016 at 02:43
"Liberals" are a fan of private armies then? There is a reason the government has a monopoly on monopoly. So that the elected bodies are the 'big man' in the country, not anybody else.
It's not the sector the company/organisation is in that is the issue. It's down to how old and moribund the organisational structure is.
As to patents, the state can fund whatever research is required, and then issue the results on an open patent.
There is no need for private sector like large pharma companies and private intellectual property. In fact as certain things (giving example of drug development again as it is a good one) gets more and more risky inevitably it will have to be socialised.
Liberals have always identified a role for the state and other public institutions. So, no, private armies have never been part of a liberal political philosophy.
I am sure that writers, film-makers, musicians etc would disagree with the notion that there is no need for private intellectual property. Creativity is rather hard, copying it is quite easy.
All patents are 'open' to read and learn from, that is the point. Again, invention is hard and copying is easy.
Of course, if you really want to experience state economic control, you are free to leave our liberal democracy, though there are few places you could move to. When people have the choice, state control over everything really isn't popular.
Jun 01, 2015 | newpol.org
(New Politics Vol. XV No. 3, Whole Number 59) [PDF] [Print]
Ask anyone what neoliberalism means and they'll tell you it's an economic system that corresponds to a particular economic philosophy. But any real-world economic system has a corresponding political system to promote and sustain it. Milton Friedman, who has become known as the father of neoliberal thinking, claims in his text Capitalism and Freedom that "the role of the government is t o do something that the market cannot do for itself, namely, to determine, arbitrate, and enforce the rules of the game."* While neoliberalism's advocates like to claim that the political system that corresponds to their economic preference is a democratic, minimal state, in practice, the neoliberal state has demonstrated quite the opposite tendency.
This essay will begin by sketching out the core tenets of neoliberal theory, tracing its history from the classical liberal tradition of the Enlightenment. I will then present some hypotheses on how relations between the neoliberal state and society operate, contrasting the state theories of Ralph Miliband and Nicos Poulantzas to create a framework that shows how the neoliberal state is a product and enforcer of anti-democratic practices . I will argue that the implementation of neoliberal economic policy, and the subsequent evolution of the neoliberal state, has historically been completed through anti-democratic methods. Further, in an effort to produce social relations that are more favorable to the accumulation of capital, austerity is employed as a tool to move further toward a market society, creating a larger, more interventionist state and promoting authoritarianism.
Neoliberalism in Theory
The term neoliberal is often convoluted, confused, and misinterpreted, especially in the American context where the center-left Democratic Party has traditionally held the title of liberal. The original liberals, or classical liberals as they are usually called, were those Enlightenment-era thinkers of Western European origin who desired to limit the authority of the feudal state and defended individual rights by restricting the power of the state, the crown, the nobility, and the church. The "neo" prefix serves as a romantic symbol, an attempt at establishing a (sometimes forced) common ground with historical figures like Adam Smith and the classical liberals, who challenged the tendencies of the monarchy to interfere in the economy for its own gain, producing inefficiency. Neoliberal economic thinkers are famously known for deriding government intervention in the economy, precisely because they trace their foundation to a period when markets were seen not just as a source of better economic outcomes, but as a weapon to challenge concentrated political power.
This revamping of liberalism appeared in the twentieth century at a time when its proponents believed they were facing a similar struggle against the expanded state apparatuses of Europe -- communist, social-democratic, and fascist. Friedrich Hayek, whose text The Road to Serfdom , published in 1944, is arguably the most celebrated of the neoliberal canon, sought to show how government interference in the economy forms the basis of fascist and other totalitarian regimes, contrary to the then widely accepted notion that it was capitalist crisis that had produced fascism in Europe. For Hayek, the strong state, whether in the form of fascism, Soviet communism, or the creeping socialism of the British Labour Party, was to be eschewed.
If neoliberalism springs from a desire to combat the growing power and influence of the state, how is it that neoliberalism has produced not only a very robust state apparatus, but, as I will argue, an authoritarian one? The answer is that neoliberalism in practice has been quite different from its theory.
The Necessities of the State in Neoliberal Theory
As David Harvey points out in A Brief History of Neoliberalism, the neoliberals' economic ideals suffer from inevitable contradictions that require a state structure to regulate them. The first of these contradictions revolves around the role of law to ensure the individual's superiority over the collective in the form of private ownership rights and intellectual property rights (patents and copyrights). A judicial system is necessary to designate and regulate the interaction between private actors on the market. While intimations of the regulatory state can be seen in this formulation, it is hardly anything controversial. Only the most extreme of laissez-faire economic thinkers would not acknowledge the requirement of a state structure that creates the space for and regulates contracts.
The second contradiction derives from the elites' historical ambivalence regarding democracy and mass participation. If the people were free to make decisions about their lives democratically, surely the first thing they would do is interfere with the property rights of the elite, posing an existential threat to the neoliberal experiment. Whether these popular aspirations take the form of drives towards unionization, progressive taxation, or pushing for social policies that require the redistribution of resources, the minimal state cannot be so minimal that it is unable to respond to and crush the democratic demands of citizens. After all, as pointed out in the first contradiction, the neoliberal state exists in theory to guarantee the rights of the individual over the demands of a majority. Therefore, a system must be put in place that protects against the "wrong" decisions of a public that is supposed to buy, sell, act, and choose freely.
Two Levels of Authoritarianism
Any method that seeks to subvert the democratic demands of citizens, whether through force, coercion, or social engineering, is authoritarian. I argue here that the neoliberal state is authoritarian in two distinct but related forms. First, the historical imposition of neoliberalism on nation-states is the result of anti-democratic forces. Second, the maintenance of neoliberalism requires a market society achieved through a transformation in civil society. For this transformation to take place, welfare states must be slimmed down by austerity policies in order to turn over to the market potentially lucrative sectors of the social economy (in health care, education, social security, and so on). Public resources must become privatized; the public good must be produced by private initiative. Neoliberal economic policy can only function with a state that encourages its growth by actively shaping society in its own image, and austerity is the tool to push for that transformation. While the subversion of democracy is clearly authoritarian, the drive towards a market society and the social engineering necessary to maintain that society are further expressions of the de facto authoritarianism of neoliberalism and the neoliberal state.
Austerity traditionally has been defined as the economic policies surrounding deficit cutting. When public debt runs too high, according to the theory, the accounts must be balanced by cutting spending and raising taxes. It is important to look past the theory to see the results of austerity in practice and understand austerity as a social-historical force. To do this, one must define austerity from the perspective of its victims.
Pablo Iglesias, leader of the Podemos party in Spain, in his February 17 appearance on the Democracy Now! show, did just that by arguing that austerity is when people are forced out of their homes, when social services do not work, when public schools lack resources, when countries do not have sovereignty and become the colonies of financial powers. He closes by saying that austerity is the end of democracy, because without democratic control of the economy, there is no democracy.
The State and Society
The nature of how the state affects society has been a contentious topic within left traditions. Most notably, the debate between Ralph Miliband and Nicos Poulantzas that took place in the pages of the New Left Review in the early 1970s refreshed the study of the state. Miliband, in his The State in Capitalist Society , stressed an instrumentalist position, arguing that the reproduction of capitalism in society is due to the socialization of the ruling class in the tradition of capitalist dogma. As a large proportion of those who dominate the state and control its levers come from an elite education (he was writing from the perspective of British politics in the mid-twentieth century), it's no surprise that they believe their theories to be correct and just, while the state they run serves the interests of capital. The writings of Poulantzas, in particular Political Power and Social Classes , argued a structuralist position strongly influenced by the thought of Louis Althusser.
He claimed that the relation between the ruling class and the state was an objective relation, meaning that the coincidence of bourgeois ideology with the ideology of the state was a matter of how the system itself is organized. Their two state theories, the former arguing that the state is an instrument of the ruling class and the latter arguing that the state is the objective result of the capitalist system, shed light on the differences in conceptualizing not only the capitalist state, but how the state relates to and is legitimized by society. Is the market society a result of policies implemented by individuals in power who are trained in a particular neoliberal tradition, or an objective outcome of capitalist social relations that are the superstructural product of a system?
What could arguably be the genius of neoliberalism is the way in which it takes these two approaches to state theory and blends them. On the one hand, for Miliband, the neoliberal state is the extension of ruling-class free-market ideology, propagated by government bureaucrats, military officials, and technocrats who can speak no other language than that of the privileged status of capital and who hold the belief that they are serving the greater good. On the other hand, as Poulantzas suggested, neoliberalism needs to ensure its own survival by bending civil society, political institutions, and democracy to its will.
A state that so blatantly puts the rights and needs of one small class of citizens over others cannot be installed without a struggle. And further analysis shows us that once neoliberal regimes come into power, a certain degree of social engineering and coercion are necessary in order to guarantee the submission of the population and ensure the smooth accumulation of capital.
In what follows, I would like to lay out how neoliberal austerity regimes were installed, and also draw on hypotheses of how they are maintained. However, as each socio-political system is unique in its history, culture, norms, and traditions, the manifestation and maintenance of the neoliberal state differs depending on whether we are talking about core countries or peripheral ones, to use the terminology of World Systems Theory. The common denominator is the empowering of elites over the masses with the assistance of international forces through military action or financial coercion -- a globalized dialectic of ruling classes.
Peripheral Neoliberal States
In the periphery, those countries that have been dominated by colonial and neocolonial developed countries, economic and political trends beginning in the 1970s show that neoliberalism has been installed by the use of force. The Latin American experience demonstrates how neoliberalism was established through military operations and coups d'état. In Chile, the democratically elected president Salvador Allende was overthrown and the U.S.-backed dictatorship of Augusto Pinochet proceeded to crush labor unions and popular movements, privatizing a chunk of the public sector. When Pinochet stepped down, initiating a transition to democracy, he left behind the constitution that he had signed and put in place after the coup. Demands to chip away at this "constitution of the dictatorship," as it is referred to in Chile, are present in Chilean social movements, most recently the student movements seeking to reform the deeply unequal private higher education system. The reforms that were the bedrock of a reactionary counter-revolution in the country were brought about through force, violence, and physical coercion as seen in the torture and systematic repression of the regime's opponents.
The maintenance of such a regime could only be guaranteed through the dissolution of civil society to ensure that all avenues of dissent were illegal. Political representation in the National Congress was impossible because it was dissolved as civil liberties were proscribed. Organizations of a civil society, including unions, political parties, and groups set up by the Catholic Church to tend to the needs of the families of the disappeared, were treated as opposition organizations and were forbidden. It is estimated that tens of thousands of Chileans were tortured, while up to 200,000 were exiled, shocking the population into submission through fear. The laws regulating dissent were so strict that when the plebiscite was held to transition to democracy, special arrangements needed to be made to allow political groups the ability to organize and campaign, an attempt to reinvigorate a minimal civic culture in the country.
While Chile was the first and one of the main examples of the growth of neoliberalism, it has been far from unique. Economic "shock therapy" has become central to U.S. foreign policy, from Argentina in 1976 to the reintegration of post-communist states into the global capitalist economy. A quick comparison between countries listed as "not-free" by Freedom House and those that employ free-market neoliberal policies stresses this point. From Kazakhstan and Azerbaijan in Central Asia, to the crisis-ridden state of Mexico, and the neoliberal reforms of dictators in the Middle East and North Africa, the notion that capitalism and democracy form a symbiotic relationship and support each other has been debunked. The dissolution of civil society goes hand in hand with the imposition of a neoliberal state through violence, in order to ensure that threats to the state's activities remain unchallenged.
Core Neoliberal States
In core countries, meanwhile, austerity and authoritarianism follow a different pattern. There, neoliberal political systems have been created through financial coercion and are held hostage by financial interests due to the economic "necessities" created by bankruptcies and budget deficits. The test in this case is New York City, where the consequences of the depression of 1974-75 run deep. Kim Moody, in From Welfare State to Real Estate , traces the political and economic alliance that took advantage of social pressures from deindustrialization, white flight, and global economic crisis to implement the reforms that would give rise to a complete transformation of the city's social fabric. His analysis shows how a united business elite was able to thwart the democratic interests of the city's working classes by using the budget, the deficit, and financial coercion to rein in what they saw as an unsustainable welfare state. A crisis regime was put in place representing a business class unified in its desire to reshape the social democratic polity of New York City, using the city government to achieve this transformation. What began as a move by bankers to shut the city out of the bond market evolved by 1975 into the establishment of the Emergency Financial Control Board, which set its sights on imposing tuition on the City University of New York system, increasing the fares for mass transit, and limiting welfare payments. It's a story that has become all too familiar in the twenty-first century and a tactic that is being replayed in other cities, states, and nations.
Given the history of uninterrupted constitutional rule in the United States, the installation of neoliberalism requires the engineering of society through the transformation of institutions. By giving the market the freedom to determine when wages will be lowered, when jobs will be shed, and when communities will be destroyed, while simultaneously dismantling social welfare programs to increase the market's authority, a social crisis is produced that requires a police force to maintain order. This relationship has inspired the work of sociologist Loïc Wacquant for two decades. Combining a Marxist materialist approach to observe the socio-economic conditions that have influenced the growth of the American penal system with a Durkheimian symbolic perspective, which stresses how the prison serves as a symbol of disciplining power, his work Punishing the Poor argues that the expansion of correctional facilities should be seen as correlated with the rise of the neoliberal state. He notes how "welfare reform" corresponded with the expansion of the imprisoned population, signaling a shift in how contemporary neoliberal society treats the most vulnerable among us. This means that not only do prisons and jails serve as the place to physically keep those who have been convicted of criminal behavior, but they also serve as an alternative source of labor-power harvesting. The Thirteenth Amendment to the U.S. Constitution explicitly allows penal labor, and while this has historically been organized by state-run corporations such as UNICOR, recent legislation allows the private sector to tap into the penal labor pool. Meant as an alternative to outsourcing, this practice is referred to as "smart-sourcing" (see www.unicor.gov/services/contact_helpdesk/).
The consequences of neoliberal reform and the penal society in the United States are related in more ways than one. While prisons are filled with those who have been affected by the welfare-to-workfare policies and war-on-drugs-era sentencing laws of the 1980s and 1990s, prisons are also an example of the process of privatizing government institutions and insuring that those institutions create profit for private investors, making the neoliberal state an agent in this wealth redistribution. The process of regulatory capture, where special interests are able to control the agencies that are supposed to be regulating them in the public interest, illustrates this point. While the market dictates the scope of what is possible for state institutions that are beholden to government funding, the market also creates the conditions, during periods of financial crisis, that lead to the bankrupting of state institutions through austerity measures and the privatization of these public assets.
Europe has also been subjected to the establishment of neoliberalism through financial coercion; however, the European case presents us with an instance of unprecedented democratic subversion on behalf of international capital. This is not to say that the establishment of neoliberalism has been imposed from the outside with no domestic encouragement, but rather that Europe presents us with a particular case of an alliance between the bourgeoisie of individual European nation-states and their counterparts in international institutions such as the European Union (EU) and the European Central Bank (ECB). The rise of the political party Syriza in Greece and the election of Alexis Tsipras as prime minister, while nurturing a cautious hope, has also shown the extent to which the democratic aspirations of the citizens of Greece are sabotaged for the benefit of financial interests represented by the European Commission, the ECB, and the International Monetary Fund. The sovereignty of European countries is being attacked by advocates of neoliberalism under the guise of EU and ECB policy. In Italy, the technocratic government of Mario Monti was appointed without an election following the resignation of Silvio Berlusconi. Meanwhile in Ireland, the ECB held the democratically elected government in a stranglehold by attaching a series of austerity conditions to any bailout agreement. In practice, democratic demands must be made within the tight parameters that have been established by bankers, making a mockery of democracy itself.
The manifestation and maintenance of neoliberalism in Europe can be understood through the changing notions of citizenship in European countries. While at one time the citizenry was the sole constituency, a new group has evolved that claims dominance over the nation-state: creditors. According to the German political economist Wolfgang Streeck, in his work Buying Time: The Crisis of Democratic Capitalism , the growth of creditors has placed a strain on the state, allowing unelected and anti-democratic authorities to regulate how the state handles its relations with its citizens, and defining the nature of state-society relations. The introduction of this "constituency" of opposing interests into the political equation holds the polity of Europe within a loop. On the one hand, the government is supposed to be representative of the people, while on the other, international forces are recognized as citizens and therefore claim a voice in how the government conducts its business. While the neoliberal state was imposed through financial coercion, it is maintained through the creation of new political constituencies.
By blending the state theories of Miliband and Poulantzas, we are able to see the neoliberal state in a multidimensional form. It is not solely the result of the decisions of those in power, but also a complex system that constructs its own acquiescence. The neoliberal state is a qualitatively distinct form of the capitalist state. Its authoritarianism is present not only in its unquestioned defense of the interests of capital, but also in the way that it actively seeks to shape society to be more favorable to its goals. Peripheral countries have borne the burden of this violence as their position within the world system is secondary and practically dispensable. Core countries require a much more skilled intervention through the introduction of reforms and the transformation of institutions to solidify obedience in the form of the market society. Austerity, understood as a social-historical force, is the tool of the neoliberal state to subvert democracy and promote authoritarianism.
Feb 10, 2019 | lse.ac.uk
IMF speeches do little to confirm hopes that the crisis would give rise to a more progressive capitalism, write Kevin Farnsworth and Zoë Irving .
It is now over ten years since the collapse of Lehman Brothers paved the way for the biggest, most global, and most significant financial crisis in living memory. It brought the global capitalist economy to its knees, it shook belief and faith in the capitalist system itself, and raised serious doubts about neoliberalism.
The hope that the crisis would give rise to a more progressive capitalism, however, proved to be premature. From the competing visions of recovery, the ascendance of austerity as both a political and an economic project paved the way for the construction of a new economically-elite-driven, capital-centric, shrunken welfare state model founded on a non-ideological, pragmatic, economic 'truth'.
Contemporary welfare states now exist within a world in which austerity as a broad set of ideas, encompasses the liberal (in a Hayekian sense) desire to shrink the (social welfare) state, deregulate labour and promote private markets as the driver of growth. This has forced a reconfiguration of the fortunes of the wealthy, the interests of capital, the position of middle-income and poorer citizens, and the state itself. And the biggest losers have been the poorest citizens. Nor is this new politics driven simply by economic austerity. An austere politics has sapped the political imagination and robbed people of hope that things might, one day, get better. At every level austerity restricts the terms of debate.
Whilst the Left rail against the cruelty of austerity, for many on the Right the crisis and the ascendance of austerity politics represents a 'dream come true'. Or does it? Whilst the critical voices are often quiet, there remains a powerful counter-narrative which suggests that in exposing the limitations of neoliberalism, the global crisis and subsequent austerity created a backlash against globalisation and brought the wider costs of unfettered capitalism into public focus. Nationalism, protectionism, and trade wars are widely reported and international organisations are taking a more obvious interest in inequality . More solid emerging evidence of a possible paradigmatic shift came most recently from none other than the IMF , perhaps the archetypal and unapologetic neoliberal institution , and one with the power to shape and frame the relationship between economies and welfare states.
For welfare state progressives, the possibility that austerity's social harms are gaining purchase in international and public discourse is heartening. However, as our research shows, there is little to feel optimistic about as far as the expansion of social policy is concerned. The post-crisis welfare terrain can be characterised as one of 'neo-austerity' – an emboldened set of claims for the residualisation of state welfare combined with spending to safeguard the power of economic elites. This contrasts with post-war 'socialised austerity' , the 'permanent austerity' of the 1990s and the simple austerity of public expenditure cuts.
Neo-austerity implies not less, but more reliance on the state to enforce, support and compensate for social, political and economic losses. But while a range of discretionary social provisions and services, from public spaces to social care, are erased from the social citizenship balance sheet, demand is increased for state support for private business and pressures for 'social' investment . This is the key policy problematic that governments and international organisations are currently grappling with – this rather than the morality of inequality is the major contradiction within neoliberalism. The rise of the nationalist Right is, in many ways a response to this counter-narrative. It has sought to capitalise on the discontent by promising a cure for the symptoms of austerity. But of course, nationalist politics do little or nothing to change the medicine!
The public statements of the IMF are an important discursive window through which to examine the strength of austerity in maintaining neoliberalism. Rather than coding the content of speeches ourselves, our approach let maths categorise the data. Our research utilised quantitative textual analysis (exploiting the capabilities of WordStat) to examine all public speeches by senior IMF representatives between 2004 and 2015.
The contradictions are clear but there is little to indicate that conviction in the economic fundamentals are on the wane. The IMF has at times appeared 'off-message' in its advice during the period of the Great Recession, but economic growth through private market development has remained its key priority. Unlike national governments, the IMF is an organisation playing the long and global game
... ... ...
Kevin Farnsworth – University of York -- is reader in international and comparative social policy at the University of York. His research interests include the political economy of welfare, welfare states and economic crisis and corporate welfare. He is author of Corporate Welfare versus social welfare (2012) and founder of corporate-welfare-watch. With Zoë Irving he is co-editor of the Journal of International and Comparative Social Policy. He tweets at @Dr_K_Farnsworth
Zoë Irving – University of York -- is senior lecturer in international and comparative social policy at the University of York. Her research interests include the international social politics of economic crisis and austerity with a special interest in Iceland. With Kevin Farnsworth she co-edited Social Policy in Challenging Times (2011) and Social Policy in Times of Austerity (2015)
Feb 09, 2019 | economistsview.typepad.com
mulp -> Cudgel Carrot... February 08, 2019 at 03:38 AMHave you ever been to Kansas? Might as well move to Mexico, or Puerto Rico. Kansas has gotten worse because of cost cutting. Cost cutting means living costs are less because the standard of living is less.
Living standards are more than a house with indoor plumbing automatic heat, and lights at the flip of a switch. Its being able to talk with interested people about interesting topics. About being able to see interesting things when looking at the window, or walking, or riding.
It tried to be connected to the world. If the politics were say 1870, they would want 600kph high speed train service so a day trip to a city like St Louis or Chicago was reasonable.
Dec 03, 2018 | discussion.theguardian.comOneCommentator -> petercs , 8 Jun 2013 11:46@petercs -OneCommentator , 8 Jun 2013 10:49Wrong. Traditional liberalism supported both social and economic freedoms. That included support for most of the civil rights and freedoms we enjoy today AND free trade and free investments. It used to be that liberals were practically unpopular with right wing (traditional conservative for example) parties but more or less on the same side as left wing parties, mainly because of their social positions. More recently the left wing parties became more and more unhappy with the economic freedoms promoted by liberals while the right wing parties embraced both the economic and social freedoms to a certain degree.
..."neoliberal", concept behind the word, has nothing to do with liberal or liberty or freedom..
So, the leftists found themselves in a bind practically having reversed roles which the the conservatives as far as support for liberalism goes. So, typically, they're using propaganda to cover their current reactionary tendencies and coins a new name for liberals: neoliberals which, they say, are not the same as liberals (who are their friends since liberal means freedom lover and they like to use that word a lot).Austerity is caused by incompetent governments unable to balance their budgets. They had 60 years to do it properly after ww2 and the reconstruction that followed but many of them never did it. So now it is very simple: governments ran out of money and nobody wants to lend them more. That's it, they hit the wall and there is nothing left on the bottom if the purse.
"austerity" is the financial sectors' solution to its survival after it sucked most the value out of the economy and broke it.It is a bit more complicated than that. Developed countries like Greece are supposed to run more or less balanced budgets over longer periods. Sure, they need to borrow money on a regular basis and may that is supposed to be done by issuing bonds or other forms of government debt that investors buy on the open market. For such governments the IMF is supposed to just fill in in a minor way not to provide the bulk of all the loans needed on a temporary basis. Because of incompetent governments Greece is practically bankrupt hence it is not going to be able to pay back most of the existing debts and definitely not newer debts. So practically the IMF is not, ending money to them, it is giving them the money. So, I would say that they have a good reason to wag its finger.
The IMF exists to lend money to governments, so it's comic that it wags its finger at governments that run up debt.
Malakia123 , 8 Jun 2013 11:15LOGIC 101: Introductory Course of Studypetercs , 8 Jun 2013 10:44
If private, stockholder-held central banks such as the FED and the FED-backed ECB were not orchestrating this depression, and anybody who believed they were was a "wacko-nutcase conspiracy theorist", then why do they keep repeating the same mistakes of forcing un-payable bailout loans, collapsing banks, wiping out people's savings and then imposing austerity on those nations year after year – when it is clearly a failed policy?
Possible Answers :
1. Bank presidents are all ex-hippies who got hooked on LSD in the 70's and have not yet recovered fully as their brains are still fried!
2. Central bankers have been recruited from insane asylums in both Europe and America in government-sponsored programs to see whether blithering idiots are capable of running large, international financial institutions.
3. All catastrophic events in the banking/business world, such as the derivative and housing crash of 2008, the Stock Market Crash of 1929 and The Great Depression of 1929-40 were totally random events that just occurred out of nowhere and central banks were caught off guard – leaving them no option but to play with their willies for years on end until a major war suddenly happened to pull the whole world out of "bad times"!
4. As central banks such as the FED and the ECB operate with insatiable greed and cannot be audited or regulated by any government body anywhere in the world, due to their charters having been set up that way, then bankers are free to meet secretly and plot depressions so as to gain full control over sovereign nations and manipulate markets so that their "chums and agents" in business can buy up assets and land in depressed economies – while possible wars could also make corporations and banks more money as well!
Please choose one of the possible answers from above and write a short 500 word essay on whether it may or may not true – using well-defined logical arguments. I expect your answers in by Friday of this week as I would like to get pissed out of my mind at the pub on Saturday night!..."neoliberal", concept behind the word, has nothing to do with liberal or liberty or freedom...it is a PR spin concept that names slavery with a a word that sounds like the opposite...if "they" called it neoslavery it just wouldn't sell in the market for political concepts.
The neoliberal idea is that the cultivation itself should be conducted privately as well. They see "austerity" as a way of forcing that agenda.
..."austerity" is the financial sectors' solution to its survival after it sucked most the value out of the economy and broke it. To mend it was a case of preservation of the elite and the devil take the hindmost, that's most of us.
...and even Labour, the party of trade unionism, has adopted austerity to drive its policy.
...we need a Peoples' Party to stand for the revaluation of labour so we get paid for our effort rather than the distortion, the rich xxx poor divide, of neoslavery austerity.
Jun 15, 2017 | marknesop.wordpress.comet Al , June 14, 2017 at 10:52 amSuccessive Conservative governments have forced significant cuts on county/city councils who have passed them on by reducing or stopping services. Looking at the news on Google Nudes UK we find out that there have long been significant concerns about the fire worthiness of many council run (though often privately managed) tower blocks and state housing. This will only be bad for the Conservatives however they try to spin it. It's clear proof that ass-terity kills.marknesop , June 14, 2017 at 12:28 pm
I came across a couple of articles in The London Economic that pointed out the last Labor government public spending was at a record low of 37% of GDP, the lowest of any government since 1945 and also perforating Conservative propaganda about spending. Found it:
The London Economic: Next time someone says 'Money Tree' send them this
This underlines Keynes point. Cut the deficit in the good times, spend money in the bad times. Austerity doesn't work, and this was proved as Keynes economics brought the US out of the great depression .
And don't forget to click through to the linked '5 Tory Narratives that simply aren't true' : http://www.thelondoneconomic.com/news/economics/five-labour-narratives-simply-arent-true/31/05/
As for Russia, it stockpiled cash from high energy sales that allowed it to weather financial crises and sanctions. So, who are the morons now?Well, for starters, John McCain is a moron who argued strenuously , in the initial slide of the global financial crisis, for further banking-industry deregulation.
"This legislation takes a small but important step toward eliminating the tremendous regulatory burden imposed on financial institutions One principal reason banks are unable to make loans is the bewildering array of statutory and regulatory restrictions and paperwork requirements imposed by Congress and the regulatory agencies. While a case can certainly be made that every law and regulation is intended to serve a laudable purpose, the aggregate effect of the rapidly increasing regulatory burden imposed on banks is to cause them to devote substantial time, energy and money to compliance rather than meeting the credit needs of the community."
You know, I don't believe the great majority of people are aware just what simpletons their leaders are. We tend to think they have benefited from the very best educations – which, in the main, they have – and that consequently they are a great deal smarter than everyone else; that's why they're leaders. I'm sure each has a certain sector or subject in which they are unusually bright and in which their counsel is wise and informed. But overall, they are no smarter than you or I and every bit as prone to listen to bad advice or partisan gossip if it suits what they already believe. Our statues have feet of clay.
Speaking of McCain, remember when he exuberantly tweeted "Dear Vlad; the Arab Spring is coming to a neighbourhood near you"?
I liked Adajo's response, albeit it came three years later: "Dear John, let's recap: Russia is stronger than ever, and Mr. Vlad dominates. You destroyed Ukraine for nothing."
[May 25, 2017] The Smith/Klein/Kalecki Theory of Austerity
"... Noah Smith recently offered an interesting take * on the real reasons austerity garners so much support from elites, no matter how badly it fails in practice. Elites, he argues, see economic distress as an opportunity to push through "reforms" - which basically means changes they want, which may or may not actually serve the interest of promoting economic growth - and oppose any policies that might mitigate crisis without the need for these changes ..."
"... What Smith didn't note, somewhat surprisingly, is that his argument is very close to Naomi Klein's "Shock Doctrine," with its argument that elites systematically exploit disasters to push through neoliberal policies even if these policies are essentially irrelevant to the sources of disaster. I have to admit that I was predisposed to dislike Klein's book when it came out, probably out of professional turf-defending and whatever - but her thesis really helps explain a lot about what's going on in Europe in particular. ..."
"... Two and a half years ago Mike Konczal *** reminded us of a classic 1943 (!) essay by Michal Kalecki, who suggested that business interests hate Keynesian economics because they fear that it might work - and in so doing mean that politicians would no longer have to abase themselves before businessmen in the name of preserving confidence. This is pretty close to the argument that we must have austerity, because stimulus might remove the incentive for structural reform that, you guessed it, gives businesses the confidence they need before deigning to produce recovery. ..."
May 25, 2017 | economistsview.typepad.com
anne , May 24, 2017 at 01:57 PMhttp://krugman.blogs.nytimes.com/2013/05/16/the-smithkleinkalecki-theory-of-austerity/
May 16, 2013
The Smith/Klein/Kalecki Theory of Austerity
By Paul Krugman
Noah Smith recently offered an interesting take * on the real reasons austerity garners so much support from elites, no matter how badly it fails in practice. Elites, he argues, see economic distress as an opportunity to push through "reforms" - which basically means changes they want, which may or may not actually serve the interest of promoting economic growth - and oppose any policies that might mitigate crisis without the need for these changes :
"I conjecture that 'austerians' are concerned that anti-recessionary macro policy will allow a country to 'muddle through' a crisis without improving its institutions. In other words, they fear that a successful stimulus would be wasting a good crisis....
"If people really do think that the danger of stimulus is not that it might fail, but that it might succeed, they need to say so. Only then, I believe, can we have an optimal public discussion about costs and benefits."
As he notes, the day after he wrote that post, Steven Pearlstein ** of the Washington Post made exactly that argument for austerity.
What Smith didn't note, somewhat surprisingly, is that his argument is very close to Naomi Klein's "Shock Doctrine," with its argument that elites systematically exploit disasters to push through neoliberal policies even if these policies are essentially irrelevant to the sources of disaster. I have to admit that I was predisposed to dislike Klein's book when it came out, probably out of professional turf-defending and whatever - but her thesis really helps explain a lot about what's going on in Europe in particular.
And the lineage goes back even further. Two and a half years ago Mike Konczal *** reminded us of a classic 1943 (!) essay by Michal Kalecki, who suggested that business interests hate Keynesian economics because they fear that it might work - and in so doing mean that politicians would no longer have to abase themselves before businessmen in the name of preserving confidence. This is pretty close to the argument that we must have austerity, because stimulus might remove the incentive for structural reform that, you guessed it, gives businesses the confidence they need before deigning to produce recovery.
And sure enough, in my inbox this morning I see a piece more or less deploring the early signs of success for Abenomics: Abenomics is working - but it had better not work too well. **** Because if it works, how will we get structural reform?
So one way to see the drive for austerity is as an application of a sort of reverse Hippocratic oath: "First, do nothing to mitigate harm." For the people must suffer if neoliberal reforms are to prosper.
[Apr 14, 2017] If the Federal Reserve can create trillions of dollars with a single keystroke, and the Fed is the governments bank, then why does President Obama claim weve run out of money?
Apr 14, 2017 | economistsview.typepad.comRGC , April 14, 2017 at 05:48 AMSo ask yourself this question:RGC -> RGC... , April 14, 2017 at 05:51 AM
If the Federal Reserve can create trillions of dollars with a single keystroke, and the Fed is the government's bank, then why does President Obama claim we've "run out" of money?
Why have Democrats and so-called progressives supported job-killing budget cuts in the name of "shared sacrifice"? Why are we throwing away the equivalent of $9.8 billion in lost output every single day? Why don't we do something about our $2.2 trillion infrastructure deficit, 25 million underemployed and unemployed Americans, 100 million Americans in or very near poverty, and so on?
The answer is simple. Most of us don't understand the monetary system. Instead of deciding how the government should wield its power over the dollar, we live in fear of the ratings agencies, the Chinese, the bond market vigilantes and other imaginary evils. And this holds all of us back. Unused resources abound, human needs go unmet, and the vast majority of Americans believe that 'There Is No Alternative' (TINA). Or, as Warren Mosler says, "Because we fear becoming the next Greece, we're turning ourselves into the next Japan."
There is an alternative. And it begins with an understanding of the monetary system. The cat is already out of the bag. Chairman Bernanke confirms it. Money is no object.
http://neweconomicperspectives.org/2012/03/where-did-the-federal-reserve-get-all-that-money.htmlProminent C20th Economist Explains How the Lie is for Our Own GoodBenIsNotYoda -> RGC... , April 14, 2017 at 06:59 AM
Posted on 2 January 2014
Infamous footage of Paul Samuelson, posted by Mike Norman, explaining why we can't be trusted with the truth.
Just believe the scary bedtime story about the big bad Budget Deficit and stay asleep now. There's a good child.
http://heteconomist.com/prominent-c20th-economist-explains-how-the-lie-is-for-our-own-good/RGC,BenIsNotYoda -> BenIsNotYoda... , April 14, 2017 at 07:04 AM
the people here have been brainwashed and can not think for themselves. If it has not been approved by their favorite academic, it is a crank theory. they'd rather believe in fairy tales like NGDP level targeting - the fed will wish it into reality. Rather than pay attention to the MMT that you and I subscribe to.Moreover it is logical for them to stick to the "the Fed is omnipotent" as it bids up asset prices and maintains the status quo. It vests more power in the institutions that benefit the people you see here.RGC -> BenIsNotYoda... , April 14, 2017 at 07:40 AM
Blame the right, blame the deregulators, blame the tax cutters, blame the liberatarians, etc. that is the how they maintain the status quo. And Mosler is right on - Bernanke turned us into Japan trying to save us from that fate. And he is sliding down the rabbit hole - "I should have doubled down on my failed strategy"
why? because he was able to bid up the stock market? I bet you everyone of the Fed worshippers here benefit personally from the asset price binges that the stupid Fed has gotten us addicted to.There has been a major propaganda element in economics for a long time.JohnH -> RGC... , April 14, 2017 at 09:13 AM
People have to dig deep to discover the truth and many don't have the time.
There is a lot of money behind the propaganda on the neoclassical/neoliberal side so it gets a lot more publicity.
As that side sinks the society deeper and deeper into malfunction, hopefully more people will take the time to understand.Yep! "There has been a major propaganda element in economics for a long time."
Robert Rubin had an opinion piece at the Council on Foreign Relations, another propaganda rag: "Don't Politicize the Federal Reserve"
Per Rubin and his cronies in the Wall Street banking cartel, the Fed is fine as it is...serving the interests of the Wall Street banking cartel. The cartel has a good think going...why disrupt it by taking into account the public good?
Has Rubin ever done anything in the interest of the public?
[Apr 12, 2017] Austerity is oversold, at least in the case of the US
Apr 12, 2017 | economistsview.typepad.commarcus nunes , April 12, 2017 at 02:51 AMAusterity is oversold, at least in the case of the US.anne -> marcus nunes ... , April 12, 2017 at 05:02 AM
http://ngdp-advisers.com/2017/04/11/fed-engineered-ice-age/https://www.bloomberg.com/view/articles/2017-04-10/keynesian-economics-is-hot-againlibezkova -> anne... , April 12, 2017 at 09:33 AM
April 10, 2017
Keynesian Economics Is Hot Again
By Noah Smith - Bloomberg
To the growing list of famous mainstream macroeconomists who have publicly criticized their discipline, add another: In a recent essay, * Lawrence Christiano of Northwestern University argues that the Great Recession was an "earthquake" that dramatically changed how researchers think about the U.S. economy.
Christiano is known as a scholar who straddles macroeconomics' great divide. His models adopt the basic form and some of the bedrock assumptions of the New Classicals, the economists who insisted in the 1980s that monetary and fiscal policy can't fight recessions. But he also incorporates some elements of Keynesianism, the idea that aggregate demand shortages exist and can be corrected by the government stimulus. Perhaps as a result of their centrist take on that long-running debate, theories inspired by Christiano's have won pride of place in central banks around the world.
But after the Great Recession, Christiano says, the pendulum should swing decisively in the Keynesian direction:
"The Great Recession was the response of the economy to a negative shock to the demand for goods all across the board. This is very much in the spirit of the traditional macroeconomic paradigm captured by the [simple Keynesian] model The Great Recession seems impossible to understand without invoking shocks in aggregate demand. As a consequence, the modern equivalent of the IS-LM model-the New Keynesian model-has returned to center stage."
Another way of putting this is that Paul Krugman was right. Krugman has long advocated ** that macroeconomists learn to once again think in terms of simple simple Keynesian theory. And when more fully developed, complex models are needed, Krugman uses the kind of models *** that Christiano endorses.
As Christiano mentioned, the New Keynesian revolution isn't so new. Even in the 1990s, economists like Greg Mankiw and Olivier Blanchard were arguing that monetary policy had real effects on demand. And at the same time, international macroeconomists were realizing that Japan's post-bubble experience of slow growth, low interest rates and low inflation implied that demand shortages could last for a very long time unless the government rode to the rescue. Krugman, Adam Posen, Lars Svensson, and others were already referring to **** a Japan-type stagnation as a liquidity trap in the late 1990s, and warning that standard monetary policy of cutting interest rates wouldn't work in that sort of situation.
But the profession didn't listen, and only the smallest deviations from the New Classical orthodoxy were accepted into the mainstream. The idea of fiscal stimulus was still largely taboo. Nobel prizes were awarded to the economists who made theories in which demand shortages can't exist, while no Nobels were given to New Keynesians for suggesting otherwise. When the Great Recession hit, some prominent macroeconomists pooh-poohed the idea that stimulus could help.
Christiano's essay should serve as a needed rebuke to the profession for resisting Keynesian ideas just when they were needed most. But it also raises an uncomfortable question: Why didn't macroeconomists catch on until years after disaster struck?
One explanation is sociological. Perhaps the influence of legendary figures like Robert Lucas, Thomas Sargent and Edward Prescott -- all anti-Keynesians who now have big gold medals from Sweden -- was enough to scare younger economists away Keynesian ideas. Some of macroeconomics' internal critics, such as World Bank chief economist Paul Romer, have suggested as much. Political considerations might have played a role as well -- to many economists on the free-market end of the ideological spectrum, Keynesianism represents unacceptable government meddling.
But these explanations, by themselves, are unsatisfying. In most scientific fields -- biology or astronomy, for example -- the weight of evidence is enough to overcome social fads and political bias. Even in most areas of economics, empirical results gradually push the profession in one direction or another. For example, relatively few economists now believe a $15 minimum wage is likely to reduce employment very much; a plurality is uncertain. The steady drumbeat of papers showing small or zero job losses from minimum-wage hikes probably played a role in altering the expert consensus.
If economists gravitated toward anti-Keynesian theories, it was at least in part because evidence wasn't strong enough to push them in the right direction. It's just very hard to assess the impacts of fiscal stimulus. For example, Japan's tremendous government spending binge in the 1990s looks to a casual observer like it had no effect, since the economy didn't recover until years later -- but government spending might have been the only thing saving the country from a deeper recession.
For a great explanation of why macroeconomic evidence is so weak and subject to multiple interpretations, read this excellent post ***** by the University of Oregon's Mark Thoma....
***** http://economistsview.typepad.com/economistsview/2013/04/empirical-methods-and-progress-in-macroeconomics.htmlThe intersection of the "investment–saving" (IS) and "liquidity preference–money supply" (LM) curves models "general equilibrium" where supposed simultaneous equilibrium occurs in both interest and assets markets.JohnH -> marcus nunes ... , April 12, 2017 at 06:39 AM
As such it is very questionable, because the assumption of the existence of general stochastic equilibrium -- the key postulate of neo-classical theory -- is demonstratively false.
So the behavior of the system that is out of equilibrium is not necessary directed toward restoration of the "old" equilibrium. It might be moving to a new state with new multiple equilibriums.
Much depends of the stability of the system which by-and-large determined by both presence of negative feedback loops and absence (or suppression) of positive feedback loops. The latter are especially damaging to stability.
One interesting observation is that hypertrophied financial system represent in itself a strong positive feedback loop (as Hyman Minsky observed in this case "stability is destabilizing").
In this sense, periodic financial shocks are immanent feature of neoliberalism and the question about future financial crisis is not "if" but "when."
Without the suppression of financial oligarchy like was the case during the New Deal regime, the economic system can't be made stable.
That's another meaning of the popular during the last elections slogan of "draining the swamp" .Indeed! "Why didn't macroeconomists catch on until years after disaster struck?"
Worse yet, now that the economy is widely perceived to have recovered, policy makers have no reason to change. The Fed is widely perceived as having been quite successful...even though it took most of a decade to get there...at a snail's pace.
To suggest otherwise--that the Fed failed--is heresy. And so, next time around we can look forward to exactly the same policy: more trickle down Fed intervention and little fiscal stimulus, because both economists and politicians are quite content.
But has the economy really recovered? Well, the wealthy were made whole by 2012 due to rising asset prices fueled by low interest rates. Banks were recording record near record profits by 2014. And Krugman started raving about the Obama economy a couple years ago.
As for We, the people? Well, EPOP fell off a cliff and never recovered. Real median household income never fully recovered to levels it had reached in 2007 and 2012.
Trickle down monetary policy performed exactly as intended...rewarding the rich and powerful while leaving everyone else behind.
[Apr 02, 2017] In recent months, a form of mass hysteria has swept the country as fear of unsustainable budget deficits replaced the earlier concern about the financial crisis, job loss, and collapsing home prices
Apr 02, 2017 | economistsview.typepad.comPeter K. , April 02, 2017 at 10:45 AMThe problem with the center-left like Krugman, PGL, Hillary Clinton, the Peterson institute, etc.:pgl -> Peter K.... , April 02, 2017 at 10:51 AM
Deficits Do Matter, But Not the Way You Think
By Roosevelt Institute | 07.20.10
L. Randall Wray is Professor of Economics at the University of Missouri-Kansas City.
"In recent months, a form of mass hysteria has swept the country as fear of "unsustainable" budget deficits replaced the earlier concern about the financial crisis, job loss, and collapsing home prices. What is most troubling is that this shift in focus comes even as the government's stimulus package winds down and as its temporary hires for the census are let go. Worse, the economy is still - likely - years away from a full recovery. To be sure, at least some of the hysteria has been manufactured by Pete Peterson's well-funded public relations campaign, fronted by President Obama's National Commission on Fiscal Responsibility and Reform - a group that supposedly draws members from across the political spectrum, yet are all committed to the belief that the current fiscal stance puts the nation on a path to ruinous indebtedness. But even deficit doves like Paul Krugman, who favor more stimulus now, are fretting about "structural deficits" in the future. They insist that even if we do not need to balance the budget today, we will have to get the "fiscal house" in order when the economy recovers.
There is an alternative view propounded by economists following what has been called "Modern Money Theory", which emphasizes the difference between a currency-issuing sovereign government and currency users (households, firms, and nonsovereign governments) (See here and here). They insist that the notion of "fiscal sustainability" or "solvency" is not applicable to a sovereign government - which cannot be forced into involuntary default on debts denominated in its own currency. Such a government spends by crediting bank accounts or issuing paper currency. It can never run out of the "keystrokes" it uses to credit bank accounts, and so long as it can find paper and ink, it can issue paper currency. These, we believe, are simple statements that should be completely noncontroversial. And this is not a policy proposal - it is an accurate description of the spending process used by all currency-issuing sovereign governments.
And, yet, there are a number of misconceptions circulating that need to be addressed. Many (often of the Austrian persuasion) interpret this simple statement as a Leninist plot to destroy the nation's currency by flying black helicopters dumping an infinite supply of bags of money all over the planet. This is usually accompanied by a diatribe on the evils of fiat money, with a call to return to "sound money" based on shiny yellow metal. Others suggest that we are instead proposing to ramp up the size of government, until it completes Obama's plan to gobble up the whole economy. Almost all critiques eventually produce a lecture on the lessons to be learned from Weimar Germany and from Zimbabwe.
The strangest criticism of all is that we MMT-ers argue that "deficits do not matter". In a recent exchange in the New York Times, Paul Krugman put it this way: "But here's the thing: there's a school of thought which says that deficits are never a problem, as long as a country can issue its own currency." In that piece he took Jamie Galbraith to task for arguing that "Insolvency, bankruptcy, or even higher real interest rates are not among the actual risks" facing a sovereign government. I won't go into the details, but Krugman produced a simple model in which ever-larger budget deficits generate ever-rising prices. You can see the rest of that back-and-forth here. But the strange thing is that Krugman never actually addressed Galbraith's points that insolvency, bankruptcy, or higher interest rates are non-issues for a sovereign government. Nor did Krugman even try to justify his claim that MMT-ers "say that deficits are never a problem".
In fact, MMT-ers NEVER have said any such thing. Our claim is that a sovereign government cannot be forced into involuntary default. We have never claimed that sovereign currencies are free from inflation. We have never claimed that currencies on a floating exchange rate regime are free from exchange rate fluctuations. Indeed, we have always said that if government tries to increase its spending beyond full employment, this can be inflationary; we have also discussed ways in which government can cause inflation even before full employment. We have always advocated floating exchange rates - in which exchange rates will, well, "float". While we have rejected any simple relation between budget deficits and exchange rate depreciation, we have admitted that currency depreciation is a possible outcome of using government policy to stimulate the economy.
A favorite scenario used by the critics is the ever-rising budget deficit that causes the government debt-to-GDP ratio to rise continuously. As interest payments on the debt increase, government faces a vicious cycle of rising deficits, more debt, more interest paid, higher interest rates, and even higher deficits.
Our response is two pronged.
Most people know how to make points without attacking me. You never make points but you love attacking me with your dishonest straw man garbage. Try getting outside and actually enjoying spring. That's what I'll be doing.RC AKA Darryl, Ron said in reply to pgl... , April 02, 2017 at 11:25 AMCan I make points by attacking you? I did not know. What will those points buy me? Maybe I should have been doing that instead of planting a rose bush Thursday, especially since Jackson & Perkins sent me a Memorial Day HT rose instead of a Queen Elizabeth Grandiflora as originally ordered. I did not know they did substitutions if they ran out of what one ordered. I had swore that I would never buy another hybrid tea rose and then they made me a liar.pgl -> RC AKA Darryl, Ron... , April 02, 2017 at 11:55 AM
Enjoy spring while it lasts. We are soon enough going to be in for another GHGACC summer."Can I make points by attacking you?"JohnH -> pgl... , April 02, 2017 at 12:40 PM
You do all the time.Better than attacking without making any point at all...like pgl does all the time.pgl -> JohnH... , April 02, 2017 at 01:41 PM
Yesterday pgl had the epiphany that Krugman had not mentioned pizza in the piece had posted!Oh gee - trolls of the world unite! BTW - that was not Marx's message but it seems to be what you do.Peter K. -> JohnH... , April 02, 2017 at 01:51 PMThat's all PGL does, is attack via straw man arguments and trolling.pgl -> Peter K.... , April 02, 2017 at 02:00 PMLooking in the mirror we see. It is your face but you see me? No wonder you hate yourself. Snicker.
[Mar 24, 2017] Economist's View Links for 03-24-17
Mar 24, 2017 | economistsview.typepad.comRGC : , March 24, 2017 at 07:23 AMGiven: An economy at activity (GDP) level ARGC -> RGC... , March 24, 2017 at 07:37 AM
Problem: How to increase GDP to a higher level A'
Solution: Increase demand by adding new money to the economy by:
Method 1: Government increases net spending from level B to level B' by increasing the deficit.
Method 2: Private banks increase net spending from level B to level B' by making new loans.
Method 1 increases spending to a permanent higher level B' until the government generates a surplus by taxing more than it spends.
Method 2 increases spending to a higher level B' minus interest payments until the loans are paid down.
Method 1 introduces a higher level of activity until the government acts to reduce it.
Method 2 introduces a higher level of activity that starts to lessen as interest payments come due and lessens completely as principle comes due. Once principle is paid down, the only new money introduced is the amount of interest and that is held by the banks.
Method 1: The government pays private parties for some work. Those private parties spend some portion of that money and that portion then circulates through the private economy. The other portion goes to private savings.
Method 2: A private bank makes a loan. The borrower spends some of that money which then circulates through the economy. The borrower pays interest which accrues to the bank. The borrower then pays off the principle, which removes the money from the economy.MICHAEL HUDSON: The popular press acts as if governments should act like a family. And just as families have to balance the budgets, governments have to. But this is a false analogy, because if you personally spend more than you earn, you can't just write an I.O.U., which everybody else can spend as if it's real money. You have to pay the I.O.U. at some point, usually with interest, to the bank. But that's not the case with sovereign governments. When a government runs a budget deficit, it can do so in the way that Abraham Lincoln funded the Civil War: You print the money.
You print it into the economy by spending it.
Almost every year until the 1990s, the United States, like every other country in the world, increased its debt by running a budget deficit, by spending money into the economy for infrastructure, schooling, and roads. This is what enables economies to grow. That stopped during the Clinton administration in the 1990s. At the end of the administration he fell for neoliberal theory that you should balance the budget, and he actually ran a budget surplus. So the government stopped spending money into the economy.
The result was the economy had to depend on banks to create the money to expand. If the government doesn't create it, who will create the spending power? The answer was the banks.
Clinton did what he was told to do by the Secretary of the Treasury, Robert Rubin. In effect, his policy was: "Let the banks create all the money and charge interest instead of the government creating money by spending it like the greenbacks were spent."
The advantage of governments creating money is you they don't have to pay interest, because the spending is self-financing. Bank lobbyists cry about how large the government debt is, but this is debt that is not expected to be repaid. Adam Smith wrote that no government has ever paid its debt.
I think it's easiest for most Americans to understand this by looking at Europe. Under the Eurozone's rules, central banks are not allowed to create much money. As a result the economies of Europe are shrinking into austerity. Greece is the most notorious example. Here you have unemployment among youth up to 50% as the economy for the last five years is suffering from the worst depression since the 1930s. Yet the government is not able to spend the money needed to rebuild the economy. The banks won't let them do it. The aim of neoliberals is to prevent governments from spending money to revive growth by running deficits. Their argument is: "If a government can't run a deficit, then it can't spend money on roads, schools and other infrastructure. They'll have to privatize these assets – and banks can create their own credit to let investors buy these assets and run them as rent-extracting monopolies."
The bank strategy continues: "If we can privatize the economy, we can turn the whole public sector into a monopoly. We can treat what used to be the government sector as a financial monopoly. Instead of providing free or subsidized schooling, we can make people pay $50,000 to get a college education, or $50,000 just to get a grade school education if families choose to if you go to New York private schools. We can turn the roads into toll roads. We can charge people for water, and we can charge for what used to be given for free under the old style of Roosevelt capitalism and social democracy."
This idea that governments should not create money implies that they shouldn't act like governments. Instead, the de facto government should be Wall Street. Instead of governments allocating resources to help the economy grow, Wall Street should be the allocator of resources – and should starve the government to "save taxpayers" (or at least the wealthy). Tea Party promoters want to starve the government to a point where it can be "drowned in the bathtub."
But if you don't have a government that can fund itself, then who is going to govern, and on whose terms? The obvious answer is, the class with the money: Wall Street and the corporate sector. They clamor for a balanced budget, saying, "We don't want the government to fund public infrastructure. We want it to be privatized in a way that will generate profits for the new owners, along with interest for the bondholders and the banks that fund it; and also, management fees. Most of all, the privatized enterprises should generate capital gains for the stockholders as they jack up prices for hitherto public services."
The reason why the European countries, the United States and other countries ran budget deficits for so many years is because they want to keep this infrastructure in the public domain, not privatized. The things that government spends money on – roads, railroads, schools, water and other basic needs – are the kind of things that people absolutely must obtain. So they're the last things you want to privatize. If they're privatized instead of being publicly funded, they can be monopolized. Most public spending programs are for such natural monopolies.
The guiding idea of a well-run economy is to keep natural monopolies out of private hands. This was not done in Russia after 1991. Its disaster under the neoliberals is a classic example. It led to huge immigration rates, shortening life spans, rising disease rates and drug use. You can see how to demoralize a country if you can stop the government from spending money into the economy. That will cause austerity, lower living standards and really put the class war in business. So what Trump is suggesting is to put the class war in business, financially, with an exclamation point.
SHARMINI PERIES: You talked about the implications of cutting government spending and, in fact, your myth number 18 deals with this. You describe this myth as saying that cutbacks in public spending will bring the government budget into balance, restoring stability. And you just demonstrated through the Russian example that this is quite misleading and in fact has the opposite effect and destabilizes the population. So this policy Trump seems to endorse – the cutback in public spending – give us some examples of how this could affect society.
MICHAEL HUDSON: You used the word "stability" and this is often a slogan to prevent thought. George Orwell didn't use the term "junk economics," but he defined what doublethink is. The function is to prevent thought. "Stability" is akin to the "Great Moderation." Remember how economists running up to the 2008 crisis said, "This is a Great Moderation."
We now know that it was the most unstable decade in a century. It was a decade of financial fraud, it was a decade where economic inequality between wealth and the rest of the economy widened. So what made it moderate? Alan Greenspan went before the Senate Committee and gave a long talk on what was so "stable"? He said that what's stable is that workers haven't gone on strike. They are so deeply in debt, they owe so much money that they're one paycheck away from missing an electric utility payment. So they're afraid to strike. They're afraid even to protest against working conditions. They're afraid to ask that their wages be increased to reflect their productivity. What's stable is the wealthy people, Greenspan's constituency, the five percent or the one percent get all of the income and the people get nothing. That is stability according to Alan Greenspan.
Words like "stability" or similar euphemisms are used to make people think that somehow the economy is stable and normal. The reality is that it is being slowly squeezed. That's basically what happened in the Great Moderation. The government was cutting back spending on social programs, dismantling the New Deal array of consumer protection agencies, which Trump also wants to get rid of. The first thing he wanted to get rid of, he said, is Elizabeth Warren's Consumer Financial Protection Agency. The problem for Republicans serving their bank lobbyists is that it's trying to prevent fraud – and that limits consumer choice. Just like we let people go to MacDonald's and buy junk food and junk sodas to get obese, we have to let them have the free choice to put their pension funds in Wall Street companies that are going to cheat them.
These are the Wall Street firms that have paid tens of billions of dollars for the financial fraud they've committed. The Republicans want to dismantle all of the penalties against financial fraud, against cheating consumers. That would reduce the amount of money that sector can extract, and these people are what's driving the economy. But they're driving the economy largely by debt leveraging bordering on fraud. That's the kicker in all this.
By dismantling government spending on the Consumer Financial Protection Agency, the public news agencies, the National Endowment for the Arts, you're stripping the economy away and making the American economy like what Margaret Thatcher did in England. You make it less dynamic, a less lively place, and above all a poorer economy. That is the aim of these "reforms," which mean undoing what reforms used to mean for the last century.
These words and the vocabulary used in the press dovetail into each other to paint a picture of a fictitious economy. The aim is to make people think that they're living in a parallel universe, unable to use a vocabulary and economic concepts to explain just why life is so unfair and why they're being squeezed so badly.
Above all, the aim is to dissuade them from thinking about how it doesn't have to be this way. There is no natural law that says that they should be squeezed by debt, monopolies and fraud. But that kind of thinking requires an alternative program – and an alternative program requires recapturing the language to explain what it is that you're trying to create as an alternative.
[Mar 10, 2017] One of Navarro's big arguments is that there are big National Security implications to trade deficits
Mar 10, 2017 | economistsview.typepad.comNew Deal democrat -> pgl... March 09, 2017 at 05:12 AM , 2017 at 05:12 AMOne of Navarro's big arguments is that there are big National Security implications to trade deficits. If that is not correct, then please show me in economic models where the potential National Security implications of trade surpluses and deficits are taken into account.New Deal democrat -> New Deal democrat... , March 09, 2017 at 05:47 AM
If our current economic models do not describe them (just as they were oblivious to finance before 2008, and oblivious to deaths by privation even now), then the models are at best irrelevant and at worst catastrophic.https://en.m.wikipedia.org/wiki/The_Rise_and_Fall_of_the_Great_Powerspgl -> New Deal democrat... , March 09, 2017 at 05:59 AM
"Kennedy argues that the strength of a Great Power can be properly measured only relative to other powers, and he provides a straightforward and persuasively argued thesis: Great Power ascendancy (over the long term or in specific conflicts) correlates strongly to available resources and economic durability; military overstretch and a concomitant relative decline are the consistent threats facing powers whose ambitions and security requirements are greater than their resource base can provide for.
The "military conflict" referred to in the book's subtitle is therefore always examined in the context of "economic change." The triumph of any one Great Power in this period, or the collapse of another, has usually been the consequence of lengthy fighting by its armed forces; but it has also been the consequences of the more or less efficient utilization of the state's productive economic resources in wartime, and, further in the background, of the way in which that state's economy had been rising or falling, relative to the other leading nations, in the decades preceding the actual conflict.'"
Put more simply,
Trade surpluses lead to economic power,
Which leads to political power,
Which leads to military power.
The decline happens in the same sequence, usually ending in what is *very* euphamistcally described as a "bloody nose."
Kennedy traces this sequence over multiple states and over 500 years of history.
If this is taken into account in economic trade theory, please provide a link.
"Trade surpluses lead to economic power".RC AKA Darryl, Ron -> pgl... , March 09, 2017 at 07:08 AM
How does this work? Yes China has accumulated a lot of net foreign assets whereas we have incurred a lot of net foreign debt. But if one looks at the net income from this (net income from abroad), we have run consistent surpluses whereas as China has run consistent deficits. This is what "Dark Matter" (or Dark Anti-Matter) is all about.Paper determines how resources are allocated, but it is an insignificant resource in and of itself. We can always make more paper as long as Canada has trees:<)Anti Neutron Star -> pgl... , March 09, 2017 at 07:12 AM
The role of trade surpluses leading to economic and political power needs to be normalized into GDP per capita terms to see its relevance. China is a great economic force, but the US still has the greater political and economic power because its nearly equal force is spread across a much shorter distance (i.e., population).Easy for US to generate capital by decreasing our aggregate demand for signalling. Adjust tax code to tax only Veblen Goods, but maintain deflation to insure a reward for savings. Then "stimulate" M2V by tax relief for those below median income. And stimulate using the magic of totally free trade.New Deal democrat -> pgl... , March 09, 2017 at 07:35 AM
Kennedy shows that historically. over a very long period of time, this has been the case. Your question - "how" - in economic theory terms is the precise issue. In physics, when theory doesn't fit the data, the theory gets thrown out. In economics ....JohnH -> New Deal democrat... , March 09, 2017 at 07:48 AMA trade deficit means employment has gone somewhere else. How do the offsetting capital flows offset that loss in employment?pgl -> JohnH... , March 09, 2017 at 08:57 AMWhat cause the trade deficit. If you are talking about that disaster in 1981/82 - yes. A toxic mix of fiscal stimulus and incredibly tight monetary policy led to a massive $ appreciation, a fall in net exports, and a massive increase in unemployment.ilsm -> New Deal democrat... , March 09, 2017 at 02:21 PM
But let's say Trump goes ahead with some large public infrastructure investment which creates a lot of new US jobs. The workers will buy more goods in general some of which will be imported goods. YUUUGE difference that I would hope even you could understand.Given the disastrous results from pentagon [[soft] corruption of weapons for jobs in district and PAC money] spending I would not associate trade deficit with US' version of imperial decline.
Soviet Union could not import levis and coca cola which coincided with its fall.
[Mar 10, 2017] Our prolonged current account deficit has meant growing net foreign debt for US that is compensated by a net surplus the US gets from capital its owns abroad
Mar 10, 2017 | economistsview.typepad.compgl : March 09, 2017 at 01:16 AM , 2017 at 01:16 AMI love this from Jared Bernstein:BenIsNotYoda -> Tom aka Rusty... , March 09, 2017 at 06:58 AM
"Second,an oped by the Trump Administration's trade guy Peter Navarro, who clearly does view the trade deficit as a report card that's been bringing home F's for about 40 years."
Actually the report card for Navarro merits an F. Jared's big theme simply put is that our prolonged current account deficit has meant growing net foreign debt for US whereas China's surpluses have led to a rise in net foreign assets. Missing from this discussion is what some call "Dark Matter" – the fact that the US still receives a net surplus in terms of net income from abroad whereas China has a net deficit – what I dubbed "Dark Anti-Matter".
PeterK's ranting is justified. He and I are of the opinion that until neoliberals like pgl admit that their policy framework was wrong and has caused a lot of hardship (trade policy being tops), there will be no progress in progressives coming back from the crushing defeats they have suffered.RC AKA Darryl, Ron -> BenIsNotYoda... , March 09, 2017 at 07:19 AM
The refusal to even admit they were wrong means what Bernie started might die. That would be a travesty.
And trust me, PeterK and I have been at loggerheads for a long time over Fed policy so I am no BFF defending him. He just happens to be 100% right in this case.Learn broken field running. Keep your eyes on the goal and sidestep obstacles. Progressives just need to organize themselves better. Establishment liberals will hop on board when they see that the progressives ARE the new establishment.BenIsNotYoda -> RC AKA Darryl, Ron... , March 09, 2017 at 07:38 AM
Quibbling and making enemies along the way does not help our cause. It just makes the old guard more defensive, just like attacking Trump voters instead of Trump just kept up Trump's support. Also, don't attack anyone for what you think that they might do. Wait until they have done it. Nothing is saved by warnings. Either people get it or they don't. Prosecute real offenses, especially where there is sufficient evidence to get a conviction (metaphorically speaking, but literally when you can).
Fight smart rather than just hard."Progressives just need to organize themselves better."JohnH -> BenIsNotYoda... , March 09, 2017 at 07:53 AM
I disagree with this diagnosis. We need wholesale change. Losing all three houses and 2/3 of state legislatures is not sign enough that we need complete overhaul?Progressives need a new political party...the DNC chose more of the same when it chose Rodriguez, who was hand picked by BO and Hillary.RC AKA Darryl, Ron -> JohnH... , March 09, 2017 at 08:06 AM
There is no home for progressives in the DNC.You are correct in that is how it stands for now. The question going forwards is whether it is easier to take over the DNC or buy into a new build political party. Without campaign finance reform, an end to gerrymandering, ranked voting to replace first past the post, legislative term limits, and popular power of petition and referendum to overturn SCOTUS (e.g., Citizens United), then taking over the DNC would be much easier to pull off than creating an electorally effective progressive party out of whole cloth.JohnH -> RC AKA Darryl, Ron... , March 09, 2017 at 08:23 AMThe DNC is less concerned about Citizens United than you might think. The more expensive elections become, the more remote a third party challenge becomes.RC AKA Darryl, Ron -> JohnH... , March 09, 2017 at 08:32 AM
Democrats are like the Washington Generals, the team that got paid to lose to the Globe Trotters while making the game appear to be competitive..."The DNC is less concerned about Citizens United than you might think. The more expensive elections become, the more remote a third party challenge becomes..."JohnH -> RC AKA Darryl, Ron... , March 09, 2017 at 08:37 AM
[Understood. Between the two parties and Citizens United then a third party does not have much of a chance. Hence confiscating the DNC seems to be the only option other than not re-electing anyone until we get constitutional amendments to fix the other things.]Crowd funding ala Bernie...RC AKA Darryl, Ron -> JohnH... , March 09, 2017 at 08:41 AMMaybe, but it still needs to be better organized as Bernie proved.RC AKA Darryl, Ron -> BenIsNotYoda... , March 09, 2017 at 07:53 AMI am not disagreeing with you here. Progressives being organized is a complete overhaul. That is how establishment liberal came to mean neoliberal. Progressives have not been organized since FDR died.RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , March 09, 2017 at 07:59 AMLBJ's Great Society was not a progressive movement although it had progressive support from MLK, SCLC, and SNCC. The Great Society was primarily just LBJ using his southern drawl to broker with Dixiecrats to pass legislation that they would reluctantly support. That is how we got escalation in RVN War, outsource Fannie Mae, and expanded AFDC while retaining the single parent eligibility requirement. LBJ could deal broker, but those deals were not so progressive as sixties liberals wanted to believe that they were.BenIsNotYoda -> RC AKA Darryl, Ron... , March 09, 2017 at 08:10 AMYou are a well considered gentleman. PeterK and I don't negotiate with neoliberals and make it into a fight. You are probably correct.Peter K. -> RC AKA Darryl, Ron... , March 09, 2017 at 08:24 AM" Establishment liberals will hop on board when they see that the progressives ARE the new establishment."RC AKA Darryl, Ron -> Peter K.... , March 09, 2017 at 08:39 AM
No they'd rather lose than let the left win.I doubt that is true of many of them and certainly not EMichael or pgl. Their form of conservatism is entirely a matter of opportunities as they see them. That is practiced restraint in the face of reactionary opposition. They, like many establishment liberals, are just more technocratic than comfortable populist. To them populist is derogatory, undisciplined, and irrational. And they are correct about that until they are not.BenIsNotYoda -> RC AKA Darryl, Ron... , March 09, 2017 at 08:47 AMThey are IYIs (Intellectual yet Idiots) as Taleb calls them.ilsm -> RC AKA Darryl, Ron... , March 09, 2017 at 02:23 PMnot happening Perez is more same wall st neolib.RC AKA Darryl, Ron -> Tom aka Rusty... , March 09, 2017 at 07:23 AM
and they wear THE tin foil about their deep state"...There is no value to the ranting."Peter K. -> RC AKA Darryl, Ron... , March 09, 2017 at 11:48 AM
[Well it is certainly burning up a lot of disk space somewhere. So, there is a few pennies value there for HP, EMC, Seagate or someone. Also, it may save a marriage. Take out your rage anonymously online rather than with your boss, either at work or at home.
But otherwise, spot on.]Same thing goes for whining about the ranting. And so on.RC AKA Darryl, Ron -> Peter K.... , March 09, 2017 at 12:56 PMYep, but if one must then at least be brief about it.JohnH -> pgl... , March 09, 2017 at 07:51 AM"our prolonged current account deficit has meant growing net foreign debt for US whereas China's surpluses have led to a rise in net foreign assets."JohnH -> JohnH... , March 09, 2017 at 08:24 AM
Exactly how many people has our prolonged current account deficit employed?Correction: Exactly how many people have been employed by our giant capital account surplus? A few Wall Street bankers, I'm sure...which will certainly make pgl happy.pgl -> JohnH... , March 09, 2017 at 08:59 AMOh boy - answer is none. But it is such an off the wall question that there is no point to it.JohnH -> pgl... , -1The point went right over pgl's head--you can estimate how many jobs are linked to exports, and how many jobs are lost from imports...but capital account surpluses cannot be linked to any jobs, unless you count those of a few Wall Street traders.
[Feb 20, 2017] Obama as a pusher of austerity
Feb 20, 2017 | economistsview.typepad.comPeter K. -> Peter K.... February 20, 2017 at 07:52 AM , 2017 at 07:52 AMhttp://www.politifact.com/truth-o-meter/statements/2016/jan/12/barack-obama/we-have-cut-our-deficits-three-fourths-obama-state/Fred C. Dobbs -> Peter K.... , February 20, 2017 at 08:08 AM
We have cut 'our deficits by almost three-quarters,' Obama says in State of the Union
By Louis Jacobson on Tuesday, January 12th, 2016 at 10:39 p.m.
A year ago, President Barack Obama said during his 2015 State of the Union address that the United States has seen "our deficits cut by two-thirds" during his tenure. We rated that claim Mostly True. During his 2016 State of the Union address, Obama raised the bar.
After citing some of his administration's economic accomplishments, he said, "We've done all this while cutting our deficits by almost three-quarters."
Has the deficit-reduction expanded during the past year? We took a closer look.
Let's start with an important reminder: The deficit is not the same as the debt.
A country's deficit is the difference between what the government collects in revenues and spends in one year. The national debt, by contrast, is the accumulation of all annual deficits minus any annual surpluses.
When we checked Obama's assertion a year ago, he compared his first budget year in office -- 2009 -- to 2014, using the deficit as a percentage of gross domestic product, or GDP. Economists consider this a valid way to measure the size of the deficit -- in fact, for most purposes, it's the best way, since it factors in the economy's change over time.
Here's the recent history of the deficit as a percentage of GDP. The years 2009 through 2014 come from historical data maintained by the Office of Management and Budget. The 2015 figure is the most recent estimate by the nonpartisan Congressional Budget Office, released in August 2015.
Fiscal year Deficit as a percentage of GDP
According to this data, the deficit as a percentage of GDP has fallen by 76 percent -- almost exactly what Obama said.
If you use dollars rather than percentage of GDP, the decline is a bit smaller but still pretty close -- 70 percent.
That said, experts have told us that while Obama's math may be correct, it's missing some important caveats.
First, it's important to note that the deficit swelled in 2009 partly because of the massive stimulus program to jumpstart the cratering economy. This temporarily elevated level set the stage for the unusually precipitous decline.
"This is not to say that that the large deficit was his fault, but if one used the 2008 deficit as a frame of reference, the comparison would be quite different," Alan Auerbach, University of California Berkeley professor of economics and law, told us a year ago.
Also, some economists we've consulted pointed out that the 2009 fiscal year was Obama's first year in office, and so not necessarily a good starting point since he had little control over the spending in that year.
There's another issue. Princeton University economics professor Harvey Rosen told us the more important question is whether Obama has put the government on a path that will keep deficits stable.
"And the answer is no," Rosen said, because entitlement programs, such as Medicare, Medicaid and Social Security, have not had substantial reform.
The long-term forecast for the deficit illustrates this point. Absent substantial reform, the Congressional Budget Office expects a few more years of short-term deficit decreases followed by bigger shortfalls in 10 and 20 years.
The most recent projections show deficits as a percentage of GDP remaining lower than today's level through 2018, then beginning an upward curve. Between 2019 and 2022, the deficit is set to rise from 2.8 percent of GDP to 3.7 percent of GDP. It is not projected to fall below 3.4 percent through 2025.
We should also note that the picture on the debt is not as rosy as it is for the deficit. When Obama took office, the debt held by the public stood at $6.3 trillion. Since then, it has more than doubled to $13.6 trillion.
Finally, presidents don't move the economy on their own (the economy can be affected for good or ill by global trends and technological change) and must cooperate with Congress when steering fiscal policy.
Obama said we have cut "our deficits by almost three-quarters."
The numbers check out if you start with fiscal year 2009, his first year in office. But it's worth remembering that 2009 had a historically high deficit, and that projections show the deficit increasing again in just a couple years.
We rate the claim Mostly True.'Let's start with an important reminder:Peter K. -> Fred C. Dobbs... , February 20, 2017 at 08:22 AM
The deficit is not the same as the debt.'
This is one of those 'half-full/half-empty'
We have no real hope (or expectation) of
reducing the Debt, short of something
REALLY dramatic happening.
(Go back on the Gold Standard,
at ~$1M per ounce maybe.
But we can get the rate of
increase to decline, now & then.
Meanwhile, the Debt is going to
just keep being rolled-over.Wrong.Fred C. Dobbs -> Peter K.... , February 20, 2017 at 10:24 AM
Bill Clinton balanced the budget and gave us surpluses thanks to the Dot.com stock bubble.
Greenspan and conservatives argued we needed Bush's tax cuts b/c balanced budgets are bad.
They're hypocrites with their double standards.
Meanwhile Obama brags about bringing our deficit down by about three-quarters during a time of stagnant wages.
He helped give us Trump. Mission accomplished. Time to go party at billionaire Richard Branson's private island.
'Bill Clinton balanced the budget and gave us surpluses thanks to the Dot.com stock bubble.'Fred C. Dobbs -> Peter K.... , February 20, 2017 at 10:30 AM
Credit is due to Internet-inventin' Al Gore.We can get the rate of Debtilsm -> Peter K.... , February 20, 2017 at 01:19 PM
increase to decline, now & then.
Invent *teleportation* (say) and
we can cut the rate to zero yet again.
Meanwhile, the Debt is going to
just keep being rolled-over.
The surpluses did not go to buying back T Bills.
Cash surpluses in the entitlements (payroll receipt were in the SS and medicare accounts exceded outlays) were spent on programs not covered by cash received from "general tax revenues".
[Feb 19, 2017] The neoliberal myth of the capital strike or bond vigilantes.
Feb 19, 2017 | economistsview.typepad.comPeter K. : February 18, 2017 at 06:57 AM , 2017 at 06:57 AMThe myth of the capital strike or "bond vigilantes."Peter K. -> Peter K.... , February 18, 2017 at 07:05 AM
The myth of capital strike. I was more on Team Streeck than Team Tooze in their great LRB showdown.* But this followup post by Tooze** is very smart. Mostly he's just trying to bring some much-needed order to a complicated set of debates about the role of private finance, credit markets, central banks and the state. But he also scores, I think, a stronger point against Streeck than in the LRB review: Streeck exaggerates the threat of capital strike in modern "managed-money" economies. As Tooze says:
Greece, Spain, Portugal, Ireland even Italy and France all experienced bond market attacks. But this is because they were left by the ECB in a situation which was as though they had borrowed their entire sovereign debt in a foreign currency with no central bank support. That peculiarity is the result of deliberate political construction. To generalize and reify it into a general theory of capitalist democracy in crisis is highly misleading.
I think Tooze is right: behind the apparent power of the bondholders there's always either a hostile central bank, or else other, stronger countries.
There is the famous case of Bill Clinton dropping his campaign pledge of a middle class spending bill in favor of deficit reduction, succumbing to the arguments of Robert Rubin and Greenspan.JW Mason -> Peter K.... , February 18, 2017 at 08:36 AM
DeLong defends it. PGL lies about it b/c he is dishonest about economic history.
But really Greenspan told Clinton that if he didn't reduce the deficit that he'd raise rates and kill his chance of re-election. It was blackmail.
[James Carville joked that he wanted to be reincarnated as the bond market.]
Maybe that spurred "national savings" and private investment but that investment also gave us the Tech stock bubble which led to the jobless recovery of the Bush years which morphed into the epic housing bubble.
Bubble, bust, rinse, repeat.
To be fair, BDL gives a very clear account of this episode in that old "Republic of the Central Banker" piece and elsewhere. Makes it clear it was Greenspan, not "the markets", that vetoed the stimulus, just as you say.Peter K. -> JW Mason ... , February 18, 2017 at 09:58 AMHey! First of all thanks for the eclectic mix of links. Very interesting.ilsm -> Peter K.... , February 18, 2017 at 12:55 PM
This one? I wasn't aware of it but thanks again for the heads up
I'm not an expert but just vaguely remember DeLong defending Clinton's deficit reduction in a straight-forward honest manner because real interest rates were high or something. It was an honest defense of his slightly neoliberal center-left political philosophical beliefs.
"eclectic" have mercy some of us here are techies from the 60's who did not have to take English......Peter K. -> ilsm... , February 18, 2017 at 05:08 PMit's good word:ilsm -> Peter K.... , February 18, 2017 at 05:21 PM
"Thoma's daily links are eclectic.":<)Peter K. -> JW Mason ... , February 18, 2017 at 10:01 AMBut point taken. My poor wording seemed to have BDL defending Greenspan. As I said I just remember BDL defending Clinton's approach to deficit reduction in that it led to the glorious 90s.
In mind BDL seems to veer back and forth from brutally honest wide lens accounts, to narrowly defending Democrats.
[Feb 12, 2017] Austerity The History of a Dangerous Idea by Mark Blyth
See also Mark Blyth--"Liberalisms' great trick has been to naturalize very difficult political contests."
Feb 12, 2017 | www.amazon.com
Selected as a Financial Times Best Book of 2013
Governments today in both Europe and the United States have succeeded in casting government spending as reckless wastefulness that has made the economy worse. In contrast, they have advanced a policy of draconian budget cuts--austerity--to solve the financial crisis. We are told that we have all lived beyond our means and now need to tighten our belts. This view conveniently forgets where all that debt came from. Not from an orgy of government spending, but as the direct result of bailing out, recapitalizing, and adding liquidity to the broken banking system. Through these actions private debt was rechristened as government debt while those responsible for generating it walked away scot free, placing the blame on the state, and the burden on the taxpayer.
That burden now takes the form of a global turn to austerity, the policy of reducing domestic wages and prices to restore competitiveness and balance the budget. The problem, according to political economist Mark Blyth, is that austerity is a very dangerous idea. First of all, it doesn't work. As the past four years and countless historical examples from the last 100 years show, while it makes sense for any one state to try and cut its way to growth, it simply cannot work when all states try it simultaneously: all we do is shrink the economy. In the worst case, austerity policies worsened the Great Depression and created the conditions for seizures of power by the forces responsible for the Second World War: the Nazis and the Japanese military establishment. As Blyth amply demonstrates, the arguments for austerity are tenuous and the evidence thin. Rather than expanding growth and opportunity, the repeated revival of this dead economic idea has almost always led to low growth along with increases in wealth and income inequality. Austerity demolishes the conventional wisdom, marshaling an army of facts to demand that we austerity for what it is, and what it costs us.
Metallurgist TOP 1000 REVIEWER on April 20, 2013 Format: Hardcover Vine Customer Review of Free Product ( What's this? )An interesting Keynesian view of the current EU austerity programsDavid Lindsay on September 25, 2016 Format: Paperback Verified Purchase
" I found this to be a very interesting and thought provoking book. The author makes his viewpoint very clear with the book's subtitle "The History of a Dangerous Idea". The essence of the author's argument is that austerity is unfair because it makes workers pay for the mistakes of banks, and even more importantly, dangerous because it does not lead to prosperity, but only to decreased economic growth and increased unemployment. This thesis is backed up by an analysis of the banking crisis of 2008, how it spread from the US to the EU, why the single currency Euro has made the problem worse for the EU and why using austerity to solve the problems will not work. It also discusses the history of the idea of austerity, both in terms of the economic theory that promotes it and the economic history that does not. Conservatives, who find Keynesian economics to be not only wrong, but also the road to economic ruin, will likely be turned off by the book's subtitle and many of the arguments that Professor Blyth utilizes. However, there is a lot of data in this book that they should look at, if only to criticize it. I found this book very enlightening and while I do not agree with all of Professor Blyth's ideas (particularly those of the last chapter), I learned a lot, so for me it was 5-stars.
What is in the book?
The book is divided into 7 chapters, which cover the following:
Chapter 1 - A Primer on Austerity. This is a short chapter that summarizes the main thesis of the book (mentioned above), and sets the stage for the more detailed discussions in subsequent chapters.
Chapter 2 - America: To Big to Fail? This is an excellent chapter that summarizes the origins and unfolding of the 2008-banking crisis in the US. This is a very complicated story, which Professor Blyth tells in a clear manner. The story revolves around repurchase agreements (Repos), mortgage backed securities (MBS), collateralized debt obligations (CDO), credit default swaps (CDS), and how all these interacted in a climate of deregulation to produce the crisis. Professor Blyth does a good job of explaining these terms and how the interaction worked.
Chapter 3 - Europe: Too Big to Bail? This is another very illuminating chapter. It shows how Europe, which first believed it was not going to be affected by the US banking crisis, became a major casualty of it and their own internal banking problems. All these factors were compounded by the single currency Euro, which has removed devaluation as a solution to the crisis, instead fostering the idea that governmental austerity was the only way to correct a problem produced by the private banking sector.
Chapter 4 - Intellectual History of a Dangerous Idea 1692-1942. This chapter goes back to the writings of John Locke, David Hume and Adam Smith to see how the idea of austerity developed. It also covers the idea in the early 20th century and the development of anti-austerity Keynesian economic theory. It is a nice primer on classical economic ideas.
Chapter 5 - Intellectual History of a Dangerous Idea 1942-2012. This chapter carries the story of the idea of austerity into the present time. It shows how the idea of austerity, discredited by the Great Depression and the success of the Keynesian solution (although conservatives would argue these successes were illusory and set the stage for future economic problems), has been resurrected by economists writing in the latter part of the 20th century and early 21st.
Chapter 6. Austerity's Natural History 1914-2012. Blyth presents a lot of data that shows that, contrary to the theories presented in the previous chapter, austerity has not worked in practice. Much of the chapter is spent it refuting the writings of several economists that say that the recent historical data does support the idea. Blyth contends that in general it does not and if is does in a few cases it either does not when all the data is considered, or worked only marginally under a very limited set of conditions.
Chapter 7 - The End of Banking, New Tales and a Taxing Time Ahead. This is a very short eleven-page chapter, but perhaps the most controversial on in the book. Blyth, initially a supporter of bank bailouts as absolutely necessary to prevent a complete collapse of the banking system and with it the whole capitalist economic system and with it democratic society as a whole, now questions whether in might not have been better to let the banks fail. He cites the case of Iceland where the banks were allowed to fail and society has recovered. This was done by making the bank's creditors bear the cost of failure, instead of all of Iceland's citizens. He notes that most of this loss was borne by foreign creditors of a very small country, whose banking system was an immense part of the country's economy, but was small compared to the economies of the US or the EU. Unfortunately, he fails to say how a banking collapse in the US or EU could be handled when the systems are huge compared to Iceland's and where the creditors are largely internal. He does not explain how the failure of these huge banking systems, with their internal creditors, would not result in the scenario he originally envisioned. I found this analysis to be poor and not in keeping with the thoroughness of the rest of the book. Blyth also floats the idea of huge tax increases, either through a one-time tax on assets or a very large increase in higher bracket tax rates. Conservatives, and many not quite so conservative, will likely blanch at these ideas. There is no discussion of the political difficulties of doing this or very much development of the idea, which is contained in only the last four pages of the book.Brilliant OverviewFang on September 27, 2016 Format: Paperback Verified Purchase
" Mark Blyth is a professor at Brown University and he explains why austerity doesn't work. He points out that whenever austerity has been tried in the past it has usually proven to be disastrous. What its supporters often seem to forget is that one person's spending is another's income and demand in the economy would collapse if everyone stopped spending. The book is a sobering read because Blyth is not optimistic about the future. However, the book is well written and is often funny.
Blyth shows that the case for austerity does not add up. The US did not pursue austerity during the recession and its economy has been growing. US GDP is 10% higher than it was in 2007. The EU has pursued austerity with vigor, but GDP in the euro zone is still lower than it was in 2007. Blyth shows that countries that cut the most have had lower rates of growth. Blyth claims that all the countries that cut public spending in response to the financial crises had significantly more debt in 2012 than when they started. For example, Ireland's debt to GDP ratio more than quadrupled, from 24.8% in 2007 to 106.4% in 2012. The other problem is that austerity increased unemployment. Throughout southern Europe, unemployment has been at levels not seen since the Great Depression. It is still over 20% in Spain and Greece. As a result of cutting public expenditure Greece's GDP dropped by 30% in four years. There is no evidence that austerity improves growth.
Blyth spends a lot of time trashing the pro-austerity thinking that took place in Europe. Germany is driving economic policy for the euro zone and they have never believed in Keynesian economics. Keynes advised that austerity was a bad idea during a recession. German politicians seem to believe that all nations could have trade surpluses if only they tried hard enough, despite the fact that it is impossible for all countries to have a surplus. Only one European country can be Germany. The Germans have often advocated the sort of solutions that failed in the 1930s. They argue that budget deficits and government debt have to be kept under strict control. The Maastricht Treaty, which established the EU, required that national debt should not exceed 60% of GDP and the deficit should not exceed 3.0%. Entry to the euro also requires a budget deficit of 3.0%.
Blyth points out that when you have a deficit, you can either raise taxes or cut spending to fill the gap. The British government of David Cameron favored the latter in 2010. The British deficit had reached 10% in 2010. However, UK government debt went up, not down, despite the cuts, from 52.3% of GDP in 2009 to 90.7% in 2013. The same pattern was repeated throughout the euro zone. Cutting public expenditure shrank the underlying economy.
The German argument is that running large deficits increases the risk of high inflation. Blyth points out that the Germans have selective amnesia about their past. It was the Wall Street Crash in 1929 not hyper-inflation in 1924 that led to Hitler. Before the crash, 1.25 million people were unemployed in Germany. Hitler was an accidental Keynesian and by 1937 German unemployment had fallen from six million to one million. Unfortunately, much of his spending involved preparing for war. Blyth argues that Germany's continuing insistence on austerity is the biggest threat to the euro zone.
According to Blyth, the current version of the austerity argument was created by a group of Italian economists, originating from Bocconi University, in Milan. He explains why their arguments are deeply flawed. Blyth argues that, apart from Greece, public sector debt in the euro zone countries was not out of control before the financial crises. Blyth rubbishes the theory of "expansionary austerity," that cutting spending will lead to higher economic growth. The "austerians" believed that large spending cuts would be followed by expansion rather than contraction. The reason, they suggested, was that decisive fiscal austerity created confidence in the private sector. Keynesians agreed that insufficient private spending was the cause of the problem, but only governments could stimulate demand on the scale needed. Austerity failed to stimulate demand in Europe. Blyth also argues that everybody cannot cut their way to growth at the same time. The IMF once went along with austerity but it has recently concluded that austerity has had major adverse economic effects.
Blyth is worried that inequality could become a serious problem in the US. The 400 richest Americans own more assets than the poorest 150 million. He argues that both major parties have written off the bottom 30% of society. He claims that the American working class has not had a pay rise since 1979, and globalization has failed them. He believes this explains the anger behind the Trump phenomenon. Blyth points out that rich Americans and the country's biggest companies are reluctant to pay tax, so government borrowing has had to go up. Blyth claims that he pays more tax than GE.
Blyth is critical of Republicans who advocated austerity. Republicans in the US also favored balancing the budget and cutting taxes. Keynesians, like Paul Krugman, argued that this is what Herbert Hoover tried to do in the early 1930s and the result was a 25% unemployment rate. Obama inherited an 11.4% budget deficit in 2009. The Republicans wanted to cut government expenditure but Blyth argues the reason the US has recovered faster than Europe is because it cut less. He makes it clear that it is poorer people who usually rely on government services to make ends meet that are the hardest hit when public expenditure is cut. He believes that the rich and corporate America need to start paying more tax. He also argues that the US government should probably have let its banks go bankrupt – as the Icelandic government did – rather than bail them out.
Blyth reminds us that 2008 was a private sector crisis. The debts of the banks landed on the balance sheet of the public sector through bank bailouts and quantitative easing. In other words, taxpayers bailed out the bankers. He calls this the "greatest bait-and-switch in modern history." The EU is imposing austerity on southern Europe and dismantling the welfare state in Greece in order to protect German banks that made stupid decisions.
Blyth in recent interviews has argued that the EU may have a sinister agenda and it really wants to drag wages in Western Europe down to East European levels so that it can better compete with China. I assumed this must be an exaggeration but it might not be. The Guardian mapped labor costs across the euro zone from 1999 to 2013. What they found is that German workers have barely seen wages rise for that 14-year stretch, despite Germany having massive trade surpluses. We could be in for real trouble.The Richness of Austerity
" Mark Blyth tries to convey a simple message: austerity simply does not work. Defining austerity as "voluntary deflation in which the economy adjusts through the reduction of wages, prices and public spending to restore competitiveness .best achieved by cutting the state's budget, debts and deficits" (p.2), Blyth argued that austerity's fallacies lies in the impossibility of having everybody to be thrift at the same time and the cyclical nature of debt (pp.7 and 12).
Blyth also suggests that austerity efforts unevenly hurt the lower strata of societies (p.8), and conflates debt and financialization problems in private sector (primarily referring to bank and financial institutions) into state (sovereign) issues (p.6 and p.23). In the first three chapters, Blyth strives to demonstrate that the financial and economic turmoil since 2008 is largely a crisis of financialization, lack of regulation, slow growth and imbalance between monetary policy and final creditor of printing press (in the case of Europe), not that of austerity (save the marginal case of Greece). Blyth argues that it is a mentality of treating these crises as endogenous and private actors as "rational" that underlay the bad policy choices in America and Europe (pp.91-93).
In chapters 4 through 6, Blyth provides an intellectual and practical history of austerity. It is suggested that a spirit of thrift and aversion towards state and state spending runs through the vein of economic liberalism, ranging from classical liberalism to neoclassical economics and to the Austrian school. In more contemporary era, it is public choice theory, neoliberalism and Milton Friedman's monetarism that carries this tradition forward to construct a pro-market and private-sector-favoring package that turns public spending into a corporate calculation of costs and benefits. Blyth goes on to illustrate the history of austerity in practice, arguing that it is usually the Keynesian expansionary policies that couple austerity that reinvigorated economy amid crises; austerity, carried out on its own, constitutes massive redistribution consequences.
Blyth obviously attempts to engage as wide an audience as possible in the public intellectual realm. As much as he is successful in his empirical chapters, Blyth appears to fight a deflationary economic policy with his own inflationary writing strategy. From chapters 4 to 5, he constantly conflates the moral teaching of thrift and financial prudence from Adam Smith to avoidance of debt, the Ordoliberalism's quest for order and proper state function to aversion of democratic politics, the methodological insights of public choice to a general fear of bureaucracy and government, and so on. These inflations, while sometimes credited, are bound to subject to scrutiny and questions.
Moreover, by glossing over the details of this rich intellectual history, Blyth dodges some key questions that his empirical chapters also fail to articulate: what is the distinction between private and public debt, and personal thrift and public austerity, when we talk about austerity, and how significant is it? How does this distinction play out in more classical economic philosophy?
And amid crisis, who should be considered the "ultimate creditor" or "final guarantor" of debt (and money)? There questions certainly exceeds the scope and intention of Blyth's book, but they should be instrumental in deepening our understanding of austerity.
[Jan 04, 2017] Cant We Kill the Deficit Hawk Industry?
Jan 04, 2017 | economistsview.typepad.comhttp://cepr.net/blogs/beat-the-press/can-t-we-kill-the-deficit-hawk-industry
January 4, 2017
Can't We Kill the Deficit Hawk Industry?
Yes, I know Peter Peterson * is a major source of employment in Washington and that the Washington Post editors and many pundits would have to look for substantive issues to talk about if they couldn't whine about the debt, but really it is time for these folks to grow up. The immediate provocation here is Steven Rattner's New York Times column * giving "2016 in Charts."
Most of the charts are actually quite interesting and useful, but then he ends the piece with a tirade about the prospects for the national debt under a Trump administration. Rattner warns:
"These huge tax giveaways - along with Mr. Trump's promises to increase infrastructure spending and not touch Social Security and Medicare - would blow up the deficit and add $4 trillion to the national debt over the next 10 years over and above current projections."
Just to be clear, there is no reason to be giving more money to Donald Trump's billionaire friends as he proposes, but the argument is not that it will "blow up" the deficit and add to the debt. The argument is that this money could be much better used educating our children, improving our infrastructure, and making health care affordable, among other things.
The debt stuff is just silliness that we really need to get over. The problem of an actually excessive debt would show itself in high interest rates and high inflation rates. Have you checked those measures lately? Long-term interest rates are still way below their levels from the late 1990s when the government was running surpluses. And inflation remains persistently below the Fed's 2.0 percent target and in recent months has edged downward. (And, for those keeping score at home, the government's ratio of interest payments to GDP is near a post-World War II low.)
Furthermore, the whole focus on the debt encourages sloppy thinking that has no place in serious policy discussions. The government makes obligations for us all the time that don't take the form of explicit debt. Donald Trump wants to have private companies spend a trillion dollar building infrastructure that they will then recoup in tolls. How do these tolls differ from taxes? So we would be doing bad things to our kids if we financed infrastructure with debt, but then taxed to repay the bonds, but if private companies charge the same amount (most likely much more) in tolls, everything is cool?
To take a much more important example, grants of patent and copyright monopolies are ways in which the government finances innovation and creative work. We pay $430 billion a year for prescription drugs that would likely cost around $60 billion in a free market without patents and related protection. (Yes, you can read more in my [free] book, "Rigged." *** ) If the government imposed a tax of $370 billion a year on drugs being sold in a free market the deficit hawks would be yelling and screaming about high taxes, but when we give drug companies a legal monopoly so that they can add this amount to the price of drugs it's no big deal?
Okay, this is just silliness. We need discussions of the economy that are serious. When people scream about debt and deficits they are not being serious. The national debt is not a real measure of anything and folks should know that even if the "experts" don't.
-- Dean BakerPeter K. -> anne... , January 04, 2017 at 06:50 AMPete Peterson and the deficit hawks are against public investment. They helped sway Bill Clinton to balance the budget and lean on the Fed to spur investment.anne -> Peter K.... , January 04, 2017 at 06:57 AM
Which combined with financial deregulation gave us the Tech stock and housing bubble/busts.
Disastrous for the average worker even if the Trumps of the world could buy up assets for cheap on the downside.
And the aptly named Rattner is a Democrat.And the aptly named...Peter K. -> anne... , January 04, 2017 at 07:12 AM
[ I am not interested in personal insults and will immediately dismiss any comment containing such an insult. ]duly notedanne -> Peter K.... , January 04, 2017 at 07:26 AMPete Peterson and the deficit hawks are against public investment. They helped sway Bill Clinton to balance the budget and lean on the Fed to spur investment.JohnH -> Peter K.... , January 04, 2017 at 07:43 AM
Which combined with financial deregulation gave us the Tech stock and housing bubble/busts....
[ Important argument, that warrants further development. ]"They helped sway Bill Clinton to balance the budget and lean on the Fed to spur investment." Huh?JohnH -> JohnH... , January 04, 2017 at 07:44 AM
Fed policy under Greenspan was consistently contractionary after 1994.
Bill Clinton did need much convincing when it came to balancing budgets and neither did Hillary. Bill was lucky the tech boom came along and he got to ride it...allowing Wall Street Democrats to rule the Democratic Party for a generation or more.correction: Bill Clinton did NOT need much convincing when it came to balancing budgets...pgl -> JohnH... , January 04, 2017 at 07:47 AM"Fed policy under Greenspan was consistently contractionary after 1994."pgl -> pgl... , January 04, 2017 at 07:49 AM
More stupidity? It was tight during 1994 but after? Just the opposite. Please stop - we have seen more than enough dumb comments from you.Interest rates rose during 1994 but afterwards came down:Peter K. -> JohnH... , January 04, 2017 at 07:58 AM
I wish JohnH would bother to check the facts before writing his usual stupidity.It's like how Yellen recently said she doesn't believe we need fiscal stimulus.Peter K. -> Peter K.... , January 04, 2017 at 07:59 AM
Private investment can do the job.
Meanwhile the Fed will raise rates and kill jobs so there isn't too much wage growth.
Maybe real estate developer Trump will notice that the Fed is killing jobs even as he tries to save them and "bring them home."
"It's like how Yellen recently said she doesn't believe we need fiscal stimulus.'DeDude -> anne... , January 04, 2017 at 07:31 AM
Neoliberalism...The deficit Hawk industry always go into hibernation when a GOPster move into the White House. As Cheney so eloquently stated: "Reagan proved that deficits don't matter". Deficit concerns are a tool used against Democratic presidents to make sure that the economy doesn't do to well under their leadership.Peter K. -> DeDude... , -1Donkey-elephant simplifications, the truth is more complicated.
Bill Clinton got the budget to surplus in partnership with Newt Gingrich. Hillary bragged about her husband's economic record - which includes his deficit reduction - and her fiscal plans were revenue neutral to much acclaim to the wonks.
Of course Bush squandered the surpluses with tax cuts for the rich just as Trump will squander Obama's years of deficit reduction. Why do the Democrats bother? So they'll look good to the financial industry and their donors?
[Nov 28, 2016] Bill Black Howard Dean Wants to Continue Austeritys Assault on the Working Class
Nov 28, 2016 | www.nakedcapitalism.com by By Bill Black
I researched Dean's statements about austerity to try to understand why a man who opposed the DLC would be so enthusiastic about inflicting austerity on the working class. I found part of the answer. Dean was Vermont's governor. Dean explained to a conservative " Squawk Box " host why he supported austerity based on his experience as a governor.
There's a balance sheet that has to be met here and every Governor knows that, both Republicans and Democrats. And you got to do that when you're the President.
The first sentence is correct. The second sentence is false. States do not have sovereign currencies. The United States has a sovereign currency. A nation with a sovereign currency is nothing like a state when it comes to fiscal policy – or a household. I cannot explain why Dean does not understand the difference and has apparently never read an economic explanation of the difference. But we can fill that gap. Again, I urge his supporters who have the ability to bring serious policy matters to his attention to intervene. Dean is flat out wrong because he does not understand sovereign currencies. The consequences of his error are terrible. They would lock the Democratic Party into the continuing the long war on the working class through austerity. That is a prescription for disaster for the Nation and the Democratic Party.
Progressive Democrats enlisted in the New Democrats' austerity wars because they seemed to be politically attractive. The political narrative was as simple as it was false. The austerity creation myth was told first by Bob Woodward in the course of writing his sycophantic ode to Greenspan as the all-knowing "Maestro" of the economy. Bill Clinton, as President-Elect, was given an economics lecture by Alan Greenspan. The economics lecture – from an Ayn Rand groupie – was (shock) that austerity was good and New Deal stimulus was evil. Bill's genius was taking the "Maestro's" words as revealed truth and turning his back on the New Deal. Bill embraced austerity. The economy grew. Bill ran a budget surplus – the holy grail of austerity. Bill was followed by Bush under whose administration economic growth slowed and the federal deficits reemerged. There was a Great Recession.
The creation myth was clear. The newly virtuous New Democrats (after instruction in economics by Saint Greenspan) embraced austerity and all was good. The vile Republicans, hypocrites all, had renounced the true faith of austerity and they produced mountains of evil debt that caused poor economic growth.
Dean pushed this narrative in his Squawk Talk appearance. When asked to explain the specific Bush policies that he claimed were to blame for poor growth continuing under President Obama, Dean went immediately and exclusively to Bush's increases in the federal "debt" to answer the question. "The biggest ones are the deficits that were run up . The deficits were enormous."
The New Democrats' narrative, which Dean parroted, is false. One of the definitive refutations of the Greenspan (and Robert Rubin) as Genius myth was by the economists Michael Meeropol and Carlos F. Liard-Muriente in 2007. Their refutation was inherently incomplete because it was "too early" – the collapse of the housing bubble in 2007, the 2008 financial crisis and the Great Recession were vital facts that helped reduce the myth to the level of farce. These facts were unavailable to academic authors publishing in 2007. The authors discuss the enormous role that the stock bubble played in the Clinton expansion, but they do not discuss the housing bubble's contribution.
Any tale that begins with Alan Greenspan providing Bill Clinton with the secret to economic success is justly laughable today. Clinton was our luckiest president when it came to economics. His expansion was largely produced by the high tech stock bubble. When it collapsed, the housing bubble, explicitly encouraged by Greenspan as a means of avoiding a severe recession, took up much of the slack. Bush eventually inherited from Clinton a moderate recession that led inevitably to moderately increased (not "enormous") federal deficits. The housing bubble then hyper-inflated, bringing the economy rapidly out of the moderate recession. The hyper-inflation, of the housing bubble, however, was driven by the three most destructive epidemics of financial fraud in history and it caused a global financial crisis and the Great Recession. A great recession leads inevitably to a very large increase in the federal budget deficit.
Greenspan, Bob Rubin, and Bill Clinton were lucky in their timing – for a time. The historical record in the U.S. demonstrates that periods of material federal budget surpluses are followed with only modest lags by depressions and, now, the Great Recession. Fortunately, such periods of running material budget surpluses have been unusual in our history. As my colleagues have explained in detail, the U.S., which is extremely likely to run balance of trade deficits, should typically run budget deficits.
We all understand how attractive the myth of the virtuous and frugal Dems producing great economic results under Clinton while the profligate Republicans produced federal deficits and poor economic growth was to Democratic politicians. But the Dems should not spread myths no matter how politically attractive they are. The catastrophic consequences of President Obama and Hillary Clinton coming to believe such myths were shown when, as I have just described in several columns, they promised to lead the long war against the working class that is austerity.
If people like Dean focused on the origins of the Clinton creation myth they would run from its lies. The original actual creation myth is found in the book of Woodward. The brilliant Greenspan converted the young Bill Clinton by exposing him to the one true faith (theoclassical economics) and successfully calling on Clinton to renounce the devil (FDR) and all his work (the New Deal) and to sit at the (far) right hand of Ayn Rand. The result was economic nirvana. Politically, that's a terrible creation myth for Democrats to tell around the campfire – or to voters. Economically, it's a lie, indeed, a farce.
By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Jointly published at New Economic Perspectives Soulipsis November 28, 2016 at 6:30 amDavid England November 28, 2016 at 6:52 am
This is one of the arguments, the making of which I've never understood. How could Dean not know what he's doing by supporting austerity? How could the 0.001% not know? Of course they know! Sometimes I think hyperacademics like who can be found trolling around this website are so involved in the prestige of their discipline that they lose track of the world of wordless import that makes up most of reality. This is why illiterate people are sometimes very wise, they have no choice but to remain immersed in the wisdom of the Creation. I think Black and others are wasting their breath on explanations and urgings such as this. And I think the brutality of Daesh and the Saudis is the brutality of the 0.001%, and it's a delusion to think they don't have the social model that is on display in Syria planned for the domestic U.S. market. What else is the 2012 NDAA for? NSPD 51, and the National Incident Management System. It's coming, and Dean is just a little player. He probably got photographed doing something he shouldn't've and now he's stuck. Whatever, how could he not know? He knows. Bill Clinton doesn't or didn't know? Please.
Skip Intro November 28, 2016 at 3:25 pm
I am no economist, but it seems to me that this power of sovereign currency (to borrow increasing amounts indefinitely) only works so long as people believe that they will be repaid. If one continues to to rack up an exponentially growing debt, eventually that belief will be challenged. There are numerous areas of expenses which could be trimmed, but they generally involve a relinquishing of our empire.susan the other November 28, 2016 at 3:33 pm
One key to maintaining the appearance of sustainability for increasing debts is making sure much of the deficit spending is going into productive infrastructure investments. In this case the increasing debt will be accompanied by actual growth.Steve C November 28, 2016 at 7:12 am
It puzzles me that private parties are allowed to buy sovereign debt. It changes the debt from sovereign to private. Making it no longer an instrument of use but of exchange. Selling sovereign debt destroys sovereignty. Much better to force the privateers to come up with their own investments for which they bond and trade with each other and leave sovereign money out of it. The banksters and their ilk like George Soros, King of the Vigilantes, should be detained until they pay back everything they embezzled. and etc. It's just too easy for banksters to buy sovereign debt (with a commodity they are legally allowed to create at the sovereign's expense) and then demand interest on it. So clearly Howie Dean is a ditz.divadab November 28, 2016 at 7:23 am
Dean as governor wasn't known as particularly progressive. He emerged as such when he went national.Vatch November 28, 2016 at 10:06 am
Yup – he was never the leftie he was presented as. He and Bernie are opposed on many issues.
Also he's worse on foreign policy than Bernie (who's mediocre art best) and even Trump – he's in the Neocon camp.polecat November 28, 2016 at 12:11 pm
I've read similar things in comments at NC and elsewhere about California Governor Jerry Brown, whose left wing moonbeam reputation doesn't match his big business friendly actions.Buttinsky November 28, 2016 at 12:56 pm
Jerry Brown is or was, if I recall, a practicing Jesuit ..
Penance people --Michael November 28, 2016 at 12:12 pm
Jerry Brown - Zen Jesuit:
http://www.nytimes.com/1987/01/29/world/kamakura-journal-zen-jerry-brown-and-the-art-of-self-maintenace.htmlRuben November 28, 2016 at 7:13 am
Dean has his failings, but being the first Governor to sign a Civil Unions bill, implementing a 99%+ child health care access law, and creating a systematic way for elementary school teachers to get resources to families with kids that are in trouble is a pretty sound Progressive legacy.Dirk77 November 28, 2016 at 8:26 am
It is not clear to me that Austerity is a long war against the working class. It might be that Austerity turns out class neutral, or even pro-working class, depending on how gov't expenditures shortages are applied across sectors? If Austerity is a war against the working class then the opposite of Austerity, Stimulus, necessarily is pro-working class but we have seen that Stimulus might be used to bail out non-working class sectors leaving working class wages and employment opportunities depressed.Dirk77 November 28, 2016 at 8:46 am
I suspect it is the way it is applied. The shocking hypocrisy of the current pro-austerity people is what jars Black I guess. I mean these same austerity people were for tax cuts for the rich, giving trillions to Wall Street, forgiving their (real) crimes, and spending trillions more on wars whose result was to cause misery for millions of people and make the world an even less safe place. And then they talk about keeping a tight budget? Hell needs to add a ninth circle for these people.Dave November 28, 2016 at 11:43 am
*tenthSteve H. November 28, 2016 at 9:02 am
Man, I love this site. I get more out of the comments than the articles sometimes. Your paragraph does more to encapsulate reality than do ten long pages of learned professors.
Vatch, re "Moonbeam Brown", just google
"Something's not right about this California water deal, L.A. Times"PlutoniumKun November 28, 2016 at 10:22 am
It's MMT for me,
And austerity for thee.
[From Mexico]Ignacio November 28, 2016 at 11:09 am
Austerity is primarily against the working class because it is deflationary. It benefits creditors over debtors. And creditors are invariably the wealthy (i.e. the owners of capital). A moderately inflationary fiscal/monetary policy with a focus on full employment puts power in the hand of workers. An austerity policy (by which I mean one which puts an emphasis on balancing the books over employment) gives power to the owners of capital.Disturbed Voter November 28, 2016 at 7:15 am
Well, tell us a case in which austerity was inflicted against the richest when the government cuts on private airports, ah no they are private.knowbuddhau November 28, 2016 at 7:32 am
Response to Ayn Rand A doesn't equal A if you are in government. Politicians can talk out of both sides of their mouth at the same time.
Response to Howard Dean Dean who? ;-)Andrea Greenberg November 28, 2016 at 9:54 am
> But the Dems should not spread myths no matter how politically attractive they are.
All myths are not created equal. I rue the day when "myth" became pejorative.
I dare say Prof. Black lives by one. If Jung was right, and I think he was, we all do, albeit ignorantly, as in, we ignore their functioning (even my beloved science is mythological, but that doesn't make it untrue). And his recasting of the myth of austerity in biblical terms is as potent as it is funny. Our denigration of myths is complete enough that Prof. Black can say the above, and yet do some very effective countermyth-making nonetheless.
Do the high priests of economics and politics really believe their public myth-making? Or is their a private understanding that better fits the phenomena?
I know I must sound like a broken record, but due to its regrettable unfamiliarity, this bears repeating.
1. The first function of mythology [is] to evoke in the individual a sense of grateful, affirmative awe before the monstrous mystery that is existence
2. The second function of mythology is to present an image of the cosmos, an image of the universe round about, that will maintain and elicit this experience of awe. [or] to present an image of the cosmos that will maintain your sense of mystical awe and explain everything that you come into contact with in the universe around you.
3. The third function of a mythological order is to validate and maintain a certain sociological system: a shared set of rights and wrongs, proprieties or improprieties, on which your particular social unit depends for its existence.
4. The fourth function of myth is psychological. That myth must carry the individual through the stages of his life, from birth through maturity through senility to death. The mythology must do so in accords with the social order of his group, the cosmos as understood by his group, and the monstrous mystery.
(From http://www.trinity.edu/cspinks/myth/campbell_4_functions_myth.pdf .)
As we all know so well. the myth of neoliberalism is as succinct as it is brutal. "Because markets" and "Go die," though, don't fulfill all four functions. If I had the economic and financial chops, I'd examine Saint Alan and the Church of Neoliberalism's mythology methodically and systematically with the intent to creatively destroy it. But that wouldn't be enough. It'd be helpful to offer an alternative, but I don't have that, either. Fat lot of good I am.
That's why I like Prof. Black's retelling so much. It puts the absurdity of the pseudo-mythology of neoliberalism in terms familiar enough that that absurdity stands right out.
And I also dare say what we desperately need now is a fully functioning and genuine mythology that leads us out of neoliberal hell and into a more perfect union of nature and society. First party to do so wins the future.jo6pac November 28, 2016 at 3:51 pm
Surprised that Black refers to Dean as a "progressive voice". That has never really been the case and it's especially not true now. Also surprised that Black supports Ellison whose foreign policy includes support for a no- fly zone in Libya- mirroring the position held by Clinton.tegnost November 28, 2016 at 9:58 am
My thought also on both counts.sharonsj November 28, 2016 at 11:17 am
I sense a connection between this and the peak oil demand article. In the '80's and beyond, financial services have sought and gained a control economy effect with student loans and more recently the ACA, and feel that fracking, QE and the housing bubble all fit in there somewhere as well. Basically it boils down to being easier to make money at the top when they choose where the income stream comes from, i.e., in the New Deal citizens got money in some form of cash payment, from SS to welfare, and could choose to spend the money on what they wanted to spend it on, which in turn caused uncertainty in the finance arena, not so much that they couldn't survive, but the financiers could envision a better world for themselves, enter student loans and now any kid without wealthy parents has a lifetime of unpayable debt, a drag on their professional income, or no advanced education with it's implicit restriction on income, or a combo of all three. This same dynamic led us to the ACA which is, as opposed to a medicare style plan that could potentially curtail costs, become little more than a payment stream, a class marker, and has nothing to do with healthcare except in the sense that high costs make indebted heath industry workers able to pay their own student loan, and a class warfare tool such that those wealthy healthcare industroids can separate their offspring from the herd by being able to pay for their offspring's education, as it does with the finance industry that manages the payment stream. I don't currently see this dynamic changing, alas but maybe the newfound vigor of the purple dems could be mobilized in this direction if they can ignore the payoffs for doing nothing.
As to the hyper inflation comment, I think any renter who has struggled with the disruptions caused by increased rents would say yes, that's hyperinflation, and indeed feels a lot like needing a wheelbarrow of cash to pay.Arizona Slim November 28, 2016 at 12:29 pm
Let's talk about reality. For most folks, more austerity is going to kill us. We are so squeezed now that we can barely pay our bills and save our homes. We have rampant price inflation, which both the government and the media pretend does not exist. And the latest figures for Xmas shopping show that although more people are buying stuff, they are spending less money. If the idiots running the country think tax breaks for the rich will boost the economy, then they have learned nothing from the last 30 years.Horatio Parker November 28, 2016 at 11:30 am
ISTR hearing that, if you want to grow your business, you need to get more people to buy more of your goods or services more often. Having more people buying less? Doesn't sound like a recipe for success.Dave November 28, 2016 at 11:39 am
I'm glad someone is saying that a correct understanding of the economy is where the Democrats need to be. Imagine the impact if a candidate ran on payroll tax relief, expanded SS and a job guranteee.
I like Keith Ellison as well, but I can't find anything about his economic policies. If Dean's economics are disqualifying, and Ellison suggested as an alternative, shouldn't we know if he's an improvement?larry November 28, 2016 at 11:45 am
The Democrats are going to have to completely reinvent themselves if they ever want to get a vote or a dollar from me again.
I went to a Democratic Party whine and cheese party the other day where the local "leadership" tried to harness some kind of crowd energy against Trump based on the mere fact that they had a D in front of their names.
The delicious moment came in the Q&A. I waited until after the usual regurgitations of racismphobiahatethreatsdisaster about Trump to ask my question:
"You had a winner in Bernie and your party chose that corrupt disaster Hillary–now we're supposed to trust you to lead us?" I thought the moderator was going to have a stroke. Her face turned an appropriate shade of blue-purple.
An agreeing buzz of people around me. It was positively sadistic watching the scrambling of the Democratic excusemakers shuffling their papers.flora November 28, 2016 at 12:16 pm
It is worse than you say for the Dems. Trump has once indicated that he understands the nature of a sovereign currency. If he wasn't bullshitting, then the Dems are in for an economic shock, at the very least.Sound of the Suburbs November 28, 2016 at 1:34 pm
Thanks for this post. Great final paragraph. The DLC neolib Dems' greatest achievement has been in presenting this terrible destruction as virtuous. 'We have to destroy the 90%'s economy in order to save it.'Sound of the Suburbs November 28, 2016 at 1:39 pm
We have been through a re-run of history.
1920s/2000s – high inequality, high banker pay, low regulation, low taxes for the wealthy, robber barons (CEOs), reckless bankers, globalisation phase
1929/2008 – Wall Street crash
1930s/2010s – Global recession, currency wars, rising nationalism and extremism
Milton Freidman used the old 1920s economics, neoclassical economics, as his base but didn't fix any of its problems.
Wall Street did exactly the same thing.
Jim Rickards ("Currency Wars" and "The Death of Money") has explained how the removal of Glass-Steagall allowed Wall Street to repeat 1929.
In 1929, they carried out margin lending into the US stock market to artificially inflate its value. They packaged up these loans in the investment side of the business to sell them on.
In 2008, they carried out mortgage lending into the US housing market to artificially inflate its value. They packaged up these loans in the investment side of the business to sell them on.
The FED responded with monetary policy that didn't work again, the "New Deal" pulled the US out in the end.
Richard Koo explains:
(In the first 12 mins)
In 1929, the FED wasn't quite so quick with monetary policy and stocks were a much more liquid asset and so the crash was so fast no one had a chance to deal with it as it was occurring.
Monetary policy did stop the initial crash in asset prices but didn't reflate the economy; you need a "New Deal" for that.
The only real difference.
Why are multi-nationals hoarding cash and not investing?
Oh look it's Keynes's liquidity trap, its exactly the same.
Keynes studied the Great Depression and noted monetary stimulus lead to a "liquidity trap".
Businesses and investors will not invest without the demand there to ensure their investment will be worthwhile.
The money gets horded by investors and on company balance sheets as they won't invest.
Cutting wages to increase profit just makes the demand side of the equation worse and leads you into debt deflation.
Fiscal stimulus is needed (the "New Deal")RBHoughton November 28, 2016 at 9:10 pm
Austerity is neoclassical mumbo-jumbo put forward by economists who don't understand money, debt and the money supply.
It's all in the Richard Koo video above.
Richard Koo has provided us with a graph of how it was IMF imposed austerity that killed the Greek economy at about 54 mins.
You can look at the IMF projection as well for a laugh.
What the IMF know about economics you could fit on the back of a postage stamp, its full of neoclassical economists.susan the other November 28, 2016 at 4:12 pm
Yanis Varoufakis gives a very brief outline of austerity and why it cannot work here (8 minutes)
https://yanisvaroufakis.eu/2016/11/23/austerity-in-8-minutes-why-it-does-not-work-why-it-is-still-practised/flora November 28, 2016 at 6:07 pm
Then there is the dutiful austerian Angela Merkel who stated that all members of the EU had "shared sovereignty" – and so that was why they had to tighten their belts to the last notch so the bond buyers could be paid back?David November 28, 2016 at 8:00 pm
"Democrats don't see a need to change policy – just the way they sell it"
as Thomas Frank says:
"What our modernized liberal leaders offer is not confrontation [with corporate corruption] but a kind of therapy for those flattened by the free-market hurricane: they counsel us to accept the inevitability of the situation."
Yep. Better PR will fix everything . /sYves Smith Post author November 28, 2016 at 8:21 pm
I'm sure this is explained elsewhere but I still am perplexed; states have to pay their debts but sovereign money-printing governments print money. So why not shift state expenses (schools, police, garbage pickup, pensions ) to the sovereign government which can print the money to cover the expense?ChrisAtRU November 28, 2016 at 8:42 pm
That is what that great socialist Richard Nixon did with revenue sharing. The Federal government gave states block funding, with anti-fraud oversight. Nixon figured that lower levels of governments had a better sense of their needs than the Feds did.
Ronald Reagan ended revenue sharing.Onlyindreams November 28, 2016 at 8:24 pm
If the "best of the best" Stephanie Kelton couldn't even get Sanders to break the cycle of mainstream economic "myths", who you gonna call ? If a simpleton like me can understand and believe basic MMT principles, I can not imagine the "brainiacs" running the country ( or vying to run the country) are innocent of the crime (assault with a deadly myth).
Who knows, with some luck, and he seems to be having a ton lately, the presumptive POTUS could be that accidental MMT'er. But I'm sure he would deny that luck had anything to do with it.
[Nov 23, 2016] Bill Black Hillarys Threat to Wage Continuous War on the Working Class via Austerity Proved Fatal
"... persona non grata ..."
"... Why would Obama normally have been thrilled to "start bringing down the deficit?" A budget deficit by a nation with a sovereign currency such as the U.S. is normal statistically and typically desirable when we have a negative balance of trade. No, it is not a "fact" that stimulus "added another $1 trillion to our national debt." Had we not adopted a stimulus program the debt would have grown even larger as our economy fell even more deeply into the Great Recession. ..."
"... Obama admits that stimulus was desirable. He knows that his economists believed that if the stimulus had been larger and lasted longer it would have substantially speeded the recovery. One of the most important reasons why dramatically increased government fiscal spending (stimulus) is essential in response to a Great Recession for a depression is that the logical and typical consumer response to such a downturn is for "families across the country" to "tighten their belts" by reducing spending. That reduces already inadequate demand, which leads to prolonged downturns. Economists have long recognized that it is essential for the government to do the opposite when consumers "tighten their belts" by greatly increasing spending. To claim that it is "common sense" to "do the same" – exacerbate the inadequate demand – because it is a "tough decision" makes a mockery of logic and economics. It is a statement of economic illiteracy leading to a set of policy decisions sure to harm the economy and the Democratic Party. In particular, it guaranteed a nightmare for the working class. ..."
"... No, no, no. I can feel the pain of my colleagues that are scholars in modern monetary theory (MMT). The U.S. has a sovereign currency. We can "pay" a trillion dollar debt by issuing a trillion dollars via keystrokes by the Fed. What Obama meant was that he would propose (over time) to increase taxes and reduce federal spending by one trillion dollars. Such an austerity plan would harm the recovery and reduce important government services. Again, the working class were sure to be the primary victims of Obama's self-inflicted austerity. ..."
"... First, the metaphor is economically illiterate and harmful. A government with a sovereign currency is not a "cash-strapped family." It is not, in any meaningful way, "like" a "cash-strapped family." Indeed, the metaphor logically implies the opposite – that it is essential that because the government is not like a "cash-strapped family" only it can spend in a counter-cyclical fashion (stimulus) to counter the perverse effect of "cash-strapped famil[ies]" cutting back their spending due to the Great Recession. ..."
"... Let's take this slow. In a recession, consumer demand is grossly inadequate so firms fire workers and unemployment increases. We need to increase effective demand. As a recession hits and workers see their friends fired or reduced to part-time work, a common reaction is for workers to reduce their debts, which requires them to reduce consumption. Consumer consumption is the most important factor driving demand, so this effect, which economists call the paradox of thrift, can deepen the recession. Workers are indeed cash-strapped. Governments with sovereign currencies are, by definition, not cash-strapped. They can and should engage in extremely large stimulus in order to raise effective demand and prevent the recession from deepening. Workers will tend to reduce their spending in a pro-cyclical fashion that makes the recession more severe. Only the government can spend in a counter-cyclical fashion that will make the recession less severe and lengthy. ..."
"... The Democrats have to stop attacking Republicans for running federal budget deficits. I know it's political fun and that the Republicans are hypocritical about budget deficits. Deficits are going to be "massive" when an economy the size of the U.S. suffers a Great Recession. We have had plenty of "massive" deficits during our history under multiple political parties. None of this has ever led to a U.S. crisis. We have had some of our strongest growth while running "massive" deficits. Conversely, whenever we have adopted server austerity we have soon suffered a recession. In 1937, when FDR listened to his inept economists and inflicted austerity, the strong recovery from the Great Depression was destroyed and the economy was thrust back into an intense Great Depression. ..."
"... As to the debt "commission" to solve our "debt crisis," it was inevitable that such a commission would be dominated by Pete Peterson protégés and that they would demand austerity and an assault on the federal safety net. That would be a terrible response to the Great Recession and the primary victims of the commission's policies would be the working class. ..."
"... For a nation with a sovereign currency, there is nothing good about the "record surpluses in the 1990s." Such substantial surpluses have occurred roughly nine times in U.S. history and each has been followed shortly by a depression or the Great Recession. This does not prove causality, but it certainly recommends caution. Similarly, "pay-as-you-go" has been the bane of Democratic Party efforts to help the American people. Only a New Democrat like Obama would call for the return of the anti-working class "pay-as-you-go" rules. ..."
"... No. It wouldn't have damaged our markets, increased interest rates or jeopardized our recovery. We had just run an empirical experiment in contrast to the Eurozone. Stimulus greatly enhanced our recovery, while interest rates were at historical lows, and led to surging financial markets. Austerity had done the opposite in the eurozone. ..."
"... Let's try actual common sense instead of metaphors that are economically illiterate. Let's try real economics. Let's stop talking about "mountains of debt" as if they represented a crisis for the U.S. and stop ignoring the tens of millions of working class Americans and Europeans whose lives and families were treated as austerity's collateral damage and were not even worth discussing in Obama's ode to the economic malpractice of austerity. Austerity is the old tired battle that we repeat endlessly to the recurrent cost of the working class. ..."
"... ends justify the means ..."
Nov 22, 2016 | www.nakedcapitalism.comBy Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Jointly published at New Economic Perspectives
I've come back recently from Kilkenny, Ireland where I participated in the seventh annual Kilkenomics – a festival of economics and comedy. The festival is noted for people from a broad range of economic perspectives presenting their economic views in plain, blunt English. Kilkenomics VII began two days after the U.S. election, so we added some sessions on President-elect Trump's fiscal policy views. Trump had no obvious supporters among this diverse group of economists, so the audience was surprised to hear many economists from multiple nations take the view that his stated fiscal policies could be desirable for the U.S. – and the global economy, particularly the EU. We all expressed the caution that no one could know whether Trump would seek to implement the fiscal policies on which he campaigned. Most of us, however, said that if he wished to implement those policies House Speaker Paul Ryan would not be able to block him. I opined that congressional Republicans would rediscover their love of pork and logrolling if Trump implemented his promised fiscal policies.
The audience was also surprised to hear two groups of economists explain that Hillary Clinton's fiscal policies remained pure New Democrat (austerity forever) even as the economic illiteracy of those policies became even clearer – and even as the political idiocy of her fiscal policies became glaringly obvious. Austerity is one of the fundamental ways in which the system is rigged against the working class. Austerity was the weapon of mass destruction unleashed in the New Democrats' and Republicans' long war on the working class. The fact that she intensified and highlighted her intent to inflict continuous austerity on the working class as the election neared represented an unforced error of major proportions. As the polling data showed her losing the white working class by staggering amounts, in the last month of the election, the big new idea that Hillary pushed repeatedly was a promise that if she were elected she would inflict continuous austerity on the economy. "I am not going to add a penny to the national debt."
The biggest losers of such continued austerity would as ever be the working class. She also famously insulted the working class as "deplorables." It was a bizarre approach by a politician to the plight of tens of millions of Americans who were victims of the New Democrats' and the Republicans' trade and austerity policies. As we presented these facts to a European audience we realized that in attempting to answer the question of what Trump's promised fiscal policies would mean if implemented we were also explaining one of the most important reasons that Hillary Clinton lost the white working class by such an enormous margin.
Readers of New Economic Perspectives understand why UMKC academics and non-academic supporters have long shown that austerity is typically a self-destructive policy brought on by a failure to understand how money works, particularly in a nation like the U.S. with a sovereign currency. We have long argued that the working class is the primary victim of austerity and that austerity is a leading cause of catastrophic levels of inequality. Understanding sovereign money is critical also to understanding why the federal government can and should serve as a job guarantor of last resort. People, particularly working class men, need jobs, not simply incomes to feel like successful adults. The federal jobs guarantee program is not simply economically brilliant it is politically brilliant, it would produce enormous political support from the working class for whatever political party implemented it.
At Kilkenomics we also used Hillary's devotion to inflicting continuous austerity on the working class to explain to a European audience how dysfunctional her enablers in the media and her campaign became. The fact that Paul Krugman was so deeply in her pocket by the time she tripled down on austerity that he did not call her out on why austerity was terrible economics and terrible policy shows us the high cost of ceasing to speak truth to power. The fact that no Clinton economic adviser had the clout and courage to take her aside and get her to abandon her threat to inflict further austerity on the working class tells us how dysfunctional her campaign team became. I stress again that Tom Frank has been warning the Democratic Party for over a decade that the policies and the anti-union and anti-working class attitudes of the New Democrats were causing enormous harm to the working class and enraging it. But anyone who listened to Tom Frank's warnings was persona non grata in Hillary's campaign. In my second column in this series I explain that Krugman gave up trying to wean Hillary Clinton from her embrace of austerity's war on the working class and show that he remains infected by a failure to understand the nature of sovereign currencies.
What the economists were saying about Trump at Kilkenomics was that there were very few reliable engines of global growth. China's statistics are a mess and its governing party's real views of the state of the economy are opaque. Japan just had a good growth uptick, but it has been unable to sustain strong growth for over two decades. Germany refuses, despite the obvious "win-win" option of spending heavily on its infrastructure needs to do so. Instead, it persists in running trade and budget surpluses that beggar its neighbors. England is too small and only Corbyn's branch of Labour and the SNP oppose austerity. "New Labour" supporters, most of the leadership of the Labour party, like the U.S. "New Democrats" that served as their ideological model, remain fierce austerity hawks.
That brings us to what would have happened if America's first family of "New Democrats" – the Clintons – had won the election. The extent to which the New Democrats embraced the Republican doctrine of austerity became painfully obvious under President Obama. Robert Rubin dominated economic policy under President Clinton. The Clinton/Gore administration was absolutely dedicated toward austerity. The administration was the lucky beneficiary of the two massive modern U.S. bubbles – tech stocks and housing – that eventually produced high employment. Indeed, when the tech bubble popped the economy was saved by the hyper-inflation of the housing bubble. The housing bubble collapsed on the next administration's watch, allowing the Clintons and Rubinites to spread the false narrative that their policies produced superb economic results.
When we think of the start of the Obama administration, we think of the stimulus package. In one sense this is obvious. The only economically literate response to a Great Recession is massive fiscal stimulus. When Republicans control the government and confront a recession they always respond with fiscal stimulus in the modern era. Obama's stimulus plan was not massive, but it sounded like a large number to the public. Two questions arise about the stimulus plan. Why was Obama willing to implement it given his and Rubin's hostility to stimulus? Conversely, why, given the great success of the stimulus plan, did Obama abandon stimulus within months?
Rubin and his protégés had a near monopoly on filling the role of President Obama's key economic advisors. Larry Summers is a Rubinite, but he is infamous for his ego and he is a real economist from an extended family of economists. Summers was certain in his (self-described) role as the President's principal economic adviser to support a vigorous program of fiscal stimulus because the Obama administration had inherited the Great Recession. Summers knew that any other policy constituted economics malpractice. Christina Romer, as Chair of the President's Council of Economic Advisers and Jared Bernstein, Vice President Biden's chief economist, were both real economists who strongly supported the need for a powerful program of fiscal stimulus. Each of these economists warned President Obama that his stimulus package was far too small relative to the massive depths of the Great Recession.
Rubin's training was as a lawyer, not as an economist, so Summers was not about to look to Rubin for economic advice. In fairness to Rubin, he was rarely so stupid as to reject stimulus as the appropriate initial response to a recession. He supported President Bush's 2001 stimulus package in response to a far milder recession and President Obama's 2009 stimulus package. Rubin does not deserve much fairness. By early 2010, while Rubin admitted that stimulus is typically the proper response to a recession and that the 2009 stimulus package was successful, he opposed adding to the stimulus package in 2010 even though he knew that Obama's 2009 stimulus package was, for political reasons, far smaller than the administration's economists knew was needed.
Here's ex-Treasury Secretary Robert Rubin–one of the chief architects of the global financial crisis–articulating the position of his proteges at 1600 Pennsylvania Ave.
Robert Rubin: "Putting another major stimulus on top of already huge deficits and rising debt-to-GDP ratios would have risks. And further expansion of the Federal Reserve Board's balance sheet could create significant problems . Today's economic conditions would ordinarily be met with expansionary policy, but our fiscal and monetary conditions are a serious constraint, and waiting too long to address them could cause a new crisis .
In the spirit of Kilkenomics, we were blunt about the austerity assault that Rubin successfully argued Obama should resume against America's working class beginning in early 2010. It was inevitable that it would weaken and delay the recovery. Tens of millions of Americans would leave the labor force or remain underemployed and even underemployed for a decade. The working class would bear the great brunt of this loss. In modern America this kind of loss of working class jobs is associated with mental depression, silent rage, meth, heroin, and the inability of working class males and females to find a marriage partner, and marital problems. It is a prescription for inflicting agony – and it is a toxic act of politics.
Prior to becoming a de facto surrogate for Hillary and ceasing to speak truth to her and to America, Paul Krugman captured the gap between the Obama administration's perspective and that of most of the public.
According to the independent committee that officially determines such things, the so-called Great Recession ended in June 2009, around the same time that the acute phase of the financial crisis ended. Most Americans, however, disagree. In a March 2014 poll, for example, 57 percent of respondents declared that the nation was still in recession.
The type of elite Democrats that the New Democrats idealized – the officers from big finance, Hollywood, and high tech – recovered first and their recovery was a roaring success. Obama, and eventually Hillary, adopted the mantra that America was already great. Our unemployment rates, relative to the EU nations forced to inflict austerity on their economies, is much lower. But the Obama/Hillary mantra was a lie for scores of millions of American workers, including virtually all of the working class and much of the middle class. As Hillary repeated the mantra they concluded that she was clueless about and indifferent to their suffering. As we emphasized in Kilkenny, Obama and Hillary were not simply talking economic nonsense, they were committing political self-mutilation.
Krugman used to make this point forcefully.
[T]he American Recovery and Reinvestment Act, aka the Obama stimulus surely helped end the economy's free fall. But the stimulus was too small and too short-lived given the depth of the slump: stimulus spending peaked at 1.6 percent of GDP in early 2010 and dropped rapidly thereafter, giving way to a regime of destructive fiscal austerity. And the administration's efforts to help homeowners were so ineffectual as to be risible.
Timothy Geithner, a proponent of austerity, is famous for remarking that he only took only one economics class – and did not understand it. In the same review of Geithner's book by Krugman that I have been quoting, Krugman gives a concise summary of Geithner's repeated lies about his supposed support for a larger stimulus. Jacob Lew, the Rubinite who Obama chose as Geithner's successor as Treasury Secretary, was also trained as a lawyer and is equally fanatic in favoring austerity. In 2009, no one with any credibility in economics within the Obama administration could serve as an effective spokesperson for austerity as the ideal response to the Great Recession.
But Romer, Summers, and Bernstein experienced the same frustration as 2009 proceeded. The problem was not simply the Rubinites' fervor for the self-inflicted wound of austerity – the fundamental problem was President Obama. Obama's administration was littered with Rubinites because Obama was a New Democrat who believed that Rubin's love of austerity and trade deals was an excellent policy. Of course, he had campaigned on the opposite policy positions, but that was simply political and Obama promptly abandoned those campaign promises. Fiscal stimulus ceased to be an administration priority as soon as the stimulus bill was enacted. Romer and Summers recognized the obvious and soon made clear that they were leaving. Bernstein retained Biden's support, but he was frozen out of influence on administration fiscal policies by the Rubinites.
By 2010, the fiscal stimulus package had begun to accelerate the U.S. recovery. Romer left the administration in late summer 2010. Summers left at the end of 2010. Bill Daley (also trained as a lawyer) became Obama's chief of staff in early 2011. Timothy Geithner, and finally Jacob Lew dominated Obama administration fiscal policy from late 2010 to the end of the administration in alliance with Daley and other Rubinite economists. It may be important to point out the obvious – Obama chose to make each of these appointments and there is every reason to believe that he appointed them because he generally shared their views on austerity. In the first 60 days of his presidency he went before a Congressional group of New Democrats and told them " I am a New Democrat ."
Obama began pushing for the fiscal "grand bargain" in 2010. The "grand bargain" would have pushed towards austerity and begun unraveling the safety net. As such, it was actually the grand betrayal. Obama's administration began telling the press that Obama viewed achieving such a deal with the Republicans critical to his "legacy." There were two major ironies involving the grand bargain. Had it been adopted it would have thrown the U.S. back into recession, made Obama a one-term president, and led to even more severe losses for the Democratic Party in Congress and at the state level. The other irony was that it was the Tea Party that saved Obama from Obama's grand betrayal by continually demanding that Obama agree to inflict more severe assaults on the safety net.
Obama adopted Lew's famous, economically illiterate line and featured it is in his State of the Union Address as early as January 2010. What follows is a lengthy quotation from that address. I have put my critiques in italics after several paragraphs. Obama's switch from stimulus to austerity was Obama's most important policy initiative in his January 2010 State of the Union Address .
The White House
Office of the Press Secretary
For Immediate Release
January 27, 2010
Remarks by the President in State of the Union Address
Now - just stating the facts. Now, if we had taken office in ordinary times, I would have liked nothing more than to start bringing down the deficit. But we took office amid a crisis. And our efforts to prevent a second depression have added another $1 trillion to our national debt. That, too, is a fact.
Why would Obama normally have been thrilled to "start bringing down the deficit?" A budget deficit by a nation with a sovereign currency such as the U.S. is normal statistically and typically desirable when we have a negative balance of trade. No, it is not a "fact" that stimulus "added another $1 trillion to our national debt." Had we not adopted a stimulus program the debt would have grown even larger as our economy fell even more deeply into the Great Recession.
I'm absolutely convinced that was the right thing to do. But families across the country are tightening their belts and making tough decisions. The federal government should do the same. (Applause.) So tonight, I'm proposing specific steps to pay for the trillion dollars that it took to rescue the economy last year.
Obama admits that stimulus was desirable. He knows that his economists believed that if the stimulus had been larger and lasted longer it would have substantially speeded the recovery. One of the most important reasons why dramatically increased government fiscal spending (stimulus) is essential in response to a Great Recession for a depression is that the logical and typical consumer response to such a downturn is for "families across the country" to "tighten their belts" by reducing spending. That reduces already inadequate demand, which leads to prolonged downturns. Economists have long recognized that it is essential for the government to do the opposite when consumers "tighten their belts" by greatly increasing spending. To claim that it is "common sense" to "do the same" – exacerbate the inadequate demand – because it is a "tough decision" makes a mockery of logic and economics. It is a statement of economic illiteracy leading to a set of policy decisions sure to harm the economy and the Democratic Party. In particular, it guaranteed a nightmare for the working class.
No, no, no. I can feel the pain of my colleagues that are scholars in modern monetary theory (MMT). The U.S. has a sovereign currency. We can "pay" a trillion dollar debt by issuing a trillion dollars via keystrokes by the Fed. What Obama meant was that he would propose (over time) to increase taxes and reduce federal spending by one trillion dollars. Such an austerity plan would harm the recovery and reduce important government services. Again, the working class were sure to be the primary victims of Obama's self-inflicted austerity.
Starting in 2011, we are prepared to freeze government spending for three years. (Applause.) Spending related to our national security, Medicare, Medicaid, and Social Security will not be affected. But all other discretionary government programs will. Like any cash-strapped family, we will work within a budget to invest in what we need and sacrifice what we don't. And if I have to enforce this discipline by veto, I will. (Applause.)
First, the metaphor is economically illiterate and harmful. A government with a sovereign currency is not a "cash-strapped family." It is not, in any meaningful way, "like" a "cash-strapped family." Indeed, the metaphor logically implies the opposite – that it is essential that because the government is not like a "cash-strapped family" only it can spend in a counter-cyclical fashion (stimulus) to counter the perverse effect of "cash-strapped famil[ies]" cutting back their spending due to the Great Recession.
Let's take this slow. In a recession, consumer demand is grossly inadequate so firms fire workers and unemployment increases. We need to increase effective demand. As a recession hits and workers see their friends fired or reduced to part-time work, a common reaction is for workers to reduce their debts, which requires them to reduce consumption. Consumer consumption is the most important factor driving demand, so this effect, which economists call the paradox of thrift, can deepen the recession. Workers are indeed cash-strapped. Governments with sovereign currencies are, by definition, not cash-strapped. They can and should engage in extremely large stimulus in order to raise effective demand and prevent the recession from deepening. Workers will tend to reduce their spending in a pro-cyclical fashion that makes the recession more severe. Only the government can spend in a counter-cyclical fashion that will make the recession less severe and lengthy.
We will continue to go through the budget, line by line, page by page, to eliminate programs that we can't afford and don't work. We've already identified $20 billion in savings for next year. To help working families, we'll extend our middle-class tax cuts. But at a time of record deficits, we will not continue tax cuts for oil companies, for investment fund managers, and for those making over $250,000 a year. We just can't afford it. (Applause.)
Now, even after paying for what we spent on my watch, we'll still face the massive deficit we had when I took office. More importantly, the cost of Medicare, Medicaid, and Social Security will continue to skyrocket. That's why I've called for a bipartisan fiscal commission, modeled on a proposal by Republican Judd Gregg and Democrat Kent Conrad. (Applause.) This can't be one of those Washington gimmicks that lets us pretend we solved a problem. The commission will have to provide a specific set of solutions by a certain deadline.
The Democrats have to stop attacking Republicans for running federal budget deficits. I know it's political fun and that the Republicans are hypocritical about budget deficits. Deficits are going to be "massive" when an economy the size of the U.S. suffers a Great Recession. We have had plenty of "massive" deficits during our history under multiple political parties. None of this has ever led to a U.S. crisis. We have had some of our strongest growth while running "massive" deficits. Conversely, whenever we have adopted server austerity we have soon suffered a recession. In 1937, when FDR listened to his inept economists and inflicted austerity, the strong recovery from the Great Depression was destroyed and the economy was thrust back into an intense Great Depression.
As to the debt "commission" to solve our "debt crisis," it was inevitable that such a commission would be dominated by Pete Peterson protégés and that they would demand austerity and an assault on the federal safety net. That would be a terrible response to the Great Recession and the primary victims of the commission's policies would be the working class.
Now, yesterday, the Senate blocked a bill that would have created this commission. So I'll issue an executive order that will allow us to go forward, because I refuse to pass this problem on to another generation of Americans. (Applause.) And when the vote comes tomorrow, the Senate should restore the pay-as-you-go law that was a big reason for why we had record surpluses in the 1990s. (Applause.)
For a nation with a sovereign currency, there is nothing good about the "record surpluses in the 1990s." Such substantial surpluses have occurred roughly nine times in U.S. history and each has been followed shortly by a depression or the Great Recession. This does not prove causality, but it certainly recommends caution. Similarly, "pay-as-you-go" has been the bane of Democratic Party efforts to help the American people. Only a New Democrat like Obama would call for the return of the anti-working class "pay-as-you-go" rules.
Now, I know that some in my own party will argue that we can't address the deficit or freeze government spending when so many are still hurting. And I agree - which is why this freeze won't take effect until next year - (laughter) - when the economy is stronger. That's how budgeting works. (Laughter and applause.) But understand –- understand if we don't take meaningful steps to rein in our debt, it could damage our markets, increase the cost of borrowing, and jeopardize our recovery -– all of which would have an even worse effect on our job growth and family incomes.
No. It wouldn't have damaged our markets, increased interest rates or jeopardized our recovery. We had just run an empirical experiment in contrast to the Eurozone. Stimulus greatly enhanced our recovery, while interest rates were at historical lows, and led to surging financial markets. Austerity had done the opposite in the eurozone.
From some on the right, I expect we'll hear a different argument -– that if we just make fewer investments in our people, extend tax cuts including those for the wealthier Americans, eliminate more regulations, maintain the status quo on health care, our deficits will go away. The problem is that's what we did for eight years. (Applause.) That's what helped us into this crisis. It's what helped lead to these deficits. We can't do it again.
Rather than fight the same tired battles that have dominated Washington for decades, it's time to try something new. Let's invest in our people without leaving them a mountain of debt. Let's meet our responsibility to the citizens who sent us here. Let's try common sense. (Laughter.) A novel concept.
Let's try actual common sense instead of metaphors that are economically illiterate. Let's try real economics. Let's stop talking about "mountains of debt" as if they represented a crisis for the U.S. and stop ignoring the tens of millions of working class Americans and Europeans whose lives and families were treated as austerity's collateral damage and were not even worth discussing in Obama's ode to the economic malpractice of austerity. Austerity is the old tired battle that we repeat endlessly to the recurrent cost of the working class.
Trump is Not Locked into Austerity
I note the same caution we gave in Ireland – we don't know whether President Trump will seek to implement his economic proposals. Trump has proposed trillions of dollars in increased spending on infrastructure and defense and large cuts in corporate taxation. In combination, this would produce considerable fiscal stimulus for several years. The point we made in Ireland is that if he seeks to implement his proposals (a) we believe he would succeed politically in enacting them and (b) they would produce stimulus that would have a positive effect on the near and mid-term economy of the U.S. Further, because the eurozone is locked into a political trap in which there seems no realistic path to abandoning the self-inflicted wound of continuous austerity, Trump represents the eurozone's most realistic hope for stimulus.
Each of the economists speaking on these subjects in Kilkenny opposed Trumps election and believe it will harm the public. Fiscal stimulus is critical, but it is only one element of macroeconomics and no one was comfortable with Trump's long-term control of the economy. I opined, for example, that Trump will create an exceptionally criminogenic environment that will produce epidemics of control fraud. The challenge for progressive Democrats and independents is to break with the New Democrats' dogmas. Neither America nor the Democratic Party can continue to bear the terrible cost of this unforced error of economics, politics, and basic humanity. I fear that the professional Democrats assigned the task of re-winning the support of the white working class do not even have ending the New Democrats' addiction to austerity on their radar. They are probably still forbidden to read Tom Frank.Steve H. November 22, 2016 at 10:29 amChauncey Gardiner November 22, 2016 at 10:33 am
: a real economist from an extended family of economists.
This statement is disturbing in several ways. A distraction from a fine article.oho November 22, 2016 at 10:36 am
Seems to me that Ryan is not Trump's principal impediment, that Trump knows this, and that the battle lines are already in the process of being drawn. Veiled threat?.. or, "Let's make a deal"?
"In addition, with the debt-to-GDP ratio at around 77 percent there is not a lot of fiscal space should a shock to the economy occur, an adverse shock that did require fiscal stimulus," she said.
http://moslereconomics.com/2016/11/18/yellen-statements/Enquiring Mind November 22, 2016 at 10:43 am
'Each of the economists speaking on these subjects in Kilkenny opposed Trumps election and believe it will harm the public'
hmmm, sounds like Trump will win 2020 in a landslide.
Sovereign currency defense appears to be the primary job for the US both domestically and internationally. There is a house of cards tenuous aspect to the US policies, with looming questions about the ongoing stability of the domestic economy and society. Threats to that sovereign position would seem to be present over the long term from China in particular. To what extent does currency defense justify any manner of harmful policies, certainly given the perceived ends justify the means tacit assumptions?
Pictures of AusterityBrendan Mochoruk and Louise Sheiner of the Brookings Institution say that Fiscal Headwinds are Abating:
Tight fiscal policy by local, state, and federal governments held down economic growth for more than four years, but that restraint finally appears to be over...
This is a pretty good summary of the charts:
Fiscal policy is no longer a source of contraction for the economy, but neither is it a source of strength.
But in my view the statement "neither is it a source of strength" understates how poorly fiscal policy has been managed. The strong headwinds never should have been there to begin with, and we have yet to feel the wind at our backs:
Posted by Mark Thoma on Friday, July 31, 2015 at 11:33 AM in Economics, Fiscal Policy | Permalink Comments (14)
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