Category Archives: Deficit Fear

Budget Cuts = Eating The Seed Corn

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This post first appeared at Government Cheese – Chronicling the Collapse of democracy

Government budget cuts are not what they seem.

Understanding history could also be called ‘wisdom.’ Wisdom told stories about “eating the seed corn.” If you eat the seed corn you can’t plant your crops the following year and everyone eventually starves.

In the early 80s Reaganism/Thatcherism (neoliberalism) convinced the country to drastically cut taxes on the rich and “pay for” it by cutting spending. The US stopped spending on maintaining and modernizing infrastructure – especially transportation infrastructure, on education, on science … on so many things. So we lived off of prior investment for so long. But the infrastructure deteriorated and we certain never modernized it. (Just look at our rail and transportation systems, compared to the rest of the world.)

All that $$ was transferred to the already-wealthy top few who paid for the propaganda that convinced the rest to do this.

Privatization

Another piece of this scam was “saving money” through privatization. Using local trash collection as an example, cities would “save money” by getting rid of public trash collection and contracting with the “private sector” to do this more “efficiently.” What this meant was laying off the decently-paid public employees and hiring them back at minimum wage with no benefits. The infrastructure – trucks etc – to do this would receive little maintenance, collection schedules would be cut back, and people had to drag their trash to the curb instead of having it picked up at the house.

This didn’t actually save money, it shifted it. The newly minimum-wage workers would lose their houses which reduced property prices for e everyone and killed the tax base, they’d go on public assistance, schools would suffer and have higher costs, etc across the board. And poor people can’t spend much so all local businesses suffer, too.

Etc etc etc we can see it all around us now. But it is too late.

See also:

When Government ‘Saves Money’ And Gets ‘Smaller,’ We All Lose

You can “save money” by not changing the oil in your car. But have you ever seen a car that has never had its oil changed? After a while white smoke pours out the back because the rings are ruined. Other parts of the engine are also being ruined. Eventually the engine will seize up and quit and you have to either replace the engine or scrap the car. A simple and inexpensive procedure every few months would have prevented many thousands of dollars in expenses later.

After the Reagan tax cuts we “made government smaller” in several ways that are coming back to bite us now. One way we “saved money” by not “changing the oil” was by deferring maintenance of the country’s infrastructure – the water systems, levees, dams, roads, bridges, airports, ports, rails systems, electrical systems, and the rest of the things we all rely on to bring us safe water, get us to work, ship products and generally move our economy and live our lives.

Now the American Society of Civil Engineers’ (ASCE) most recent “Infrastructure Report Card” estimates we need to spend $3.6 trillion just to bring the infrastructure up to where it should be, never mind catching up to the rest of the word with high-speed rail and smart electrical grid systems. The bill is getting more expensive every year, and people are dying as bridges, roads and other important infrastructure components fail. Thousands died in New Orleans when the levees failed.

5 ways privatization is fleecing American taxpayers

If people with OK public-employee jobs are replaced by lower-paid workers the community is poorer in the aggregate. More people will need public “safety-net” services. There will be foreclosures. Tax revenue drops because of lower pay but also because poorer people can’t spend as much in stores. Sales taxes drop as stores face fewer customers able to get by.

Reagan Revolution Home to Roost: America Is Crumbling

Inflation and Modern Monetary Theory- MMT

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How many of you have heard about “MMT” – Modern Monetary Theory?

MMT says federal budgeting should look ahead to whether spending will cause inflation instead of just worrying that it will. After analyzing whether spending might cause inflationary pressures, address those causes of inflation – resource & capacity shortages – in advance. Then spend.

That way government can do what it needs to do to meet the needs and wants of We the People.

Example, of you want a high-speed rail system make sure to set up steel & train car manufacturing etc. first, then build the rail systems. If you approach it that way, capacity and resource shortages – steel, labor & other resources – don’t cause inflation.

Address the causes of inflation first instead of trying to “fight inflation” later by forcing people out of work, etc.

Superstitious Fear of Deficits

We have a superstitious fear that we might “run out of money.” We used to use gold (or shells) as money. Kings used to have to round up gold. People still think this is what money is. People think taxes round up gold – “revenue” – and the government that makes money – “dollars” – can somehow run out of the money it makes.

But that is not what money is, and not how a modern economy works. Money is created by government. (We “make” dollars and license banks to “create” money.) Taxes help regulate the money in the economy and (used to) balance its distribution. Dollars are like points on a scoreboard. A baseball game can’t “run out” runs. Our government can’t “run out” of dollars. Dollars are just an instrument of keeping score of how government has allocated our resources.

Unfortunately, the way government budgeting still works now – worrying about “deficits” and inflation instead of addressing problems that deficits might cause – we end up with austerity. We don’t spend enough. We don’t address the needs and wants of We the People. And if we see inflation we do terrible things to fight it. We CAUSE unemployment. We CAUSE poverty. Etc. We try to fight inflation after it begins instead of not causing inflation in the first place.

Austerity Breeds Fascism

Our medieval monetary superstitions and the resulting practices cause us to refuse to allocate resources to address our societal problems. This austerity keeps us from doing things to make our lives better. We don’t fix and certainly don’t modernize infrastructure, don’t provide healthcare or childcare or good education (through college), etc., so people feel government doesn’t work. As we saw in the 1930s and are seeing again now, austerity breeds fascism.

This is a great book to help understand MMT:

The Deficit Myth
Modern Monetary Theory and the Birth of the People’s Economy
by Stephanie Kelton

Also this April, 2021 NYT Op-ed by Stephanie Kelton, warning that our Covid relief budget process could boost inflation:
Biden Can Go Bigger and Not ‘Pay for It’ the Old Way

We CAN Have Nice Things

Take a look at this website keeping track of and teaching about MMT: We CAN Have Nice Things

Infrastructure “Deal”

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So there’s a “bipartisan deal” on infrastructure that cuts out much of the original infrastructure plan, which was supposed to be urgently needed for the country. They say it can’t pass without an accompanying guarantee of a Reconciliation bill to pass the rest of what was proposed.

So in other words, we’ll get the entire original proposal (or maybe nothing) through reconciliation except months later than we would have if we had just passed it using Reconciliation in the first place, but leaving little time for much of the rest of Biden’s agenda, never mind all the bills the House has been passing.

This “deal” is because Biden, who was going to convince Republicans to work with him, couldn’t convince Democrats like Manchin to work with him. And Biden caved on taxing the rich.

Also you have to “pay for” something that will bring us trillions in future economic gains? But one way they are going to “pay for” it is by selling public infrastructure to private interests who can then charge US a fee to use OUR infrastructure.

PS For those who mistakenly think the US govt “borrows,” the interest rate is close to below zero when inflation is added in, so we actually “make money” if we “borrow.” But we absolutely can’t issue T-Bills to “pay for” the infrastructure that will bring us trillions of benefit.

PSS The US govt MAKES dollars. It doesn’t borrow them. It also chooses to sell T-Bills, for different reasons.

PASS Also, Republicans can now take credit for the infrastructure spending the public wants, even after cutting it by 2/3. Or is that 3/4?

Older Democrats Learned The Wrong Lessons From Nixon and Reagan

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In today’s news, Biden promises not to use the power he has to make people’s lives better, and boost the economy.

“…it’s arguable that the president may have the executive power to forgive up to $50,000 in student debt,” Biden said. “Well, I think that’s pretty questionable. I’m unsure of that. I’d be unlikely to do that.”

Biden does, in fact, have that power. He’s saying he will not use it.

My observation from watching this crap for so long is that there is a generation of Democratic politicians who learned terrible, wrong lessons from Nixon/McGovern and then Reagan and the rise of the “conservative” propaganda machine. They got beat up so bad and still don’t really understand what happened to them and are still cowering from doing anything that might provoke another beating.

Back then the Democratic party had been riding on the FDR (plus Medicare & Great Society) wave of Dem goodwill for so long that they let the structures and understandings that support political action atrophy. So along came a billionaire-and-corporate-funded conservative movement machine that understood marketing, and how to neutralize opposition, etc, and just wiped the floor with them.

Please don’t hit me again!

What those Dems unfortunately learned was not to do anything that could let them be accused of being “communists” or “soft on crime” or “taxing and spending” or “weak on defense” etc. (They also learned never to put on a protective helmet and ride in a tank.) They learned not to do or say anything that might trigger another beating. They especially learned not to ever propose doing things that help the public & is good for society because it will be portrayed as helping minorities.

They firmly believe that anything any Democrat does to help working people, the general public and society in general will be “portrayed” in a bad way that elects more Republicans, and they see it as their mission to stop any Dem from doing so. Lest they receive another beating. They always have to get the abuser’s permission to do anything. (They call that bipartisanship.)

Biden, Pelosi, Feinstein and so many others are representative of what I’m talking about.

MMT Explains What Governments Can Do. It Is Not A Proposal.

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This post originally appeared at We CAN Have Nice Things.

At Business Insider, Jim Edwards and Theron Mohamed do a good job explaining MMT in, “MMT: Here’s a plain-English guide to ‘Modern Monetary Theory’ and why it’s interesting.”

They begin with these bullet points:

  • MMT is a big departure from conventional economic theory. It proposes governments that control their own currency can spend freely, as they can always create more money to pay off debts in their own currency.
  • The theory suggests government spending can grow the economy to its full capacity, enrich the private sector, eliminate unemployment, and finance major programs such as universal healthcare, free college tuition, and green energy.
  • If the spending generates a government deficit, this isn’t a problem either. The government’s deficit is by definition the private sector’s surplus.
  • Increased government spending will not generate inflation as long as there is unused economic capacity or unemployed labour, MMT proposes. It is only when an economy hits physical or natural constraints on its productivity — such as full employment — that inflation happens because that is when supply fails to meet demand, jacking up prices.
  • MMT proponents argue governments can control inflation by spending less or withdrawing money from the economy through taxes.
  • Needless to say, traditional economists have some issues with all this.

Just ONE quibble with that, where they write, “It proposes governments that control their own currency can spend freely.” They should have written It EXPLAINS, not that it “proposes.” Big difference.

MMT EXPLAINS that governments that control their own currency can do a lot of things.

Republican Deficit Fear Strategy

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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

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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