Yves here. Any post that starts out by making fun of Matt Yglesias already has something going for it. But one bit I quibble with. Kervick suggests that Social Security might be excluded from a Grand Bargain. Don’t get too optimistic. His post mentions that the negotiations now are moving into a two-phased process, with a “down payment” now and the deep cuts later. Peter Orszag, chief Administration balloon-floater, had proposed having Social Security cuts be the in the first phase, even though he acknowledged they had no long-term budgetary impact. The word I hear from people with their ear to the ground is that Social Security cuts are still planned for Phase 2. I’d hazard they are being downplayed now to lull opponents to sleep. Don’t be fooled.
By Dan Kervick, who does research in decision theory and analytic metaphysics. Cross posted from New Economic Perspectives
Matt Yglesias is now hawking an initial White House budget proposal that is apparently being negotiated by Tim Geithner. Predictably, the two-stage proposal involves entitlement “savings” and cuts in both stage one and stage two, and backs off a bit on higher tax rates on the rich. In exchange, the White House gets some more stimulus spending. Yglesias advises Republicans to tell Obama:
… he can have his stimulus and he can even have higher tax revenue if he really wants it, but that the price is giving up his obsession with higher rates. Is he more interested in soaking the rich or in creating jobs? I don’t think Obama says no to a deal like that, and if he does lots of sensible liberals (like this guy) will call him out on it. Then we can put this sorry episode behind us, proclaim the Grand Bargaining Era done for, and hopefully move on to other things.
It seems strange to endorse a grand bargain in order to move on and proclaim the Grand Bargaining Era over. Maybe next week Democrats should propose the elimination of the minimum wage so we can then declare an end to the Era of the Fight Over the Minimum Wage?
Yglesias follows up today with a few more cautionary words for “sensible liberals”, and issues some implicit admonishments to the left. He instructs us on the true purpose of taxation:
The reason a sensible person might want more revenue rather than less in a budget deal is that more revenue might allow you to minimize cuts in spending on worthwhile causes. But at the end of the day the budget of a sovereign state that borrows money in its own currency is all about spending levels. The proper goals of a budget negotiator are to maximize cuts to bad programs and minimize cuts to good ones. When higher taxes helps achieve the latter goal, that’s great. When it doesn’t, then who cares?
The fact is, though, that our national government doesn’t just borrow in its own currency – it issues that currency. And so its ability to spend is not constrained by its tax revenues. We don’t need to tax the the rich – or anyone else for that matter – in order to spend. We only need taxes as a way of managing excess demand and preserving a stable currency while achieving other public purposes.
What are some of those other public purposes? Well if, like me, you are a person who thinks severe income inequality is both socially and economically disadvantageous, and that the differences in political power that always accompany differences in wealth undermine democracy and distort the social choices made by our political system, then the attempt to achieve some degree of economic leveling through the tax system is a worthy goal in itself, apart from whatever additional demand management benefits you think might come from collecting more revenues. Bringing the plutocracy down out of the Olympian, thunderbolt-raining heights and forcing them to live on Earth with the rest of us is good national policy – even if it just means throwing some of their money in the ocean. However, it would be even better to offset any demand drains created by increased taxes by more aggressive spending.
So here’s my proposal. This is what I think Americans should be calling for our government to do:
1. Allow the Bush tax cuts to expire but then enact a full middle class cut tax for folks under $250 K in order to offset entirely the impact of the expiration on that group of Americans. Also extend the payroll tax holiday.
2. Repeal of the Budget Control Act of 2011 – the “fiscal cliff” act. Just cancel it.
3. Dare Republicans not to pass this tax cut proposal, and thereby to declare themselves the eternal enemy of the American middle class.
4. Expand spending dramatically on efforts to rebuild our material and human infrastructure, extend and subsidize educational opportunities, and engage the citizenry – especially young people – in an effort to save our planet.
5. Propose NOTHING else – no additional cuts, no additional revenues. Walk away completely from budgetary grand bargaineering.
6. Continue to run a healthy-sized deficit, one even larger than the present one. That is the stimulus we need.
7. Stop lying to the American people about the nature of the US public debt and US government liabilities. Let them know that the US government can always pay its debts and operates under no solvency constraint.
8. Make it clear to the US public that a bond vigilante attack can only occur if the Fed permits and encourages it; and that the latter can only occur if the Congress permits the Fed to take that step. The debt crisis is The Big Lie of our time.
9. Pack folks like Bowles, Simpson, Johnson, Peterson, Rogoff and Reinart in a box and ship them to northern Europe, where all of them can, to their hearts’ content, hawk their socially paralyzing budgetary gloom and doom to an audience of priggish budget moralists who are apparently fond of intentionally destroying economies, creating voluntary recessions and sustained stagnation, inflicting pain for pain’s sake and throwing their unemployed young people out on the street to be devoured. (OK, this one is just a fantasy.)
Once these things are done, the American public will can finally wake up and understand the self-determining power it has in its hands to shape its future. Then we can declare an end not only to the Era of Grand Bargaining but the Era of Having Our Heads Up Our Asses.
My son is graduating from college in May, and I think frequently these days about the sorry world we are depositing on his generation’s doorstep. Most mainstream pundits, and the forces of austerity and public debt phobia, would have us believe that the problem we are creating for my son’s generation is a mountain of burdensome public debt. But that is simply false. Public debts are also public assets, and future generations will always be able to consume, in their own time, everything they can produce at that time. All this budget fussiness is a sideshow. It makes no sense to be trying to micromanage public expenditures for 20 and 30 years down the road. We need to go big on national investment projects, employ all our people and grow our economy. The budget will then take care of itself.
But here is my fear about the future: When our children and grandchildren look back to assess our performance during this era, they will bitterly note that during a time when we should have been aggressively expanding public investment to employ all of our many unemployed people, launch bold projects for national renewal and progressive development, save our planet and light a rocket under our massively underutilized productive capacity to build a prosperous future for our progeny, we instead chose to get bogged down in ridiculous and priggish bean-counting and budgetary hand-wringing. Right now, it looks like we will be known as the generation that chose stagnation, blinkered bookkeeping and fiscal tunnel vision over dynamic national progress – a weak, cowardly and unimaginative people – the Lamest Generation.
For me, a bold vision of nation progress and prosperity requires a new, aggressive commitment to social and economic equality. I believe democracy is an excellent thing and the only long-term political solution to social despair, stagnation and unfreedom; and that genuine political democracy requires a significant degree of economic democracy. There is no realistic way of moving toward these ideals in a reasonable time frame that does not require taking active steps to re-work the distribution of wealth and income in our society. I would like to see progressive-thinking Americans acknowledge these goals frankly, without embarrassment, and get to work trying to accomplish them.
Think of the anti-feudal land redistribution measures of the past as a model. The purpose of such measures certainly wasn’t to balance public budgets. It was to change the social order and build a more equal and prosperous future for all. That’s where we are now in our new struggle against the staggering inequality, exploitation, economic oppression and social dysfunction we face as we move into 2013. I don’t want some sort of “bargain” with plutocrats to preserve the neo-feudal order that has been delivered by four decades of neoliberalism. We don’t need a miserable bargain in which we sign off on plutocracy in exchange only for a few bits of additional spending that the plutocrats allow us to undertake so we might employ just a few more people out of the armies of humanity that they have driven into involuntary unemployment, and at the same miserable wages the rest of the folks at the bottom receive. And I certainly don’t want that bargain if we have to trade away even more of the social benefits that have already been eroding for decades.
I want to fight the plutocrats and lick them – not deal with them. After decades of having their standards of living decreased, and seeing a once-vibrant democratic political order replaced by a neo-feudal hierarchy that has frozen us all into socially immobile castes and political subordination, the US middle class, working people and the poor need to join forces to first draw a line in the sand on further cuts of any kind, and then get active in reclaiming a society based on shared prosperity, democratic citizenship and an egalitarian social contract.