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Joe Firestone: Fiscal Myths of Campaign 2016

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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 New Economic Perspectives. Jointly published with New Economic Perspectives

Most of the world, and most notably the United States, is in the grip of fiscal myths fostered by the ideology of neoliberalism. There is virtual unanimity across the major political parties in the United States in accepting the viewpoint of neoliberalism, and the fiscal myths associated with it.

This book is about these myths, the arguments showing that they are, indeed, myths, and the truths that can counter them. It is about Campaign 2016, and some of its issues, because the fiscal myths will certainly be used in the Campaign; since, for the first time in a very long time, there is a major party candidate running, who, because he advocates for a very broad agenda and for fighting inequality, will, sooner or later, find that some, and perhaps a large number, of fiscal myths are being directed at him by his opponents and their supporters, who want to persuade voters that his agenda is “fiscally irresponsible.”

The process of using fiscal myths to undermine Senator Sanders’s message has already begun with an attack by Laura Meckler of the Wall Street Journal on key elements of his program.

The attack was easily turned aside by progressive supporters, such as Gerald Friedman, who showed that the fiscal proposals being criticized as “fiscally irresponsible” were sure to net save at least $5 Trillion, rather than cost $18 Trillion over a decade, as the WSJ was claiming, because they would replace current expensive programs, and deliver huge out of pocket savings for Americans. His views were particularly effective because the WSJ had relied on his study for the data informing its critique.

Apart from Friedman’s decisive critique of Meckler’s article other notable instances of progressive pushback came quickly from James Kwak, Robert Reich, Joshua Holland, Matthew Yglesias, John T. Harvey, (who alone brought a Modern Money Theory (MMT) perspective to the debate), and John Geyman.

An important characteristic of the defenses of the Sanders agenda, with the exception of John Harvey’s, is their emphasis on the point that we can afford Bernie’s agenda because it pays for itself with increased tax revenues from various sources. These defenses are within the neoliberal framework and reinforce that framework. They pay silent homage to the fiscal myth that the Government can only get money to pay for programs by taxing or borrowing, and that this is important because the Federal Government, like a household, a State Government, and all private organizations have Government Budget Constraints (GBCs).

Attacks on other proposed fiscal policies on the Senator’s agenda in the infrastructure, climate protection and job creation areas are sure to intensify in the coming weeks and months as these policy proposals get increasing exposure and scrutiny. Critics will say that the likelihood is high that policies in these areas, will require substantial deficit spending, and increases in the national debt, and also that deficit reduction and deficit neutrality should be targeted as the first principle of responsible fiscal policy outweighing all other considerations.

But this assumption belongs to a constellation of fiscal myths that are all false. Nonetheless, as Campaign 2016 develops, faux fiscal responsibility deficit and debt memes, fueled by a chorus of think tanks where the Very Serious People (VSP) sit and talk only to one another, will take center stage in political debates. At that point, mainstream critics in the media will use these myths to whip the Sanders proposals unmercifully as the ravings of a “pie in the sky” “socialist” who knows nothing about public finance and the need for fiscal responsibility.

Rather than wait for those attacks, I decided that this book was needed to answer them now; by unmasking the myths, and offering truths to counter them. In the end, it will be point and counter-point that will supplement the Senator’s moral vision and moral appeals for certain critically important policies with new fiscal frames, memes, and truths capable of blunting the attacks, and giving people a reason to believe that those offering the old fiscal frames, memes, and myths are giving them a tired old line that has long outlived its usefulness, if it has ever had any at all since 1971.

This book analyzes and rejects numerous fiscal myths in these categories. Myths about: “Running Out of Money”; Government Debt; the “Burden of Government Debt”; the Government “Family” or “Household;”; “Spending Too Much,” Inflation, and Hyper-inflation; “Shared Sacrifice” and “Government Austerity”; “Our Economic Future”; “Money”; and “Fiscal Responsibility”; and concludes with a comparison of “Fiscal Myths and Fiscal Truths”.

During the next six months and beyond, many of us will be called upon to defend the Senator’s program by trying to banish the deficit/debt myths, memes, frames and Gods from respectable public discourse on social media. It will once again be social media vs. the mainstream media, in an effort to crack the mainstream phalanx of conventional opinion, and make its leaders, at long last, think about real issues. This book aims to make a contribution to that task and to help in the great effort to overcome the candidates of the developing oligarchy in both parties in Campaign 2016.

There will be a free promo of the e-book at Amazon tomorrow only.

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30 comments

  1. Chris Williams

    Who would have thought that blogging power, and the considerable efforts of a few non mainstream economists, would start to raise the fog?

    NC has gone where no other site has gone to explode the myths of capitalism, the ‘killing for money’ that goes on day by day.

    And now that we have overextended our borrowings to fund normal government expenditures like health, welfare and education, we have a budget problem that the people must accept. Lower services and incomes, higher taxes, selling assets. All so that we can pay investors who lent money to our governments. (It’s governments that borrow, not countries.)

    The lie that a government needs taxes so that it can spend on services is becoming mainstream. I applaud every link and will share will my own concerned friends.

    This is the shit that we need to tackle – http://www.dailytelegraph.com.au/news/nsw/australias-welfare-bill-to-top-190b-with-taxpayers-funding-240-million-payments-a-year/story-fni0cx12-1227419226438?sv=2828c74aea35a64a0353cd464494746a

    Help Joe out, Steve Keen, Bill Mitchell, Yves and many others.

    This is such an important topic and I will continue to support any efforts to get more people informed.

    1. Joe Firestone

      Thanks, Chris, for the encouragement. And you’re right, Naked Capitalism has been the leader in popularizing the platinum coin idea, creating our first breakthrough into the mainstream by running this post. So, remember how important this site is bringing new and critical ideas into the spotlight during this season of fund raising. You don’t find anything formulaic here. The ideas you find are always ones that unmask the mainstream and go beyond the stale and unpredictable.

      1. Mael Colium

        Chris mentioned Bill Mitchell, who tirelessly prepares a daily paper you can subscribe to on his blog site “Bill Mitchell – billy blog” and get a daily dose of reality and educative topics giving blog posters the tools to smack the neoliberal dogma when it raises it’s ugly head.
        I find it interesting that across the pond from the land of the free Jeremy Corbyn has drawn heat from the mainstream and vested interests who are using their media machine(s) and so called think tank commentators to demonise him for his views, similar as expressed in your article. I think Mitchell visited the UK recently to speak in support of many of Corbyn’s views.
        It’s curious that fiscal myth failure is playing itself out in the Eurozone where the evidence supporting sovereign monetary policy is being buried by the oligopoly of media interests reporting on personalities and obfuscation rather than the factual information.
        Pity Australia though, where we swapped a hard core right wing conservative PM for a smooth talking ex merchant banker who holds investments with offices in the tax haven Cayman Islands and has the gall to admonish the global corporates avoiding Australian taxes. We also swapped a buffoon Treasurer with a man who imprisoned women and children if the hell holes of Manus Island and Nauru. He is also a hard line neoliberal with no economic credentials whatsoever.
        Appalling.

  2. Chris Williams

    Ah well lost a post, so will be briefer and less angry.

    Well done for Joe to continue to hammer at this important issue. The lie that governments who issue a fiat currency and demand taxes be paid in said currency (this creates demand for the fiat) need the money to pay creditors, suppliers and employees is becoming more mainstream.

    Thank you NC for continuing to lead here

  3. Nell

    The opposite message is available from the ‘Committee for a responsible federal budget’
    http://www.fixthedebt.org/uploads/files/Myths2016.pdf#page=4
    The ‘austerity’ lot have there set of ‘myths’ too. I guess the bottom line for the electorate is you are a citizen of the richest country on the planet – there is no way the government ‘can’t afford’ to make things better for you. They made it better for the banks, didn’t they? Any argument about ‘can’t afford’ is essentially a lie.

    1. Joe Firestone

      Yes, I know. They’re among the groups whose views are critiqued in the book and also an important part of the long-term Peter G. Peterson “bipartisan” to create austerity budgets and cuts in the safety net. I’ve been fighting the Peterson efforts for 5.5 years now, since the Teach-In Counter-Conference to his first “Fiscal Summit” held in Washington, DC. Details are at Correntewire.

      1. Nell

        Forgive my ignorance – I live in the UK. The link to this committee is one of the first links that pops up for a search on myths about fiscal spending (can’t remember the exact phrasing).

    2. Chauncey Gardiner

      Re: “They made it better for the banks, didn’t they?”…

      Yes, they have essentially already created the policy equivalent of the Platinum Coin, but not for you.

      By using the trillions of dollars of “Quantitative Easing” money created by the Fed to raise bond prices, suppress interest rates, and to push up stock prices in their heavily manipulated financial markets crown jewel, the Central Banks-Obama Treasury-Wall Street axis essentially created the equivalent of a platinum coin for the One Percent.

      Look at the poster children for this policy in the evening financial news yesterday. Many billions of dollars in personal gains for a very select few while our public schools go begging, infrastructure deteriorates, and over 46 million Americans are on food stamps. You would think they would be embarrassed.

      Among many other poor social and political outcomes, one damaging result of this policy down the chain of proximate cause is a global deflationary whirlpool for the vast majority. Almost makes one wonder if this massive fail of markets monetarism isn’t intentional.

      1. Eureka Springs

        Will the first few hundred trillion (or more) in platinum coins cover banksters who have already had congress pass FDIC coverage of derivatives?

        Joe, Thanks so much for all your work and sharing so kindly via a promo with us.

        1. Joe Firestone

          Thanks ES, I hope not. But, of course, that always depends on Congress. Once they appropriate spending, whether it is associated with selling debt instruments, or whether the money is created without selling them, the the money will be spent.

          Now, the Fed is a horse of a different color when they create reserves in someone’s account they have no authority to just give it, they have to do it as a trade for an asset in return for Fed Reserves of equal value, at least on paper.

          1. Chauncey Gardiner

            Joe,

            Thanks for your observation regarding the Fed. Perhaps the role of the Primary Dealers in money creation and distribution, and how the related mechanics work is worth briefly discussing here in clarifying the difference between the Fed’s QE program and the Platinum Coin proposal. This is my understanding of the QE process:

            Under its various Quantitative Easing programs, the Fed has created money out of thin air and used that Cash to purchase Treasuries and Agency MBS from the Primary Dealers.

            The Primary Dealers purchased Treasuries and Agency MBS from either the U.S. Treasury or from third parties for sale to the Fed, with terms of settlement with sellers varying depending upon whether the type of security purchased is a Treasury bond or an Agency MBS.

            After they sold a security to the Fed, the Primary Dealers subsequently received Cash from the Fed in settlement over time periods that varied depending on the type of security sold. That Cash could be used for any purpose the Primary Dealer chose.

            The Primary Dealers are very highly debt leveraged entities that can themselves create money by making loans. Cash can also come from other sources such as Treasury debt repayments from tax receipts. Thus, funds for their subsequent settlement of debt securities purchased from the Treasury, for example, can come from a variety of sources, not just the Cash they receive from the Fed. But that Cash from the Fed under QE has provided a huge injection of liquidity that I believe has been used to purchase financial assets, including stocks and stock index futures, based on stock index price patterns.

            1. financial matters

              I think this is on point and gets to the point that US Treasuries are very good but not infallible especially if they are going to be used in an attempt to bail out the shadow banking system.

              From a previous link: Risks lurk in failure to simplify finance Satyajit Das, Financial Times.

              “”The three Cs of financial product regulation have been capital, central counterparty (CCP) and collateral.””

              The way I see this is that the ‘capital’ is the money the Fed is creating that is going into asset appreciation such as real estate and equities.

              And ‘collateral’ is the pile of bailout money if these assets eventually fall as they will as they are not supported by fundamentals (business investment, wage growth).

              CCP is how one gets to the other. “”New exposure arise from only some but not all products being cleared, the need to channel deals through a small group of clearing members and the clash between national CCPs and cross border trades.”” (Mainly JP Morgan and Bank of New York)

              “”Collateral places excessive reliance on government bonds whose quality is falling.”” Government bonds in the end are a measure of these fundamentals which are not being supported.

              In essence we are using our financial tools to support asset appreciation in a shaky manner rather than using them for socially productive purposes.

  4. Eric Patton

    The attacks I see starting on Sanders now have to do with how he wants to give people “free stuff,” or how people just want “free stuff.” The people who make these attacks never just come out and say they don’t want black people getting “free stuff,” since the attacks are really just coded racism.

    I realize, or at least suspect, most people who read NC either already realize this, or have no trouble understanding it. But I think the “free stuff” thing is going to be the primary way in which Sanders’s domestic agenda is attacked.

    Glen Ford, in his most recent BAR column, quotes a 2005 study that says

    The great political divide in America today is not red vs. blue, north vs. south, coastal vs. interior, or even rich vs. poor—it is now clearly black vs. white [my emphasis]

    It’s hard to argue with this.

    1. Lambert Strether

      I think the great divide in America is 1% + 19%* vs. 80%. I think (a) that is correct analytically, and (b) if Ford is right, we (and he) might as well pack up and go home and hunker down, since the numbers aren’t there. So, yes, I find it easy to argue with this.

      * Pillars of the regime, and wannabe pillars of the regime (including, I might at, “the Black Misleadership Class”).

    2. Joe Firestone

      It’s easy. Just make sure everyone is getting the free stuff, and don’t allow the neoliberals to divide and conquer.

    1. Joe Firestone

      Sorry, there was a glitch in the promo because I made a small change in the book description (not even a change in the book description) last night. The promo has been postponed until tomorrow. For future reference, if, when you get to a kindle book that is supposed to be on a promo, and you don’t see the list price with a cross-out line through it, then that means there was a problem getting the promo scheduled.

      1. jp

        Thanks..I returned the book, will be refunded, and will get it tomorrow. Really looking fwd to reading it, and if I had the $, I’d buy it. I have never ordered a book on promo before.

  5. washunate

    Most of the world, and most notably the United States, is in the grip of fiscal myths…

    What evidence is there to support this particular claim, though? The author has been saying for years that the political class doesn’t understand money, that we’re in the grip of fiscal myths. Yet in actuality we live in the era of sovereign money right now. We zoomed past $10 trillion and are closing in on $20 trillion of cumulative net deficit spending since the end of Bretton Woods. Our political class has done everything from give tax cuts to the wealthy to create the largest prison system on the planet to spying, torturing, and killing for sport.

    I challenge the author to name a program that the political leadership wanted to fund but couldn’t because they believed in these fiscal myths.

    1. MyLessThanPrimeBeef

      It’s that Shock Doctrine – don’t let a (kabuki-ed) crisis go to waste without grabbing some more (unlimited) power.

    2. MikeNY

      There’s never a problem finding a trillion for military adventures, that’s for sure.

      The problem, as framed by our oligarchs and their poodles, is ‘insufficient demand’. The real problem is the need for ‘wealth redistribution’. Those words wound our oligarchs. A pity.

    3. Joe Firestone

      Most of the world is most of the people; not most of the political class. Most of the people accept getting kicked around because the political class had persuaded them that the Government is like their household of currency users.

      1. washunate

        So you do agree that the world generally, and the US in particular, already functions on a chartalist approach?

        As far as people, that strikes me as an even more specious claim. That is basically victim bashing. Those poor ignorant unwashed masses. Again, what is the evidence for that? Everything you’re railing against is the Serious People pundit class. The WSJ (and NYT and WaPo and all the rest) does not speak for the general public. Nor does Fox and CNN. Even PBS and NPR are remarkably compliant.

        Plus, it simply doesn’t square with the facts. Canadians love universal healthcare. Brits love it too. So do the French and Germans and Scandinavians.

        And so do Americans. Maybe you didn’t notice, but the past 8-9 years now have been chock full of the tension between a public that wants universal healthcare and a Democratic leadership that wants to continue enriching connected insiders.

        On issue after issue, from prosecuting banksters to media consolidation to taxing the rich to social insurance, the problem is not that most people believe the wrong things. Rather, it is that extreme concentration of wealth and power renders collective action difficult.

        1. Joe Firestone

          Let’s be precise. I do think that many of the world’s nations are monetarily sovereign. their Money systems operate as the chartalists describe. However, most of the population doesn’t understand this and believe the media when it uses household analogies and gold standard conceptual frameworks to analyze fiscal facts and policies. So, they are deep into “false consciousness” on these matters.

          Now, I am not saying that the false consciousness is due to the people themselves. So, I am not victim bashing. I am just pointing to the problem and am saying that we need to try to remedy it.

          Next, even though I say that many nations have monetary sovereignty, I am not saying that they are following the policies of my chartalists colleagues, friends or myself. If you read my books you will see that I certainly don’t think they are following the normative, policy side of the chartalist agenda. I want monetary sovereign nations to do that and that is much of my motivation for writing.

          Lastly, I do not say that most people disagree with chartalists about specific preferred policies such as Medicare for All. But, I do say that they don’t push for this because, unlike us they believe that the Government can run out of money and so doesn’t have enough to pursue all or even most of what people want.

          1. washunate

            It wasn’t precision I was challenging, though; it was accuracy. I just don’t see the evidence for what you are claiming. That really is what this boils down to, so I don’t know if going into detail is helpful, but if it is, here goes:

            However, most of the population doesn’t understand this

            I challenge this claim directly. From sources as disparate as quantitative polling data to party platform planks, it seems pretty obvious that when people dream about the future, they are not constrained by the mechanics of the financialized monetary system. That’s not to say there are not real resource constraints, of course, but that’s a slightly different part of the topic.

            believe the media

            You may not realize this, but this strikes me as so absurd as to really damage your entire credibility. Media is perhaps the most universally reviled thing there is, especially in the American context. When the government sought public comment on media consolidation in the 1990s, everyone was against it. And that’s before Jon Stewart waged a decade and a half long war against it and the NYT lied the country into war.

            household analogies

            This is a good example where I don’t know whether you are being purposefully obtuse or just genuinely don’t know how what you’re saying can sound so bizarre from a different perspective. Household budgeting is not that different from national budgeting at a conceptual level. Sure, the mechanics of issuing Treasury Securities or printing FRNs or creding the Treasury’s bank account or whatever is a little different from the mechanics of getting a student loan or a home mortgage or an auto loan, but in principle, they are the same thing. Both are activities that manage short-term cash flow deficits by smoothing out expenses over time by transforming the credit of the entity into labor performed by someone else. American households are very familiar with deficit spending in their personal finances. The disconnect between rising prices and stagnant wages is at the very heart of the economic troubles in which we find ourselves today.

            gold standard conceptual frameworks

            No one but hard money gold bugs talk about the gold standard. Do you understand that most of the world’s population wasn’t even alive in the 1960s? At this point, a good and growing number of Americans have no memory even of copper pennies. As far as the general concept of a buffer stock serving as a price anchor to a national currency unit, that conceptual framework still exists in MMT. That’s the MMT Insight: you have to pick one, so picking a reserve army of the employed is better than a reserve army of the unemployed or gold or silver or wheat or any other price anchor.

            If you read my books

            Here’s one of the central problems of intellectual thought as it exists today. If it takes entire books to summarize concepts, then the concepts are either inherently flawed, or not understood. A position that cannot be articulated cogently and concisely is not a robust position.

            I certainly don’t think they are following the normative, policy side of the chartalist agenda

            Agreed. I’m bolding this because if one thing is read, it should be this. I completely agree with you here. Our leadership class does not want to spend money the way that you and I want them to spend money. That’s not a failure of public understanding about the monetary system. That’s a failure of management. That failure is not due to false consciousness about fiscal myths. It is due to collective action challenges.

            –> MMT offers no solution to this challenge because it is based fundamentally around education. If only the public understood how money worked, then action would happen. I will grant you that is possible if you will grant that it is also possible that is not the case. Because if I’m right, what is MMT’s backup plan? So far, modern money has been used to do extremely terrible things, and there seems no inherent check from within the paradigm. Indeed, the only response that seems to come out is to do moar. Moar QE. Moar deficit spending. Moar government employees and contractors. Moar, moar, moar. There is no standard or criteria by which to evaluate a particular program as being good or bad. The only measure is in aggregate; the distribution seems an afterthought.

            I do say that they don’t push for this

            I’m simply baffled at this assertion. People have literally been arrested and shot pushing for better policies. It has taken extraordinary measures by the Democratic establishment to hold on a variety of fronts. The Obama team even pushed against universal healthcare in the Democratic Party Platform in 2008.

            I think what you’re confusing is that a lot of educated Americans aren’t on the side of the 99%, even quite a few who proclaim to be liberal and care about the poor and the oppressed and the downtrodden and the outcast. They’re on the side of the 1%, whether conscious of it or not. Indeed, that’s the place where there actually is a false consciousness. Educated liberals making significantly more than the median wage who think it’s okay to be against billionaires but that their own outsized privileges should be maintained.

          2. washunate

            On a different note, I’ve noticed your NC bio still uses the FDL page. Firedoglake is not an active website. Not sure if that is something you write, or if Yves/Lambert posts it. But FDL Media operates publicly as Shadowproof these days. A little background about the transition:

            https://shadowproof.com/about/history/

  6. jonf

    Following the democratic debate Chris Matthews dismissed Sanders and his proposals saying he had no way to pay for them.

    I do think that if Sanders continues the idea of taxing the elites, it will be a loser.

    1. greensachs

      The very reason CM has a podium… I think it goes further proving how isolated our elites and their media mouthpieces have become. It seemingly appears that the struggling are so far removed from there sphere, that they might as well be housed in a zoo cage. But even beyond, the slavishly and unflinching way media organs prop up the broken “either/or system” lends one to consider, are many “celebrity” pundits merely corporate induced linguists and/or Wall street errand boys pretending to be DNC or RNC?

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