Michael Hoexter: Deficit Hawks (Obama, Romney, Bowles, Boehner) Plan to Shrink YOUR Economy – Part 1

Michael Hoexter is a policy analyst and marketing consultant on green issues, climate change, clean and renewable energy, and energy efficiency. Originally published at New Economic Perspectives.

Lambert here: This is a fine exposition of the views and proclivities of the three major schools of thought on ZOMG!!! Teh debt!!!! Deficit hawks, deficit doves, and deficit owls. Some may find the material at the end on “Racism, Anti-Racism, and Austerity” obvious; others may find it controversial. For myself, I don’t find it a useful exercise to try to work out an individual’s motivations — say, Obama’s — from afar. Beyond recognizing a collective desire in our elites to inflict suffering on others in great numbers (“shock doctrine”; “austerity”; “grand bargain”), I don’t think we can go very far with psychologizing.

* * *

Most of the US political class has been infected with the “mind virus” of austerity that suggests to them that either virtue or necessity consists of cutting government spending and government programs.  Under the influence of this “folk economics” with no evidentiary support, the equivalent of economic superstition, politicians seem prepared to slash vital supports to the economy despite the ability of monetarily sovereign governments, like the US federal government, to afford continued spending on current and even expanded government programs.

Whatever one’s personal tastes and predilections are in government programs and the role of government overall, the net effect in dollar terms of reducing the spending of government, in the context of the current Lesser Depression is to stall and eventually shrink the economy. Because of a mountain of private sector debt and overvalued assets like real estate in which people are now under water, the only source of renewed spending on goods and services, the engine of economic growth, is government spending.  Alternatively, the restructuring of private debts, using for instance the policy format of Steve Keen’s modern debt jubilee, also most likely legislated and funded by a fiat-currency issuing government, would ease private debt loads for the public, and this would then release funds to purchase new goods and services. The concept that best describes the common dynamics of the current Depression, the Great Depression and Japan’s Lost Decade is “debt-deflation” but Richard Koo, economist at Nomura Bank. has also called this period, in milder terms, a “balance-sheet recession”.

There is considerable naïveté about how government spending actually functions among the political class and many believe that the currency-issuing U.S. federal government acquires money via taxes from the private sector.  Alternatively, the government, when it doesn’t “have” tax money, so goes the story, must borrow the money from abroad, selling Treasury bonds in the amount that funds are required.  This is the source of public debt, viewed in this naïve account as simply a debt that must be eventually repaid in full as a private debtor would need to repay a loan.  The above description of how government finances itself is approximately correct for non-currency issuing governments like US states, municipalities and Euro-Zone countries but is, perhaps counterintuitively, not valid for currency issuing governments like the national governments of the US, UK, Japan, Canada and others, some of which have now committed themselves, self-destructively, to austerity.  As we see in wartime or in financial crises when monetary means are always found by governments to pay for needed goods and services, in an era of fiat currencies, government spending of a currency issuing government is not limited by taxes collected nor public debt issued, which are operations that have functions different from the generation of “revenue” for government, and in certain cases, are ritual vestiges of an older era of convertible currencies.  The recognition of the lack of affordability constraints on monetarily sovereign governments is not an invitation to spend with abandon but simply a fact of life and, like it or not, a source of governmental power.

The current ubiquity of austerity advocates and the accompanying rise in fashionable gold-bugism are part of a nostalgia for a past that never was, a fantasy of the solidity and fixity of monetary value.  The increased attraction to the primitive idea that economic value is located in the currency itself, rather than generated and maintained by a dynamic real economy with a flexible currency managed by government, is a sign of a retreat from confidence in the private economy’s growth potential and in much-maligned government’s leadership role in managing and supporting that economy.  In the cultural and economic climate in which austerity advocacy flourishes there is a fundamental confusion about “where value is”: value becomes reified “inside” money, and the notion of setting an arbitrary limit to the amount of government creation of money functions as a defense mechanism against fears of the loss of the value of existing stores of money:  if the scarcity of money is maintained, value is believed to be preserved.   Trotting out the “boogie man” of hyperinflation continuously, sometimes in a manner that suggests monomania,  becomes an effort to paralyze all good faith attempts to increase public and private spending to improve overall social welfare.  It is understandable that people who have accumulated a lot of monetary units in their own bank accounts, increasingly garnered from the Ponzi/casino economy of a bloated FIRE (Finance, insurance and real estate) sector, would be more prone to entertain the fantasy that once they have gained all these monetary units that their value would suddenly become a solid object rather than be as it actually is, a signifier, a measure of something else, real and changing economic value, generated by a dynamic economy.

Even if you believe that money is or should be a quasi-physical “container” for a fixed portion of value, following the dictates of the austerity mind-virus still doesn’t pencil out as a governing philosophy. So-called “deficit doves” share with deficit hawks a very similar view of what money is but they point out that the US government can apparently borrow these monetary units at currently a very low price from the private sector, enabling in their account of government finance, a much higher level of government spending than austerity advocates, the deficit hawks, say is feasible or desirable.  “Deficit doves” who are for the most part neoclassical economists with progressive political commitments (Paul Krugman and Robert Reich are notable examples), are aware that aggregate demand is now low and therefore money must be gotten into the hands of people who need to spend it.  Only, “deficit doves” claim that government spending must always be “counter-cyclical” and that in good times the government must “save” the money it issues, sometimes running a surplus (i.e. collecting more taxes than it spends) to “restock” the government coffers or reduce government debt.

“Deficit doves”, i.e. left neoclassical economists and their followers, are generally more aware of the social and economic costs of cutting government spending during the current debt-deflation than “deficit hawks” and, as a group, are able to make some trenchant points against the “deficit hawks”.  However they are often accusing the deficit hawks of being hypocrites about the deficit and that they, the “deficit doves”, are the people who care more sincerely about balanced government budgets than the deficit hawks.  Senator Bernie Sanders, who is a relatively effective anti-austerity campaigner in the Senate, nevertheless hews to the “deficit dove” line recommending as a virtue, the reduction of deficits as a policy goal in itself.

In these beliefs, deficit doves are also mistaken, and they reinforce beliefs about the role of government and of money that in the end defeat the purpose of their protest.  If “deficit hawks” are in fact insincere about deficits, which many of them are, the “deficit doves” are placing themselves into the position of “useful idiots” for believing in the importance of reducing deficits.   If the actual goal of the deficit hawks is to reduce the size of or eliminate the welfare state but reserve government’s power, including its currency-issuing authority, for bailing out or funding favored industries like banking or defense, “deficit doves” are providing cover for them by reinforcing the notion that there is a fixed quota of government “scrip” which can run out.

President Obama has tended towards the “deficit hawk” position though has recruited “deficit doves” to play along with him at times.  Early in his Administration there were a number of “deficit doves” in his and in Vice President Biden’s teams, including Jared Berstein and Christine Romer but these have, interestingly, been sidelined in favor of economic advisors who are the Democratic, “centrist” version of deficit hawks.  In his recent speaking and writing, Obama has moved more decisively towards the deficit hawk position as he has seemed to have swallowed whole many myths about the private sector’s autonomous role in the economy, government’s ineffectiveness as a tool in that economy, and the notion that reducing government spending is an almost universal good.  Obama appears to either sincerely believe that government possesses only a fixed amount of “money things” or he is cynically manipulating this belief in others to restructure the American state increasingly in the direction of a “private-public partnership” where the private sector makes most of the rules.

The “deficit owl” position is the view most consistent and most grounded in the reality of the monetary system and a monetary economy more generally.  Deficit owls do not see government surpluses as a sign of virtue but as either the product of misguided policy or, in the rarest cases, as a justified attempt to dampen an inflationary spiral by increased taxation in a targeted or a more generalized way.  A deficit owl, however, is generally more concerned about full employment and maintaining sufficient aggregate demand rather than solely on controlling inflation, a goal which over the past three decades has become the prime focus of monetary policy to the exclusion of other economic goals.   Inflation is a concern for deficit owls but only in the context of evidence of increases in core inflation rather than the chimerical hyperinflation evoked by deficit hawks. Deficit owls openly state that the size of the public debt doesn’t dictate policy and view government deficits instead as a support for the growth of private sector wealth, i.e. private sector surpluses.  Ultimately the “deficit owl” position is the only position among the deficit “aviary” that accounts for macroeconomic sectoral balances and the need for monetary economies to be to a greater or lesser degree “stoked” by government spending to achieve economic growth, full employment, and other elements of the public purpose.

Why then, is the voice of the deficit owls, the most realistic voice in this discussion, barely heard in the halls of power?  Why is it that the damaging and foolish “deficit hawk” position is so widely held and now is inscribed in the fiscal policy of the current Administration and Congress?


Simple Morality Tales

One explanation for the popularity of deficit hawk economic self-destructiveness is that people and politicians are prone to believe in simple morality tales in which there are “good” and “bad” people and in which there is a simple division between “good” and “bad” behavior.  In this there is the idea that “saving money” is “good”, so to be “good” means to “save money” and pare down government programs.  This conception of “the good” is based on current popular belief in self-control and abstention from indulgences as the highest of virtues.  We live in a kind of “anorexic” cultural moment which suggests that spending is “flab” to be trimmed.  In the media and in everyday life, personal virtue is often equated with weight control and therefore to appear to be “lean” and to restrict one’s consumption is considered to be a virtue.

Politicians, especially in countries where elections tend to focus more on personality than ideas, tend to gravitate towards stances that suggest that they are virtuous individuals, so the notion that “saving money” and “not spending” are good has become a means by which politicians hope to gain or maintain favor with voters.  The “first past the post” electoral systems in the US and the UK have pushed both political systems to emphasize the personal characteristics of officials rather than their plans and ideas.  The US is the leader in this, where elections appear to be increasingly about whom voters would want to “have a beer with” rather than what candidates would do for society.

In a world where people are in a relentless struggle to show and maintain the appearance of virtue, the deficit owl position requires greater complexity of thought: self-control and abstention from over-indulgence might indeed be personal virtues but spending should be increased in the overall economy.  While government should preferentially be spending on useful projects, “wasteful” spending that still spurs consumption is better than reducing government spending overall.  In the real deficit owl world, the point is not demonstrations of individual personal virtue but real action to maintain and increase overall social welfare.  The deficit owl position requires that one have a “systems level ethics” as well as personal ethics a task which may be more demanding than one might think.


“It’s Not Me, It’s the Other Guy”

Less flattering but probably more important in understanding the “honeymoon phase” of political support for the self-induced economic catastrophe of austerity among elites and the citizenry at large is that austerity seems to suggest that “other people” are to blame for our economic woes and these malefactors will, shortly, be punished for their wrongdoing.  Supporters of austerity generally think that they will be spared the effects of cutting government because they believe that their livelihoods are somehow entirely independent of government expenditure.  This is a very common delusion on the Right in the United States, especially in regions where, in fact, the government has massively subsidized the economy for decades if not centuries.  In the largely “red” states where Republicans dominate and from which the Tea Party gets its base, there are either one of two factors present:  either these states were part of the Confederacy and some people in them still see US federal law as a quasi-foreign imposition or, in other cases, these states are heavily dependent upon farm subsidies, federal water works and the military for their historical growth and/or current economic well-being.  A common view among supporters of the Tea Party is that any government program that they take part in is not related to government but essentially their own private property (“Keep Government Out of My Medicare”).  They see themselves as worthy and having earned these rewards while others, they think, have not earned them.  Some are so poorly informed or so prone to self-serving delusion, that they actually think that Medicare is not a government program.

In the first instance here there is then the notion of the government being “the Other Guy”, as foreign and an imposition on the economy and on people more generally.  Government is not viewed as part and parcel of society for a number of reasons, including what is taught in academia about the nature of our society and economy.  Neoclassical and “Austrian” economics are both culpable in providing a policy rationalization for undercutting the funding and quality of government services to the public and the economy.  The “government-less” model of the economy, a quasi-anarchic view of how markets work, has its roots in the anti-mercantilist tradition in economics based on the work of Adam Smith.  Smith saw government as inevitably a corrupting (though necessary) institution in what later, after Smith, became formalized as a model where markets operate without there being anything like a state that supplies infrastructure and among other things, a currency.  Economic models that do not include the institution of government as integral to the functioning of the economy, and more often than not blame it for most economic ills have enabled the institution of government to be scapegoated for all that ails the economy by opportunistic political actors, academics prone to ideological polemic, and consequently the public at large.


Racism, Anti-Racism, and Austerity

In the United States, the racialist and racist overtones of this distrust of government and attribution to government of all that is negative cannot be overlooked and form the core of attitudes and political base that support austerity.  The current anti-government campaign has been fueled by opposition by sectors of the white population to the 1964 Civil Rights Act, Affirmative Action, the Great Society anti-poverty programs and their echoes within the political debate concerning an activist government.  The government activism of the 1960’s, in addition to long overdue campaigns to combat racism, was differentially supposed to help the disadvantaged and seemed to designed to have as primary beneficiaries the non-white population located both in the American South but also throughout the informally segregated North and West (Nixon’s “Southern Strategy” was built on these resentments).

In America’s history of slavery and white racism, it is unfortunate that government support for racial equality coincided in time with questionably- designed social programs that led many middle and working class whites to feel that the government was necessarily “playing favorites” against them.  Hyman Minsky’s critique of the “War on Poverty” still stands as a prescient view on how universal rather than targeted government programs are both more effective in reducing poverty and, as well, tend not to brand government as part of the problem.  The moral imperative to counter-balance the wrong of slavery and post-slavery racism became mixed in with the idea that government did not “care” about the white population.  Minsky’s and those who work in the Minskyian tradition’s views that it would have been far more politically astute to combat poverty via a universal WPA style jobs program would seem to have protected the instrument of government from the charge that it would be serving differentially one racial group over another.

I do not have any illusions that even if Pres. Johnson’s programs were better designed that there would not have been white resentment and a backlash against both government and the movement for racial equality.  However their faulty design has added energy to New Right attitudes about government’s fallibility and to delusional Tea Party-style libertarianism.  Though nominally race-blind, libertarianism, neoliberalism and market fundamentalism with their aversion to “social engineering” by government all gained energy by absorbing racist sentiment, with the assumption being that the US federal government would only be helpful to or would favor non-whites.   These anti-government ideologies then became oblique, socially-acceptable means of expressing racism.

President Obama’s perverse embrace of austerity and hints of anti-government rhetoric in a time when we now require more government spending might very well be seen as a personal reaction and statement of identity against the charge that he, being black or bi-racial, is somehow particularly motivated beyond the dictates of his Presidential office to stand up for the federal government, to defy the stereotypes that he anticipated would be and are thrown at him.  Unfortunately there is a good deal of idiocy and racial hatred on the Right that is distorting Obama’s actual ideological orientation and administrative record as “socialistic” because of the color of his skin.  Instead he should be viewed as a moderate conservative who happens to black or African-American.  Somehow, in the now all-too-common racist thinking, his ethnicity is thought to be dictating the content of his conscience.

While some might think this is too much to ask of Obama, to put aside personal history, defiance of individual stereotypes and image for the greater good, I believe this personal and political challenge shouldn’t preclude him from reckoning with the reality that government spending is now a very important support for the economy as a whole.  In other words, if he takes ethics seriously, he shouldn’t use his personal-political struggle as an occasion to fashion the “Grand Bargain” to cut universal benefits programs like Social Security and Medicare for everyone, black and white.

If it would make a difference to Obama at all to think in these terms, he may actually be letting stereotypes of blacks in America dictate his policy as much or more by attempting to do the “opposite” of what is “expected” by racists of him.  When one lives in defiance of a stereotype one is still controlled by that stereotype.  It would be far better if he would be guided by the economic data and realistic economic models of how real mixed economies, rather than imaginary market economies, operate.

Print Friendly, PDF & Email
This entry was posted in Guest Post on by .

About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. Jo

    MMTrash seems to be everywhere at the mom.

    It seems like they’re almost panicking that the debt spigot will be turned off.

          1. jake chase

            Well, you have figured out how to keep intelligence out of your comments. The rest should be easy.

  2. Jane Doe

    Is there a category for agnostic? As in, I just don’t know what will happen with any of these policies because they are increasingly complex and emergent qualities of the economic ecological environment we are creating my not be something we can control in exactly the manner that we think? So, the Hawks, Doves or Owls may be wrong since its hard to observe this like one would in a real science? I just don’t know which one except for the very specific factual circumstances like now where deflation seems to be a real concern.

    1. Jack Lohman

      Jane, on this or any other issue, follow the money. I cannot believe the number of people that are so easily diverted.

      Most R’s and D’s are diverted when it comes to politics. The only people that understand how congress works are the 1% that fund our elections. While the voters are diverted to the “little fires,” the Fat Cats are bribing the politicians who make the rules. And the politicians share in the loot.

      So now they’ve entered the mode of “starve the beast.” Give away all of the nation’s assets (via tax breaks, defense spending, subsidies, et al), and then claim “We are broke. We have to cut entitlements and schools and fireman to survive.” But they won’t touch the cash machine that funds them.

      And the little people go into panic mode trying to save their “little fire.” But this country cannot survive its political corruption, and while the 1% can join their money on some foreign island, the 99% will be stuck here.

      These politicians should be jailed, yet we re-elect them. But get used to it, or throw out all incumbents in November.

    1. jake chase

      Here is what you are missing. Over 90% of the population has no wealth. That 90% is able to live only by “economic activity”, and that economic activiy means having a “job”, and those “jobs” depend on decisions by (1) those who have income, (2) those who have wealth or access to wealth through borrowing, (3) those who control government. To hamstring (3) by subordinating it to (2) (ie., requiring government to borrow) is a voluntary choice no different than permitting banks to create purchasing power by “lending”.

      Freeing government from the need to borrow is a political choice. Lincoln made that choice when he issued Greenbacks to finance the North in the Civil War. The bankers were not pleased, which is probably the reason Lincoln was shot although nobody has ever proved it. That Garfield was also anti-bank and also assassinated sixteen years later is also considered a coincidence by those who write history. Similarly, that Theodore Roosevelt, a protege of JP Morgan, assumed the presidency after McKinley was shot is also viewed as another coincidence, as is Roosevelt’s third party assault against Taft in 1912, which threw the election to Wilson, another Morgan protegy, who promptly delivered the Federal Reserve Act, cementing bank control of the economy for the next 98 years. Moderate that.

      1. Nathanael

        Your correlations are junk, Jake; one key point is that McKinley, if you actually look at it, was an absolutely slavish servant of the banksters, while Teddy R. was much less so.

        For Lincoln’s assassination, we know exactly why it was done (the guy wrote all about it) and it was the pro-slavery faction.

        Moving onward, in Wilson’s time people actually understood the fight — the two factions were the “Greenbackers” (succeeded by Populists, Progressives, etc.) and what was actually referred to in the newspapers of the time as the “Money Trust”.

        The Federal Reserve was a very blatant concession to the Money Trust. At the same time, Wilson implemented one of the policies the Money Trust hated most: high personal income tax rates on the rich.

        The political history is far more complicated than you make it sound; sometimes the Money Trust won, sometimes it lost,

        However, your main point has a fundamental truth in it. There is a Money Trust, a tiny group of men with power and influence approximately equal to the size of the whole rest of the population, which has been fighting continuously for hundreds of years to rewrite the laws for their own benefit. Sometimes they lose, but they never stop fighting to gain back the power they lost to the People.

        1. Nathanael

          Incidentally, the Money Trust has more power now than any time since the 1920s. So, um. See the results.

  3. Garrett Pace

    This post should be interpreted as a cry for help. Too much of what’s going on with our monetary policy is escaping me. It doesn’t add up, either what you are saying here or what the austerians are saying either. For me the bottom line question is what will move necessary resources to the people that need them, regardless of their ability to arrogate purchasing power to themselves.

    Infinite money printing is redistributive, but it takes purchasing power from savers and gives it to those with the right connections. Seems like as much of a shell game as austerity tough love.

    I also note with interest the idea that any thought of paying back government debt is viewed as austerian madness. Shall there ever be a time where we say, “okay, let’s pay back our debt.” Doubtful, no? If actual payment is ever made, it will presumably be with money created for just that purpose. If that’s the case, why are we still doing this? Why incur an obligation in the first place, aren’t we just keeping up the fiction that we are gaining purchasing power from China or somebody at the cost of more “debt” so we can keep the Chimerica system going for one more cycle? Or that xxx hundred billions of new dollars “injected” into the economy has any actual effect on aggregate wealth? Is anything about this sustainable? Or have any point at all? How could a dollar possibly have any value at this point?

    And someone explain this statement for me:

    “the government has massively subsidized the economy for decades if not centuries.”

    Okay, so maybe gov’t can subsidize one part of the economy via another part, but how can the ENTIRE economy be subsidized by anyone, unless the government is somehow external to the economy? Am I getting hung up on terminology? Growth has to come from somewhere, and creating money doesn’t count. Releasing a bunch of borrowed funds or new money into the economy may take purchasing power from those who aren’t willing to spend and give it to those who are, but that’s not the same thing as creating wealth. Money isn’t wealth.

    One other thing:

    “the net effect in dollar terms of reducing the spending of government, in the context of the current Lesser Depression is to stall and eventually shrink the economy.”

    Why is this? I mean, I get that it can happen, and has happened in other nations, but what exactly is making it happen? The economy has exactly as many sweaters, horses and potato chips as before, and the same set of people who need those things. What keeps prices from finding a new equilibrium, without gov’t “spending”?

    Anyway, I’m barely making sense to myself here. Seems like we should be in a monster deflationary period for lots of different asset types but gov’t spending has resulted in moderate inflation instead since 2008. This I find disquieting in the extreme, and I suspect it’s the root of a lot of our problems.

    1. Garrett Pace

      See, this is where it goes off the rails for me.

      “[money is] a signifier, a measure of something else, real and changing economic value, generated by a dynamic economy.”

      Well, the value only changes in one direction, right, except maybe in relation to other equally ephemeral currencies.

      And here’s what I ponder. Money certainly has no instrinsic value. However, if a great many of the users of a currency think it DOES, but posts like this disabuse them of that notion, what happens to the “value” of that currency, as any sort of instrument of transaction?

      Isn’t that why people save money, because they think it is a store of value? How eager should we be to burst their bubbles? Or is the goal of MMT no more savers?

      1. John M

        “And here’s what I ponder. Money certainly has no instrinsic value. However, if a great many of the users of a currency think it DOES, but posts like this disabuse them of that notion, what happens to the “value” of that currency, as any sort of instrument of transaction?

        “Isn’t that why people save money, because they think it is a store of value? How eager should we be to burst their bubbles? Or is the goal of MMT no more savers?”

        Okay, money is accepted as having value — therefore it has value. This is one basis for money having value, and it’s quite possible for MMTers and anti-fiat-money types to destroy that illusion and destroy the value.

        However, another thing that gives fiat money value is taxation. Mosler does give various examples of coupons or something similar being required for something. Then coupons are printed out, and they have a certain value.

        Parents give out coupons for doing chores. Family members are told in no uncertain terms that they must turn in 20 coupons every month if they are to stay in the family. That gives the otherwise-potentially-worthless coupons value.

        A college requires 20 hours of public service per semester, for the student to get his grades or continue. The record of public service is in the form of coupons distributed. The coupons become a form of currency.

        Likewise, taxes. If you are required to give some number of dollars to the government, you have to get your hands on those dollars some way or other. The dollars have value.

      1. Garrett Pace

        That’s the right question. My own definition is not mainstream: wealth is the things that the earth generates, that are needed to sustain and promote life.

        By that measure, maybe 90% of what our economy produces is definitely not wealth, and is just a tedious and expensive sideshow.

        In a larger sense, wealth is anything that has a use other than trading. Sweaters, horses and potato chips all qualify. CDOs and currencies do not. Gold mostly does not, even though it is of course used for jewelry and computing – if those were what it was valued for, I doubt it would have such a value as it has.

        1. Garrett Pace

          (and obviously, “wealth” can increase as value is added by turning wool into sweaters and potatoes into chips, etc.) Thus by the sweat of his brow man eats his bread all the days of his life.

    2. Hugh

      Money can be confusing. It’s why I prefer a resources approach. Money is just a medium giving access to resources: people, material, goods. Spending, taxation, and regulation are simply means to distribute resources. Spending and taxation don’t have to equal each other because any discrepancy between the two just constitutes a different pattern of distribution. In the best of circumstances, resources are distributed to build and maintain a society that most of us would like to have. Currently, the distribution is weighted to favor a tiny handful.

      It is a holdover and a subsidy to the wealthy and some nations that we continue to finance deficits via debt. Because it redirects resources away from the many, it is maldistributive. But it does raise the issue of interest payments in the private banking sector. These too tend to end up in the hands of the rich. These can be redistributed to serve public purposes in various ways, but the simplest is to tax the hell out of those that go to rich. And this is true for other non-productive concentrations, such as capital gains.

      Hope this helps.

      1. skippy

        This is – exactly – where I stand. Is it possible to make such adjustments in the currant ideological tidal wave of neoliberalism, IDK.

        Skippy… what we do know is the physical effects of the last 40ish years and there won’t be another 40ish years at this trajectory. The species reduction and extinction is terrifyingly epic. But, as long as bud light is cheap and the MD will fill scripts for fun pills, whats the worry if you have a yob.

      2. Bert_S

        I don’t really think it helps our understanding to add another level of abstraction. Are you worried you won’t sound like an economist? Don’t worry. Most people won’t hold that against you.

        I edited a version here.

        Money can be confusing. [but people still want to steal it]

        It’s why I prefer a resources approach. [but they are still priced in money]

        Money is just a medium giving access to resources: people, material, goods. [Yes, you can buy these things!]

        Spending, taxation, and regulation are simply means to distribute resources. [Simple? Seems some powerful group always wants the resources – priced in money – and property rights/rule of law/contracts/regulations to work for them and not necessarily for the masses]

        Spending and taxation don’t have to equal each other because any discrepancy between the two just constitutes a different pattern of distribution. [The USG borrowed money from someone. Could be me, a bank, life insurance company, bond mutual fund, pension fund, social security, foreign private investors, foreign central banks, foreign sovereign wealth funds, and now the federal reserve. Then they spend it on what someone thinks is cool, or the dreaded rule of law things like “entitlements”.]

        In the best of circumstances, resources are distributed to build and maintain a society that most of us would like to have. [oops. what if we did think taxes pay for these things and the majority got want they want and oil companies pay for the military and the banks can pay for the rest of Washington DC (the whole budget I mean – not just campaign financing)

        Currently, the distribution is weighted to favor a tiny handful. [crap. how’d that happen]

        It is a holdover and a subsidy[store of wealth] to the wealthy[I want some] and some [all that count] nations that we continue to finance deficits via debt.[but why not retire off it?]

        Because it redirects resources away from the many[but wait, the USG borrowed to spend – was that not good?], it is mal distributive.[mal investment, or the government didn’t charge enough tax for the government service we liked]

        But it does raise the issue of interest payments in the private banking sector. These too tend to end up in the hands of the rich. [ I still get my .25%]

        These can be redistributed to serve public purposes in various ways, but the simplest is to tax the hell out of those that go to rich. [Now we’re talk’n]

        And this is true for other non-productive concentrations, such as capital gains. [Let’s nuance this a bit. Since it is so hard for most of use to end up with adequate savings/investments in life, and we paid income tax once already{I’m talking ex-401k here] before investing in something, maybe exclude some level of gains from any taxation for normal people, but tax the hell out of large gains.

        And while we’re at it tax the hell out of inheritances before the country is run by Earls, Dukes and Barons.

    3. optimader


      …Infinite money printing is redistributive, but it takes purchasing power from savers and gives it to those with the right connections…

      infinite money “printing” and distribution are not neccesarily mutually occuring phenom..

      Currency can be created and given to banks interest free, like life support to a brain dead corpse, but if these banks retain the currency as reserve allowing them to extend the fiction that the book assets have value, the amount “printed” but not “distributed” but is merely a device to maintain the illusion bank financial integrity. If on teh other hand, the banks were loaning the “Free” money, then look out below.
      Ultimately what the Treasury clicketh into existence it can also clicketh away.

      1. Cynthia

        Let’s face it, this latest round of infinite money printing is designed to take bad mortgages off the balance sheet of the banks and put them on the U.S. taxpayer. The mortgages will not be sold ever, but held to maturity. All the while earning “interest,” which Bernanke says, reduces the deficit! What a joke. They won’t be able to reduce the balance sheet and are basically setting us up for that by telling us now that they are going to remain accommodating long past the time the economy recovers.

    4. Cynthia

      All I know is Ben is stealing my interest income and giving it to his bankster buddies, and he is transferring toxic MBS from insolvent banks to the taxpayer by debasing the currency.

    5. fromthefuture

      It’s confusing because it is all, 100% sophistry. It’s all complete and utter horsepuckey. The tip off should have been the ridiculous avian euphemisms necessary to even discuss the spaghetti-mess of what is laughably called by Very Serious People, “Economics”.

      You use and work for Federal Reserve Notes because if you or your business partners tried to use anything else as a medium of exchange, you would be kidnapped, and if you did not want to be kidnapped, you would be shot.

      You pay your “taxes” because if you did not, you would be kidnapped, and if you did not want to be kidnapped, you would be shot.

      Taxation is theft.
      The state is only possible due to violence.
      When you point guns at people and tell you what to do, predictive power evaporates.
      To hide the violence, euphemisms are necessary. Some of my favorites:

      “Quantative Easing” (printing money)
      “Internal Revenue Service” (collection arm of the protection racket)
      “Public Money/Land” (state money/land)
      “Taxes” (theft)
      “Hawk/Dove/Owl” (honestly you’ve lost me at this point)

      True philosophy starts by eliminating euphemisms. Any time you see a euphemism, start asking questions.

  4. Min

    My sociology prof liked to say that when you control for class, race drops out. I. e., despite racism, it was more that poor people tend to be minorities than that minorities tend to be poor. With resistance to affirmative action in the US, I thought that affirmative action policies based upon poverty would have much the same effect without generating as much political opposition. However, in the wake of the financial crisis, I have come to believe that prejudice against the poor is greater in the US than prejudice against minorities.

  5. Hugh

    No mind virus, no naïveté, just straightforward criminality by our elites.

    I too am not interested in psychologizing them. It is all bad faith. Bad faith is the discrepancy between what they think they know and what they should know, that is the knowledge they pretend to have and in exchange for which they have received the privileges, wealth, and positions of elitedom.

    It is a standard tactic of class war to set various segments of the 99% against each other. The point raised by Minsky is a good one. We will know we have an authentique mass movement when large numbers of working class and middle class white males sign on to it. This will only happen when a movement starts talking to them and taking their concerns seriously.

    For the rest, the analysis of Obama is lame. He is just another elitist servant of the kleptocratic rich. Any semblance of existential angst is purely for the benefit of the rubes.

    1. mafer

      Great comment. I’m not sure if ineffective communication is the cause of the reactionary ideology that is so common among the middle/working classes of the white population. Back in 2008, I would have predicted that the left would get another bite at the apple and would see at least some level of organizational and ideological reinvigoration.

      I have to admit that the results of the last five years have been quite disappointing. Given the objective conditions and given the number of left organizations, at least some should be experiencing growth, i.e. several new members a week. However, I don’t see evidence of this.

    1. JGordon

      Yes, that is the real cause of all this austerity going around. But unfortunately economists and finance professionals generally attend various indoctrination seminars during their college years that teach them to disregard actual reality. It’s why we hear economist talk about absurd things like “output gaps”; if there is a conflict between their models and reality, then by God there must be something wrong with reality. And that is where the gap is.

      Here is a quote from an actual economist that will show the normal people here, i.e, those of us who have not been brainwashed by extensive ideological indoctrination in economics classes, just how utterly bizarre and disconnected from reality the strange belief systems of economists and finance professionals can be:

      “There are no… limits to the carrying capacity of the earth that are likely to bind any time in the foreseeable future. There isn’t a risk of an apocalypse due to global warming or anything else. The idea that we should put limits on growth because of some natural limit, is a profound error and one that, were it ever to prove influential, would have staggering social costs.”

      And that is why for the most part an economist entertaining the idea of peak oil is similar to a religious zealot entertaining the idea that there is no God.

      1. David

        Well, ah isn’t he right? Or at least, wasn’t he arguably right in the state of play in 1991?

        It’s a statement totally devoid of “money illusion”, to the extent it almost has the flavor of Marxist economics. And there’s a lot of truth to that, and as far as I know it doesn’t imply that the insanity of the second half of the Communist Manifesto is to be believed or implemented.

  6. TreetopsTrading

    I still don’t think that right now is the right time to be worrying about government spending. It doesn’t make sense for countries to make economic recovery more difficult.

  7. JGordon

    To get into the currency-issuer exposition in the post above, printing currency only works so long as someone is willing to take it. For example, recently Zimbabwe did a very fine job of printing large quantities of currency to fund all of its debt spending that never, ever had to be repaid, ever–and certainly in Zimbabwe-dollars the GDP of Zimbabwe went through the roof thanks to that. However, that did not necessarily increase the quality of life of the average Zimbabwean.

    Sadly at some mathematical point the death-spiral occurs where yields on bonds causes the issuance of additional debt to be a self-defeating exercise, and shortly thereafter the currency collapse occurs. So yes, technically, and I mean very, very technically, a sovereign currency issuer can print all the money it wants to in order to cure an economic depression. But then in the same sense one can cure a cold by swallowing cyanide.

    1. Garrett Pace

      That’s what gets me about this every time. We know we’re doing okay because the bond vigilantes are leaving us alone. As soon as they don’t we can stop.

      As much $$$ as has been unleashed on the economy could only NOT result in hyperinflation if it was just counteracting huge deflationary effects. I mean, right? Add a trillion dollars or whatever to the economy and what is supposed to happen? And it didn’t? Can I keep pouring more water into a swimming pool forever without it overflowing?

      1. Hugh

        Governments can create value in their currency by forcing people to pay their taxes in it. Inflation can be curbed either through taxation or increasing reserves banks must hold.

        Trillions can be held in the private sector if their velocity is zero.

        1. Garrett Pace

          “Trillions can be held in the private sector if their velocity is zero.”

          Right, but then those trillions might as well not exist for all the good they do. And then the gov’t decides to create another trillion and release it in a way they hope will increase velocity, to increase the kinetic energy of the money in the economy.

          And with every trillion that gets sent out, we increase the POTENTIAL energy of money in the economy that much more. We’re filling the reservoir with water so it will what, overtop the dam but not by too much?

          What happens when we get conditions that unleash all those quiet trillions?

          1. Bert_S

            In reality, tho they don’t get used for any useful purpose, banks still have to make money so they are used for speculation in the markets. Also if interest rates are low banks will leverage up more to make a total return.

            Then it pushes everyone into higher risk investments, and all assets are overpriced relative to a normal interest rate environment.

            Then whenever the Fed has to reverse policy, the market will see 5 trillion or whatever of bonds on the fed balance sheet that the fed will have to sell these, and that point dump whatever they got and head for the hills. Then we probably get an interest rate spike that blows up the banking system, derivatives, and puts the economy into a depression.

            Then we turn the lights out, and thank Cap’n Ben for the Great Moderation.

          2. Nathanael

            See, at the moment private citizens have huge debts.

            You can “print trillions”, give it to those people, and they just go to pay off the debts. So, it just restores a more “natural” level of demand. The people don’t have any more money to deploy (it went to pay off debt).

            The problem comes with the *holders* of the debt, which is a small group of rich bankers, basically. (At a first approximation, all the income from a bank goes to its executives.) Those people have Too Much Money and they *could* generate hyperinflation by flooding the economy with it.

            However, the correct way to deal with this is to tax the money away (99% tax rates for billionaires). It’s easy to do.

          3. Nathanael

            I think we are in agreement. I meant “easy to implement given sufficient political power”, not “easy to achieve sufficient political power to implement”.

            Though honestly I think it’s not going to be hard to get sufficient political power to implement it. The majority of people are sick and tired of the current corrupt system. Any clever, charismatic warlord could come in, take over the government, confiscate the money from the current elites, and have people cheering him and signing up for his army.

            The fact that our broken system of institutions makes it very hard to have peaceful democratic change, and makes the warlord-overthrowing-the-government scenario likely… well, that’s another matter. I connect it to people not having been taught about the implications of different election systems and different institutional structures.

          4. Nathanael

            To be clear, I don’t advocate having a warlord overthrow the government; it just seems like the most likely outcome, from studying history. It would be popular.

      2. David

        Right, good observation. This requests an understanding that goes beyond the simple discussion of “money illusion” in the article and into actual markets and trading, and central banking practice. Where is the money going?

        Well, the money the Fed “prints” has gone to buy government securities directly, which are then held by the Fed. QE3 is targeted at mortgages, both residential and increasingly commercial. Bad assets are bailed out, demand for government securities is boosted which keeps down long-term interest rates, and it’s partially paid for by selling short term securities (“Operation Twist”) but I would think not entirely, because short-term rates have stayed low too. And indeed the Fed supports an overnight rate of 0% – 0.25% (Fed funds) via Open Market operations.

        In broad summary, the Fed is delivering cash to the government and the agencies (Fannie, Freddie, maybe others?) who lent to the real estate market. It’s all about stability. Banks seem to receive some of it, but in turn they are required to increase their capital, so they need basically a pile of cash now to do business. (The far more elegant solution, Glass-Steagall, is apparently no longer allowed.)

        Since the Fed is keeping down domestic interest rates, the money flows out overseas, and this is probably a policy choice too, because it supports the reserve currency status of the USD in its fight with the euro. If they’re continuing to do business overseas with bags of $100 bills, we’re still in the saddle as the reserve currency.

        But even if the bank chooses to retain excess cash (more cash than needed for reserves or capital) in the USA, it can avoid market risk by depositing that money at the Fed, which will pay it interest! Given the difficult economy, this is more attractive to banks, as Dodd-Frank continues to laugh at attempts to restart the economy. Frankly (pun?) imho it was never intended to restart. I don’t think much of ex-Sen. Christopher Dodd (resigned because his job selling out the country was accomplished) and Rep. Barney Frank; I’m from NY so Connecticut and NY are close to me, and those guys are just scum.

      3. PetGoneBad

        16 Trillion $ of wealth got sucked out of the economy during the 2007-09 crisis. That money has to be replaced or else you will have deflation-which causes unemployment. Deficit spending is the only way to replace the money that was lost. This is why printing a few trillion did not cause massive inflation.

    2. Walter Wit Man

      Ya, but . . .

      The Zimbabwe example doesn’t apply to the proposed solution above because Zimbabwe didn’t pay down the debts with the money it printed:


      It still owes foreigners in currency it doesn’t control. Right?

      Plus, did Zimbabwe even pay off all the bonds it had in its own currency? It may have printed the currency but did it retire the bonds it held in its own currency? From your description is sounds like it didn’t but simply defaulted on these bonds later? While it still owed outside creditors in outside currencies?

      The U.S. wouldn’t have the same problems. Obama could have printed $16 Trillion in platinum coins and paid off the debt and the U.S. wouldn’t then owe the IMF, right?

      1. Bert_S

        This gets easier to understand if you pretend that you are smart.

        The IMF is smart and won’t make a loan to a county they are bailing out to be paid back in that country’s local currency.

        Many foreign investors are smart, once they realize they are being duped by a printing press, and won’t make or roll over loans if they are getting paid money units that 1 million of which will by 1 banana if the banana is purchased in that country.

        Local lenders and citizens are easily wiped out tho. So it’s good for sumthin’.

        1. Walter Wit Man

          So, since the U.S. doesn’t owe money to the IMF or World Bank or other creditors in Zimbabwian currency, their situation doesn’t totally apply to the U.S.

          I was waiting for a smart person to confirm this. Thanks Bert.

    3. Cynthia

      The ability to print money out of thin air and earn interest on it has to be the biggest scam of all time. Even the Mob gave you some protection for the money they took. The marriage between the government and the Fed has put the stake right through the heart of the middle class. Through taxes or inflation they will get their pound of flesh.

      1. Nathanael

        Banks printed money out of thin air and earned interest on it before the government did; look up the “Free Banking Period” of the US.

  8. Walter Wit Man

    I like the aviary analogies.

    My only issue with the Owls (whose team I would choose to be on if the various birds were Survivor teams), is this:

    Sure, it’s great to be agnostic about deficits but the kind of government spending sure can be good or bad.

    I mean, if the choice is between the federal government spending $5 Trillion on only war or spending nothing on anything, I would choose nothing.

    Of course if we locked in the status quo spending and went to a MMT system this would be an improvement. But the equally important issue is HOW the federal government is used to prop up the economy.

    I don’t see either one of these two main issues (how the government creates chits and how the gov. spends its chits) being resolved favorably in the near future.

    We’re screwed folks.

  9. J Sterling

    “a collective desire in our elites to inflict suffering on others”

    I think even that’s over-psychologizing. They don’t have a desire to inflict suffering, but the suffering results in cheaper labor, and they have a desire for that.

    1. Bob Haugen

      What J Sterling said.


      Do not get too bemused by the economists and politicians.

      Consider that the effective decision makers want austerity not because they are stupid, but because it is good for them. If the economy gets worse, they will make hay in the short term, and they assume that the bust will come to an end in the longer term, and they will be sitting pretty: wages will be lower, and they will have bought assets on the cheap and consolidated their positions.

      Needless to say, they could be wrong about the longer term…

      1. Nathanael

        “they could be wrong in the longer term…”

        This is what has been driving me nuts. They are creating the conditions for a French or Russian style revolution — guaranteeing that they will be wrong in the longer term.


        1. jonboinAR

          Didn’t it take several hundred years of feudal oppression before the peasants finally revolted? I imagine the overlords count on such a timescale applying. And don’t the peasant’s revolts tend to happen at a time when their previously ground-down lot has been improving for awhile, then there’s a serious dip? You don’t want to give the peasants that taste of prosperity in the first place. I’ll bet our budding overlord class, having some pretty good historians on their payroll, are keeping this in mind as well.

  10. JLCG

    Language is a means of relating thoughts but its use modifies thoughts.
    Money is the means of relating values but itself also modifies those values.
    Language changes inexorably and money likewise.
    The change in language is a modification of meaning, in money it is a modification of relation.
    I am more or less rich in relation to someone else.
    No body is rich or poor in himself.
    My language has meaning only if it is understood by someone else.

  11. The Gizmo51

    What is really behind the republinos promise of a 20% across the board federal tax cut? Well, if your taxes go down by 20% and your deductions go down by a net 20% what have you gained? So your take home pay increases but your expenses also increase, a wash. What it does do, depending upon the type and amount of deductions eliminated, is decrease government revenue up to 20%. So the government will have 20% less money to spend, you say that’s good because the government spends and wastes too much money now. But just as if you took a 20% pay cut it would be the same for the government. The government would have to cut programs and the republinos are already talking about cutting medicare, social security, education, public services by laying off public employees, unemployment benefits, welfare, and food stamps. Many thousands of people would be financially hurt and hurt badly. And what would happen if a national catastrophe occurred such as an earthquake, flood, or tornado? Where would the money for help come from? Now for the winners: by privatizing as many government agencies as possible the new owners would gain plenty financially while the average citizen would be forced to pay more for the same services. Would you prefer to have your social security contributions go to wall street or the government? Winners: The 1% Losers: The 99%. For more information Google “Starve the Beast.”

  12. Thingumbob

    The problem here is the false belief system is monetarism. The belief that there is any inherent value in money is a delusion. There is a physical economy that sustains a population. There has been a looting of that economy for several decades. The various speculative bubbles (derivatives being the most egregious) have been a device to implement this looting by a financial oligarchy. What is required is a return to Glass Steagall, coupled with the rebuilding of the physical economy, without that all money manipulation is irrelevant.

  13. Susan the other

    Inflation, money-devaluing inflation, is the key to why we maintain our irrational system. Usually caused by too much money chasing too few goods. The best tool the government has to control having flooded the world with dollars – and now the world is unwilling to accept the dollar for some things, like oil – is to create unemployment high enough to offset rising prices domestically. So unless we change our monetary system we are in for the long haul. And internationally? Well, we have to go to war and appropriate all the oil in the Middle East. But if we had a monetary policy based on MMT none of this domestic patchwork would be necessary. No one would be required to suffer poverty for the sake of the rich who want high asset value. No austerity program would accomplish anything whatsoever. Except useless poverty. An oil embargo could make life hard, but it would be good incentive to create new jobs in energy, transportation, food production, etc. We are idiots.

    1. Susan the other

      I just have to add one thing. Better our fascists than theirs. For the time being, if we control oil nobody else can get enough of it to run a military industrial complex to compete with ours. I see that leaves my argument in a state of paranoia. I guess world peace becomes predominant. That and dedication to a clean environment.

  14. bluntobj

    ” Deficit owls openly state that the size of the public debt doesn’t dictate policy and view government deficits instead as a support for the growth of private sector wealth, i.e. private sector surpluses. Ultimately the “deficit owl” position is the only position among the deficit “aviary” that accounts for macroeconomic sectoral balances and the need for monetary economies to be to a greater or lesser degree “stoked” by government spending to achieve economic growth, full employment, and other elements of the public purpose.”

    I’m a little curious about this particular point of view. If you are talking of soverign currency issuance (printing) as “support for the growth of private sector wealth,” are you implying that 1.) the growth rate in private wealth must be greater than the loss of purchasing power due to price inflation in those sectors that the government spends money on, and 2.) that the proper focus of spending should be in certain targeted industries that will generate such growth?

    Because that is pretty much the mechanism by which the elites have looted the county. Any sector in which the government spends money has seen massive price inflation, and it’s distributed to those who have influence in where it goes, i.e. the 1%. You can pick your sector; healthcare, education, defense, energy, municipal debt, retirement, housing, etc.

    My fundamental question is: What are you counting on? The 1%? The FIRE econcomy? The return of the housing bubble? The magnamity of the public sector? The charity of defense contractors? The sacrifice of the holders of municipal debt and those whose only income is in the form of capital gains and exempt interest?

    I really don’t know what you, Mr. Hoexter, are expecting here to help the 99%, but history demonstrates that currency issuance without any form of physical limit is decidedly not good for the common person.

    Oh, and the nice thing about physical limits is that the question is primarily about limiting behavior. A quick review of the changes in the US in the last century alone should demonstrate the impossibility of self-restraint on the part of politicians, and on the electorate that put them there.

    1. Michael Hoexter

      There is a difference between “currency issuance” and spending. Your response is mixing up the two. Government spending means transfer of wealth to the private sector, either to the households of government workers, to private firms that supply the government, to recipients of government grants to do something that we hope has greater rather than lesser social benefit. These in turn spend the money within the private sector.

      You are also assuming that this is always and automatically inflationary. It CAN cause inflation but not necessarily. In the area of healthcare, government spending has tended to stabilize or reduce prices, especially if viewed on a comparative international perspective.

      If the federal government decided that it was within the public purpose to spend $1-$2 trillion dollars over a period of years to build a high speed rail network, this might bid up the cost of concrete and steel. The question would remain how to maintain the cost of concrete and steel at a level where others could afford to use these inputs. On the other hand, incentives would need to be maintained for steel companies to invest in facilities here in the US to produce that steel, so the price would need to reflect those costs and risks involved.

      1. bluntobj

        Mr. Hoexter,

        Thanks for your reply. I have a few more questions based on your response.

        First, since you indicate that there is a difference between currency issuance and spending, can you clarify the medium by which government spending is transmitted to the private sector? To put the question in the proper context tax revenues are well short of expenditures.

        Second, your point about deficit spending is well taken. True, it does not neccesarily cause inflation. Historically, what has occured? In context, what historically happens when a government outspends its tax revenue by 30%+ each year? This is naturally not counting any stimulative programs such as the infrastructure projects you mention in your last example.

        However, if government medical spending has a reductive effect on the price of medical care, why then is there the issue of massive increases in the cash price of medical care and the cost of insurance premiums for healthcare? Why was the basis for the Affordable Care Act written into its very name? After trillions of dollars of medicare and medicaid spending to date, is it your contention that this spending has reduced costs or cost increases in medical care?

        Third, the infrastructure example introduced an interesting point:

        ” The question would remain how to maintain the cost of concrete and steel at a level where others could afford to use these inputs.”

        Are you stating that price controls must be an integral part governmental deficit spending?


        ” On the other hand, incentives would need to be maintained for steel companies to invest in facilities here in the US to produce that steel”

        Tax incentives, tariffs, or “buy local” type efforts? Perhaps buying steel at very-above-market rates?

        In any example, it means channeling dollars to multinational corporations, the FIRE economy, and to politically important groups. How does this benefit the 99% again? It sounds very much like a version of “trickle-down” economics. I had thought that in this age that idea had been debunked.

        Again, how is any of this different that the looting we’ve experienced over the last couple of decades? (or more?)

  15. Jim

    The Progressive community on this blog may be making a strategic mistake in seeing the limited MMT conceptual framework on how our monetary system operates as being a significant part of a way out of our present financial/economic/political/cultural crisis.

    My alternative hypothesis is that the historically evolved concentration and now collusion of the bureaucratic power of the modern surveillance State and modern Big Capital has done significant damage, over the past 150 years, to our cultural value system.

    Do our modern concentrations of bureaucratic power in both the public and private sector end up supporting a culture which demands less and permits more?

    Does MMT risk putting itself on the wrong side of actual cultural decay by seemingly advocating a type of reckless management in which the potential interest rate cost of debt is largely ignored because operationally, solvency can never be an issue for a Big fiat State?

    Is a key role of our modern public and private concentrations of power(including the Federal Reserve and Treasury) to foster impulse release(i.e. for example, the well-known historical democratization of desire, consumption and credit under Big Capital and Big Bank and the gradual social production of distance under Big State–which allows for the substitution of technical for moral responsibility—think drone strikes)?

    Can there really be a general renewal of our society under the continued, business as usual model of concentrated and centralized public and private power or is the breakdown of this structure of power first necessary before there is a rebuilding?

  16. David

    I’ll comment on the racism material at the end, I believe I am the first.

    The author is right that under austerity, certain oxen get gored more than others, and within the realm of shared sacrifice, whites may prefer it if blacks take more of the pain, and vice versa. This is not racism in my universe but only self interest.

    And then he get to preaching how bad the people are who promote austerity, because they would roll back the things done in the 1960’s and 70’s, because of course those things were good. He even goes so far as to say that if the help to black people had been a jobs program that helped everyone who needed a job, rather than affirmative action to tilt the playing field, the reaction from the conservative whites would have been the same.

    And here I’m fairly confident that he is completely, 100% wrong. Wrong enough for me to dismiss this whole racism section as being wrongheaded.

  17. JB

    You have set up a straw man when you talk about ,limitless spending. There are objectives,such as reducing unemploment toadesired level where spending is curtailed. Of course if public administration is totally inept and corupt you have very little to look forward to,you are at the mercy of the market’s ethics.

    1. bluntobj

      Thank you, JB.

      I disagree with the straw man caracterization. Please see Japan as an example. Paul Krugman has criticised them for not spending enough, even though their total debt dwarfs their GDP (double, i think?). Krugman’s argument is that if they had only spent more at once they would have gotten themselves out of their depression. Each successive spending program has been larger than the last, and yet they are still deflating.

      I am correct about limitless spending. $700b in TARP not enough? Let’s go $1 trillion in deficit spending, per year. Not enough? Lets buy $1.2 trillion in mortgage bonds over the next couple of years and have negative interest rates to boot. Not enough? What’s next?

      You talk about “There are objectives,such as reducing unemploment toadesired level where spending is curtailed.”

      Oh? We got near full employment during a housing bubble of epic proportions in which fraud and malinvestment played prime driving roles. Manufacturing was heavily outsourced, and now the manufacturing that comes back is heavily machine driven with minimal human input. Please tell me just how those jobs will come back. Oh, and curtailed spending? This with political parties that scream murder and death when you merely mention a cut in the rate of increase?

      So, my statement of limitless spending is not a straw man, but a historical fact. Stating that government will exercise restraint and “cut back deficit spending” is the real fairy tale.

  18. Thisson

    Sorry, Lambert, but allow me to critique this:

    “The recognition of the lack of affordability constraints on monetarily sovereign governments is not an invitation to spend with abandon but simply a fact of life and, like it or not, a source of governmental power.”

    Governments are, indeed, constrained in their spending. You have identified two sources of their funding without naming the third. Government can tax money, can borrow money, or can print money. Printed money does come at a cost (the Cantillon Effect, which some call the “inflation tax”): the spending power of the government’s newly printed money comes at the cost of reducing the spending power of the money already circulating in the economy. At some point, if government does not check its printing, social unrest follows as people with stagnant or declining real incomes protest against rising prices for the necessities they must buy.

    The result is a variant of Bastiat’s broken window fallacy. Government spending, however it’s funded, does not grow the economy, because the money government spends would have been spent by the private sector anyway. So the only difference is in the allocation of the funds, and I think we can all agree that the private sector allocates funds with less waste than the government does.

    In conclusion, the “fiscal cliff” will have no net impact on total GDP. GDP will remain the same whether government increases spending, or lets the private sector spend the money. The only way that total GDP grows is as a result of savings leading to investment leading to increased production.

    1. Don Levit

      You seem to make a lot of sense.
      Personally, I have a problem with our country’s spending not being constrained by taxes, or debt, or the ability to print money.
      I am curious if the author is suggesting a fourth way that governments can put more money into circulation.
      To me, I cannot logically adhere to this theory of a money creation power that is not constrained by some external index or entity.
      The idea that so few people have so much power in the creation of money is a power that, frankly, I do not think humans have the ability to rationally understand and implement. Especially when you get a small group, such as that of the Federal Reserve, there is an increased tendency to abuse the power, simply due to the lack of acountability of any one person.
      This infinite ability to do anything, is really so scary to me from a human perspective that only God Himself should have the ability, not to create money, but to create something out of nothing.
      Many people think I am unreasonable for believing in God.
      If I told them, “Now I believe in 2 Gods,” people may think I am bordering on insanity.
      To think that any act, no matter how large or small, does not have a positive and negative impact is foolish.
      To think thusly of such a powerful ability to create money out of thin air is foolish and dangerous.
      Don Levit

    2. Aquifer

      “Government spending, however it’s funded, does not grow the economy, because the money government spends would have been spent by the private sector anyway.”

      “Would have been …” if what – problem is it hasn’t been…

      “So the only difference is in the allocation of the funds, and I think we can all agree that the private sector allocates funds with less waste than the government does.”

      Markets allocate, they don’t distribute – so when markets allocate, or divert, funds to private purposes at the expense of public ones methinks the idea that this is a “more efficient” allocation, if true, is truly unfortunate. Efficiency in the pursuit of nefarious purpose is no virtue.

      But as a general rule of thumb – the idea that private agents are more efficient than public ones is merely an ideological assertion, IMO …

    3. Christophe

      It is a tad presumptuous and willfully ignorant for you to write, “I think we can all agree that the private sector allocates funds with less waste than the government does.” You think wrong — as does anyone who imagines that all of humanity agrees with him.

      Did you sleep through the recent financial crisis, where the private sector leveraged endless derivatives off of unpayable dreck of its own creation? The private sector has consciously and intentionally mis-allocated more wealth than any government ever dreamed of doing. Please question your dualistic talking points before committing them to print.

  19. Punkyclown

    This is a fabulous article, how hard is it to see that the elite of this country are only concerned with hanging on to their wealth and they want the rest of us to pay for it. You don’t have to have a degree in economics to feel how hard we are all still being hit by the great recession. And how our politicians are planning our further demise as a society to protect it. Austerity doesn’t mean cutting the defense budget and creating universal medicare for all, which would cut our medical cost in half. It means the slow dismantling of Medicare, the abolishment of Medicade, the handing over of Social Security to Wall St. The fact that people would need to argue over such a clear eyed view of reality is sad and troubling.

  20. fgbouman

    It seems to me that most commenters (not all) are more interested in pushing their own point of view rather than taking what the author has to offer and running with it to see where it goes.
    Hoexter seems to have two important points that he wishes to make:
    a. The failure of economic theory to deal properly with the issues of inflation, deficit spending and debt.
    b. The role of wrong assumptions in perpetuating this failure.
    While neither a or be are fully fleshed out and may, indeed, be wrong, they should be looked at seriously.
    Milton Friedman is often quoted as saying that “Inflation always and everywhere a monetary problem…” which is used as a jumping off point for an unproven corrolary: “Excess money supply always and everywhere creates an inflation problem.”
    Weimar Republic hyperinflation teaches us enough to see that that isn’t necessarily the case. Throughout the crisis the bank was never in the situation of being ahead of the hyperinflation and was, in fact, rapidly expanding the money it was issuing to catch up with the needs of the economy. Hyperinflation is always kicked off by exogenous forces, in this case there were several, not the least of which were the punitive reparations demanded by France which sucked money and materials out of the German economy. This and insufficient currency to handle day-to-day transactions caused the government to permit non-banks to start issuing currency which the central bank would redeem and take out of circulation as fast as it could. So in the case of thw Weimar Republic the condensed version of the causes was a shortage of goods brought about by the war and its aftermath which led to inflation expectations all around which drove up prices further which caused the bank to issue more and more currency which then pumped up inflation expectations. In other words, in the Weimar republic, hyperinflation was really first a goods shortage and then an inflation expectation meme that infected the society. Later when Hitler was building the Nazi war machine on the cuff is when one should have expected hyperinflation to occur according to today’s deficit hawks and doves, but it didn’t.
    Hyperinflation did not occur because there is a disconnect between revenue and expense in currency-issuing countries; Japan’s malaise today isn’t because of its national debt, it is because it still props up zombie banks.
    So, since there is this disconnect between revenues and expenses, why do we have insist on the importance of getting to a balanced budget in spite of all the troubles that it will cause? Hoexter thinks that it arises from two related causes: first, we don’t think that it will cause us significant problems personally and second, we think that it will cause problems for “the other”. In our rapidly changing society, centuries-old racial stereotypes and possibly instinctual dislikes for “the other” leads him to discuss a bit of the racial animosity in the U.S. (which, in fact, exists in every country I’ve ever been to, and I’ve been to a lot)
    I’m not certain that the blame portion of his thesis is necessary to his argument although it is interesting. On the other hand, I like his idea that those who are most intestered in the balanced budget don’t, on a gut level, expect that the personal cost to them will be significant. This, combined with a Puritan dislke of perceived waste should be sufficient for most deficit hawks and quasi-doves. The schadenfrued from watching the underclass get what they deserve is simply icing on the cake.
    The thesis that there need be no relationship between revenue and expense for currency-issuing countries is tremendously important for, if true, may lead us to an entirely new way of generating and maintaining prosperity by managing expectations, not money.

    1. bluntobj


      Too much here. I will point out this though:

      “Hyperinflation did not occur because there is a disconnect between revenue and expense in currency-issuing countries; Japan’s malaise today isn’t because of its national debt, it is because it still props up zombie banks.”

      Er, Japan is deflating, not hyperinflating? And that the run-up in their national debt has done nothing to cure their malaise? With significant future consequences for their malinvestment?

      “So, since there is this disconnect between revenues and expenses, why do we have insist on the importance of getting to a balanced budget in spite of all the troubles that it will cause?”

      For myself, I really don’t need to run with the argument to see where it goes, as I think history has done a good job pointing out what happens when expenditures significantly exceed revenues.

      Oh, and I think you may need to research your history more on Weimar. Perhaps Zimbabwae would be a better current example. However, Japan is a much better model for what is happening in the US.

      1. Walter Wit Man

        re Zimbabwe . . .

        Maybe Zimbabwe is similar to the Weimar Republic.

        See the forced starvation of the German people, the “unheard-of injustice of Versailles,” the bullying by outside creditors/nations, the foreign control of the central bank and/or government, and the propaganda used to hide all of the above.

        Who knows what the truth is about Zimbabwe. If you have a source that considers the similarities (or refutes them) I would love to see it.

    2. Walter Wit Man

      Do you have any references or links re the history of the Weimar Republic and Germany under the National Socialists?

      Your version sounds right to me, especially the Weimar Republic period. The English (with American help) were starving and killing the German population with its blockade during and after WWI.* Seems American bankers may have withdrawn credit to German corporations and there were many outside forces responsible for Germany’s central bank.

      Interesting to compare the printing of money by the Weimar era central bank compared to the printing and spending the National Socialists did. How did the Weimar Central bank introduce this currency? Did it spend it by giving to the people or introduce it some other way (e.g. paying reparations to foreign creditors using printed money)? How was the spending different during the National Socialist period? The central bank was different, no? Didn’t the National Socialists develop their own Marks? Didn’t they give print and spend the money on average people of Germany?

      I would love to see a presentation of the competing histories from this period as well . . . Bernanke and other big players seem to have been very interested in this history so now I suspect they are entirely wrong and blowing smoke up our asses.

      *Britain’s post-war naval blockade of food to Germany in 1919 matched the then current blockade of news by the American and British press. Even today, only a few non-Germans know the truth, and American and British historians, for the most part, have participated in the coverup of this most appalling crime.

    1. JTFaraday

      Well, the “Owls” seem to have named themselves, so I imagine people can take that with a grain of salt and rename them as they see fit.

      Today, it seems that “Ostriches” has been suggested as a fitting alternative.

  21. Chauncey Gardiner

    Thank you for an insightful post. Assuming these pols are able to pass “Austerity” measures early in 2013 under the veneer of legitimacy they have engineered through the “no real choice”/”black box voting” November election, I agree that it is likely that Money will be destroyed and that the economy will shrink, as the author suggests and has occurred in Southern Europe.

    Very much looking forward to Part Two.

    Btw, if I hear “We’re all in this together” again, when it’s patently evident that is untrue, I think I’ll become physically ill.

Comments are closed.