Recent Items

Bill Black: Kill the “Fiscal Cliff” Instead of the Economy

Posted on by

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

Everyone now agrees that the so-called “fiscal cliff” is a stupid policy that threatens our economy and our people. Everyone agrees why the “fiscal cliff” is stupid – it inflicts austerity at a time when it is likely to throw the nation into a gratuitous recession. Causing a recession leads to increased unemployment and a larger budget deficit. We have all seen austerity force the Eurozone into a gratuitous recession in which Italy, Spain, and Greece have Great Depression levels of unemployment.

Here’s the short version of why austerity is a self-destructive response to the Great Recession. A recession occurs when demand to purchase goods and services falls and the economy contracts, causing increased unemployment. This simultaneously causes tax revenues to fall and government expenditures for programs like unemployment compensation to increase. The fall in revenues and increase in expenses causes the federal budget deficit to grow rapidly.

Austerity is a policy of raising taxes and/or cutting governmental spending for the purported purpose of cutting the deficit. If one raises overall taxes in response to the Great Recession the result is a reduction in private sector demand. If one cuts governmental spending the result is a reduction in public sector demand. The result of reducing private and public sector demand in the recovery phase from the Great Recession, where overall demand is already grossly inadequate, is to throw the nation back into recession or even a depression. That causes the budget deficit to grow. A policy of austerity undertaken under the claim that it will reduce the deficit causes a gratuitous recession that leads to a massive loss of wealth, far higher unemployment, and in increased deficit. That is why austerity is a policy that is the self-destructive economic analogy to the medical insanity of bleeding patients.

We have known that austerity is an idiotic response to a severe crisis for 75 years. The U.S. was in the midst of a strong recovery from the Great Depression until FDR’s neo-liberal economists convinced him in 1937 that is was essential that the U.S. adopt an austerity program to reduce the federal deficit. Austerity forced our economy back into a Great Depression.

It was only the stimulus of federal spending in World War II that brought the U.S. out of the depression. During World War II and for the remainder of that decade the ratio of debt-to-GDP was at or near historically record levels. The result was the greatest industrial expansion in history, full employment (including a massive influx of women), strong economic growth, and sharply declining deficits and debt-to-GDP ratio because the growth led to large increases in revenue and the low unemployment greatly reduced spending on the unemployed. We also defeated the Axis powers, created Social Security and the GI Bill, and began an extraordinary expansion of our housing stock to house the baby boom.

We learned many lessons from the catastrophic failure of austerity and the extraordinary success of stimulus in this era. The U.S. adopted a fiscal system of “automatic stabilizers.” These are counter-cyclical (they push in the opposite direction of the business cycle) fiscal effects that are designed into the system and do not require new legislation once the recession or inflation begins. The result of these automatic stabilizers has been to reduce the severity and duration of recessions. Indeed, studies show that the larger the national governmental role in the economy, the less volatile the economy. This makes sense because the stabilization function should be more effective if the stabilizers are larger relative to the economy.

Unfortunately, these sensible counter-cyclical policies that make theoretical and common sense and have repeatedly worked in the real world were forgotten by many due to a campaign of deficit hysteria funded by Pete Peterson, a Republican billionaire financier who has made it his mission in life to destroy the safety net. His ultimate goal is to privatize social security so that Wall Street can receive hundreds of billions of dollars in fees investing our retirement funds.

I’ve explained in a prior column how the fiscal cliff was created through an insane bipartisan deal in August 2011. The fiscal cliff was always a terrible job-destroying idea that also began to unravel the safety net by cutting Medicare. Everyone involved in creating the fiscal cliff acted irresponsibly and inhumanely in seeking to inflict austerity, cause a recession, and unravel the safety net.

What is forgotten, however, in discussions of the idiocy of creating the fiscal cliff is that it was part of a broader bipartisan deal intended to inflict even more self-destructive austerity and even greater damage to the safety net. The fiscal cliff was an act of idiocy in pursuit of a policy of depravity called “the Grand Bargain” that was actually the Grand Betrayal.

The bipartisan madness has increased since the August 2011 budget deal. Today, the parties are simultaneously screaming (1) that the fiscal cliff is a disaster because it imposes austerity and will cause a recession and (2) that it is essential that we agree to a Grand Betrayal that will inflict even greater austerity and cause an even more severe recession. Indeed, the Grand Betrayal mandates austerity over a decade so it is likely to cause and/or deepen multiple recessions. The Republican and Democratic variants of the Grand Betrayal are doubly destructive and inhumane because they cut the safety net. President Obama wants to begin to unravel the safety net and cut social programs even though an overwhelming majority of Democrats oppose it and even though doing so will inflict even greater austerity. That will cause a deeper recession and likely make the deficit larger, so it is as nonsensical as it is cruel.

During this this entire financial farce I have been unable to get the dominant media to make the most obvious point. Since we all agree that austerity (the fiscal cliff) is a terrible idea that will cause a recession and likely increase the deficit we must logically conclude that all variants of the Grand Betrayal are austerity programs that must be defeated in order to prevent a recession that is likely to increase the deficit. We should all be opposing any cuts in the safety net because they would inflict austerity. An overwhelming majority of Democrats and a majority of Republicans also oppose cuts in the safety net as inhumane.

So why don’t the Democrats and Republicans stop trying to do a deal that will inflict austerity? Why not simply repeal the Budget Act of August 2011? That would kill the fiscal cliff. Repeal would kill austerity, prevent the recession, save the safety net, increase growth, and shrink the deficit. All versions of the Grand Betrayal (Republican and Democratic) inflict austerity, are likely to cause a recession, begin to unravel the safety net, destroy growth, and increase the deficit.

Under the same logic we should be able to agree on two related actions – renew the extension of long-term unemployment compensation and renew the moratorium on collecting the payroll tax. These policies are superb counter-cyclical programs and have the added advantage of reducing human misery and inequality. Republicans and Democrats have agreed in the past on the desirability of both actions.

Print Friendly
Twitter67DiggReddit0StumbleUpon0Facebook120LinkedIn1Google+1bufferEmail

148 comments

  1. Hypothetical_Taxpayer

    BB should stick to criminology.

    Save the Bush Tax cuts, $50B/year in defense spending, payroll tax cuts, corn ethanol credits???????????????

    Do MMTers ever consider what money gets spent on?

    If we we legalize bank theft for bankers it would show up as GDP growth too. Shouldn’t that worry Mr. BB?

    1. Mary Bess

      MMT describes how the economy works. It does condone or not condone what the government spends money on.

      In a functioning democracy, the people set spending priorities. People overwhelmingly support the safety net. Obama and the Kleptocrats won’t have it.
      They need to be stopped.

      Knowing how the economy works means people can’t be bamboozled by Obama, Pete Peterson’s propaganda blitzkrieg and it’s MSM echochamber.

      1. Middle Seaman

        Why Obama targets drones at the safety net? Why are many Democrats supporting his intended destruction? I totally agree with Mary on the danger to the safety net.

        Obama just got reelected to a huge fanfare of the superiority of his message over Romney’s. We all voted for him. How do people turn 180 degrees and declare that Obama actually is the enemy of the people (which he was from 2009 and still is)?

        We made a huge mistake by electing Obama in the primaries of 2008 and then not holding him to his pretend populism of 2012.

        1. tts

          Are you being facetious or trolling or what?

          Obama won the election because people in general thought he was less bad than Romney, not because they looove his policies or because they think he is such a great president. Which does not require rocket science to figure out at all.

          Whatever he may say in his speeches Obama is effectively right of Regan when you look at his actual policies both foreign and domestic. IOW he is a neo-liberal scum bag who has the interests of the corporations and rich at heart which is why he keeps trying to cut “entitlements” like Medicare and SS via Cat Food Commissions I and II and now with the “Grand Bargain” attempts.

          Also not everyone voted for Obama. He certainly didn’t win in a landslide either in popular votes. Romney (the irony is delicious) got ~47% of the popular vote.

          1. tts

            Jimbo- While both candidates were tossing out plenty of propaganda the truth is that the best anti-Romney propaganda came straight from Romney’s own mouth.

            The guy was a transparent shill for monied interests to anybody who took the time to google his past decisions and even for those who refused to do that he was a blatant flip-flopper. Willing to say anything to anyone to get their vote.

            Even most of the people who hated Obama couldn’t think of a good reason to vote for Romney. The “best” thing they could muster was, “well he isn’t Obama” which isn’t enough to win an election. It didn’t work for Kerry vs Bush and it certainly couldn’t have worked for Romney vs Obama.

          2. Expat

            From an objective standpoint, Romney was the best of the Republican primary contenders for a general election, as was McCain before him. The Republican primaries, for all their spectacle, work fairly well in this regard. Like all compromises, however, the result is not truly satisfactory, and the winnability, as it were, depends on how much the alternative is feared.
            Wouldn’t it be lovely to have multiple parties, instead of an effective duopoly, so that we could choose? With a modern method of ranking votes, we would get a compromise candidate, yes, but one of the majority’s choosing instead of Republican/Democratic one-percenters, who rigged this one big time.

          1. tts

            My comment was directed at MS who was so factually incorrect that his/her post appeared indiscerable from trolling. Which is why I asked.

      2. Hypothetical_Taxpayer

        “MMT describes how the economy works. It does condone or not condone what the government spends money on.”

        Thankyou for the non sequitur . You are a good MMTer. You can probably apply for a gold star, wherever that place is.

        1. tts

          Uh the answer you were given was entirely accurate and not a non-sequitor.

          MMT is an economics model and there are many different ways to interpret and implent it just as there are for other econmics models. It doesn’t dictate what policies you set or how you go about doing things. The law and politicians do that.

          1. MyLessThanPrimeBeef

            It doens’t seem responsible to say some writing just describes how some thing or some system works.

          2. Paul

            MyLessThanPrimeBeef…

            Are you claiming that the economic machine cannot be described with words? That it is too complicated to describe?

            Is the economy based on magic? Or can we expect the economy (the flow of dollars) to behave consistent with the laws of arithmetic, which are quite simple…most of us learned them by the 5th grade.

            The fact that you have difficulty understanding how it all works is not the fault of MMT, which only describes each action that takes place…2+2=4, if A, then B, and so on.

            Better comments please.

          3. tts

            MyLess- If the best possible model (and I’m not saying MMT is it either, this is a Devil’s Advocate question) is implemented poorly by incompetant and/or corrupt politicians would you still blame the model in any way, shape, or form?

          4. MyLessThanPrimeBeef

            tts, if someone writes ‘I am just describing how kleptocracy works; I am not for or against it,’ do you counter by suggesting to that person to go beyond just describing it, or do you say the rich robbing the rest of us is how it works?

            With respect with anything, not just MMT, one hopes to hear more than ‘this is how it works and I am just describing it.’ One hopes to hear something like, ‘This is how it works now. Some features are good and some bad which we hope to improve/correct.’

            That would be responsible.

          5. lambert strether

            MLTB: Except MMTers — granted, not MMT as such — do exactly what you want all the time. It’s a separation of concerns, as the systems designers would say. Description is one thing, prescription another.

            * * *

            I’m sure there’s some author out there somewhere who describes kleptocracy accurately, yet thinks it’s a good thing. (Milton Friedman?)

          6. tts

            MyLess- MMT has nothing to do with kleptocracy and your suggesting that it does means you don’t understand it at all nor are you able to seperate economic theory from politicians actions.

            Spend a month or 2 reading up on the subject and then you’ll be able to discuss it more intelligently instead of knee jerking out the poor quality posts you’re currently doing.

          7. MyLessThanPrimeBeef

            tts, I did not say it is or it is not. I just used kleptocracy as an exmaple to say to we must go beyond merely describing something.

            If you do, fine.

            I am interested in hearing from those who say XXX (here, MMT, specifically) ‘just describes’ how the economy works.

          8. tts

            MyLess- You haven’t asked any questions at all, just vauge statements about “responsibility” which have already been replied to. And lets not pretend that your choice of the word “kleptocracy” in your previous reply was by chance or accident mmkay?

            Kleptocracies have existed before MMT ever was around and will again in the future even if MMT is forgotten about. They come to exist not because of any given ideology or economic model but because the government starts to serve monied interests at the expense of the people’s wealth and freedom. Or IOW the government becomes corrupted.

          9. skippy

            @tss,

            Everything humans create have agency, to pretend other wise is disingenuous. So when someone says… its a schematic- blue print with out ethical – moral implications… well… paint me… Twain.

          10. tts

            skippy- That is blatantly false. MMT is just a tool. It can be used to build an economy or destroy one depending on how it is used.

            Since a tool has no ability to choose who uses it or how it is used you cannot say it has agency.

          11. skippy

            @tts,

            Were not talking about a rock used to crack open bone marrow here…eh… MMT.

            Were talking about human agency and social structure… cough… social ontology.

            As sociology arose primarily as a reaction to capitalist modernity, economics played a role in much classic sociological inquiry. The specific term “economic sociology” was first coined by William Stanley Jevons in 1879, later to be used in the works of Émile Durkheim, Max Weber and Georg Simmel between 1890 and 1920.[1] Weber’s work regarding the relationship between economics and religion and the cultural “disenchantment” of the modern West is perhaps most iconic of the approach set forth in the classic period of economic sociology.

            Structure, socialisation and autonomy

            The debate over the primacy of structure or agency relates to an issue at the heart of both classical and contemporary sociological theory: the question of social ontology: “What is the social world made of?” “What is a cause of the social world, and what is an effect?” “Do social structures determine an individual’s behaviour or does human agency?”
            For functionalists such as Émile Durkheim, structure and hierarchy are essential in stabilising the very existence of society. Theorists such as Karl Marx, by contrast, emphasise that the social structure can act to the detriment of the majority of individuals in a society. In both these instances “structure” may refer to something both material (or “economic”) and cultural (e.g. related to norms, customs, traditions and ideologies).
            Some theorists put forward that what we know as our social existence is largely determined by the overall structure of society. The perceived agency of individuals can also mostly be explained by the operation of this structure. Theoretical systems aligned with this view include: structuralism, and some forms of functionalism and Marxism (all of which in this context can be seen as forms of holism — the notion that “the whole is greater than the sum of its parts”). In the reverse of the first position, other theorists stress the capacity of individual “agents” to construct and reconstruct their worlds. Theoretical systems aligned with this view include: methodological individualism, social phenomenology, interactionism and ethnomethodology.
            Lastly, a third option, taken by many modern social theorists (Bourdieu, 1977, 1990), is to attempt to find a point of balance between the two previous positions. They see structure and agency as complementary forces – structure influences human behaviour, and humans are capable of changing the social structures they inhabit. Structuration is one prominent example of this view.
            The first approach (emphasizing the importance of societal structure) was dominant in classical sociology.[citation needed] Theorists saw unique aspects of the social world that could not be explained simply by the sum of the individuals present. Émile Durkheim strongly believed that the collective had emergent properties of its own and that there was a need for a science which would deal with this emergence. The second approach (methodological individualism, etc.), however, also has a well-established position in social science. Many theorists still follow this course (e.g., economists are very prone to disregarding any kind of holism).
            The central debate, therefore, is between theorists committed to the notions of methodological holism and those committed to methodological individualism.[citation needed] The first notion, methodological holism, is the idea that actors are socialised and embedded into social structures and institutions that constrain, or enable, and generally shape the individuals’ dispositions towards, and capacities for, action, and that this social structure should be taken as primary and most significant. The second notion, methodological individualism, is the idea that actors are the central theoretical and ontological elements in social systems, and social structure is an epiphenomenon, a result and consequence of the actions and activities of interacting individuals.

            http://en.wikipedia.org/wiki/Structure_and_agency

            The contemporary period of economic sociology, also known as new economic sociology, was consolidated by the 1985 work of Mark Granovetter titled “Economic Action and Social Structure: The Problem of Embeddedness”. These works elaborated the concept of embeddedness, which states that economic relations between individuals or firms take place within existing social relations (and are thus structured by these relations as well as the greater social structures of which those relations are a part). Social network analysis has been the primary methodology for studying this phenomenon. Granovetter’s theory of the strength of weak ties and Ronald Burt’s concept of structural holes are two best known theoretical contributions of this field.
            [edit]Classical economic sociology

            Economic sociology arose as a new approach to the analysis of economic phenomena; emphasizing particularly the role economic structures and institutions play upon society, and the influence a society holds over the nature of economic structures and institutions. The relationship between capitalism and modernity is a salient issue, perhaps best demonstrated in Weber’s The Protestant Ethic and the Spirit of Capitalism (1905) and Simmel’s The Philosophy of Money (1900). Economic sociology may be said to have begun with Tocqueville’s Democracy in America (1835–40) and The Old Regime and the Revolution (1856).[2] Marx’s historical materialism would attempt to demonstrate how economic forces influence the structure of society on a fundamental level. Émile Durkheim’s The Division of Labour in Society was published in 1922, whilst Max Weber’s Economy and Society was released in the same year.
            [edit]New economic sociology

            Contemporary economic sociology focuses particularly on the social consequences of economic exchanges, the social meanings they involve and the social interactions they facilitate or obstruct. Influential figures in modern economic sociology include Fred L. Block, James S. Coleman, Mark Granovetter, Harrison White, Paul DiMaggio, Joel M. Podolny, Richard Swedberg and Viviana Zelizer in the United States, as well as Luc Boltanski, Laurent Thévenot, or Jens Beckert in Europe. To this may be added Amitai Etzioni, who has popularized the idea of socioeconomics, and Chuck Sabel, Wolfgang Streeck and Michael Mousseau who work in the tradition of political economy/sociology.

            The focus on mathematical analysis and utility maximisation during the 20th century has led some to see economics as a discipline moving away from its roots in the social sciences. Many critiques of economics or economic policy begin from the accusation that abstract modelling is missing some key social phenomenon that needs to be addressed.

            Economic sociology is an attempt by sociologists to redefine in sociological terms questions traditionally addressed by economists. It is thus also an answer to attempts by economists (such as Gary Becker) to bring economic approaches – in particular utility maximisation and game theory – to the analysis of social situations that are not obviously related to production or trade. Karl Polanyi, in his book The Great Transformation, was the first theorist to come up with the idea of the “embeddedness”, meaning that the economy is “embedded” in social institutions which are vital so that the market does not destroy other aspects of human life.
            [edit]Marxist sociology

            Main article: Marxist sociology
            Modern Marxist thought has focused on the social implications of capitalism (or “commodity fetishism”) and economic development within the system of economic relations that produce them. Important theorists include Georg Lukács, Theodor Adorno, Max Horkheimer, Walter Benjamin, Guy Debord, Louis Althusser, Nicos Poulantzas, Ralph Miliband, Jürgen Habermas, Raymond Williams, Fredric Jameson, Antonio Negri, and Stuart Hall.

            http://en.wikipedia.org/wiki/Economic_sociology

            Skippy… Hope that makes it a bit clearer, this is not a chicken and egg debate. Human actors built – the tool – with a specific purpose… a ***structural purpose***, a societal purpose. Know thy ancestor.

          12. tts

            MyLess- No, central banking is not kleptocracy by its very definition. One is a form of banking, one is a form of government.

            Now a central bank can of course be used to steal very effectively from the nation by a kleptocratic government, but then that is true of litterally -anything-. Even the police and military become a means of wealth extraction. ALL of the tools of state are bent to the purpose of wealth extraction in a kleptocracy, that is why they’re so terrible.

          13. tts

            skippy- Its a mental tool, used for organizing and understanding the flow of money at a very macro level. Just because a tool isn’t used for directly physical things doesn’t mean it isn’t a tool or useful. Physics, and really math in general, is another good example.

            No physical work is done with any of them per se but they do help you build things. And math and physics have been used to do some pretty terrible things before in the past, do you see some inherently moral attributes there too in the numbers 2+2=4? Or perhaps y=mx+b is more sinister for you? Its a formula after all so you can plug anything you want in to it right?

            BTW I’m only mocking a little bit with those examples. MMT is litterally just a bunch of math and formula. There really isn’t anything inherently kleptocratic about it, and indeed neither of you have even tried to give examples to hold up for examination and debate.

            Also posting giant walls of text like that is crap posting BTW, just link to the wiki next time and perhaps copy/paste a sentance or 2.

          14. tts

            MyLess- snark one liner posts with no substantitive content that actually addresses what is being disscussed is crappy posting.

            Also my post doesn’t even say what you seem to think it does.

            So to recap: -you won’t hold up any specific personal critiques of MMT for disscussion.
            -you keep crap posting.
            -you need to work on your reading comprehension.
            -”argues” via shifting goal posts around.

            Doesn’t seem to be much benefit in taking the time to reply to you so I’m not going to bother anymore.

          15. MyLessThanPrimeBeef

            No snark, tts. I’ve asked for that from the beginning.

            And I’ve said that to not just you, but to anyone interesting in the discussion

            Don’t just describe central banking. Say something – maybe you’re for it or maybe you are not. Maybe you want to improve it. Whatever, but say something more than just describing it.

          16. skippy

            Just math and physics? That does not square with recent events, as it was the – agency – intent – by which they were employed… that everything went boom.

            skippy… “Now a central bank can of course be used to steal very effectively from the nation by a kleptocratic government,” – tts

            Now I see you clearly…

          17. skippy

            “Doesn’t seem to be much benefit in taking the time to reply to you so I’m not going to bother anymore.” – tts

            Skippy… quite a granular picture with that little personal gem.

            MMTers is this how you roll? I can see why berado et al love it… creation thingy.

          18. tts

            skippy- You’re trolling me. The selective quoting you’re doing, which BTW doesn’t work too well in shifting opinion when my original post is just a little scroll up, shows this clearly.

            Thanks for outing yourself in such a clear concise manner that can be quickly linked to in the future I guess.

          19. skippy

            “implemented poorly by incompetent and/or ****corrupt politicians**** would you still blame the model in any way, shape, or form?” – tts

            “Now a central bank can of course be used to steal very effectively from the nation by a kleptocratic government,” – tts

            Skip here… just more bad Gov… private good… regardless that the Gov is at the private sectors behest… shezz.

            Look it was your assertion that is was just math and physics , yet I point out the fallacy of that, and cop the troll rhetorical ploy, all topped off with the threat of future action if not… compliant? Are you the Dean of Columbia BS?

            Skippy… answer the questions, provide more that your personal assertion of – a – fact or STFU. Better water carriers pleaseeeee…

        2. Mary Bess

          The second line on my post would be clearer if it read: It (MMT) does not direct how money should be spent.

          If you disregard the myths about how the economy works, it frees your thinking about what can actually be done to restore the economy and sidestep austerity. When austerity rules, middle and low income people lose their assets, which are picked up by the !% for pennies on the dollar.

          1. nonclassical

            Mary Bess accurate again…as proven by historical reference, Naomi Klein, Perkins, Blum, and perhaps most especially, Nicholas Shaxson=”Treasure Islands”…

      3. JTFaraday

        I think you misunderstand the general thrust of this person’s comment, which is that this utterly contentless post doesn’t actually describe anything.

        If, in your assessment, MMT is nothing but a dessicated framework with no content and no ethics, then it is not the right framework for Bill Black, who is someone can speak to what the US government is actually funding with Greenspan’s bottomeless pit, which is bank fraud.

        To speak of this, gives the public the opportunity to decide if it wants to cut its own benefits to fund bank fraud. That’s information the public should have.

        I do like the comment below on Yeltsinization. I think that’s where we’re headed, as its architects are still in charge of US Fedgov.

        http://en.wikipedia.org/wiki/History_of_Russia_(1992%E2%80%93present)

        As far as I can tell, the MMT-ers have had a pernicious influence on Bill Black, effectively dumbing him down.

        But, keep worshiping the idiot box. Some sort of noise will come out of it eventually.

        1. Ben Johannson

          You can’t pursue ethical or moral fiscal policies until you understand how the system works. And given that MMTers support greater assistance for the poor and middle class puts the lie to your claim.

          How many times do you have to be told your ad hominem style doesn’t persuade, it turns people off?

          1. MyLessThanPrimeBeef

            What gets a lot of people is the MMT assertion that it just describes how the economy works.

            Which economy? Because this economy doesn’t work.

            Here is one such quote (and one sees them all the time): MMT describes how the economy works.

          2. Ben Johannson

            Failure to be sufficiently precise is often a problem when discussing MMT. To say it describes how the economy works goes to far, in that an economy is just as much about politics as it is necessity. MMTers frequently do not communicate well and the result is confusion.

            i suggest a better way to phrase the statement is to say that MMT describes the structure of the monetary system on which our economy sits. Things like how a central bank operates, how money flows between sectors, the effects of those flows on aggregate demand and employment. It teaches us how to analyse the macroeconomic effects of the policies we choose to implement, which is where “economy” really begins.

            The gist is that things do not have to be this. We pay out a pittance through Social Security because we’re told we’ll go broke otherwise. We’re told unemployment must be tolerated because of China. We’re told we can’t afford a national health system because taxes will have to increase. We’re told we must sacrifice because the budget just be balanced. The point MMT seeks to make is that these policies are not necessities, but choices. They can change to better our entire society if we’re willing to fight for it.

          3. MyLessThanPrimeBeef

            Ben, I hope you go beyond just describing how a central bank works and make a judgment whether we need a central bank or not.

            It never is just about describing how something works.

    2. Ben Johannson

      It’s fine to cut defense or ethanol subsidies, just offset the cuts with deficit spending elsewhere. Increasing Social Security payouts or revoking FICA would be a good way of doing that.

    3. from Mexico

      Think of austerity as being like the gun in National Rifle Association CEO Wayne LaPierre’s recent pronouncements. According to LaPierre the gun is neutral.

      Likewise austerity can be viewed as neutral. It can be aimed at and used to kill off Social Security, Medicare and unemployment benefits. This would be quite good in the eyes of Pete Peterson. But it can also be aimed at and used to kill of corporate welfare, collosal subsidies to the finance industry, equally gargantuan military spending, or tax breaks for the rich. This would be quite bad in the eyes of Pete Peterson.

      The MMTers, along with other heretics like Minskyite Post-Keynesians, are more like gun control advocates. They want to take the gun out of the would-be assasins’ hands. Disarm the politicians. The politicians can still make moral choices, but don’t put a gun in their hands and tell them they have to choose before Jan. 1 which way to point the gun.

      If you will read Milton Friedman’s Capitalism and Freedom, you will see that the manufacture of fake crises that require politicians to pull the trigger immediately is very much part of neoliberal tactics.

    4. ek hornbeck

      Sigh.

      The General Theory of Employment, Interest and Money (1935)-

      “If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coal mines which are then filled up to the surface with town rubbish, and leave it private enterprise on well tried principals of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is.”

      Book 3, Chapter 10, Section 6, p. 129

    5. Dan Kervick

      There are certainly inefficient, unproductive and even destructive government expenditures. The correct response to them is not to shrink the deficit in a recession, but to replace those wasteful expenditures by more useful expenditures.

      We should get rid of the Bush tax cuts. But every dollar of additional tax revenues should be offset by at least the same amount of additional expenditures.

    6. denim

      Contrary to your model of a national economy, money taxed from us and spent by our government is not set on fire and burned up. No, it is re-circulated back into the economy to pay people for their work.

  2. different clue

    Austerity is not “self” destructive. It is only “us” destructive.

    What if the government is setting itself and us up for “yeltsinization” on purpose? If the current possessor of the government can succeed in getting the US placed under IMF supervision, perhaps they can sell all our national forests, national wildlife refuges, national parks, etc. etc. to a narrow OverClass which possesses several trillion privately owned dollars. This OverClass will get to buy up all our assets at a penny on the benjamin or even less. Perhaps they will get to buy every book in the Library of Congress for a nickel a book. I believe that is the long-term goal of “austerity”. Just relable it “yeltsinization” and decide if you think it is accidental or “self” destructive for the class which plans to profit from it.

    1. Progressive Humanist

      Indeed, isn’t this dynamic precisely that Goldman Sachs et al have playing via its crony in Greece (and Africa)?

      Pre-civil-war private plantation America, anyone?

    2. tts

      He is a neo-liberal that is why. If you read up on what happened with the Russian Federation you’ll find that things went so horribly for them because they started listening to the neo-liberals too. Rubin and Summers IIRC were key advisors to the Russians back then.

      Both of those scum bags played key roles in the more recent Global Credit crisis too.

      1. Procopius

        It wasn’t Summers, it was one of the other Econ professors at Harvard while Summers was its president. I don’t recall his name and I’m too tired to look him up on Google right now. And when the guy was thrown out of Russia and accused of fraud and self-dealing, Summers defended him. You forgot to mention Milton Friedman and has acolytes. They were big players in the devastation, just as they were in Chile. Free markets for prosperity, yay!!!

  3. ArkansasAngie

    We really need to push the reset button.

    The Fed buying a trillion dollars of treasury notes a year is not the answer

    The DOJ giving free passes to criminals is not the answer

    The BLS reducing the labor force participation rate to lower unemployment is not the answer

    1. nonclassical

      …reducing the unemployment rate is no problem-simply reduce all employees to “contract worker” status…

  4. Paul Tioxon

    “the fiscal cliff is that it was part of a broader bipartisan deal intended to inflict even more self-destructive austerity and even greater damage to the safety net. The fiscal cliff was an act of idiocy in pursuit of a policy of depravity called “the Grand Bargain” that was actually the Grand Betrayal.”

    Obviously, Mr. Black does not realize that the small scale havoc caused by the “fiscal cliff”, will be made up by it’s large scale GRAND BETRAYAL by sheer VOLUME. This is simply business common sense. If the ticking count down timer on MSNBC is howling for an end to the unbridled madness of the cliff causing a recession, it only stands to reason that the larger volume of cutbacks is essential to restore fiscal sanity and it’s name is the GRAND BARGAIN! But of course, the arcane field of economics is best left to economists and biz show media personalities like Jim Cramer.

    http://www.youtube.com/watch?v=0xHOqn_CF20

    Here, Jim shows how the cascading decisions by business owners and CEOs, expecting a recession by means of reduced government spending, primes the pump for the downward spiral of the economy by not expanding or cutting back payroll, in anticipation of the slowing economy. Fiscal cliff bad.

    http://www.bloomberg.com/video/a-fiscal-cliff-deal-not-until-february-nomura-_bNtn__4RHqJjcVnyQyDAg.html

    Yet here, on Bloomberg, the fiscal cliff is only a lesser component of an overall, and larger problem that is only resolved by attacking Social Security and Medicare/aid, all together, a GRAND BARGAIN, and a needed political move to be made, in order to save us all from certain doom! More spending cuts, GRAND BARGAIN, GOOD!!

    How are even larger amounts of spending cuts desirable for economic growth when smaller cuts of the fiscal cliff recession inducing? They make the economy grow with VOLUME, in the Grand Bargain. duh!!!

  5. Procopius

    I recall during the election reading about one of Obama’s polling firms conducting focus groups on their reactions to the Romney tax plan and Ryan’s budget and Medicare proposals. The focus group members refused to believe that any politician would seriously propose such obviouly insane policies. I think what most of them decided was that Romney/Ryan were saying thise things but simply did not mean them. I sometimes feel that way about Obama’s obsessive determination to cut Social Security, Medicare and Medicaid. As time goes by, more and more people are finding where Obama actually said he wanted to do this, even before he was elected, and nobody paid it any attntion at the time. I’m suffering terrible cognitive dissonance from this. I can’t conceive what his reasoning or motivation might be, and it really teally bothers me.

    1. Susan the other

      I think Bill Black just said that Pete Peterson’s motive (therefore Obama’s too) for “cutting” entitlements – SS and Medicare – is to ultimately hand the SS fund over to Wall Street to manage for a fee. This is because somebody has to save Wall Street because it is dead in the water thanks to our dysfunctional economy. George Bush also tried his best to push for this but when he failed he backed off. Not Obama. Obama is intent on saving the financiers, banks, investment houses, the whole mess of them. Just like he is intent on saving the private “healthcare” insurance industry. And the results will satisfy Pete Peterson who has invested his billions betting against the common person. The results will be the same: Wall Street will take a 30% fee for this “management service” and retirees will – yes – eat catfood.

    2. lambert strether

      Oh, plenty of people noticed at the time. They were shouted down by delusional Obama fans and Democratic operatives, and marginalized in our famously free press, exactly as in 2008 (except worse, since this time Obama fans were complicit and not innnocently drawn into the scam).

      UPDATE Adding, on the cognitive dissonance, I don’t think there’s much to be gained from trying discern Obama’s motivation by peering into his soul, if any. I like the idea that most questions can be fit into a larger question: “Are they stupid and/or evil?”

      The “stupid” option is “I only the Czar knew!” If only Obama knew people were suffering.

      The “evil” option is “The Czar knows it, and likes it.” Most days I incline toward the latter: That the real powers that be, the 0.01%s of this world, not only know the suffering they inflict, but enjoy inflicting it, or seeing it inflicted. That’s why they turned us into a nation that outright justifies torture, for example; they get to watch the bootleg tapes straight from the interrogation pits. Well, speculating freely, and Merry Christmas indeed!, but nevertheless….

      1. different clue

        Matt Stoller was one of those delusional Obama fans at that time. Has he ever explained why he supported Obama during the 2008 events? Has anyone even ASKED him to? Certainly no one with any power or authority here on this very blog has ever asked him to. Yves Smith has never asked him to explain why he was pro-Obama in 2008. Lambert Strether has never asked him to explain why he was pro-Obama in 2008. I could ask, but I have zero power and zero authority and zero standing on this blog to demand that anyone answer any question about anything. So the pressure for an explanation won’t come from me.

  6. digi_owl

    Heh, calling it a cliff is the biggest example of US political “new-speak” in ages. The first thing that comes to mind is a Will E. Coyote style cliff, tho as best i can tell it is instead a projected “cliff” rising out of a current slump in the graph.

    Btw, as best i can tell the counter-cyclical thinking of economic policy had its back broken when UK found itself facing a stagflation. Thing is tho that i suspect that said stagflation happened because the ability of banks to lend money into existence was ignored.

    I get this idea from part 4 of Adam Curtis’ Pandora’s Box, where he mentions that right before the stagflation phenomena credit was liberalized.

    So basically the ongoing issues and stagflation comes out of the same source, out of control credit.

  7. Rodger Malcolm Mitchell

    The fiscal cliff neither is insane nor stupid. It is part of the plan by the upper .1% income group to widen the income gap.

    Both political parties are paid for by the .1%, as are the media, so all broadcast the myth that the deficit should be reduced. Since the vast majority of federal spending benefits the lower 99.9%, reducing the deficit widens the gap — exactly what the .1% wants.

    Sadly, much of the population has been brainwashed into believing their own benefits need to be reduced. They sneer at the correct idea of increasing the deficit, and thereby assure their own financial pain.

    1. from Mexico

      Rodger Malcolm Mitchell says:

      The fiscal cliff neither is insane nor stupid. It is part of the plan by the upper .1% income group to widen the income gap.

      I don’t dispute that, but why can pain that is entirely gratuitous and self-inflicted be so easily peddled to the masses?

      I’ve come to believe that there are sadistic and masochistic impulses that run deep within the human psyche. Self-flagelation and sadism, after all, have been around for a long time.

      1. LifelongLib

        Because we’ve been conditioned to believe that we have to allow some number of people to become insanely rich so the rest of us can have reasonable prosperity. Thus any proposal that enriches some must be good for all, right? And if you wonder why we need rich people, you must be a Bolshevik.

      2. nonclassical

        this “pain” is driven by FEAR…witness 911 untruths, Adam Curtis’ fine videos-
        “The Century of Self”, “The Trap”, “The Power of Nightmares”…for examples…

      3. different clue

        Maybe the right counter-meme counter-words just haven’t been applied enough. (And of course such words would be cone-of-silenced by the MS-BM ( the Main Stream Big Media).

        I offer some counter-meme counter-words right here in case anyone wants to use them or improve them or re-engineer them and try meme-launching them and/or viralising them . . . including to the mailreading staffers of political officeholders.

        The “fiscal cliff” doesn’t exist. It is all just a propaganda scare tactic. There is no “cliff”. What there is . . . is a reset. Let the Bush Tax Cuts die and we reset back to Clinton era rates. So lets call it the Fiscal Reset. We could call it the Fiscal Reset Button. Or the Clinton Fiscal Reset Button. Lets hit the Clinton Fiscal Reset Button.

        1. Expat

          Your suggestion of the term “reset” immediately reminded me of the fiscal cliff, er, end of the Earth that we just survived. As a NASA scientist explained the Mayan calendar, the date did not signify the end of time but rather a “reset,” rather like an odometer turning over.

          If only NASA were willing to debunk the fiscal cliff.

          1. different clue

            Well, we can try debunking it ourselves with handy countermeme counterwords. I have offered a few for anyone who wants them. Surely others can also offer some.

    2. jrs

      On some level I have difficulty understanding why the 1% even want this. They are plenty rich, insanely rich, likely only to get richer, without anything to stop them regardless. Why take away the few bones the masses have?

  8. W.C. Varones

    No, “everyone” does not agree that fiscal sanity can be put off forever.

    Zimbabwe Ben and uber-Keynesian Paul Krugman agree. How did that work out for Gideon Gono?

      1. W.C. Varones

        That’s the Keynes-Zimbabwe playbook: screw the middle class with inflation, then keep printing to monetize trillion-dollar deficits in the name of the “middle class.”

        1. Me

          What in the hell are you talking about? INFLATION? We are bordering on deflation. Besides, credit money absolutely dwarfs actual money. Credit money is created by private banks on keyboards. Have any plan to deal with that? Do you take credit money into account with your inflation fetish? You seem to live in an alternative universe where the only way to increase purchasing power is to “turn on the printing presses”. In the real world, credit money makes up most of the “money” in the system, always has, and it has much more to do with inflation than actual money.

          To talk about inflation to right now is just bat shit crazy. DEFLATION is the biggest concern. Demand is simply not there, the government is now set to take trillions out of the economy in the coming decade and no business in their right mind is going to invest in actual production if the demand isn’t there. In the long run, we could deal with inflation, but not any time soon.

          Regardless, the IMF has said that the extreme focus on inflation targeting is hurting economies. You NEED inflation in a healthy economy, without it you are stagnating and declining.

          Helicopter Ben has increased the amount of dollars in the system but he isn’t following Keynes’ advice, he is following Milton Friedman’s advice and has said so. He spoke at a birthday bash for Friedman years ago, stated that he totally bought into his argument as to why the Great Depression happened and said the Fed would flood the economy with money, the quantity theory of money argument. Keynes called for the euthanasia of the rentier and in the last chapter of the General Theory called for the socialization of finance. Giving trillions to parasitic banks, who have taken the vast majority of money out of the economy, to prop their debt up isn’t Keynesian and it is destroying the economy. It isn’t causing inflation and, if it started to cause large amounts of inflation the Fed has weapons (that it will probably chose to not use unless forced to) to deal with that.

          If anything, a case could be made for a full audit of the Fed and a wiping off of the debt passed onto the tax payers. None of us agreed to take on the junk of the parasitic financial sector, doubly if it costs us social programs that have support across the ideological spectrum. I also would like the Fed to be nationalized. The independence of the Fed is a full frontal attack on democracy, look where it has gotten us.

          If you want a catchy little description of what we are facing, give up the Zimbabwe nonsense. We are Germany after WWI, when the victors refused to allow a debt write down. We could force the financial parasites to write down the debt, the government could step in to do what the parasitic private banks do but is choosing not to. As long as the debts are on the books (PRIVATE debt exploded, grew far more than public debt leading into the crash in 2008. Government debt has grown like it has thanks to transferring a lot of that debt onto the tax payers) we are Germany after WWI, not Zimbabwe. The only difference is that our problems will largely be of our choosing. Germany at least had no choice.

          1. sidelarge

            It’s a massive waste of time to try to reason with anyone who uses the word “Zimbabwe” regarding the American situation. You might as well talk to a donkey.

            The one you are replying to clearly has no idea about inflation, for someone who seems to like talking about it.

            He seems to also believe that QE is straight up money printing. Helicopter Ben probably WISHES that he could “do Zimbabwe” so to speak. Given our condition, it would take a miracle and incredible optimism on the bankers and developers’ part to make the MBS buybacks lead to the expansion of money supply. I doubt these words even mean anything to the kind of people who like to use the word “Zimbabwe.”

            Yes, this is pretty much an ad hominem attack, but aren’t you tired of those inflation-obsessed ignoramuses?

          2. MyLessThanPrimeBeef

            Inflation.

            The ‘if food and energy are more expensive we exclude them and if workers are getting more we scream inflation’ inflation?

            That inflation?

            We don’t have that problem.

            Workers are not getting paid more.

            Only food and engery prices – but let’s exclude them.

            Yup, no inflation…

          3. LeonovaBalletRusse

            “Me” – quite right. Where is the voice of reason? Have they put Michael Hudson and Steve Keen in the Tower of London?

          4. nonclassical

            ..the “Icelandic approach”-refuse to pay egregious debt instituted through “criminogenic accounting fraud” by Wall $treet…

          5. abprosper

            Deflation plus a shave and haircut for creditors is exactly the medicine we need.

            Allowing prices to fall will let Americans workers who are now apparently supposed to compete with slave labor and the whole 3rd world. The petty wages so many earn will actually buy something

            If it turns septic and price freefall starts to cause damage fixing it is easy, instead of subsidy just mint the money and cut people a check. Its cheaper and more effective than a lot of measures and puts stuff in peoples hands

        2. from Mexico

          A little inflation would, in my opinion, be a good thing about now.

          However, you are right. Inflation is not neutral. Somebody wins and somebody looses. The debtor class generally wins with inflation and the creditor class loses.

  9. ebear

    Austerity? If not for the fact the US dollar is the global reserve currency you wouldn’t even be having this debate, you’d be too busy scrounging around for your next meal. When the rest of the world finally cuts you off – and they will, because you’ll leave them no other choice – then you’ll see what austerity is really about. Meanwhile, carry on talking about it as if it could possibly make any difference. America passed the point of no return a long time ago. You people are just too caught up in the drama to realize that.

    1. from Mexico

      ebear gives us the perfect example of neoliberal argumentation. Some future, imagined crisis — “When the rest of the world finally cuts you off” — trumps what is real and in the here and now.

      And real demons can never compete with imaginary ones in the game of scare tactics, something the Church discovered long ago:

      The Last Judgement, one of the most famous Renaissance paintings by Hieronymus Bosch.

      http://www.paintingall.com/Early-Netherlandish-Painter-Hieronymus-Bosch-The-Last-Judgement-1-Oil-Painting.html

      1. ebear

        “ebear gives us the perfect example of neoliberal argumentation.”

        The universal panacea of Naked Socialism: If you don’t like a person’s argument, label them Neoliberal. It doesn’t change anything, but if it makes you feel better….

        1. Lambert Strether

          “Some future, imagined crisis — “When the rest of the world finally cuts you off” — trumps what is real and in the here and now.”

          That’s actually a real argument. Presumbably, the oncoming cut off is reflected in some price somewhere? If not, why not?

          1. ebear

            It only appears real in the here and now because that’s where you’re focused – as I pointed out elsewhere: short term, myopic self-interest. This is not a “thing” we’re talking about here, it’s a process – one that’s been ongoing for years, if not decades. Arguing over how to treat the symptoms (Fiscal Cliffs and such) entirely misses the point, which is the complete failure of ideological approaches to solving the present dilemma. The fact that your fans label me a Neoliberal only serves to illustrates the point.

            As for being cut off, that too is an ongoing process, and if you can’t see it by now then you just aren’t paying attention.

            You people want to run around stomping out brushfires, be my guest. I’m more interested in catching the arsonists.

          2. from Mexico

            ebear says:

            It only appears real in the here and now because that’s where you’re focused…

            Yep, you just can’t trust those lying eyes.

            And you’re right, this ideology you embrace is “one that’s been ongoing for years.” In fact, it’s been ongoing for more than two thousand years. Variously called Pythogrean rationalism, Platonism, neo-Platonism, and Scholasticism over the last 2-1/2 millennia, it posits that experience and observation cannot be trusted to reveal reality. Only philosopher kings or their modern-day heirs — those theorizing technocrats — are capable of gleaning sure truth.

            It’s a highly elitiest metaphysics, so I suppose it’s the perfect ideology for you, as humility doesn’t seem to be one of your strong points.

        2. steve from virginia

          US finance is the world’s credit provider. The US finances/cuts off the world, not the other way around.

          ‘Money’ in today’s world is not recycled earnings (whatever those are) … Money is credit obligations entered on finance company spreadsheets.

          The problem this Christmas Day in 2012 is that central banks are becoming sole credit providers. The private sector is being crowded out. Unfortunately, central banks are collateral constrained, that is, they cannot lend in amounts in excess of collateral without falling into great danger.

          Because of this constraint, central banks cannot create sufficient credit to completely fund the economies. Only commercial lenders are equipped to make unsecured loans. By attempting to artificially reduce credit costs the central banks are defeating their own purpose by making credit unavailable. US = Japan.

          The more the central bankers feel compelled lend, the less the private sector lends. Unsecured lending — the stuff of inflation and the foundation of modern industrial economies — dries up.

          BTW: austerity is unavoidable as it is driven by resource depletion and increasing real costs including cost of credit needed to obtain the resources. The costs cannot be met by ‘use’ (waste) of the same resources. The harder we try to restart growth (waste) the more unaffordable the costs become.

          Even MMT cannot solve this problem as any form of ‘money’ regardless of its source or form of creation is a claim on resources/capital rather than capital itself.

          The only possible solution to our difficulty is stringent conservation including reduction of petroleum/fuel use by at least 50%. To do otherwise and fuel use will be cut by at least 50% … by unpleasant (as in unthinkable) circumstances. BTW: noises about US ‘petroleum/energy independence’ are simply flat-out lies, no different from ‘AAA-rated mortgage-backed securities’!

          Merry Christmas and get rid of the goddamned fucking car. Do it now don’t look back … don’t do it and your children will murder you in your beds and you will deserve it, you will deserve a thousand deaths.

          1. A Real Black Person

            Well, you’re completely wrong about the U.S. financing all global activity, since capital has no national boundaries or national allegiances.

            However, you on the money about the extended downturn being driven by real constraints on the supply for petroleum. In the U.S. most petroleum is used to allow all the educated people with good jobs to travel long distances to work and play. The rest of the world uses oil to transport goods and services more. The rest of the world uses petroleum more efficiently. The global economy is changing to allocate capital to countries that use petroleum more efficiently than the U.S. The U.S. is resisting that by planning military coups of oil-rich regimes hostile to the U.S.

            The interesting phenomenon I see is both liberals and conservatives embracing the oil speculation conspiracy theory as an explanation for higher oil prices. When I mentioned the fact that the world could stop financing the U.S.’ deficits by buying U.S. bonds and abandon the U.S. dollar as a reserve currency, Yves Smith suggested that the world had no choice because of our fearsome military would compel them to change their minds if they decided to stop accepting the U.S. dollar. Both the Right and Left are believe in American exceptionalism.

          2. Me

            “Yves Smith suggested that the world had no choice because of our fearsome military would compel them to change their minds if they decided to stop accepting the U.S. dollar. Both the Right and Left are believe in American exceptionalism.”

            One person’s opinion does not mean the entire left or right believes anything. I am on the left and Yves and I don’t share a brain. So we may not agree on issues. Beyond that, pointing out that the US might use force to keep the dollar as the reserve currency doesn’t mean they agree or support the US doing it. All a person has to do is look at the history of US intervention in countries that try independence in foreign or economic policy. Read William Blum’s “Killing Hope” if you want a partial list (it stops in the mid 90′s and there have been many interventions since. The book also doesn’t cover the National Endowment for Democracy, the NED, which is another horrible organization aimed at overthrowing progressive governments who get uppity).

            I predict, if there was unrest in the US, that the guns could be turned on the people. Me saying that doesn’t mean I support the government doing that, I just think its likely to happen.

          3. Me

            “Because of this constraint, central banks cannot create sufficient credit to completely fund the economies. Only commercial lenders are equipped to make unsecured loans. By attempting to artificially reduce credit costs the central banks are defeating their own purpose by making credit unavailable.”

            Nonsense, the government could do everything the damn private sector does in regards to credit creation. The private sector has been given a privilege as far as creating credit. The government could take its place if it wanted to, I want it to, but has CHOSEN not to. The private financial interests are not needed and are the modern rentier class. Sorry, you seem to think parasites are needed, they aren’t. We are the hosts, the banks are the parasites. If it weren’t for us giving them trillions there wouldn’t be any damn private banks left standing anyway. We aren’t crowding these parasites out, we’ve rescued them at the expense of society.

            “BTW: austerity is unavoidable as it is driven by resource depletion and increasing real costs including cost of credit needed to obtain the resources.”

            Again, nonsense. You do realize that market values, GDP is not the same as consuming real things, correct? The value of GDP can grow in a year even if production decreases massively. GDP and markets are monetary values, they can have next to nothing to do with the actual production and consumption of real resources, especially if finance has taken over the economy. Austerity is simply one choice amongst many. Austerity chooses to give creditors everything when we could chose to right down the debt at the creditors expense. IF we were to talk about aggregate resource consumption levels we would then have to talk about how inequitable consumption and the ownership of real wealth (ie tangible things, not fictitious financial wealth). I am guessing you wouldn’t want to have that conversation. IF we are to address resource consumption levels we then have to address inequality, we’d have to level differences in wealth and income for it to have a remote chance of working.

            If you want to start that conversation, go ahead. Just be aware of where it could lead.

            Again, austerity is usually a choice, it certainly is in the case of the modern US. It is a choice, it usually doesn’t have to happen and you will notice that it is almost always either forced on populations at gunpoint or put in place by corrupt and out of touch political crooks. Rarely does it happen in well functioning democracies, it always fails and many times it leads to a radical response.

            If you want to know what I am talking about, look up Karl Polanyi’s “double movement”. It happened in Europe in the 20′s, 30′s and 40′s and it is about to return.

    2. Me

      I look at what is happening a little differently. I see an end not just to the dollar dominance but to the economic model that has dominated the Western and most countries since the early 70′s. We are at, or near, the end point of neo-classical economics in practice. I realize that it can go on in practice for a little while longer, mainly by force if needed, but it isn’t sustainable. Neo-classical/neoliberal economics is basically a pro-financial ideology and since being pro-financial means having an economy based on debt (which is finance’s product after all), the end game is near. PRIVATE debt has exploded, finance controls far more of domestic profits than decades ago. That cliff is approaching, it isn’t sustainable. I don’t know what we will move on to, but we will. Staying the course forever isn’t an option, even by force.

      The drama isn’t just being played out here in the US, its also in the streets of Athens and Barcelona. Most of Latin America has been moving on from that horrible model (cause they have dealt with it longer) and now it is spreading to the streets of Santiago. Chile’s model is being called into question. What you are seeing is just our way of dealing with a much larger problem. The dollar has played a role in these policies the world over but when the dominance ends so will the economic model it is built upon.

      1. ebear

        “I don’t know what we will move on to, but we will. Staying the course forever isn’t an option, even by force.”

        Exactly. What can’t be sustained won’t be. The basic problem is not one ideology vs. another, it’s a failure to recognize the mathematical certainty of exponential functions when applied to limited domains. You can fight over who gets what share of the current pie, but you can’t alter the fact that the pie is shrinking. That problem requires an approach that lies outside the realm of politics.

        As to your point on Latin America, empires collapse from the outside in. Change comes when the imperial power can no longer extend its reach, which is clearly the case in Latin America. The kind of interference you had in the past – coups, military intervention, dirty wars – is no longer possible. For all the heroism, Latin America owes its present good fortune to the inability of the US to project power on multiple fronts. There’s nothing new here really. Rome and Great Britain went down the same road. Belief in their superiority blinded them to the inevitability of their collapse. Any society that attempts to maintain stasis in a dynamic world will meet the same fate.

          1. ebear

            On the contrary, lots of people have made that claim. I’m not one of them, but neither do I believe in a command economy with redistribution as its central theme, a theory which seems to hold sway here. IMO, the real problem is this endless polemic between competing ideologies, none of which make any sense in our present situation. Socialism, communism, capitalism, fascism, democracy, dictatorship have all failed, and for a very simple reason: human nature. Until you can convince people to stop persuing short term, myopic self-interest you’re never going to make any progress – progress being defined as whatever allows the greatest measure of individual freedom while simultaneously providing for the common good. To even start down that road you have to recognize the dynamic, evolving nature of human civilization and stop trying to force feed solutions based on yesterday’s worn out cliches.

            I don’t have the solution, but then neither do you or anyone else here, and until that realization prevails you’re all just spinning your wheels. So pardon me if I poke a stick in the spokes once in a while, but it seems like the only way to draw attention to the problem.

          2. from Mexico

            ebear said:

            Until you can convince people to stop persuing short term, myopic self-interest you’re never going to make any progress – progress being defined as whatever allows the greatest measure of individual freedom while simultaneously providing for the common good.

            So by neoliberal fiat we’ve just decided to jettison Kant’s antimony of nature and freedom? Maximizing group interest invariably entails curtailing excessive egoism, egotism and ego-centricism. You make it sound as if that can’t be done, yet man evolved as a hypersocial animal and has been doing just that for most of his million-plus year existence.

            The belief that the human world is composed entirely of egoists is itself a piece of neoliberal fiction, and a massively sociopathic one at that. Even Adam Smith, as blinkered as his ideology was, in The Theory of Moral Sentiments acknowleded that that dog don’t hunt.

          3. Me

            I don’t agree. One of the problems with today’s environment, one of the problems with neoclassical economics, is that economic history (and reality) doesn’t enter into the picture. That is part of the problem. It is irrational to say that we shouldn’t look to the past to see what has and hasn’t worked. We live in a changing world and we have new challenges. Having said that, there are only so many ways to run an economy. People seem to think that economic systems can be invented like new products. You either have the private ownership of the means of production or you don’t. You either have labor markets or you don’t. You either have classes in society or you don’t. You can have capitalists, workers, rentier interests and they can have varying power within society. You can deal with ecological issues using (fundamentally flawed) market mechamisms or you can use non-market mechanisms. Call it what you want, it is certain that countries or societies somewhere in the past tried it. You can also call those policies capitalist, socialist or Swiss cheese.

            I also don’t think that the systems you mentioned “failed”. It is a bit simplistic to say they failed. What standards do YOU have to say they “failed” and failed at what exactly? Seems to me that each economic system does some things well and others not so well. We could look to each system to see what they do well and don’t do well and learn from their successes and failures. Makes no sense what so ever to talk about human nature and to ignore economic history just because YOU say these systems have failed. Also expecting perfection doesn’t help much. Besides, for most of human history we have lived communally. Capitalism has been around for a few centuries, human civilization for thousands of years. Did people live in opposition to human nature before self interested, capitalist individualism appeared on the scene? Were people in Europe living in opposition to human nature before the enclosures? Seems to me that mutual aid has been dominant in most societies going back to the dawn of human civilization.

            Besides, how do you define “capitalism” and “socialism”? Is Sweden, was Sweden the first few decades after WWII especially, socialist or capitalist? How about Britain until the mid 70′s IMF restructuring? Seems that most systems are a mixture of socialist and capitalist elements. I would argue the countries that were more pure forms of socialism or capitalism did well at some things, not so well with others. I would also argue that if you had two different people analyze those systems they would likely have radically different views on the positives or negatives of each system. A lot of it has to do with their own ideological biases, morals and interests.

          4. Lambert Strether

            @ebear:

            1. That was irony.

            2. “Human nature being what it is.” Yes, I like Miss Marple as much as the next man, but Agatha Christie paints on the small canvas and in fiction. It seems to me that you making very broad claims based on a rather sloppy analytical category.

    3. TK421

      Is there any sign that the rest of the world is going to cut us off any time soon? It sure looks like plenty of people are willing to purchase US debt. Let’s worry more about immediate problems–poverty, illness, crime–and less about possible, far-off problems.

      1. ebear

        “Is there any sign that the rest of the world is going to cut us off any time soon?
        It sure looks like plenty of people are willing to purchase US debt.”

        There are multiple signs – you only have to look. Start with China and Russia, both of which are accumulating gold, both of which have mutual trade pacts bypassing the dollar. Do a search on Chinese currency swaps with African nations. No dollars there. If I have a ship load of wheat and you have a tanker load of oil, we don’t need dollars. We only have to establish the ratio of exchange. The Russians have plenty of experience with this sort of arrangement. Do a search on Comecon. As for US debt, the appropriate term is Vendor Financing. Once the transfer of technology is complete and China (the principal holder of US treasuries) has developed its internal markets and bilateral arrangements to a sufficient degree that debt will be written off, as all sovereign debt eventually is.

        1. Daniel From Paris

          “There are multiple signs – you only have to look. Start with China and Russia, both of which are accumulating gold, both of which have mutual trade pacts bypassing the dollar. Do a search on Chinese currency swaps with African nations. No dollars there. If I have a ship load of wheat and you have a tanker load of oil, we don’t need dollars. We only have to establish the ratio of exchange. The Russians have plenty of experience with this sort of arrangement.”

          Nice to discover ebear among the NC crowd, plainly unable to get the external position of the US is getting down to hell. And the dollar is not an eternal asset. we are not in the 30s anymore!

        2. A Real Black Person

          Everyone who is disagreeing with you is reacting emotionally to what you’re saying.

          Let’s look at this guy.
          http://www.nakedcapitalism.com/2012/12/bill-black-kill-the-fiscal-cliff-instead-of-the-economy.html#comment-982373
          He’s clearly upset that you have declared Communism and socialism failures. He says humans for most of their existence have lived “communally”. What he fails to either articulate or understand is that humans, for most of their existence, have lived in very small kin-based tribes where physical and ideological differences were kept to the minimum. THAT is what has proven to be sustainable. Anything different from a tribal existence requires sustained coercion.

          1. Lambert Strether

            Your view is that sustained coercion is not sustainable?

            * * *

            I forget how long the Pharoahs lasted, but it was several millenia. That sounds “sustainable” to me.

            I don’t even know if “coercion” is relevant category to evaluate a civilization by, but if the Pharoahs were “coervice,” your point fails, and if they were not, your point fails, since their civilization did not have the social structure you claim is uniquely sustainable.

      2. from Mexico

        TK421 says:

        Is there any sign that the rest of the world is going to cut us off any time soon?

        Great question.

        The problem the United States faces now, despite all the wailing and gnashing of teeth from the-sky-is-falling austerians, is quite the opposite. Here’a an explanation of what’s going on in the real world, sans the emotionally supercharged rhetoric of the neoliberals:

        “As a consequence of QE3, the US dollar is the weakest performing G10 currency this quarter and pressure on the already overvalued yen has been stepped up,” Jane Foley, currency strategist at Rabobank, said in a report. “Retaliation against the Fed’s QE3 announcement provides a decent explanation as to why the BoJ decided to waste no time in announcing further monetary policy measures.”

        Central banks around the world seem to be in a race to the bottom to devalue their currencies, based on recent easing measures the past month.

        First, the European Central Bank announced a bond-buying program, then the Federal Reserve announced QE3, spurring Japan to provide a stimulus.

        The Fed, BoJ and other central banks appear to be in currency wars as they weaken currencies to help exporters and boost their economies.

        http://www.etftrends.com/2012/09/currency-wars-yen-etf-holds-steady-after-stimulus/

        1. Ben Johannson

          The dollar is trading higher on the Dollar Index now than it was two years ago. There is no devaluation of our currency going on.

          The world does not support the United States, rather it is the United States subsidizing the world by running large trade deficits.

      1. ebear

        According to Wikipedia, Schadenfreude is pleasure derived from the misfortunes of others. Sorry, not me. I derive grim satisfaction from the misfortune of those who truly deserve it. Pleasure has nothing to do with it.

        BTW, you forgot to call me a Neoliberal.

  10. Norman

    To from Mexico, your link I believe is appropos to the above, as well as the imaginary have the advantage to being able to alter the effects of the reality. This has been an interesting exercise in view points today, sort of like opening those colorfully wrapped packages that abound this Christmas day, 2012.

  11. craazyman

    OK, your all under arrest for “Persistent Pettifoggery” on the topic of MMT. Fines are doubled in holidays. That’s $2.30 each of youz. -D Tremens, Thought Police, Leutinent, Magonia Police Department

  12. Eric L. Prentis

    Professor Black, I have a great deal of respect for you, but you and the MSM scaring us into reaching a hasty fiscal cliff deal between President Obama and Speaker Boehner, this year, IS NONSENSE. Fiscal cliff issues are too important.

    At the beginning of next year, the 113th Congress will find solutions. All new laws can be retroactive, as of the first of the year—end of problem. Calm down on the blogs, leave all the huffing and puffing to frighten the MSM TV viewers, radio listeners and newspaper readers.

    And as for AUSTERITY, do not make me laugh! Over the past four years, the federal government spent $5 TRILLION dollars in budget deficits and the Federal Reserve Bank spent at least $2.1 TRILLION dollars on quantitative easing, totaling $7.1TRILLION dollars. It took the USA 224 years to reach a national debt of $5.6TRILLION dollars. The problem is all this new debt is being spent recklessly, and is not doing enough good. Spending more money in the same manner is NOT A SOLUTION; it just digs the hole deeper.

    To learn more, please read my Economic Populist article, published on December 17, 2012, entitled, “WORLD-MARKET-STATE vs. DEMOCRACY: Why We Should Go Over the Fiscal Cliff.” The ongoing worldwide 2008 credit crisis is serious, requiring new approaches. Current solutions are not working.

    P.S. The US did well economically, coming out of WWII, because we were the only industrialized country left standing. In another world war, we may not be so lucky.

    1. Ben Johannson

      The U.S. ran a small trade surplus after WWII, meaning that being the “only industrial country left standing” was not a significant contributor to its economic growth. How could it be if, as you claim, the rest of the world was leveled flat? We had no custmoers for our goods.

      Post-war economic growth in the U.S. was driven almost entirely by domestic demand resulting from policies to sustain aggregate demand and full employment.

      1. A Real Black Person

        “The U.S. ran a small trade surplus after WWII, meaning that being the “only industrial country left standing” was not a significant contributor to its economic growth. How could it be if, as you claim, the rest of the world was leveled flat? We had no custmoers for our goods.” THE PEOPLE WHO WERE STILL ALIVE were dependent on U.S. industry to deliver to them processed food and clothing while everything was being rebuilt. The Marshall Plan allowed most countries to recover from the damage to WII within twenty years. In fact, the U.S. started outsourcing its manufacturing in the late 1960s.

  13. docG

    If you see the deficit as the major problem, then why not cheer as the economy goes over the cliff? The higher taxes and govt. cutbacks would go a long way toward reducing that big bad deficit.

    Maybe that’s why the Tea Party folk are sitting on the sidelines for this one. Deep down they’d love to see those deficit reductions. But at the same time, they can’t stomach the tax increases, especially on the wealthy. So what’s a poor TP to think?

    I see nothing wrong with returning ALL the tax rates to their pre-Bush levels. Liberals were opposed to the Bush cuts from the start, as they represented a huge gift to the super wealthy and only some relatively feeble relief to everyone else. Ideally a far more progressive taxation system should be implemented, but if there’s no way the House Reps would vote for that, then why not just let the Bush cuts expire altogether?

    The revenue increase should produce enough income for both deficit reduction AND stimulus, so why not?

    Only please: instead of yet another boring unemployment extension, how about a nice, exciting jobs program for a change?

  14. Mac

    Good idea repeal the law that created the fiscal cliff and start over, that mess was made because the goofies could not agree,why would they now.
    I guess the law of holes applies here we are in a hole we should stop digging.
    Don’t do more of what got us here.
    As for all the wizards who are educated beyond their ability to comprehend
    Ignore them, use some common sense.

    1. nonclassical

      “why would THEY agree now?”…because many-most PEOPLE understood bushbama’s PROMISE to end bushit tax cuts as necessary…contradicting ridiculous cuts in the first place…

  15. Brooklin Bridge

    O-Betrayer is back from vacation. The owners smell blood and are determined to go for any thing they can get. Who thinks they won’t be able to secure some cut to the safety net before new years?

    Any posts/opinions/common sense proposals like the following are to reach as few ears as possible. The meme that the adults must inflict pain, like bad tasting medicine, not on them, but on us, is amazingly powerful.

    So why don’t the Democrats and Republicans stop trying to do a deal that will inflict austerity? Why not simply repeal the Budget Act of August 2011? That would kill the fiscal cliff. Repeal would kill austerity, prevent the recession, save the safety net, increase growth, and shrink the deficit. All versions of the Grand Betrayal (Republican and Democratic) inflict austerity, are likely to cause a recession, begin to unravel the safety net, destroy growth, and increase the deficit.

  16. Schofield

    How can guns be neutral when they assist intentionality? And how can intentionality be effectively controlled within civilian society when one of society’s most highly regulated and disciplined non-civilian institutions the US Army cannot prevent one of its members with probable Post Traumatic Stress intentionality from massacring civilians in Afghanistan? Finally how does a bag of handguns differ from an automatic assault rifle in the hands of someone with murderous intentionality?

  17. steelhead23

    Too many comments to review them all but I wish to say a little something about fiscal policy. Fiscal policy is also social policy. If U.S. tax policy allows hiding of wealth and income through offshoring money or business activities, then more wealth and business activities would take place in foreign lands. As the SCOTUS has declared that money is speech and the more money one possesses, the more speech (and power) one is thereby afforded, it is incumbent on a democratic government to increase taxes on wealth and high incomes to avoid the monopolization of power. I believe there are rich folks who truly wish we proles well, however, those who have tasted power, including one Peter Peterson, would be very unwilling to give it up. We must take it from them. And the legal and ethical way to do this is to tax high income earners at a rate that reduces their influence on our governance. I see this as a functional equivalent of recognizing that TBTF banks are adverse to our economic well-being – the growing income disparity and political power of the wealthy is severely undermining democracy. If you truly love democracy, you either have to overturn Citizen’s United, or confiscate wealth through taxation – there is no third alternative. Given this dilema, I believe that democracy in the U.S. is in serious trouble as the status quo defends the interests of the rich and vice versa. And the proles are so mesmerized by the media, it is very difficult to develop much of a movement against the anti-democratic power of wealth.

  18. Fiver

    I have yet to hear anyone speak to what this whole “cliff” gambit is really all about, and it goes back to the invention of “the 1%” as the repository of all greed and ill-will in the US political economy, not simply the greedIEST of a broad set of elites for whom money, position and power are cardinal traits.

    The fantastically wealthy have never had a problem with higher taxes, just as Uncle Warren says, so long as it does not impinge on their own peer “ranking” or power. It is the NEXT 19% (or 18% for those who wish to quibble)the ones who provide by far the most funding for both political parties, and who make up the upper echelons of all organizations, institutions, corporations, Wall Street flunkies, media, senior military, etc., who are driving this entire scam.

    It is simply astonishing that this misdirection has proved so successful, given that it’s agreed all around that just taxing the ultra-rich simply can not generate enough revenue to resolve Washington’s fiscal calamity-in-the-making, and here I have to include every self-labeled “progressive”, “liberal”, “libertarian” or “leftist” whose work I know.

    Do NOT claim that those ranking from 80th to 98th percentile in income are over-taxed, just because “the 1%” (or 2) is under-taxed. Such an assertion is quite simply ridiculous – just ask anyone in the far less affluent-to-dirt-poor majority, in the US or around the globe. That a very great deal of the money spent by their Government is simply pissed away or aimed at “total spectrum dominance” of the entire globe is, again, no fault but their own, as it is this broad elite that supports, advises, and executes the entirety of US policy, corporate or Government.

    Now, in anticipation of someone chirping that the US debt “is not a problem”, I’ll just point out that the most important property of debt is the one that gets the least attention, and that is the viability of a given quantity of debt’s dependence on the stability of the entire socio-economic-environmental matrix at any given point in time – and I, for one, having looked long and hard at this, think that there is virtually no chance that our collective futures will be anything other than increasingly unstable given the absolute refusal of the US elite leadership to engage the fundamental problems that we MUST resolve within the next decade.

    Any leader worth spit would get up and give this elite, and indeed the population at large, absolute shit for being so unbelievably, so suicidally stupidly selfish.

    Raise taxes, abandon the Empire, ensure everyone has what he/she needs “job” or no, and get on with the crucial business of saving this planet and our better selves.

  19. Kunst

    ” If one raises overall taxes in response to the Great Recession the result is a reduction in private sector demand. If one cuts governmental spending the result is a reduction in public sector demand.”

    What you’re saying is that we need to keep spending a trillion dollars a year more than we take in tax revenue. That works from a MMT point of view, but in our current system all it does is increase our interest payments to the global 1%, gradually squeezing out far more productive uses for the money. If you start from a balanced budget, what you’re really saying is that reducing taxes and increasing spending stimulates the economy. Yes, but at what cost? Is that really a sustainable model?

  20. John Grady Cole

    Why stop with what Black suggests? Why not just print $16 trillion USD tomorrow and pay off the Federal debt as a New Year’s present to ourselves. Then, after we do that, let’s print $900 trillion and buy China! The answer is obvious, isn’t it? If any of this nonsense worked, we’d simply put the pedal to the metal, but it doesn’t work and Black knows it. At some point, people lose confidence in the currency. I would argue that we are already at that point, as the only thing keeping some debt markets afloat is that crack whore we affectionately call the Fed. Sorry, boys and girls, but if you owe me any money, I’m taking payment in pre 1963 silver or K-rands only. No greenies for me, thank you. Idiots.

  21. TC

    I’m sorry, but 20 dead children changes everything. These seditious pricks are on their last leg. Per tax increases slated to occur on 1/1/2013, the likes of which in fact will buy absolutely nothing, and this in the face of increasing incidents of mass murder, I say: BRING IT ON. Let the mass strike begin.

    Bill, cut the sophistry suggesting that, “all variants of the Grand Betrayal are austerity programs that must be defeated in order to prevent a recession.” Prevent a recession? You’re assuming we’ve had a recovery. There’s been nothing of the sort and a skyrocketing annual federal deficit as well as an infinitely ballooning Fed balance sheet are proof. We’re bankrupt and that’s the framework we must move forward from. If we don’t, I predict many, many more mass murders. People are losing it, particularly the mentally ill who have been thrown on the scrap heap, some of whom apparently are rather well armed no less. Look out! Adolf has come to town.

    It’s time for a national bank and bankruptcy reorganization of the Federal Reserve System. And that’s just for starters. Bottom line, everyone needs to realize, and as well proclaim this loudly, the box in which political dialog has been contained is as much a fraud as the so-called “book value” of every last money center bank.

  22. jen

    Maybe the politicians will forge a compromise in the last minute of this year. But there’s still time to prevent a real catastrophe whose consequences would be felt not only in the country itself but in various economic sectors of many other countries as well. I work in real estate in Canada and according to the analyses that I’ve recently read, the outlook for 2013 is more than optimistic as a result of stable economic conditions. But nothing is certain and much depends on the economic situation of our neighbor – the threats such as inflation in the US could put a halt to the positive development of real estate market in both Canada and the US which would consequently be felt all around the world.

Comments are closed.