And another thing ...
Just to be clear on this, as I think some people are confused.
The bad thing about cutting the federal deficit is not that it might affect Social Security or Medicare. Even if these were totally ringfenced it would be a bad idea.
The bad thing about cutting the federal deficit is not that some other virtuous program might be defunded. Even if all the savings came from military procurement it would be a bad idea.
The bad thing about cutting the federal deficit is not that it "shrinks the state". Even if all the deficit cuts were obtained by tax rises it would still be a bad idea.
The bad thing about cutting the federal deficit is not that the burden falls disproportionately on the poor. Even if the deficit were reduced specifically by taxes which only fell on the top 1% of the income distribution it would still be a bad idea.
The bad thing about cutting the federal deficit is that unemployment is very high and interest rates are very low. Given that, taxing productive activity to pay down debt is really obviously the wrong thing to do, and borrowing money to employ currently unemployed resources is really obviously the right thing to do.
It would not need to be spent on "shovel-ready" projects. By definition, for purposes of expansionary fiscal policy, anything you can spend money on is shovel readly.
It doesn't have to be spent on vital infrastructure. Even completely pointless activity would be better than nothing. In some cases, even actually destructive activity, like war, has had a stimulative effect on the domestic economy.
The basic issue, and the one which ought to have people running around like their hair is on fire, is the unemployment rate. That, combined with the interest rate, shows you that deficit reduction is the stupidest possible policy at the current time. This is a very important issue, and the current President of the USA is on the wrong side of it.
IANAE - boy, am I NAE - but I think there's a 'not' missing.
ReplyDeleteoh god, where?
ReplyDeletePossibly in my mind. I read it (twice) as saying that taxing productive activity to pay down debt was very obviously the right thing to do, which clearly wasn't what you meant to say. And apparently wasn't what you did say, so never mind.
ReplyDeleteAh, I did change that sentence about a bit, something like five minutes after posting it, so dont worry you're not going mad.
ReplyDeleteThe dominant American political faction, which has lots of popular support, believes that inequality is a good thing, ordained by God and Nature, and that suffering is a good thing if the right people suffer.
ReplyDelete"Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people". Andrew Mellon.
"Purge the rottenness....people will live a more moral life." This is a version of Calvinism, also of Social Darwinism, also of Austrian economics, also of age-old aristocratic brutality.
Imagine that 20 years from now the American and world economies are 3/4 what they are now and the vast majority everywhere is wretched and helpless, under the rule of a tiny wealthy elite. Then imagine one of the rulers of that world explaining how the shrinkage was all for the good.
Incidentally, my search for Mellon led me to a Hoover quote at Delong's. Apparently Hoover rejected Mellon's advice: http://delong.typepad.com/delong_economics_only/2007/02/why_oh_why_cant.html
Presumably some of these people also have investment strategies whereby their share of a contracted economy is greater than their share of the thriving economy had been. But I don't know any finance, and of course this is a conspiracy theory, ond only John Birchers like the Koch brothers believe in conspiracies.
ReplyDelete"The dominant American political faction, which has lots of popular support, believes that inequality is a good thing, ordained by God and Nature, and that suffering is a good thing if the right people suffer.
ReplyDelete"Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people". Andrew Mellon.
There's just no evidence that the dominant political faction -- by which I assume we're talking about the richest Americans -- subscribes to Mellon's thesis these days. On the contrary, most of the income they get comes either from the stock market or from their labor, neither of which get any benefit from the austerian agenda that dsquared is decrying and that Mellon was embracing. House Republicans may believe that tight money/spending cuts are principled and moral, but there's no reason to think that the average CEO does.
You assumed wrong. The dominant political faction at the moment is the Koch brothers, Dick Armey, and a few others. It's a political group. The government is not simply the executive committee of the bourgeoisie. There has been a political takeover, and in the end it did make Wall Street nervous. Norquist even flinched, but the Kochs didn't.
ReplyDeleteThanks very much for this post and the previous one Dan. I needed a succinct explanation that goes beyond "go read Paul Krugman" for all the ridiculous arguments I've been getting into over this IRL.
ReplyDelete
ReplyDeleteThere's just no evidence that the dominant political faction -- by which I assume we're talking about the richest Americans -- subscribes to Mellon's thesis these days. On the contrary, most of the income they get comes either from the stock market or from their labor, neither of which get any benefit from the austerian agenda that dsquared is decrying and that Mellon was embracing. House Republicans may believe that tight money/spending cuts are principled and moral, but there's no reason to think that the average CEO does.
My guess based upon an admittedly small sample (and a larger sample of the upper middle class) is that they actually do believe this.
Roosevelt saved American capitalism, but they still hated him (and refused to believe that he had). The older I get, the more inclined I am to believe that people genuinely believe the crazy things that they claim to believe.
And as for Wall St, think of the every elite (G-S, and the top several firms). They're getting government subsidies, will get government bailouts, and have freedom from prosecution (the odd dumb sacrificial schmuck not counting).
ReplyDeleteThey're in a sweet position, and are able to use this to buy things and lend money at nice terms.
They're OK. Notice that in the end, they didn't really oppose the hostage deal. I noticed that only a few MSM columnists had one critical column each, then shut up and got back to their usual wh*ring.
"And as for Wall St, think of the every elite (G-S, and the top several firms). They're getting government subsidies, will get government bailouts, and have freedom from prosecution (the odd dumb sacrificial schmuck not counting).
ReplyDelete"They're in a sweet position, and are able to use this to buy things and lend money at nice terms.
"They're OK."
They're not in a sweet position -- they're struggling. Their stocks have been getting crushed for months. Citigroup is still down more than 90% from its peak, Bank of America is down 80% or so, Goldman's business is limping. Capitalism doesn't run on the "They're OK" principle -- the people who put money into these companies expect them to be doing a lot better than OK. The markets do not want deflation or austerity. You're just wrong about this.
John's point, on the other hand, may have something to it, namely that the House Republicans don't reflect the wishes of the bourgeoisie, but rather the wishes of a small number of anti-Washington, deflationist nuts.
And the Calvinism helps a lot of people who are themselves hurt by these policies to embrace the policy for moral reasons. That's also what white privilege is for, to help them embrace these policies for immoral but emotionally compelling reasons.
ReplyDeleteAre the Goldman Sachs staff still recieving bonuses? Then they're OK.
ReplyDeleteThe Tea Party is a faction within the Republican Party which for the moment has control, but it's an extra-party group and not part of the party structure. Norquist's Club For Growth is a similar extra-party group which has had enormous influence for some time. It will be interesting to see to what degree Norquist and the Kochs are able to work together.
ReplyDeleteWhen Michael Steele was the nominal leader of the Republican Party awhile back despite being respected by no one, having no skills, and doing everything wrong, that was a sign that the party was already a hollow shell under the control of outside forces which could not agree on a leader. He was a Putney Swope, if anyone remembers that movie, selected only because he was a threat to no one.
the people who put money into these companies expect them to be doing a lot better than OK.
ReplyDeleteJust so we're clear on this. Buying a share in a company is not putting money into them. Nor is it investment in any sense of the word, unless it is new stock issued by the company which will then be invested by the company.
Given the banks situation, still being in business is doing very well. And they're doing a lot better than that.
I have no idea what the Kochs investment strategy would be if they expected to profit from a crash. Maybe they're just doing this for ideological reasons.
ReplyDeleteDon't assume rationality. Remember the Hunt brothers attempt to corner the world silver market around 1980? It bankrupted them, and maybe it was a bad gamble to begin with, but what we know for sure is that they did it.
"Did it" = "tried to corner the silver market, but failed".
ReplyDeleteAn lo, the Hunt brothers also have a John Birch Society connection, just like the Koch brothers, and as a bonus they have a major Libya connection.
No coincidences, folks. It all fits into a pattern and that pattern is: lots of super-rich super-reactionary long shot gamblers in the U.S. of A.
What's the deal with the unemployment rate in the U.S.? I am getting the sense that it is actually worse than in some other advanced countries (Germany, Austria, Sweden, UK, etc.).
ReplyDeleteWhat's going on?
(I'm not working through the official numbers because European and American unemployment numbers are pretty hard to compare.)
ReplyDeleteThe BLS does international comparatives, don't know how good their formula is:
ReplyDeletehttp://www.bls.gov/fls/intl_unemployment_rates_monthly.htm#Rchart1
The tables are fine, though they don't indicate to what extent long term unemployment is present in each country.
ReplyDeleteWith these sorts of stories floating around, one would assume that the problem in the US is likely to get worse:
http://news.yahoo.com/blogs/lookout/bill-ban-anti-jobless-discrimination-201140546.html
Michael White has just declared that this is not the time to panic. Now I'm terrified.
ReplyDeleteWhat does Kudlow have to say?
ReplyDeleteYes. Yes, yes, yes. Thank you.
ReplyDeleteIt's amazing how many smart progressives have bought the DC spin that stimulus is out of the question and the only debate now is which flavor of austerity to have -- tax increases or spending cuts.
(Correct link.)
ReplyDeleteThis number seems a tad high?
ReplyDeleteChicago Tribune: A record 45.8 million American using food stamps
Yes, that number is worryingly high. I take it you're doubting it because you've not seen any poor people lately?
ReplyDeletePete said...
ReplyDelete" Are the Goldman Sachs staff still recieving bonuses? Then
they're OK."
Thanks, Pete. Remember, shareholders are to be screwed over.
Yes, that number is worryingly high. I take it you're doubting it because you've not seen any poor people lately?
ReplyDeleteWell, I live in Canada, so I don't quite know the American unemployment situation. The big fear here right now is serious contagion from the U.S.
(I suspect one of the reasons contagion has not been yet as severe as usual is the steady climb of the Canadian dollar over the last decade has already wiped out those most sensitive to American contagion.)
"[D]eficit reduction is the stupidest possible policy at the current time. This is a very important issue, and the current President of the USA is on the wrong side of it."
ReplyDeleteI think you are misrepresenting the President's position, which is that we need deficit reduction over the next decade, not right now.
The implicit assumption that Obama is making is that it's not going to take a decade for the economy to recover. I don't see any compelling reason to believe that (absent a major Keynesian stimulus) , but it seems that Obama does.
- Kenneth Almquist
"I think you are misrepresenting the President's position, which is that we need deficit reduction over the next decade, not right now."
ReplyDeleteWell, that position is idiotic too. He should be explaining that the so-called "deficit problem" will take care of itself if we solve the real problems. If we don't solve the real problems, then you should expect the "deficit problem" to get "worse" (see: Japan).
Deficits as such are not a problem - the problem is what the deficits are symptomatic of (economic stagnation, high unemployment).
plus an expensive war, ridiculously low taxes on rich/corporations.
ReplyDeleteA future Hobswbawm shall call this "The Age of Stupid".
"This is a very important issue, and the current President of the USA is on the wrong side of it."
ReplyDeleteAn interesting corollary to this is that Ben Bernanke is on the right side of this, or at least more to right side than any one else who has power right now.
Nice article, thanks for the information.
ReplyDeleteI have a deeper problem with the "family" analogy (ignoring the fact that the government-as-family analogy is specious) -- that "families balance their budgets".
ReplyDeleteConsider the typical family -- the entire family. Not just head-of-household, spouse and 2.1 kids. Also: the grandparents, parents, grandchildren. And brothers and sisters and uncles and aunts and nieces and nephews. It can get pretty big (so a metric of size would include a weight?).
In this more realistic family, its a good chance that in any given year some kind of debt is being taken. A house is being bought, a car or four financed, a semester or three of college paid for. So within this real family, LOTS of debt is constantly rolling in... sometimes a towering amount.
And to argue that this is A Horrible Pattern of Behavior... is to forget the huge mass of wealth (houses, cars, education) acquired via prior years of such behavior).
I think the whole debt as morality thing would be a lot easier to take if the US state hadn't been pushing debt on consumers over the past 30 years. Rollback of usury laws, credit cards, deregulation, etc, etc. Or for that matter if neoliberals weren't obsessed with the (largely useless) microcredit movement.
ReplyDeleteI mean even ignoring the fact that US debt is the world's monetary base, making the whole argument insane.
David Graeber has a newish book on debt from a historical and anthropological perspective, which looks very interesting, incidentally.