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Bill Black: Robert J. Samuelson tries to create a moral panic about deficits

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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. Cross posted from New Economic Perspectives.

The Washington Post leads the pack when it comes to generating what scientists term a “moral panic” about budget deficits.  As part of that effort they generated the series of myths that Paul Ryan was “serious,” “courageous,” and “expert” about “solving” the “deficit crisis.”  The newspaper’s theme is that anyone who doesn’t fall for their effort to create a moral panic is not “serious” and should be ignored.  The paper runs a column by Robert J. Samuelson that is devoted to generating a moral panic about the deficit.  Like Ryan, his central targets are imposing austerity and cutting Social Security, Medicare, and Medicaid.

Samuelson’s latest column claims that President Obama and Governor Romney are lying to the nation because they have not sufficiently embraced the moral panic as the transcendent campaign issue that will determine America’s future.  Samuelson demands the candidates implore the American people to urgently adopt austerity and attack Social Security, Medicare, and Medicaid.

We have known for over 75 years that the key to recovering from a recession is to follow a counter-cyclical fiscal policy that will reduce unemployment. We have long exhibited the wisdom to adopt automatic stabilizers that increase government services and decrease taxes when a recession strikes.

What would have happened if Obama had adopted austerity as Berlin imposed austerity on the European periphery?  It would have prevented any recovery, throwing the U.S. into an even more severe recession.  Berlin’s austerity demands have thrown the Eurozone back into a gratuitous recession, increasing the budget deficit in many nations and plunging Greece and Spain into depressions.  Europe has followed Samuelson’s and Ryan’s policy advice and the results have been disastrous.  Samuelson’s and Ryan’s austerity policies violate economic theory, economic history, and a natural experiment in Europe with austerity that has proved catastrophic.  Samuelson, however, makes bizarre odes to Irish austerity, emphasizing the necessity of “persuading ordinary citizens to tolerate austerity (higher unemployment, lower social benefits, [and] heavier taxes) without resorting to paralyzing street protests or ineffectual parliamentary coalitions.”

Samuelson shares Berlin’s belief in the redemptive power of suffering – by others.  He doesn’t even feel a need to explain why any rational government would adopt a policy in response to a severe recession which it knew would cause “higher unemployment, lower social benefits, [and] heavier taxes.”  He admits that Berlin (and Dublin) knew that austerity would make the recession far more severe.  He doesn’t think that adopting austerity programs known to be self-destructive requires justification or even explanation.  Insanity is normal in Samuelson’s world.

Samuelson is most amazing, however, in explaining how the victims of austerity should react to a response to a recession that will make the recession worse.  Samuelson’s world of insane economic policies requires the victims to be political masochists.  Samuelson demands that the victims of austerity suffer in silence without protesting austerity or using their democratic rights to form coalitions to reverse the insane economic policies.  Samuelson is not afraid of “ineffectual parliamentary coalitions” – he is terrified of effectual coalitions that would end the economic insanity of responding to a recession with a pro-cyclical policy of austerity.

Samuelson, in a column decrying politicians who make misleading statements, suggests that Obama make the following statement to voters about ending the U.S. deficit.

“Can’t we just tax the rich even more? Unfortunately, this won’t work either. Third Way — a liberal group, mind you — estimated the effects of top income tax rates of 49.6 percent and 41 percent and a top capital gains rate of 38.8 percent. The budget still doesn’t balance….

“Third Way” is not “a liberal group” – and Samuelson knows it.  It claims to be a “moderate” group, but that self-description is misleading.  “Third Way” was created by, and is run by Jonathan Cowan, a Pete Peterson devotee.  Peterson is a conservative, Republican billionaire who has spent 20 years using his money to create groups that will spread the moral panic about deficits in order to attack Social Security, Medicare, and Medicaid.  Samuelson is a Pete Peterson devotee and journalist quoting Cowan’s group’s paper.  Cowan is a fellow Peterson devotee and journalist.  Third Waypublished a paper lauding Ryan’s proposals to end public health insurance and denouncing Brad de Long and Paul Krugman’s refutation of Peterson’s faux moral panic.

Samuelson deliberately misled his readers in a column devoted to denouncing Obama and Romney for misleading voters.  It remains impossible to compete with unintentional self-parody.

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78 comments

  1. jsmith

    “necessity of “persuading ordinary citizens to tolerate austerity (higher unemployment, lower social benefits, [and] heavier taxes) without resorting to paralyzing street protests or ineffectual parliamentary coalitions.”

    Wow, this guy wants a front-seat in the dock…or is it a lamp-post with a view that he’s after?

    Continuing:

    “Can’t we just tax the rich even more? Unfortunately, this won’t work either. Third Way — a liberal group, mind you — estimated the effects of top income tax rates of 49.6 percent and 41 percent and a top capital gains rate of 38.8 percent. The budget still doesn’t balance…”

    Hey, f*ckface, why don’t we tax the obscenely wealthy at 100 PERCENT and see if that balances something, you sycophantic waste of courtier trash?

    Until the elite understand/appreciate the true rage of the masses that have been stolen from, nothing will change and we will be regaled with pointless charades like Third Way and idiots like Samuleson.

    1. JEHR

      Get a grip. If you have something important to say, your comment will say it. Calling names turns people off!

      1. jsmith

        Oh, it’s good citizen, JEHR, here again to remind people not to be angry, to not shout, to not call the worst humans – murderers and thieves, mind you – in our society any bad words.

        No, no, JEHR is the “good German” who thinks that we can still “talk” “debate” “reason” “argue” “outwit” and “engage” with those who are actively RIGHT NOW stealing what is left of our livelihoods while they continue to plunge us into the horrors of more war and bloodshed.

        Ah, JEHR, you’re right, maybe when we have absolutely NOTHING left as a society, when EVERY single last vestige of our social safety-net has been destroyed, when the elite can overtly parade around in their armored cars with their private security forces and laugh at us peons behind bullet-proof glass, THEN we should MAYBE think about getting angry, right?

        This man Samuelson basically tells us to our faces that we have to give the elite more money, unnecessarily face harder and shorter lives and not worry about using democratic methods to change anything and your response to me when I call him a f*ckface is: now now, don’t get upset and call the bad man names.

        Don’t like names, JEHR?

        Too bad.

        You’re a pathetic, spineless elite bootlicker who doesn’t have any right to tell me or anyone else in this current mess not to be angry, you worm.

        You once asked me – oh, I remember, JEHR – why I was so angry.

        My response: how can ANYONE NOT be?

        What will it take for the JEHRs of the world to FINALLY get their heads out of their polite, analytical a$$es and face the uncomfortable truths that have been blatantly evident for A LONG TIME now.

        What truths are those?

        Well, let’s see JEHR – oh and stop me if you think I shouldn’t get angry about any of the following:

        Illegal wars.
        Torture.
        Indefinite detention.
        Unprosecuted financial fraud totaling TRILLIONS of dollars.
        Unprosecuted war crimes committed by our officials.
        The wholly unnecessary depression we are now in the midst of needless austerity and unemployment.
        The shredding of established law and governing documents.

        I could go on for days.

        Do I need to go on, gentle JEHR?

        You’re right, I’m sure each of those points – as beneficial to the elite as they – gee, shucks! – are unfortunate for the hoi polloi – just needs to be politely and respectfully spoken to a bit more by you, me, our politicians, our talking heads and our elite overlords, right JEHR?

        I’m sure humanity’s just one conversational “nugget” away from really initiating some change and cures for our ills, right, JEHR?

        Don’t call the elite murderers, thieves and their accomplices names?!

        Hey, maybe those criminals should count their blessings that we’re still societally at the point where we are just calling them names on message boards, huh, JEHR?

        And MAYBE we don’t need self-appointed online school-marms to help them forget that fact, mkay, buddy?

        Get a grip?

        For the millions who’ve already been needlessly murdered and stolen from, JEHR, all I have to say is:

        How effing dare you.

        1. McKillop

          Name the criminals what they are.
          Name the liars and propagandists as liars, thieves as thieves, murderers, murderers.
          Your anger, your rage, your demand for justice will lead to no good end if all that is done is call people f*ckface, or c*nt, or any other overused but meaningless insult.
          I’d suggest that you help defeat yourself and the rest of us by alienating people who would be allies. You give the murderers and other knaves a chance to appear virtuous and respectable with their ‘good’ manners and their ‘nice’ suits.
          Their lies are accepted.
          Your truth is dismissed.

        2. Stephen Gardner

          If I may paraphrase a beer commercial: stay angry my friend. :-)
          Seriously, I think the time to treat thieves and murderers as if they were respected citizens is long past. For a long time the elite thieves and especially their paid propagandists have tried to make us all think that anger is an inappropriate emotion. It’s not. Stay angry my friend. It is the energy that powers the change. Real change.

          1. McKillop

            I haven’t seen commentary that suggests we treat thieves and murderers -or other monsters- with respect: nor is anger proscribed.
            What I am suggesting is that perverting language and action is not a tactic that is successful. If we use beer commercial cliches or slang we alienate people who might be our allies. We also minimize the evil.

      2. Bert_S

        Poopyhead Samuelson neglected to mention that Buttlips Ryan gives tax CUTS to rich fuc*tards and corporate bundled di*kwad people.

        1. Darren Kenworthy

          Thank you Bert, for demonstrating how to make an arguement that happens to contain profanity. Both edifying and humorous.

    2. Tim

      The problem with Taxes and the problem with MMT (MMT after all is just a taxes using the government’s credit card) is they can be rather blunt in their affect.

      Prosecuting fraud is a very acute way of dealing with the issues of our 1%’s. We need to fix our judicial system such that fraud is indeed prosecuted again, by elimination of the revolving door.

      Not to mention amending the constitution to chop the legs of special interests as part of the electoral apparatus.

      Those would make a big difference.

      But to say that everybody that got .01% rich intentionally screwed over people to get there is a broad brush.

      I understand your anger though.

      1. Ben Johannson

        “MMT after all is just a taxes using the government’s credit card . . .”.

        No, and getting something so basic so wrong tends to derail the worth of the rest of your comment.

        1. McKillop

          Why would mis-understanding -or merely simplifying, perhaps- one concept tend to derail a person’s other arguments about different matters?
          Is an _ad hominem_ comment somehow more worthy?

      2. YankeeFrank

        Anyone in the .01% is a criminal. I can guarantee you that anyone who has amassed that kind of wealth has done dirty one way or another. Let’s take Bill Gates for example. He amassed his wealth by foisting inferior products onto the public using various quasi-legal and outright illegal anti-competitive predatory tactics. The lost productivity this has caused, and wasted expense companies have had to invest in order to get his broken products to work at all is likely in the hundreds of billions of dollars, if not trillions.

        Steve Jobs amassed his obscene wealth by exploiting slave labor in China. I know, slave labor is not illegal. Right. These are just two of the most obvious crooks. It will be much more difficult to find a billionaire who has not committed crimes to gain their riches than to find one who has done so legally. And if you do, its likely because the tactics they use are technically legal but should not be, and at the least are highly dubious morally. I would argue that any societal arrangement that allows such amassing of wealth is largely immoral and sick as well.

        Its time we stop pretending our system distributes its awards in any way that can truly be described as meritocratic. Mitt Romney is a bust out artist. Tell me why I can’t buy a company for practically no money down, by simply forcing that company to take out a loan to finance my purchase of it. This is how Romney purchased all those companies he saddled with debt and set adrift (after taking his millions in “bonuses”).

        Our entire economy is comprised of those we are well-placed and have access to spigots that pour unlimited amounts of money, and the rest of us who can barely earn enough to pay the rent, eat and stay healthy.

        Anyone who earns billions in such an economy is a thief. Someone is being robbed, one way or another, for that person to amass all that wealth.

        1. Chris Stahnke

          Alas, if things were as simple as you say. They, y the rich, live in a milieu that we are all part of and a culture that values some things over others. The movers and leaders of our society reflect the moral principles (or lack thereof) of the society we live in. Gates and Jobs at least created useful products that we were not forced to buy–yes, they cut corners and did what they had to do to supply an amoral public with the toys and products they wanted.

  2. ForReal?

    Question is, why is anyone paying attention to Robert Samuelson in the first place? Everyone does know that he’s just a hack journalist with no econ cred whatsoever (and is not related to Paul Samuelson in any way either), don’t they? And he’s probably paid by conservative interests one way or another to write this tripe as well.

    1. ifthethunderdontgetya™³²®©

      Because he’s got a good-paying jerb at the Washington Post?

      You can say he’s a moron and a hack, and I agree.

      But both our major political parties are about to cut Social Security for no good reason. The only argument is how much, and not WHY?

      And that’s why exposing hacks like Samuelson (and the politicians they enable) is important.
      ~

    2. Gary

      cuz he’s in the WaPo and cross published in local daily papers (mine), and he SOUNDS authoritative and knowledgable. After all, he wrote a book (or few).

      I’ve been quietly seething about him for a while.

      THANK YOU WILLIAM BLACK.

    3. Chris Stahnke

      Anyone who has a column at the WaPo reflects the views of an important faction within the ruling elites or he or she would not have that column. The factions contend, in part, through the editorial pages of the Post. The NYT and other outlets do not so faithfully represent official thought as does the Post–it is the Pravda of this society. It’s not Samuelson that is important but his views and how powerful the faction is that supports him. It’s not just a question of money because these people form little bands or tribes–they socialize together and make common cause. There are many of these factions in and around government.

  3. Thom Tobiason

    One time I would like to see a little push back on the “debt will destroy America” theme. I would like someone to ask them what happens after the debt gets bigger. What happens when it becomes so big that … what? we cannot pay the interest on the bonds? And, then what? Who is going to come around and try to foreclose on America? A bank? A bunch of banks? The value of U.S. currency will be unaffected since it is backed up by the property, infrastructure, resources, and people in the U.S.

    IF we were like a family sitting around the kitchen table trying to balance our payments with our income, then all the debt panic makes sense. We’re not. It doesn’t.

    1. Tim

      “Then what?”

      Either Nobody is going to give America another loan at that event horizon of a default. Can the US really gracefully endure a 40% cut in government spending overnight? It would be anarchy.

      Or we will be buying the entirety of our own debt, and the currency will be hammered by the ongoing ponzi scheme circle jerk inevitably.

      Any MMT is indeed just a future tax.

      1. Gary

        MMT just describes the method of how money creation actually works. Combined with Steve Keen, we see:

        BANKS create money out of thin air, but tied to debt obligation to repay. Banks can purchase a variety of investments and IOUs, by creating the money out of the IOU asset.

        No one got panicked about Banks creating many more Trillions in Deposits (as credit).

        The Fed is a bank (as well as a govt agency sorta), and the Fed can do what banks do: buy debt-based assets.

        The Treasury can legally issue unlimited number or value of COINS with no restrictions, per the Const. Treasury can legally “BORROW” unlimited. Treasury COULD conceivably create Dollars without issuing bonds, but current rules say it cannot.

        GET THIS: Treasury cannot run an “overdraft” at the Fed, i.e. “borrow directly” from the Govt bank. Tsy is required by Congress to issue Bonds … at auction for Special Banks to bid on. Primary Dealers. But the Banks do not actually have to have CASH to buy Govt Debt, they CAN run an overdraft.

        Meaning: Tsy cannot borrow from the Fed, but Banks can “loan” money to the Govt by borrowing that money from the Govt. Neat?

        The Treasury never operationally NEEDS to borrow from China or ANYONE to spend. Nor does it. It never NEEDS to issue “debt” instruments. These are Savings Accounts for rich people, corporations, trusts, and central banks, with Term interest. It’s corporate welfare, PLUS a policy tool of the Fed to DRAIN reserves accounts to push interest UPWARDS by setting Interbank rates, Fed Funds Rate “target”.

        US Govt can no more run out of US Dollars than McDonalds can run out of McDonalds burgers. It’s branded item and a monopoly.

        (McDs has a slightly higher chance because burgers are tangible and maybe all cows could get sick and go extinct. All the Govt needs to issue Dollars is computers and electricity. MMT says this is how it DOES work, like it or not. Pardon if any minor inaccuracy in my loose description.)

        US Banks and US Business and Rich people wanted a Central Bank to backstop Banks that frequently crashed, but also for the Govt to finance foreign exports — Open Door Policy.

        Austerity freaks have NO issue with Govt spending, only hate spending on non-elite Americans.

        The Interest rate is set by the Fed, not the Market. Take it or leave it. T-bonds are always “over-subscribed”, more buyers than units for sale @ Tsy auctions. There is high demand. When these mature, the Investors want MORE (rollover). It’s a Safe Secure way to PARK excess Dollars.

        Shifting a Dollar account balance from Reserves to Securities pays off that “Debt”, and it’s never the slightest risk that the Fed cannot shift those acct balances, per rules.

        1. EconCCX

          >>GET THIS: Treasury cannot run an “overdraft” at the Fed, i.e. “borrow directly” from the Govt bank. Tsy is required by Congress to issue Bonds … at auction for Special Banks to bid on. Primary Dealers. But the Banks do not actually have to have CASH to buy Govt Debt, they CAN run an overdraft. Meaning: Tsy cannot borrow from the Fed, but Banks can “loan” money to the Govt by borrowing that money from the Govt. Neat? <<

          Because it's not the Govt. bank. USG can't alter balances in a private institution.

          Under the Federal Reserve System, the nation is divided into twelve districts, each with a Federal Reserve Bank owned by the member banks of its district. In turn, the twelve Reserve Banks are themselves coordinated by a seven-member Federal Reserve Board in Washington.

          Since the President, with the advice and consent of the Senate, appoints members of the board for fourteen-year terms, they constitute a body that has been purposely established as an independent monetary authority.

          – Economics Explained, Heilbroner & Thurow, 1982 (1998), p. 126. Emphasis mine.

        2. danb

          “US Govt can no more run out of US Dollars than McDonalds can run out of McDonalds burgers.” This the problem: Where do burgers come from? A chain of social systems that rely on the physical world to function -and to avoid collapse or decline.”

  4. Me

    I have said it before and will say it again; the right doesn’t say a damn thing about PRIVAT E debt because if they did we might ask ourselves why ALL of society’s debt load has increased. We would then ask who benefits from this increased debt, finance, and who would be hurt if the debt load (relative to wages and profits in the productive economy) were reduced. The Fed itself has said that household debt has exploded in recent decades; the debt of corporate America (especially in finance) has gone up much more. Why not focus on this? Again, it would force these economically illiterate hacks to look at structural problems in the economy, and they want to pretend that the public sector is the only one that will have to deal with a debt burden.
    Besides, no one that knows a damn lick of economic history thinks reducing, hell even talking about reducing, the public deficit during a recession/depression makes any sense. It makes none. IF you wanted to focus on the issue, you wait until the economy is in much better shape, and it won’t be in much better shape unless the PRIVATE debt burden is reduced and financial capital is forced to lose their ass. Won’t happen any time soon, which means the economy won’t recover any time soon.
    Anyone though who thinks actual logic, facts or economy history matters to people like Samuelson is deluding themselves. None of it matters. Reducing the deficit is not a means to an end for these mindless fools, it is the end in and of itself. Taking money away from working people, when they have a high marginal propensity to spend and a high propensity to spend, and out of the economy makes total sense when demand is falling off a cliff. To whom? Financial capital and those divorced from reality and economic history.
    When, not if, this makes a bad economic situation worse, these fools won’t learn a damn thing. It isn’t their job to understand the issues or to educate the public. If they did the former they wouldn’t be where they are in the media, if they did the ladder they would be a danger to those who own the media.

    1. Thorstein

      …and that’s why teachers’ unions must be crushed. To be sure, the teachers and their quaint, nineteenth-century methods have proved ineffectual against the “education” delivered by radio and television, but no matter, “educating” the people is something that must be privately controlled by the 0.01% and done with great care.

  5. lambert strether

    If the United States can go bankrupt, then who’s the sovereign? The people — see the Constitution, Preamble) — or the banks?

    If the banks dictate fiscal policy, then who’s the sovereign? The people — see the Constitution, Preamble) — or the banks?

    Etc.

    1. Thom Tobiason

      I think this is what I was trying to get at. How can the U.S.A go bankrupt? Who would come around to collect? Would “Big Louie” come around with a baseball bat to break America’s knees, if we are behind in our payments?

      It’s amazing that we are trapped in this delusion.

      1. ForReal?

        That’s the implication in the public’s mind though. And it will be a hard one to break. And it’s not gonna happen anytime soon, Samuelson or no. The problem is, the rank and file only process the word “debt” through their own experience. AND, they don’t trust anyone who comes branded as a liberal. So when a liberal academic (and pretty much all academics are branded as liberals, fairly or not) comes along and tells them to not worry about the debt, how do you think that will play? Austerity: it’s about to be what’s for dinner for most of us.

        1. Thom Tobiason

          I complete agree with you. I myself was trapped into thinking that the US government is like me. If I don’t pay my debts, I understand the bad things that will happen. I never was able to think about US debt outside my own experience until I started reading the ideas here. I think it’s one of them paradyme shifts …

      2. tiebie66

        Neither did Zimbabwe go bankrupt. You might labor under another delusion. There are two issues that need consideration: the number of tokens (can be created ‘unlimited’ at will) and (ii) the real world economy (is resource limited).

    2. Bert_S

      Well, if you really believe we will follow rules or something during a dramatic event like the Worlds Largest Debtor going bankrupt, then there is that one fundamental thing about the “Full Faith and Credit of the USG” is behind its debts. So they will either tax like mad – which it will be too late at that point – or print like crazy, and ZOMG…need I say more?

      1. Gary

        The “Debt” is existing CASH turned into “Securities”. To “pay it back” means converting “Securities” back to “Cash”.

        This is a “swap”, not “money creation”.

        Both are produced at will by the USG, Treas + Fed.

        If the 16 Trillion “debt” haunts you, you should hire an exorcist, ghost busters, or just take some valium.

        The 16 Trillion of Govt “debt instruments” is where and how America SAVES IT’S MONEY. That’s the Bond Market.

        The “Debt” is not a method by which the Govt pays it’s bills.

        The “Debt” is a safe, secure Savings Vehicle that pays interest which is enjoyed by Rich People, Corporations, and Countries with which America does business, regardless of domestic spending or taxing levels.

        The “debt” is a free “handout” to the 53%.

        If you belieive in “Trickle Down Econ” then The “debt” + Interest is a free “handout” to EVERYONE.

  6. Rob

    This guy samuelson is just another shill for the establishment….Peter Peterson,a Rockefeller crony at tha council of foreign relations…..
    Say he is a republican,he might as well be a democrat…..the establishment plays both ends against the middle…..
    Personally, I agree with the rage at the machine side of things……if you are not outraged,yoU are not paying attention……..but futile hostility aimed at disinterested parties,does nothing….except play into the hands of the machine……one end against another…..
    I think this was a good post.I cannot fathom why people in serious forums are allowed to speak of austerity as a viable option.the only example I have ever heard anyone use as a successful austerity program was about sweden in 1994…….which a total crock….whatever Nordic country it actually was was a ridiculously isolated economy,that has the benefit of oil revenue,to bolster their national debt…..so tightening for a moment(when the rest of the world was in a good place,too),made specific sense……but other than that the whole idea of austerity is an absolute contradiction to the supposed desired end,recovery.
    This guy Samuelson is just one of the majority…..most voices out there are shills,cons,disinformation agents……most tv programs,cable too,radio,newspapers,magazines…..accept this austerity drivel as fact….and the experts pat each other on the backs with their consensus of wisdom…..did they all drink the kool-aid?fox entertainment is a joke…but NPR and PBS are just(well not nearly)as bad.they all support the orthodox economists tripe about austerity…….
    Just like when the JP Morgan’s were alive… They kept a foot in every camp,,,some were democrats,some were republicans,some were radical right,some were leftists,even communists….and we all know they were perfectly comfortable with the fascists….every ism can be good for business…..that is what they felt,and it is still true.
    We need to turn our anger into the invisible hand of death to this perverted paradigm of finance capitalism….The best dagger I’ve heard of is to change the monetary system……right out from under them…

    1. AA+ Bonds

      There isn’t a way to change a monetary system from the bottom up except through counterfeiting.

  7. rotter

    “He doesn’t think that adopting austerity programs known to be self-destructive requires justification or even explanation. Insanity is normal in Samuelson’s world.”

    in samuelsons world thats called “morality”..its a perverse, topsy turvy kind of place where up is down and black is white, destroying entire industries is good for business, war makes peace and serial lying and vicious greed are morality.

  8. Hugh

    Austerity, as in slashing Social Security, Medicare, and Medicaid, privatization, and selling off the commons, is looting. This should tell you all you need to know about Samuelson and whom he works for.

    1. bobh

      I agree with much of the consensus here, how our society is victimized by a financial predator class that sucks the lifeblood from our economy and people, how right wing economists and Newsweek are servants of that class, how social security–not the program but the concept–ought to be unassailable, how we ought to be able to easily provide health care for everyone who lives here, how our politicians, almost without exception, lie to us. But still, there is this part of me that knows we can’t keep living this way, that after the financialization scam is broken up, after the unpayable debt is written off, after the GDP starts growing again because people are working hard and saving and their savings are being invested in wealth-producing enterprises, that there will still not be enough wealth to keep us all driving around the country and flying around the world and eating strawberries in January. The standard of living, the consumption, of the American middle and upper classes–all the stuff we have and want– is obscenely high. It is much higher than the rest of the world, and the planet will be an even more terrible mess if their SOLs rise to match ours. We need to tax the rich and ourselves and fix our society. We need to resdistribute wealth so everyone has some of it, but we also need to scale back. We need to make sure everyone has food, clothing, shelter, books and a warm and dry place where they can sleep and eat and help their kids do their homework. We also need a few toys and treats, but we can’t all have new electric cars and vacations in Tuscany. We just can’t, no matter how much we borrow or how many dollars we print. Acting on that reality is called “austerity” too, and austerity is a good thing. I hate to see the banker elites steal the word and use it to drive people further down.

      1. Hugh

        We need a different less throwaway, less wasteful, more sustainable standard of living, but this does not have to mean a lower standard of living.

    2. Eclair

      “Looting,” yes, Hugh. It’s a naming thing.

      “Austerity” sounds, well, so austere, in a down east kind of “wear-out, fix-up, or make do” manner. Who could object to this?

      Let’s rename it “looting”, an accurate description.

  9. AA+ Bonds

    Not hard to break down.

    Journalists generally know squat about their topics unless brought into them by someone trying actively not to mislead them.

    Samuelson and his ilk in the business press knew squat about their topics when coming up in their field, and were introduced to them an guided through them by professional hucksters in business and finance, who likely rubbed their messages in by doing everything they could to inflate their own importance/wealth during interviews and parties (de rigeur in finance and higher-level big business).

    Now, these “journalists” know only what they’ve been led to believe: that the government is bad and everything it does should be auctioned off to those same financiers and businessmen.

  10. Max424

    WE’RE BROKE!!!

    Giggle.

    I honestly believe I could teach a random kindergartener the concept of a fiat currency, using crayons and Mr. Potato Head.

    But not Robert Samuelson.

    Note: Or Barrack Obama, for that matter. Or anybody in inside the Beltway. If you’re a Washington player, and you know what a fiat currency is, and what it could be useful for, you better keep your mouth shut, or you’re gonna end up in a dumpster (either eating out of it, or as a dead body*).

    *Depending on your “danger” level.

    1. AA+ Bonds

      The possibilities of currency as a policy tool go against common sense for those in finance and in the C-suite in business, who tend to be creditors, not debtors, by trade (and by hook or by crook, including writing their own pro-creditor legislation if necessary). They smell what their unconscious minds perceive to be a challenge to their moral authority.

      It’s important to remember that the people on Wall Street:

      1) have a ridiculous amount of economic influence, and
      2) know nothing about economics past (perhaps) an easy-grab B.A. in the field

    2. Bert_S

      kindergarteners are easy

      Try 2nd grade math

      Pre-crisis, the Fed balance sheet was a little under $1 trillion. This was enough cash and electronic money to support the economy in a more or less stable money mode.

      The National Debt is now $16 Trillion and has an average duration of 4 years, which means the whole thing needs to be rolled over on a 4 year cycle.

      At some point, who knows when ($20T??), the domestic and international bond market says “GIGGLE…we ain’t buying. But you can pay us back on the bonds coming due.”

      Sovereign Sam says no problem, I have a printing press and I’m gonna print up $20 trillion, no strings attached and hand it to ya’all folks out thar own’n dem bonds.

      And then Sovereign Sam increased the money supply 20X, and the world lived happily afterwards.

        1. Bert_S

          Just about everybody. Small investors – foreign and domestic thru bond funds, pension funds – private, government and international, social security, insurance companies, banks around the world, central banks and sovereign wealth funds.

      1. Calgacus

        Bert_S: The National Debt IS the (base) money supply, the one that counts. Problem is probably that it is too small, besides being maldistributed. If it were “paid up” – not really – that’s not the “paying up” that counts – by being replaced by currency, bank reserves, then a Big Fat Nothing would happen – because this is basically Nothing happening. The real (base) “money supply”, the National Debt, including currency, would not change at all.

        If anything, centuries of evidence suggest that inflation would GO DOWN. That’s what happened with Japan’s QEing its debt by printing money, which you seem to think would be / should have been inflationary. It was and is deflationary.

        1. EconCCX

          If it were “paid up” – not really – that’s not the “paying up” that counts – by being replaced by currency, bank reserves, then a Big Fat Nothing would happen – because this is basically Nothing happening. @Calgacus

          Trillions in new reserves to the accounts of commercial banks wherewith to purchase society’s infrastructure assets. With each transaction regaining those reserves. Enough HPM to clear at least 50x its face value in deposits. All as fully-owned private play money.

          1. Calgacus

            Trillions in new reserves to the accounts of commercial banks wherewith to purchase society’s infrastructure assets. With each transaction regaining those reserves. Enough HPM to clear at least 50x its face value in deposits. All as fully-owned private play money.

            Yup, basically a Big Fat Nothing. No new wherewithall. If they wanted to buy up that stuff or play with reserves, they could do it before, by borrowing against or directly using the Treasuries they now don’t have. And with each transaction the banking system regaining these Treasuries / NFA . The High Powered (actually, I think it stands for Hyman Philip :-) ) comes from who the issuer is, Uncle Sam, not the particular paper Sam has used.

          2. EconCCX

            MMT proposes to deploy a weak incremental capability, seigniorage, to finance an exponential function, compound interest. With the commercial bank money power holding the additional advantage of 1) the deposit multiplier 2) interest per time period 3) percentage fees per transaction 4) foreclosure.

            The weakness of one-off seigniorage in comparison with these transactional functions is perhaps why Ellen Brown has been trying to get government into the commercial banking business.

            Using reserve-creation to pay USG’s bills fuels our enormous disparity of wealth, and the society-wide scourge of indebtedness. To that extent, MMTers are right; it is what we do now. To horrifying results. MMTers would double down on this notion of trying to finance a flow with a stock.

            Cal, your model of T-Bills as money doesn’t even bother collecting the seigniorage. Instead, it delivers trillions of real-world purchasing power directly to the 0.01%. Time to study the mechanics and rethink.

          3. Calgacus

            MMT proposes to deploy a weak incremental capability, seigniorage, to finance an exponential function, compound interest.

            This is just using Big Words, like “seigniorage” that do not really mean anything. “Seignorage” is usually a sign that nonsense follows. Best used for coins & forgotten about otherwise.

            MMT is not in love with “printing money” / “seignorage” / ZIRP. The point – which would be obvious to an elementary schooler – and was obvious to everyone 60 years ago – is that “printing money” and “printing bonds” are basically the same thing. Reserves, bonds? Who cares? It is like thinking whose face is on the bills makes a gigantic difference. That A’s face is “seignorage”, while B’s face is not. It is insane, like most of modern “mainstream” textbook economics. The textbooks of the 50s were far superior, had far more to do with the real world. When you disagree with MMT about the mechanics, you’re disagreeing with Abba Lerner, and Keynes eventually said he was right.

            With the commercial bank money power holding the additional advantage of 1) the deposit multiplier Doesn’t exist.

            2) interest per time period Can only ultimately come from government spending.

            3) percentage fees per transaction 4) foreclosure. Sure, but not much to do with anything at this level.

            The weakness of one-off seigniorage in comparison with these transactional functions is perhaps why Ellen Brown has been trying to get government into the commercial banking business.

            Using reserve-creation to pay USG’s bills fuels our enormous disparity of wealth, and the society-wide scourge of indebtedness. To that extent, MMTers are right; it is what we do now. To horrifying results. MMTers would double down on this notion of trying to finance a flow with a stock.

            “Seignorage” if you mean ZIRP is not a means to finance anything. It’s not financing a flow with a stock. It’s just making the not-very-meaningful change of precisely what flows of money / NFA / bonds are added to existing stocks. It doesn’t have anything really to do with fueling indebtedness and disparities of wealth. Yes, low rates might temporarily help bubbles, sometimes. But they’re very different, basically unrelated things.

            Cal, your model of T-Bills as money doesn’t even bother collecting the seigniorage. Instead, it delivers trillions of real-world purchasing power directly to the 0.01%. Time to study the mechanics and rethink.

            They already have the purchasing power! The MMTers have studied the mechanics, better than anyone else. I’ve studied it. Most of it is just pointless operations that mean nothing, and whose only function is to confuse people into thinking as you do. It is basically all founded on category mistakes, which are HUGE mistakes.

            Japan has been doing what you & many mislabel MMT: ZIRP. No catastrophe. The vision of catastrophe, or even any substantial change comes from misconceptions about the mechanics. The reality is much much simpler than the complicated, incoherent nonsense of modern textbooks. MMT doesn’t say ZIRP is great. It says ZIRP doesn’t mean much, although it might be nice in some situations.

            (Government) spending finances itself (by “reserve creation”, “printing money”, “crediting accounts”). That is the only way it works, the only way it has ever worked, the only way it can ever work. As I’ve said before, your proposals are MMT. The problem isn’t what you don’t know, but what you know that ain’t so. You have absorbed confused ideas about the mechanics of money & finance. You’ve tasted too much mainstream textbook word salad.

          4. EconCCX

            >>“printing money” and “printing bonds” are basically the same thing. Reserves, bonds? Who cares? It is like thinking whose face is on the bills makes a gigantic difference. That A’s face is “seignorage”, while B’s face is not.<< @Calgacus

            Cal, you've made the argument that all money is debt. But a Treasury coin isn't debt; it's final payment. A T-Bill obligates USG to a future payment in currency or reserves. That payment must come from USG's account at one of the Federal Reserve Banks, private institutions. As a private institution, a FRB cannot be compelled or expected to surrender its own assets to redeem USG's obligation.

            As I quoted in my reply to Bert_S, Marshall Auerback attributed to Wray an alternative description of USG bond redemption under which the “Fed” simply credits the checking accounts of T-Bill holders with new reserves upon redemption, without drawing from USG’s account. I again ask whether MMTers are relying on this model when they argue that USG debt is effectively equivalent to debt-clearing currency.

            Both USG bond issuance and Fed Bank note issuance support a system that obliges money users to unpayable interest and fees to the financial industry. MMTers would double down on such note and bond issuance to keep folks working. Soddy adherents generally support a 100% reserve requirement, which would effectively turn dollar creation into a Treasury monopoly.

            Soddy had the diagnosis right, but his solution is unsatisfactory, for reasons I’ll treat another time. A better one is SBDM, or service-backed, service-denominated money. Digital bridge tolls, subway tokens, forever stamps as a means of exchange and store of value

            Is that form of money also debt? Yes, but it’s debt in kind, debt of the issuer. It isn’t interest-burdened recursive loan debt of the sort that is reducing students, businesses and governments to peonage. It’s impossible to describe the creation of US dollars or other central bank currencies without use of the words “loan”, “borrow”, “lend”, or the equivalent. SBDM, on the other hand, is bartered into existence.

            SBDM relies on the exchange value of service contracts, not on its redeemability in fulfillment of tax obligations. So SBDM isn’t the chartalist money described by MMT. Moreover, SBDM is denominated in units of the service itself. You wrote:

            The “service-backed” is just the service the government provides you when you pay it something. The biggest service is “not putting you in jail” in return for “allowing you to engage in taxed activity & paying taxes”. Or you are buying a legal right to engage in said activity with your taxes. E.g. Property taxes can / should be seen as a rent payment to the government. So we get Mosler’s Hut Tax. Or when the government builds a bridge to the Moon (think big) – the passage costs a whole buck.

            But SBDM is service-denominated. Five bridge toll tokens can be passed hand-to-hand, or conveyed digitally or by check. Five units of “not putting you in jail” cannot. And a 100% reserve is inherent in SBDM. Somebody must deliver a real payment to the bridge, an obligation that is destroyed, not passed bank-to-bank and back, as with a reserve currency. SBDM creates industrial employment in fulfillment of the contract for service that backs and denominates the money, a true quid pro quo. And SBDM can be issued and fulfilled by national governments, local governments, private companies, authorities and NGOs.

            So to me, it’s not remotely like MMT or chartalist money.

        2. skippy

          FYI a predator drone has been dispatched to this section of the comment thread, run like hell!

          skippy… Seriously… with out policy descriptions, well, if the neoliberal epoch is a guide, fat ass nodal goodness until the planet cracks!

          PS. I wonder how much its going to cost us down under this time after fobbing off that massive sea sucker factory trawler. We lost the court case last time… ahhh sovereignty… sigh…

          1. EconCCX

            The National Debt is not base money. @Bert_S

            Back in May 2010, NEP contributor Marshall Auerback wrote a comment here as follows:

            Interest is paid on the government debt. To whom is it paid? As Randy Wray has argued several times, there are about 13 trillion dollars in Treasury securities at the Fed. Collectively, these savings accounts are known as the national debt. The national debt represents a portion of the combined savings of US residents, corporations, banks, and foreign governments. Tens of billions of dollars of these Treasury securities come due every week. When that happens, the Fed pays off that “debt” simply by transferring the dollars, plus interest, out of these savings accounts and back to the holders’ checking accounts.

            MMT: The accounting of government budget deficits « naked capitalism. Emphasis mine.

            I’d have thought that the Fed Bank pays the holder of the matured security from USG’s funds at a Federal Reserve Bank,

            But Auerback here is claiming that the Treasury securities are themselves term savings accounts. That the funds they represent are inherent in the securities. That upon their maturity the Fed Bank simply credits the accounts of their purchasers with the maturity value. No debit from any other (i.e. USG) account required.

            This may be why MMTers believe the debt isn’t really owed; Auerback suggests it’s just a maturity swap between forms of dollars, with Treasuries sold initially, and new liquid money created upon their redemption. Are those not his words? Where is he saying the payment for bond redemption comes from, and where does it actually come from?

            MMT needs less explication and more documentation. Details matter, theory to practice. MMT would augment its case if it can show this supposed maneuver described in a primary source.

            (Cal, thanks for your latest. I’ll get to it in stages.)

  11. Sufferin' Succotash

    I love the “ineffectual parliamentary coalitions” line.
    Says something about Samuelson’s scale of political values.
    I can think of certain political figures in early-1930s Germany who were talking about the Weimar Republic in precisely the same terms.

  12. JGordon

    “We have known for over 75 years that the key to recovering from a recession is to follow a counter-cyclical fiscal policy that will reduce unemployment.”

    What we also know from *the entire history of human civilization* is that fiat currency regimes always collapse at some point. It’s astonishing to me how some people are very free about citing some lessons of history and then feel no cognitive dissonance about ignoring other lessons of history. But then let me guess: it’s different this time, eh?

    1. James Cole

      LOL. All regimes throughout human history collapse, except for the ones around today, most of which are fiat currency regimes. What’s the lesson?

      1. JGordon

        That’s right. Out of all the thousands of years of human history the only monetary systems that are around to today are the ones that have been around for a few decades. “lol”

      2. Bert_S

        “What’s the lesson?”

        One may be that living in N. America was much, much better than living in Central or South America. But you need to be paying attention to know that.

      1. Ben Johannson

        Bingo. The difference between what we have now and the gold standard is simply that one is a little more fiat than the other.

        1. JGordon

          That’s a pretty offensive post, but instead of being nasty in response to it I’ll just state that I never mentioned anything about a gold standard anywhere.

          What is pissing me off is that some entity is forcing me to conduct my daily affiars in a currency that they are admittedly debasing every second of every day. Note, there is no government on earth today that forces anyone to conduct their affairs in gold as far as I know, therefore in a very strict and literal sense gold is not a fiat currency. So in other words you really don’t know what you’re talking about at all, right?

          1. citalopram

            Buy gold then.

            Moving to a gold standard would implode what’s left of our economy. The horse left the barn a long time ago, and ain’t coming back.

      2. JGordon

        A fiat currency is one that is decreed by… fiat. As in some authority dictates that it is a currency. Currency systems that are not fiat are ones where people come together and agree to use something as a currency, without some third party mandating it by force of law.

        1. Calgacus

          Nobody mandates you use fiat currency. The government just demands that it be used to pay taxes with. Which makes the government creation called “the free market” freely choose to use it in private transactions.

          Yeah, sure legal tender laws. They don’t mean anything. The Euro is not legal tender in the Eurozone. The pound is not legal tender in Scotland. And China has never had any legal tender laws.

  13. Abelenkpe

    “Can’t we just tax the rich even more? Unfortunately, this won’t work either. Third Way — a liberal group, mind you — estimated the effects of top income tax rates of 49.6 percent and 41 percent and a top capital gains rate of 38.8 percent. The budget still doesn’t balance….

    Fine. Then return to tax rates under Eisenhower.

    Republicans say we need to pursue austerity or end up like Greece. Because doing the same thing here will have a different outcome?

    There is no way any sane person would think doing the same thing here would have a different outcome. That austerity in the US wouldn’t lead to soaring unemployment, increased poverty and protests. Pretty sure those advocating austerity just don’t care. And a few actually relish the idea.

    1. Bert_S

      I just read somewhere that someone calculated the financial crisis cost us almost as much as WWII, adjusting for inflation, GDP and all. So my exact thought was those tax rates would be necessary.

  14. Ruben

    Part of Bill Blacks’ argument against austerity in this article rests on analogy, by looking at what is happening in Europe. I think that part is wrong. The demand to cut spending in Europe is motivated by the fear of default on interbank debts (from south to north) and concurrent gov’t debt to support the banks. European countries cannot freely print their currency so the fear of gov’t default is real.

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