Republican Deficit Fear Strategy

Driving up deficits and then using deficit fear to stop spending on things that We the People want and need has been open Republican strategy since Reagan. Google “strategic deficits.”

Tom Wicker explained in the NY Times in 1985, in IN THE NATION; A Deliberate Deficit,

To hear Larry Speakes tell it, President Reagan emerged from anesthesia righteously demanding action on the budget deficit ”this week.” That sounds fine – except that it now appears that the deficit was deliberately created by Mr. Reagan in order to do away with Democratic social programs dating back to the New Deal.

Who says so? David Stockman, the departing Budget Director, at second hand, and Friedrich von Hayek directly. He’s the Nobel Prize-winning economist who’s been a guru of Reaganomics.

… After the Budget Director’s resignation last week, Senator Moynihan of New York said Mr. Stockman had told him that even in 1981 Mr. Reagan knew the tax cuts would mean loss of revenue, but that the President had accepted the resulting rise in the deficit in order to bring pressure on Congress to cut spending.

That sharply contradicts what Mr. Reagan then publicly argued – that cutting taxes would expand the economic base and increase revenues. In his 1980 campaign, he even contended that the increase in revenues resulting from the tax cut would pay for the military buildup he also planned.

But Mr. Moynihan said Mr. Stockman had told him that in 1981, ”the plan was to have a strategic deficit that would give you an argument for cutting back the programs that weren’t desired. It got out of hand.”

Reagan used tax cuts and spending increases to goose the economy. A good economy gets votes. Then under Dems the entire Republican media machine blasted us with deficit/debt fear to force cuts in the things government does to make people’s lives better. Cuts are bad for the economy (and people), so voters not happy with Dems.

So everything people think they uderstand about deficits and debt is just the result of decades Republican “family budget around kitchen table” propaganda.

REPUBLICANS understand this and use it. The Federal budet is NOT like a family budget.

Republicans understand our government issues its own currency. It CAN NOT go “bankrupt” because it can just issue more currency. It CAN NOT “go broke.” We can issue currency to pay for the things We the People want and need. The additional currency is money in the economy.

If we issue too much currency (too much money in the economy) we end up with inflation. So taxes soak up the excess.

Taxes are not “revenue” that is used to “pay for” spending. Taxes are useful to redistribute, rebalance the economy.

Taxes redistribute and rebalance. Is inequality rising? Raise taxes on the rich. Are billionaires and corporations exerting influence on government? Tax them back down to size. Etc.

Deficit fear is just a tool to move votes to Republicans, make the rich richer and keep We the People down.

This post is based on this Twitter thread.

Deficit Fear

Deficit fear is a gimmick to limit the benefits of democracy, used by people who oppose government. By scaring people about deficits they undermine support for government doing things to make our lives better.

But when it comes to their own spending priorities – military, etc. – the sky is the limit. They get it. They understand that deficits are not a problem, but are to be used to scare the public.

The US issues its own money. It can spend as much as it wants to on things that make our lives better. Taxes are NOT “revenue” that is used to fund things. (Note that this is federal, not state budgets. States do not issue their own currencies.)

Taxes limit inflation and redistribute the gains of the economy. Tax cuts for the rich redistribute to the top, making inequality worse.

Deficits grow the economy, with inflation being the concern if too much $$ is pushed at too few resources.

This is known academically as “Modern Monetary Theory.”

More at We CAN Have Nice Things

There Are No Real Republican “Deficit Hawks.” Here’s Why.

Democrats are making a terrible mistake fighting the Republican tax cuts by saying they add to the deficit, that they will “blow a hole in the budget,” etc.

Why are Democrats saying this? They are using the “increase deficits” line because they think they can appeal to a few “deficit hawk” Republicans who spent the Obama years complaining about government sending and “deficits.”

It is a mistake for Democrats to think they can “get Republican votes” by mouthing Republican deficit-fear rhetoric without understanding the strategy behind their rhetoric.

Strategy: Republicans Create Deficits, Stoke Deficit Fear, Then Campaign Against Government Spending

Here’s the thing. There are no real Republican “deficit hawks.” Republicans stoke deficit fear, and then say they are opposed to budget deficits. But they always, always increase deficits. On purpose. There’s a reason.

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Capitalism

Capitalism by definition is a system (‘ism’) designed of by and for ‘capital’ (people with money).

People with surplus money make the decisions about where to apply our economy’s resources and then reap the benefits of the investment. For themselves.

We the People are largely prohibited (privatization) from deciding where to apply resources and are charged for use of those resources.

Private roads. Private railroads. Private health care. Private energy sources. Private communication sources. Private financial resources. etc…

Corporate Tax Cuts Are Really Just Tax Cuts For The Rich

Republicans are proposing a huge, huge cut in corporate tax rates. They are also proposing to let giant, multinational corporations keep much of the taxes they already owe on profits they are keeping in “offshore” tax havens.

Lower tax rates mean higher after-tax profits, which increases the value of stock holdings.

Who owns corporate stock, and therefore receives the benefits of these tax cuts?

Do We All Benefit From Corporate Stock?

Lets look at just who owns corporate stock.

Republicans like to pretend that all of us are invested in the stock market, if not by directly owning stocks, then through “our” retirement plans. This is usually written by and believed by upper-level, comfortable people that actually do have retirement plans.

But 45% of Americans have no money for retirement at all. Only 44% of Americans put anything into a 401K if their company offers one — and this number includes workers with only $100 in the plan. Only 18% of Americans are putting money in an Individual Retirement Account (IRA), ehich may or may not hold stocks. Only 4% of private-sector workers have only a “defined benefit” plan, usually called a pension.

So much for “our” retirement plans. Aside from retirement plans, a 2016 Gallup survey found that only 52% of Americans own any stocks at all – down from 65% in 2007.

So Who Does Own Stock?

Here is a chart of who owns corporate stock (and therefore pays those taxes.)

As of 2007, the top 1 percent owned 50.9 percent of all stocks, bonds, and mutual fund assets. The top 10 percent owned 90.3 percent. Things have only concentrated upward since 2007.

How much have things concentrated upwards since then? 20 Americans now hold as much wealth as half of all Americans put together and “the 400 richest Americans now have more wealth than the bottom 61 percent of the population.”

People talk about an “upper class” that holds most of the wealth in our society now. Maybe the thinking on this needs to change from a “class” of people to just a few people.

It is these few people who are the beneficiaries of corporate tax cuts. As tax rates drop the value of their stock holdings rises. The rest of us lose our ability to have good schools, roads, health care, courts, scientific research and all the rest of the things our government tries to do to make our lives better.

This is who we are talking about when we talk about corporate tax rates. It’s not anonymous, nameless corporation, it is people — just a few people.

Must Must Must Listen Podcast: Robert Reich On This Election

I listened to this on a walk, and it is a must, must, must listen podcast.

Robert Reich, speaking Tuesday at the Commonwealth Club in San Francisco: “The Oddest Presidential Election in Living Memory

From the website:

Tue, Sep 27 2016 – 6:30pm
Robert Reich, Chancellor’s Professor of Public Policy, University of California, Berkeley; Former Secretary of Labor; Author, Saving Capitalism

Holly Kernan, Executive Editor for News, KQED—Moderator

In the midst of an unpredictable presidential election, get insight from a veteran political figure who knows Washington inside and out. Time magazine named Reich one of the 10 most effective cabinet secretaries of the 20th century. He is a founding editor of the American Prospect magazine and chairman of Common Cause. Come hear his provocative thoughts on the presidential election and the future of America.

Larry Summers Gets This Right: We Really Need An Infrastructure Decade

Here we are in “Infrastructure Week” and here we are with a new argument for a massive infrastructure investment project – worldwide.

Last week Peter Coy wrote at Bloomberg, in “How to Pull the World Economy Out of Its Rut,” about economist Larry Summers’ argument that we need massive public investment. Coy writes that Summers has been “jetting around the world” trying to convince central bankers “to reach out to the governments they work for … and insist on strong fiscal stimulus in the form of infrastructure spending and the like.” (i.e. “Public investment”.)

The case for this is very, very strong. Never mind that around the world infrastructure is crumbling. Just doing the basic job of government and making sure that things like infrastructure are up to par has fallen out of favor among the world’s elites, because “government spending.” Summers makes a different argument about why public investment – government spending on things countries and people and economies need – is essential to keep the world’s economy going.

Coy writes, “Summers’s deeper argument is that world growth is stuck in a rut because there’s a chronic shortage of demand for goods and services and a concomitant excess of desired savings.”

This Is Extremely Important And Summers Is Exactly Right

This is extremely important and Summers is exactly right on this. Too many people don’t have enough income, while a few people have lots of savings. But the few with lots of savings don’t have safe places to invest it because too many people don’t have enough income. In other words, the world faces a “chronic shortage of demand” and a “concomitant excess of desired savings.”

Capitalist economies necessarily move toward concentration of wealth, so over time a few people end up with lots of savings while most people get poorer. (Economist Piketty: “r > g” where ‘r’ is the rate of return on capital and ‘g’ is the rate of growth in the economy.) Since regular people participate in the economy by using money to demand goods and services, demand decreases as they get poorer.

Without something stepping in to break this cycle more and more of the resources end up in fewer and fewer hands, and after a while the entire system breaks down. Therefore in a capitalist economy government action is needed to redistribute “money” (resources and savings) away from the concentration at the top, back to more of “the people” so that they can again participate in the economy (demand).

This circle of money flowing around – demand gives savings good places to invest to meet that demand – shows why government redistribution is essential to keeping capitalist economies going. Taxing those who have a lot and using the money to build a sidewalk is redistribution because even poor people get to walk on the sidewalk. But even for those who hate the idea of redistribution, those sidewalks and roads and bridges and the rest are absolutely essential to economies. Even more essential, the jobs that are created to do the work building those things creates essential consumer demand.

The whole world is stuck in a rut because there is too much money at the top chasing insufficient demand.

Too Much Money At The Top Chasing Insufficient Demand

Wealth has concentrated. Inequality is extreme worldwide. The result is a worldwide “savings glut.” There is very little consumer demand so investment in things consumers/the private economy might buy is not bringing much of a return. This means there is too much money floating around the world looking for a safe investment that will bring a return. With few investments promising a safe return investors don’t want to risk investing.

Investment in the private sector has become too risky because of insufficient demand. So instead of finding private-sector investments, people are “parking” their money in government bonds. Governments that are safe are getting those savings to hold instead, sometimes even being paid (negative interest rates) to hold it.

Using different words, this shows there is a huge demand for government debt. That’s why the price has gotten so high (low interest rates mean there is a high price for a bond). Supply and demand: there is too much demand and too little supply of government debt.

Coy words it this way, “The interest rate, like any price, reflects supply and demand. It’s fallen because the demand for loans is weak and the supply of loans from savers, who have extra cash to deploy, is strong.”

The Things Governments Do Creates Demand In The Private Economy

The things governments do creates demand in the private economy when the private economy is not creating enough by itself. Infrastructure, investment in the people, education, job training, science and research, etc. are the underpinnings of the private economy later, but they wear out. Roads and bridges wear out, laid-off workers lose skills and well-educated people eventually get older and you need to do the next round of public investment. Our last round started drying up with the “Reagan era” ideology of “starve the beast” by killing government’s ability to spend.

When the private economy is doing well, savings finds places to invest. When savings is already thus engaged, interests rates rise. High interest rates mean government gets less when it sells its bonds. These higher rates are the market signal that government debt is not so much in demand, and governments need to borrow (and invest) less to keep the economy going. And because the private sector is going well people need fewer public services so governments don’t need to borrow to get the money to provide them…

The Markets Are Demanding That Governments Issue More Debt

Right now interest rates are extremely low – even negative in some countries. This high price for government debt means the markets are demanding that governments issue more debt. This is the law of supply and demand. Again: money markets are demanding more supply of government debt.

What should governments do with the money they get from selling more bonds? They should do what governments do with money. By definition this is “public investment.” Build roads, educate, feed people, etc. But instead of responding to the demands of markets, the anti-government ideology in control is forcing governments to do less, get smaller, need less money, issue fewer bonds.

For decades governments have been trying to follow the “less government” ideological mantra. But economics (and markets) says there is an essential role for government and public investment or economies don’t work. As governments withdraw from their role, economies stop working. Demand dries up, those with lots of money have nowhere to put it… and here we are. Secular stagnation.

So government cutbacks lead to low economy demand. The cycle is necessary, taxing the rich and using the money for government investment both creates demand at the time though spending and jobs, and the things it invests IN create demand later.

So the same thing has now been said about a dozen different and redundant ways here. People and the markets are demanding that governments around the world open up the spending spigot, invest in infrastructure and education and services other things governments do to make people’s lives better. The markets are demanding it and the proof is low interest rates on government debt. Not just here but worldwide.

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This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture. I am a Fellow with CAF. Sign up here for the CAF daily summary and/or for the Progress Breakfast.