Joe Firestone: The “New Populists” Need To Understand This One Thing

Lambert here: I started hearing about “the new populists” recently, and I wondered who’s popularizing that meme, so I asked Joe Firestone; turns out it’s Robert Borosage of Campaign for America’s Future. If the “new populists” want to be anything more than 2008- and 2012-style Democratic bait and switch scammers, here’s what “new populists” need to know about trade deficits, government deficits, and private savings.

By Joe Firestone, Ph.D., Managing Director, CEO of the Knowledge Management Consortium International (KMCI), and Director of KMCI’s CKIM Certificate program. He taught political science as the graduate and undergraduate level and blogs regularly at Corrente, Firedoglake and Daily Kos as letsgetitdone. Cross posted from Corrente.

Let’s look again at the new populism through the lens provided by Robert Borosage in his recent attempt to tell us what it is about. He says:

The apostles of the new inequality have unrelenting sought to starve the public sector. President Reagan opened the offensive against domestic investments. Perhaps the hinge moment was in the final years of the Clinton administration when the budget went into surplus, and Clinton, the finest public educator of his time, pushed for paying down the national debt rather than making the case for public investment. He left the field open for George W. Bush to give the projected surpluses away in tax cuts skewed to the top end.

The hinge moment wasn’t then. It was when he decided, either early in his first term, or even before he took office, to rely on deficit reduction coupled with low interest rates from Alan Greenspan, on the advice of Robert Rubin and Larry Summers, rather than on deficit spending on human capital investments as advocated by Robert Eisner and Robert Reich. Rubin’s victory in the internal debates within the Administration was well-known at the time (1993), and set the deficit reduction course that played along with the Fed’s bubbles to create the private sector debt-fueled “goldilocks” prosperity, and surpluses of his second term. By the time Clinton faced the choice Borosage refers to, the die had already been cast. It was very unlikely that Clinton would turn away from further Government austerity policy, and turn instead toward investments in infrastructure, public facilities and “human capital.”

But this is a side point, the real focus of this passage is the notion that the Clinton surpluses were good because they created an opportunity for public investment by using those surpluses. The trouble with this, is that it is a point purely about politics and communications which neglects the economic fact that the surpluses of the Clinton’s term, as well as his deficit reduction policies, were bad for the US because they reduced or eliminated private sector surpluses causing a growth in private sector debt in Clinton’s “goldilocks” economy.

Eventually, the years of Government surpluses and private sector debts caused the recession of 2000 – 2002, and arguably was a contributing factor in George Bush’s Supreme Court – manipulated election, while at the same time, the years of surplus provided Bush the justification he needed for pushing through his extremely low fiscal multiplier tax cuts, which have contributed so greatly to increasing inequality since then.

What Borosage and the new populism both have to get straight is that when a nation runs a trade deficit: say 3% of GDP, and also manages the Government deficit aggressively to achieve a 3% of GDP Government surplus, the private sector must then compensate by decreasing its savings by 6% of GDP. That kind of result is bad for the private sector even when it is flush with savings. But when households have depleted savings as they have post-crash 2008, and given the great ability of large businesses to direct flows of savings to the private sector to themselves (and then to hoard those savings) rather than to small businesses or to households, then Government surpluses are particularly damaging to the economy.

In that kind of situation, the private sector may be able to avoid recession by continuing to consume at previous or greater levels by increasing private sector debts. But this way of going is unsustainable as we found out in 2000 – 2002, and in the onset of the Great Recession. Sooner or later, the private sector will pull back from making loan funds available to businesses and people who have been going more and more deeply into debt. And when that happens a recession or depression will follow.
In short, if a nation wants to run a trade deficit, and also wants to have private sector savings, then having a government surplus is not good news for people. It is bad news for them, because it means that the private sector as a whole, and disproportionately households, are losing net financial assets over the period in which the surplus is run.

The new populism, Robert Borosage, and the whole Washington, DC progressive establishment needs to learn the above lesson, once and for all, simply because it is a simple and inescapable fact of life. And it means that this new movement should never, never, celebrate surpluses in the presence of trade deficits, or praise politicians who achieve such surpluses, because, in doing so, they are celebrating the impoverishment of the private sector at the hands of the Government, and this is the height of stupidity. It would greatly help the new populism and the DC progressive establishment, also, if it took the trouble to learn a simple macroeconomic equation, which is an accounting identity, and which will help them gain clarity of thinking when it comes to fiscal policy, trade policy, and their inter-relationship. That equation is:

The Government Sector Balance + The Private Sector Balance + The Foreign Sector Balance = 0; where the balances refer to transaction flows in an accounting period.

The Government Sector Balance is positive when the Government taxes more dollars than it spends. That’s what we’ve been calling “a surplus.” The private sector is positive when it saves more dollars than it spends, and the foreign sector is positive when it saves more dollars than it spends. This last, please note, is equivalent to what I’ve been calling a “trade deficit.”

So now, let’s say people want to save 6% of GDP per year, and they also want to run a trade deficit of 4% of GDP per year. Then a policy of deficit reduction that aims at a deficit of 3% obviously won’t accommodate these private sector desires, since 6% + 4% requires a government deficit of 10% for support.
We have no good models that can tell us how matters will adjust if a Government aggressively attempts to force that 3% deficit down people’s throats instead of letting the deficit float, as it ought to do. But it’s likely that the trade deficit won’t fall below 2% of GDP, given the US track record of trade deficits for many years past, and that implies that we would have only 1% of GDP in private sector savings, which would probably be monopolized almost entirely by the FIRE sector and some other very powerful industries. Households would come out strongly negative in such scenarios, preparing the way for another crash the longer such fiscal policies are continued.

The scary part of all this is that neither the new populists, nor any of the DC-based public and private groups that have developed budgetary projections for fiscal policies they advocate, think in terms that take account of this accounting identity. As a result, all of them have specified a 10 year plan focused on imposing deficits that would reach 3% or less if their plans are implemented. All of them, including the budget plan of the Congressional Progressive Caucus (CPC), are austerity budgets that, unwittingly in some cases, and perhaps deliberately in others, build in, but do not project, recessions during the 10 year period each covers. That is why it is so important that the new populism, and the DC establishment gets the lesson of the Sector Financial Balances (SFB) model straight. The last thing the greatly shaken American public needs now is another recession within “the Long Depression.”

Also, look at what Borosage says next in his post:

The result is a public squalor that undermines the health of both Americans and the economy. From falling bridges to exploding sewer pipes, slow broadband and an outmoded electric grid, aging schools and shabby public parks, our core infrastructure desperately needs rebuilding. And we aren’t making the investments vital to our future – in the basics of education from preschool to affordable college, in public research and development, in a full-bore commitment to capture the lead in the green industrial revolution that will sweep the world.

Now, that’s absolutely right, and it doesn’t even mention the enhancements to the social safety net, and achievement of full employment, we need to provide a decent level of living to our work force and vulnerable populations. But there’s no way all this real wealth can be provided any time in the near future on a “pay-go” basis, with the Government destroying as much in private sector net financial assets as it creates through its spending. “Pay-go” may be necessary for a currency user; but for a currency issuer it won’t work. To do the things the new populism wants to do, we must have deficit spending along with the contributions of net financial assets to the private sector it produces.

The new populism must embrace this reality. And assuming savings and import desires are at the level I specified in my earlier example, the implication of a policy that would let the deficit float to accommodate those desires, is that we’d be budgeting roughly $1.2 Trillion in annual deficit spending beyond what’s specified (about $0.5 Trillion) in the various budgets we see in Washington right now, and that number would be growing along with GDP over a period of 10 years. Deficit spending appropriations on that scale, year in and year out will be able to support the program of the new populists, while the CPC’s and similar budgets will not.

So, the new populists need to embrace this last reality too, and then they will need to consider the nexus of issues surrounding public finance of Government deficit spending programs. Specifically, will they use current debt issuance methods of creating the reserves needed to deficit spend in the Treasury’s spending accounts, or will they support public financing reforms such as placing the Fed under Treasury in the Executive Branch, or using Platinum Coin Seigniorage (PCS), to bridge the gap between tax revenue and spending? That issue and its relation to a fiscal policy supporting public purpose, along with extensive consideration of issues surrounding PCS, is covered in detail in my e-book, which, I suggest, all good new populists ought to read, if they really want to answer the question: “How you gonna pay for it?”

(Cross-posted from New Economic Perspectives.)

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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. ChrisCairns

    Nevva happen, not while governments continue with the mantra that we must balance our budgets, and you know that thinking and public support to the financial sector will continue until it breaks.

    Obama’s presidency will pass, but your and my hope for someone who can take on the oligarchs is likely to be as forlorn as the poverty which is being created by current policies.

    Happy Australia Day to all NC readers and contributors

      1. ChrisCairns

        well all here on NC know there is an alternative. But, like the medical profession and big pharma with the ACA, our rich aren’t going to go with anything which is going to reduce their share of the pie. Democracy at work…

      2. Massinissa

        Just because there is an alternative, doesnt mean the alternative is actually going to happen.

        I read Cairns not as saying that there is no alternative, but that the alternatives simply will not happen. So this isnt the same as TINA technically, I believe.

        1. diptherio

          No, I think it is technically the same as TINA. If there’s no way that any alternative will actually be instantiated, then what’s the use in agitating for them? It’s just a waste of time, right? Might as well spend your days playing the latest Grand Theft Auto as haranguing the PTB, actually doing something to improve our collective lot, right?

          It may well be correct that our current leaders cannot be counted upon to actually try any of the alternatives, but that doesn’t relieve us from the responsibility of trying to realize positive alternatives in spite of them, anyway.

          There is always the option to play by a different set of rules, always the option of creating an alternative to whatever extent is possible at that time. To deny this is merely cowardice and an excuse for compliance, imo.

          The real problem isn’t that the PTB are intractable, it’s that most people are cowards. Most people I know, with very few exceptions, want both a sustainable, just society, as well as a life filled with consumer goods and luxury items; they want a clean environment and also to be able to guiltlessly burn as many fossil fuels as their salaries allow them. They want a politics that serves the people but they can’t be bothered to actually get off their keasters and do anything to accomplish that goal. In short, they want to have their cake and eat it too.

          We claim to have high ideals, but if those ideals interfere at all with our current lifestyle, well then…wouldn’t want to go overboard, now would we? Our true priorities become clear as soon as the rubber hits the road.

          1. James Levy

            I think the point may not be a blanket “if you don’t want to fight the PTB, you just don’t care.” It may be where you fight, and for what, is as important as who you fight. I do not believe that the global Power Elite can be defeated at the level of the American nation-state or the international institutions that the USA controls or suborns at this time. That doesn’t mean quit educating people, which we all should, but it can mean fighting for better conditions at the state and local level and ameliorative ones at the national level. I say defend at the national level, while attacking at the local level. Our neighbors are a lot more likely to be swayed than Obama or Yellen or Dimon are. So I don’t think it’s an either/or situation. Every man and woman has to figure where their strength and effort can bear the most fruit. A million people in the streets of Washington could not bring back Glass-Steagal, but they might modify or stop the TPP. Choosing your battlefield wisely goes some way towards making any conflict winnable.

            1. susan the other

              My favorite battlefield has always been one that crosses all borders much like blogging. Boycotting. Boycotting in the name of national investment because it is too self destructive to shop and consume without a future reimbursement. Buy nothing, and write your congressperson and tell them why you are buying nothing and why you will continue to buy nothing unless and until you regain your fair share of the future of your country.

          2. ChrisCairns

            Good point Dip’

            There are alternatives and keeping abreast of what is really going on, here on NC and elsewhere, is one step we are all taking to show TPB that we know what is going on. I Know that I am not going to get any serious coverage of Fukushima or the ACA etc. by watching my television, so I come here on the net, at least while it is uncensored.

            I am also insulated here in Australia. I don’t have to buy health insurance and I don’t worry about where my kids will get a job or how they will pay for their university fees. But that doesn’t mean that I don’t care and I highlight, in two novels I have written to be published in 2014 in the USA, just some of the truths about our involvement in Iraq and Afghanistan.

            To the gist of the post:

            It would greatly help the new populism and the DC progressive establishment, also, if it took the trouble to learn a simple macroeconomic equation, which is an accounting identity, and which will help them gain clarity of thinking when it comes to fiscal policy, trade policy, and their inter-relationship. That equation is:

            The Government Sector Balance + The Private Sector Balance + The Foreign Sector Balance = 0; where the balances refer to transaction flows in an accounting period.

            Joe makes a good point, but we are absolutely focused, here in Oz too, about a sovereign government’s need to balance its budget, to live within its means. MMT proponents are at least trying to get governments to think about alternatives, but the current budget balancing focus, the need for austerity and old ways of running a country are much too powerful. It would be brave government who took an alternative step.

            So I say, nevva happen, but I will continue to do my tiny part, to agitate for change and will cheer on those much braver than I for being more vocal.

            1. Joe Firestone (LetsGetitDone)

              We’ve had some Presidents who were brave enough to make these happen in the face of cultural, institutional, and economic power. We never know beforehand when or whether we’re going to get them, but it does happen, and in our presidential system such a person can make very big difference. So let us persist in the work of growing leaders in Congress who will try to look after our interests and work with such a president when she/he does appear.

  2. salvo

    I don’t think it’s stupidity or ignorance what causes them to misintrepret these basic notion

    “The Government Sector Balance + The Private Sector Balance + The Foreign Sector Balance = 0; where the balances refer to transaction flows in an accounting period.”

    it’s self-interested hypocricy, plain and simple, what is acutally ‘new’ in this pretended revival of populism is merely the reframing of the term to account for the dominating neoliberal narrative.

    In Germany i.e. the manipulation of the public discourse in a way may be far more advanced than in the USA, at least concerning the term populism, as it has totally been stripped of its historic content and consists nowadays only of a superficial unhistorical negative meaning, used to represent whoever interfers in the technocratic discourse of unaccountable elites as ignorant and demagogic: it’s just an insult, naming someone populist is as bad as calling him antisemitic. That’s why anyone on the so-called moderate (domesticated) left (social democrats and green) supports the so-called Schuldenbremse (brake on public debt) just as the formal political right, so with the exception of the not quite domesticated left (Linke) everyone has agreed on giving that principle constitutional rank : and that’s because it’s the ideological framing any politician (and journalist) has to internalise (a balanced budget or even running surpluses for the sake of our children) otherwise putting one’s own career at risk.
    You probably won’t find anything more reactionary than nowadays germany, the country instituonalizing the ritual remembrance of the Holocaust while destroying millions of people’s basis of existence

    1. j gibbs

      All this talk about sector balances is just nonsense. What matters is wealth distribution, income distribution and private debt. And what really matters is whether human needs are being met by what is produced. Why not talk about what matters?

        1. Lambert Strether Post author

          If you like threadjacking. This hardy perennial argument never ceases to amaze.

          The reviewer who downgrades the book about plumbing because, really, architecture is what matters.

      1. Joe Firestone (LetsGetitDone)

        This is just labeling. Sector balances tell us that austerity won’t work to produce full employment. That’s enormously relevant for inequality because it means better distribution of rewards from production and also higher wages. If you don’t take account of sector balances on the other hand you can easily find yourself with budgets that purport to support equality; but will really just cause another crash and exacerbate inequality.

  3. Hugh

    An important tactic in class war is the control of language either by appropriating terms or turning them into bogeymen. Populism has been subject to both. Some of our elites sell it as synonymous with “lawless mobs.” Borosage seems more like an appropriator, doing to “populist” much the same thing that has been done with “progressive”, all of which is to say I think he is a Democratic bait and switcher.

    1. Massinissa

      Whether its used to compliment or insult someone, Populist becomes meaningless pretty fast. Didnt Newt Gingrich try to frame himself as an anti-establishment populist for awhile? As if a former speaker of the house could possibly be anti-establishment…

    2. Banger

      I think Firestone was fairly clear what he meant by “populists.” He means the various Washington “progressive” players who are trying to leverage the “inequality” discourse introduced into the media recently.

      As for bait and switch Democrats, I don’t think there can be anything else considering the realities of political reality. We have to face the fact that, as long as the current domination of politics by money is a fact, then TINA is the reality–we now depend on the kindness of a significant segment of the rich to nurture the nation or not. The population, on the whole, is far too easy to manipulate (in large part due to cultural divisions) to be a force for anything other than maintaining the status-quo.

        1. Banger

          Thanks Mike, I enjoyed the article–it was a little long and skimmed some of the end of it and the writing is very uneven but the insights on Obama are great and pretty much go along with everything else I’ve heard. This is not a powerful man, just a reasonable man trying to balance things and doing the best he can under the circumstances. We have to understand that this guy is not in charge–he’s an administrator who has little leeway. The power lies with the permanent government and the oligarchs. The job of the President is to balance all the powerful forces that surround him and try to keep things from falling apart. In that way he hasn’t done so badly but “change we can believe in” and all that stuff was marketing and never possible.

        2. cnchal

          No matter how much shinola the author David Remnick slathers on, the bald truth shines through in this paragraph.

          One of the enduring mysteries of the Obama years is that so many members of the hyper-deluxe economy—corporate C.E.O.s and Wall Street bankers—have abandoned him. The Dow is more than twice what it was when Obama took office, in 2009; corporate profits are higher than they have been since the end of the Second World War; the financial crisis of 2008-09 vaporized more than nine trillion dollars in real-estate value, and no major purveyor of bogus mortgages or dodgy derivatives went to jail. Obama bruised some feelings once or twice with remarks about “fat-cat bankers” and “reckless behavior and unchecked excess,” but, in general, he dares not offend. In 2011, at an annual dinner he holds at the White House with American historians, he asked the group to help him find a language in which he could address the problem of growing inequality without being accused of class warfare.

          The President of the United States, bought, used up and then thrown away.
          A commodity.

  4. middle seaman

    Yet another article in an endless sequence that pins the blame on everything on Bill Clinton. This one trick pony ages fast and seems almost a century old. Reich, the guy who supported Wall Street’s president Obama, was for public investment. Me too. Reich, sadly, never impressed me with originality or analytic power. No surprise, Summers vs Reich will always go to Summers who intellectually giants over many.

    We all were quite scared of the huge deficit in the past. Only after the start of the great recession it became clear that there are worse problems than the deficit. The tiny stimulation proposed by the anti-Clinton, Obama, made it clear that more than 10 million unemployed people are a human disaster. At that point, the deficit became secondary.

    Inequality has really picked up steam under Obama. Any hope for a win in the inequality battle lies in facing the problem rather than finding someone to blame. Sadly, the initial signs seem gloomy.

    1. Lambert Strether Post author

      It’s not clear whether by “article” you mean Borosage’s or Firestone’s, but leaving aside the false claim of “everything,” do you have factual issues with what either author wrote?

      1. Massinissa

        It may be presumptuous to answer for Seaman, but im still pretty sure the answer is ‘No’. Although the reply will likely take several paragraphs to say that.

    2. Massinissa

      I like how your comment starts off talking about Clinton, but the body of it doesnt address Clinton at all?

      Further, Obama as Anti-Clinton? What the hell has Obama done that is radically (anti-clinton should mean 180 degrees right? Shouldnt an anti-clinton be some kind of socialist or anarchist?) different from Bill? If anything Clintons administration was the blueprint for Obamas.

      Oh yeah, and Im also sort of confused how you blame Obama, and then say that we should face the problem instead of finding someone to blame… Uh, what? Im sort of confused by your entire post.

    3. Banger

      I don’t think the fact Summers wins over Reich has anything to do with the power of his intellect. Summers is exceedingly clever but his intellect, to the extent, that we can measure it based on the Western intellectual tradition is rather meager.

      The fact is that Summers is smart enough to know where the power is and became a “made man” in Washington whereas Reich, for all his faults, has a sense of integrity and, at the same time, a keen awareness of realpolitik which makes others think him inadequate as a progressive.

    4. James Levy

      Please explain to me how, given his Cabinet and advisors, Obama is in any way the “anti-Clinton”. And if you read the piece, you’d notice that the author hits Reagan right off the bat.

  5. taunger

    I’m surprised that no one has taken on the central idea here:

    [T]his new movement should never, never, celebrate surpluses in the presence of trade deficits, or praise politicians who achieve such surpluses, because, in doing so, they are celebrating the impoverishment of the private sector at the hands of the Government, and this is the height of stupidity.

    Really, it is stupid to bring private industry back to heel before a democratic government? Not that we have a democratic gov’t, but I would say taking capital away from finance and fortune 500 to invest in infrastructure and create block grant programs for localities to gain ownership of vital infrastructure would be an excellent thing. Methinks that whatever Firestone understands about balance of accounts, he lack in understanding populism.

    1. diptherio

      The private sector includes households as well as businesses, which is why impoverishing it is a bad thing, in this particular model. And investments in infrastructure would tend to increase gov’t deficits, not decrease them, so moving the gov’t towards surplus would not tend to “bring private industry to heel” through gov’t spending, but quite the opposite.

      I think that the basic sectoral balances model is even more useful if the private sector is further divided into business, household, and financial sectors.

    2. LifelongLib

      ‘Private sector’ includes you and me, not just the wealthy. But I agree that the distribution of money within the private sector matters too. Some advocates of MMT think they can avoid this issue by focusing on deficit spending alone.

  6. TarheelDem

    If it’s got offices in Washington DC, is recruiting staff, and has big-name members on its board, it’s not “populist”. Progressive astro-turf is as objectionable as any other form of astro-turf. And the word “New” is the tell for “co-opted”, like “New Labor”, “New Democrats”, and so on. (Even neo-conservatives were retreaded, co-opted Marxists in the beginning).

    1. flora

      Good points. I notice these new ( neo ?) populists are talking here about the budget and deficits instead of about regulating predatory financial companies and monopolies, and their answer to deficits is austerity instead of more progressive tax rates — sure signs these guys aren’t populists.
      “Co-opted” is right.

    2. Montanamaven

      Spot on TarheelDem. They have been campaigning for America’s future for a very very long time but don’t really have any intention of fixing anything. They will just continue to have conferences and go to parties and hobnob. When I decided to try to understand the Democratic Party by becoming very involved, I went to the annual “Take Back America” convention in 2004. I returned in 2005. Same people, same panels, same schmoozing with D.C. oriented people and Congress critters. They would throw in somebody cool like Gar Aperovitz to try to fool me into thinking they were real leftists, but I caught on. It’s just meant to give one the “warm fuzzies”, as the Archdruid would say, for being part of a tribe. It’s all kayfabe. It’s all marketing aka propaganda.
      Somebody, the latest George Lakoff, came up with this attempt to rebrand progressive reformers/tweakers as “new populists” and to grab the term before anybody else does. I’m sure the less cynical of them actually believe in this idea of a benevolent capitalist state, but I sure don’t anymore.
      And the populists of the late 19th century didn’t buy it either. When Mary Elizabeth Lease, the great People’s Party speaker, said in a speech that “no law has ever been passed that helped the common man”, a heckler said, “What about the Homestead Act?” She replied, “The people got the law and the railroads got the land.”

      1. Jody Knauss

        While DC-ness on balance is not great, what I think is more relevant in making them “New Populists” is that they specifically don’t have anything to do with “old” populists or popular movements, like Socialists or even old organized labor (i.e. private sector), or with any of the kind of rabble (i.e. real people) that would constitute and support “populism.” In fact, the notion that people like Borosage are populist at all is, as noted, laughable. They are only interested in appropriating a populist moment … not for any particular public purpose because they (think they) can. (If not them, who?)

        But I still really don’t get this post, at least I don’t get the framing. Real people don’t think: “So now let’s say the people want to save 6% of GDP per year …” so I don’t get the value of that approach. Isn’t the more straightforward approach (gov’t jobs guarantee, real pensions and health care for all, taxing anti-social financial corporate behavior to pay for it, etc.) more preferable, both in terms of not playing the game on the opponents’ terrain and for generating the popular support needed to actually take on a powerful opponent?

        On the other hand, if the conclusion is that our estimates of necessary public spending are too low by an order of magnitude, then maybe the framing is useful. It just needs to start from a generally comprehensible starting point. For this populist anyway.

        1. Joe Firestone (LetsGetitDone)

          Well, the point of reasoning from the sectoral balances is to show that we have all the policy space we need to do the things you’d like to do without running into inflation problems. Meanwhile, my e-book supports the idea that there’s no solvency constraint either.

  7. allcoppedout

    I’ve long given up. I used to do a stunt at the beginning of strategy classes, tossing the standard Johnson & Scholes into the bin. What use could textbooks be when the competition had access to them? In another aspect of the real world, idle colleagues would set a case study from the book, refusing to photocopy it ‘due to copyright’. Many students could not afford the book (£50) or organise themselves in groups to buy it. Think of arriving in a job doing propriety trading in a bank. You have 20 pages of notes on the techniques and maths culled from half-a-dozen of my lectures. The last line reads ‘forget all this and find out what insider trading and front-running are, and what your boss wants to hear – like you did in producing that essay on MMT thinking I was a believer’.

    We are all being baited. No one is teaching how to have a good life other than as a bait swallower. This ain’t it either. Why would we talk of deficits without the massive one created by inheritance and corruption that forms economic rent we can’t write off? Still interesting Lambert, but it feels like teaching chemistry as though phlogiston theory is true.

  8. Jess

    I’m one of those civilians (non-economist/non-financial sector folks) who reads NC for insight but don’t always understand things when people start talking about econ theories and formulas. However, the thing that I can understand is why, if we taxed businesses and the rich at a fair formula (something approaching the Eisenhower or Kennedy rates), we couldn’t have both government investment in infrastructure, education, social programs and, at the same time, reduce government deficits?

    Maybe the answer is, I’m just dumb.

      1. James Levy

        Sir you are not dumb at all. The short answer I guess is that Depression, war, and fear of commies and socialists forced the rich and the corporations when they were down and out to swallow taxes and programs that generally helped the middle and working classes and for a few decades closed the gap between rich and poor. But the rich and powerful counterattacked in the 70s and 80s, captured both political parties, the Law and Business Schools, and most of the media, and won the day. Therefore, what you are proposing makes perfect sense but can neither be discussed nor debated in “serious” company. It has been taken off the agenda.

        1. allcoppedout

          I agree. I’m not sure we need a return to 50’s tax levels (which reached almost 100% in the UK and 92% in the US), but what we have now may be as dumb as the foreign venture and tulip bubbles. We seem, as the article suggests, to have lost sight of what productive investment is and have swallowed laughable Laffer means to achieve it as our infrastructure and capacity crumbles.

    1. Ben Johannson

      The point is that reducing the deficit, whether by taxation or spending cuts, reduces the ability of individuals, households, and firms to save money. The government’s deficit is the non-government’s surplus. We should be encouraging people to save for the future by making a larger, better distributed surplus available to them, not making it more difficult with deficit reduction.

      There’s a good argument for taxing the rich to promote equality, but not for reducing debt that really doesn’t exist anyway.

      1. Klassy

        (partially) rolling back the Bush tax cuts was the stupidest thing to bargain for especially since it was in the context of reducing the deficit.

      2. Jess

        You speak of the relationship between public deficits and private savings. Again allowing for me not understanding, but it seems to me that with fair taxation which allows other policies that even the playing field and redistribute income more equally, then even the lower edges of the middle class should be able to have a decent life and accumulate some savings. (Phrased differently, isn’t the reason the rich fight so ruthlessly for low taxes because they don’t want to fund the kind of government programs that benefit the poor and middle class?)

        I was born during the Truman administration and my Dad died early in Nixon’s second term so the family’s prime earning years were during the tax rates of that era. Mom was a school teacher and later a secretary. My father was a blue collar union construction worker who never finished high school. Yet they managed to pay off a modest home in a good neighborhood, drive reliable cars, take the occasional modest vacation, and cover college costs (mostly room & board, as tuition was low then). And even though dad had passed away, Mom still had enough left in their savings to loan me the down for my house.

        Again, not an economist or a financial whiz but seems to me that a whole lot of folks would be happy as a pig in shit if the economic conditions of today were similar.

        1. James Levy

          A whole lot of people would do better and be happier but not the ones with the money. The average fortune 500 CEO in 1950 made 20 times what your dad made. By 1980 that number was 42 times. That number was 354 times more in 2011, and has gone up since. And their taxes are lower than they were in your dad’s day. All that money has put enormous power into the hands of those CEOs, the heads of banks and brokerage houses, and the whole class of people who serve them and service their needs. To go back to the times of our fathers (my dad was born in 1922 and died last June) would force the redistribution of that money back into the hands of the many and out of the hands of the few. And they are not going to stand idly by and let that happen. And the mass of people either don’t know that this is the truth or treat it, as they’ve been trained to treat all economic phenomena, as “acts of God” or “natural laws” or some-such horseshit that nothing can be done about without destroying society and ushering in the end of civilization as we know it. And that is where we stand.

    2. washunate

      Spot on. One of the simplest and most effective public policies at our disposal is significantly increasing taxes on the wealthy.

      For some reason, some MMTers like Joe Firestone seem hung up on defeating such ‘austerity’ at all costs.

      1. Lambert Strether Post author

        What a stupid comment. Where is Firestone.”hung up'” as you aver? There are plenty of good reasons to soak the rich, but funding programs isn’t one of them, since taxes don’t fund spending.

        1. washunate

          Firestone has been talking about austerity for years. He explicitly talks about the problems of budget surpluses in this piece. I think Jess makes a good point.

          But I’m curious what your point is with the rest of your comment? No one in Washington believes that programs have to be funded. Everyone knows that the government just prints the money.

          Our problem is not an inability to fund programs; it is an unwillingness to fund them. Those are two completely unrelated problems.

          The point of taxing the wealthy has nothing to do with funding programs. It’s about addressing inequality, which is a much more pressing matter than whether the federal budget is in an aggregate deficit or surplus over an arbitrary period of time.

          1. Joe Firestone (LetsGetitDone)

            Well, the point of reasoning from the sectoral balances is to show that we have all the policy space we need to do the things you’d like to do without running into inflation problems. Meanwhile, my e-book supports the idea that there’s no solvency constraint either.

          2. Joe Firestone (LetsGetitDone)

            Actually, we have no way of knowing how many people in Washington believe that programs must be funded. We either have to believe that all of them are liars or that some are liars. I don’t think it’s plausible to think that all of them are liars. There has to room for stupidity and ignorance as well as perfidy.

            On austerity, I have talked about it for years, because it’s been blocking economic programs that wold improve the lives of the 99% and also create greater equality. Austerity is the way “they” keep everyone down. Wr need to end it if we wish to tackle inequalty.

            On taxing the rich, I’m always for that. Few things would make me happier than to restore the tax rates of the 1950s, without the loopholes. However, the issue of full employment and recovery is separate issue from the issue of taxing the rich to create greater equality. That is the truth. And the need for full employment and recovery is the first need of the 99%. The second is enhanced Medicare for All. Then we can worry about taxing the rich.

  9. Jim

    “If the new populists want to be anything more than 2008 and 2012 style democratic bait and switch scammers, here’s what the new populists need to know about trade deficits, government deficits and private savings.”

    Why wouldn’t the “new populists” still be democratic bait and switch scammers even with the addition of the insights of an accounting equation that basically keeps the contemporary structure of power as it is(i.e. an alignment between the networks of Big Capital, Big Government and Big Bank with even more concentrated administrative power)?

    The old American populists of the late 19th century consisted of a revolt of Southern and Western farmers who in the 1890s created an insurgent political instrument called the People’s party. This movement found a way to recruit some two million adherents to a political agenda that actually challenged (not supported) the then emerging new industrial power relations.

    That agrarian movement created a far flung base of of production and marketing cooperatives (as well as a sub-treasury plan for a new monetary system). These cooperatives eventually extended to 40 states and became known as the “cooperative commonwealth.”

    Most importantly, it was in the process of building marketing and purchasing cooperatives, in the teeth of opposition from railroads, banks and supply houses that populists became aware of how concentrated political and economic power actually worked to shape our economy, our politics and our culture.

    Without deep structural reform (in both the public and private sectors) this accounting identity would only strengthen our present increasingly antidemocratic, corrupt and neo-totalitarian apparatus of power.

    The “progressive” belief that an equation can become a substitute for the psychological impact of actual organizing achievements shows how far our contemporary politics has deteriorated into pure manipulation and administration.

    1. Hugh

      I agree. The way to counter big money is with a people’s movement, populism. To build a movement, we need to organize, organize, organize –to a purpose that we all can believe in and are willing to fight and sacrifice for.

  10. coboarts

    Wait until some Oligarchs start to feel threatened by the policies of other Oligarchs, then you’ll see some REAL grassroots, populist, people’s movements start to be funded in opposition to whatever it is we have now.

  11. financial matters

    Joe Firestone’s next post is also interesting..

    “”The new lesson is that taxing the rich and multinationals, and deficit spending to create and maintain full recovery and full employment are two separate fiscal issues that are unrelated in the short-term. We can have recovery without having that additional tax revenue and we can also get that tax revenue and still not have recovery.

    In fact, getting the additional revenues from taxing the rich, and doing nothing else to compensate for the resulting loss in aggregate demand can bring the economy down further into depression. On the other hand, getting the deficit spending on recovery and the proper full employment programs, can work to get the economy roaring and to increase tax revenue, even without any tax reform at all.

    I am not arguing against tax increases on the wealthy as a plank in the new populist agenda. Such increases can work to decrease economic inequality and to dampen asset bubbles and decrease inflation when we have some. But what tax increases cannot do is effect the capacity of our fiat sovereign government to spend what it needs to in order to meet our problems””

    I like the way he separates out the issues and then goes on to consider the social and environmental aspects of properly growing an economy.

    “”Borosage implies this by calling for “a manufacturing strategy,” and this is good. But the new populism needs writing and debate on this strategy and also needs to be careful that the strategy doesn’t preempt the need for reinventing our public commons and public spaces and for protecting our environment and the climate.””


    In this I think it’s also useful to consider what the role of the Fed as the central bank issuer of sovereign currency should be as compared to what it is…

    “”another feature differentiating the LLR (lender of last resort) from the ordinary profit-maximizing commercial banker, namely its public responsibilities. Unlike the bank, whose duties extend only to its stockholders and customers, the LLR’s responsibilities extend to the entire macroeconomy.””

    “”Our argument is that the Fed’s intervention to date has mainly served the interests of banks—especially the biggest ones. It is time to provide real help to “Main Street.”””

  12. washunate

    “It was very unlikely that Clinton would turn away from further Government austerity policy, and turn instead toward investments in infrastructure, public facilities and “human capital.””

    The Bush and Obama Administrations have done exactly what you propose – massive net deficit spending – for a dozen years now. Are you holding this up as a success?

    1. Klassy

      Huh? what does that even mean– “massive net deficit spending”? Obama?

      You aren’t suggesting that Clinton’s fiscal policies were good for the economy, are you?

      1. washunate

        Let me try two more quotes. Note the word because in the first one:

        “…the surpluses of the Clinton’s term, as well as his deficit reduction policies, were bad for the US because they reduced or eliminated private sector surpluses…”

        Firestone is claiming here that the ‘one thing’ people need to understand is that reducing private sector surpluses is bad.

        I am asking the obvious real-world question. Have the public deficit/private surplus years of the Bush and Obama Administrations been notably better? If they have, we should do more of it. If they haven’t, then the sectoral balance equation/identity doesn’t offer a solution. We need to look elsewhere, like the distribution of resources within each sector.

        Second one: “…1% of GDP in private sector savings, which would probably be monopolized almost entirely by the FIRE sector and some other very powerful industries. Households would come out strongly negative in such scenarios, preparing the way for another crash the longer such fiscal policies are continued.”

        Firestone is claiming that the sectoral balance equation is important because it shows that a government deficit reduction budget would hurt households. But even in his own theoretical model, the deficit reduction isn’t what hurts households. Rather, what hurts households is that resources go to the ‘FIRE sector and some other very powerful industries’.

        That is the task of our time. What matters is whether the “FIRE sector and some other powerful industries” will continue to run America, or if they will be replaced by a political coalition interested in promoting the public interest. Sectoral financial balances and austerity and budget deficits and so forth are irrelevant. We have a distributional crisis, not an aggregate one.

        1. Joe Firestone (LetsGetitDone)

          OK take it a step further. Cut the deficit to 1%. What happens then? Households really get hurt. But you’re still missing the point of the sectoral balances. When surpluses are run people Households increase debt and eventually this causes collapse. re-distribution of wealth can avert such a crash for awhile by restricting losses to business. But eventually those losses will move to households and then, what good is equality if it means that everyone is bankrupt. We must distribute financial wealth much more equally than we do today; but we also must maintain full employment and economic growth while healing the environment. To do that we need to pay attention to sector balances and other aspects of MMT as well.

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