Budget Cuts = Eating The Seed Corn

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

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

TED Talk: The Big Myth of Government Deficits

This is a TED Talk by Stephanie Kelton, TED: The big myth of government deficits.

“Instead of trying to keep the deficit in check, Congress should be trying to keep inflation in check.”

“Instead of asking how will we pay for it, Congress should be asking, “How will we resource it.”

The #FightFor15 Minimum Wage WAS The Compromise. #FightFor24!

The minimum wage should be $24 if it had kept up with the gains in the economy.

Instead all those gains went to a top few.

CEPR: This is What Minimum Wage Would Be If It Kept Pace with Productivity

While the national minimum wage did rise roughly in step with productivity growth from its inception in 1938 until 1968, in the more than five decades since then, it has not even kept pace with inflation. However, if the minimum wage did rise in step with productivity growth since 1968 it would be over $24 an hour today, as shown in the Figure below.

$15 WAS the compromise!

$15 is a compromise already. If the minimum wages had kept pace with the gains in the economy it would be $24 or so per hour now, which is around $96K per year for a couple. What this means is that if labor’s share of the economy had stayed the same the minimum lifestyle equivalent would be what a $96K lifestyle today is. The house you’d be able to buy, etc. That would be our minimum.

#FightFor24

If they kill the $15 compromise there is no reason to keep fighting for $15. It should be $24 and we should all rightfully be fighting for that. It just gets us back to where we were before the great financialization, the great separation of labor wages from the economy, the great inequalizer.

So fuck 15, #FightFor24

Protectionism, Trade and Democracy

This post originated at Imagine Democracy

“Protectionism” literally means we, as a nation, protect our national interests. It is one more word that has been twisted to make people think it’s a bad thing, like “entitlement” (the things we are entitled to as citizens in a democracy) or “welfare” (people in a democracy making each others’ lives better.)

“Trade” is about competitive advantages. It used to mean one region can grow bananas and another can grow corn, and by trading they each end up with both bananas and corn in their kitchens. (Good.) Today, though, it means authoritarian governments have the “competitive advantage” of allowing slavery and pollution so their factories can make things for less. So (the executives of) big corporations move production there, then squeeze the remaining workforce here with threats to move their jobs as well if they won’t lower their standard of living. (Bad.) All the gains of that “trade” are passed to a few already-wealthy owners and managers of that means of production. They use some of the gains to influence our laws to allow them to do this.

A democracy obviously would consider its people’s standard of living an interest worth “protecting” and would never allow businesses to influence lawmaking.

Trade can be done a different way but that requires democratic governance. Economists (used to) tell us that society gained from trade because making the economy more “efficient” by moving production to lower-cost regions frees up resources, providing increased investment and general prosperity; better infrastructure, higher pay and more free time for everyone in the society. And the production moved to the lower pay area means jobs and investment there, so they also move up that same ladder to increased investment and prosperity. That assumption depended on viewing society as liberal democracies capable of making and enforcing rules that would pass these gains on to everyone.

The failure of our country to maintain itself as a democracy has resulted in the allowance of trade with slavers and polluters, resulting in the extreme inequality we see. Thereby enabling further squeezing of workers and environment here. It also incentivizes authoritarian governments to allow slavery and pollution.

The solution to this, and so many other problems, is, of course, to remove the influence of money from our political system.

Trade and Jobs and A Better Life

Breitbart used some of my stuff about trade in 2016, quoting it out of context, and got it wrong. Trumpers think that China and other trade partners “outnegotiated” the US. But they didn’t. The trade deals were exactly what the corporate-controlled US negotiators wanted.

But it wasn’t the bad trade deals themselves that hurt us so much as the way they were used by American businesses to hurt us.

Here is what I mean. “Trade” is when places that can grow bananas exchange them for things that come from places that can grow corn, etc. But we call it “trade” when we close a factory here and open it in China, making the same things to sell in the same stores, because they get paid less there.

The thing is, that can be a good thing for all of us IF it is done in a way that benefits all of us. And it can be. If you take the resulting gains (the difference between what people here were paid vs what they’re paid there) and use those gains to give everyone here better jobs or a better life, then we all benefit. If you invest that money in better infrastructure here, a more efficient economy, etc, then we are all climbing a ladder. And also the Chinese (or other trade partners) benefit from getting the jobs. Then over time they can do the same thing to climb the same ladder. That’s a win-win.

But instead of doing it that way, what happened was a few already-wealthy people just pocketed those gains instead of sharing them by. They didn’t invest in better jobs, or in better infrastructure or education, etc. They just pocketed it.

Even worse, they used the lower-paid jobs there as leverage to force people here to accept lower wage jobs, “or else your job goes, too.” They intentionally created unemployment. Unions were busted.

How did this happen? You’d think in a democracy the government would work to ensure that We the People would benefit from deals our government made. Our government should have made sure the trade deals were used to help us. But it did the opposite.

This happened because our government was “captured.” Instead of doing things for all of us the government started only doing things that benefited the financial types at the expense of the rest of us. This problem was always around. But the real change happened starting in the 1970s, and the effect hit us in the 1980 election. “Free trade” and “tax cuts for the rich” and “cutting government” (which means cutting spending on infrastructure and education etc, as well as cutting the regulatory protections that kept big business from controlling everything) and the rest happened, and we are reaping the whirlwind since.

Trade can be used for good or bad. It isn’t “trade” that’s the problem.

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

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.

Imagine Economic Democracy

This post first appeared at the Imagine Democracy blog.

We don’t have to “bring back jobs from China.” Economists explain that exporting low-level jobs and automating free up resources so “we” can have more $ and free time. And places climbing the jobs ladder get jobs.

The problem is how “we” are distributing the gains. Right now a company ships jobs away or automates and a few already-wealthy people in charge of the company get all of the gains. The workers a shit out of luck. They lose homes, etc.

AND on top of that the owners of companies use those job losses to break unions, etc, forcing wages down. “Shut up and accept the pay cut or we’ll fire you.”

Imagine Democracy

It doesn’t have to be that way.

Imagine if “we” all shared the gains, and received more $ and free time. And as those other countries automate, etc., they also get more $ and free time.

What we need is democracy (aka “socialism”,) so we can GET that $ and free time.

Imagine if we had an economic system designed to be of, by and for We the People, where we require that automation and job exports mean those economic gains go to US – We the people – instead of an already-wealthy few.

A company improves efficiency by automating, etc., and the gains go into a fund. As all the companies do this, the fund provides income to working people. People get the same pay and reduced hours because the efficiencies mean there is less work to do. Or they can move up the ladder to more-skilled jobs for more pay.

In other words, imagine democracy