Bill Black: Democrats Need to Give Up Being Deficit Hawks Even When it Feels Good Politically

By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Originally published at New Economic Perspectives

Representative Nancy Pelosi has just written the latest effort by a prominent Democrat to bash Republicans for the high crime of not being financially illiterate.  The Republicans are frequently financially illiterate on budget issues and they bash Democrats for the high crime of not being financially illiterate.  The leaders of both parties share the hypocrisy of bashing the rival party for supporting budgetary stimulus in circumstances in which stimulus is vital.  Particular forms of budgetary stimulus can be simultaneously desirable (relative to austerity) and inferior relative to alternative forms of budgetary stimulus.  The Republican‘s favored form of budgetary stimulus – large tax cuts for the wealthy – is a remarkably inefficient means of providing  stimulus that makes income inequality worse.  Those two points are the correct bases for criticizing their proposed tax cuts.  Far too many Democrats, however, cannot pass up the political opportunity to bash the Republicans for supporting stimulus when further stimulus is vital.  When Democrats like Pelosi launch these myth-based political attacks on Republican stimulus programs they help to enshrine economically illiterate austerity policies that make it even harder for Democrats to make the case for stimulus even when it is essential.

THE long-endangered Republican Deficit Hawk is now extinct.

In December, the Republican Congress passed into law a huge permanent package of tax measures as part of the tax and spending deal. However, Republicans refused to pay for the legislation, thereby adding a thunderous $2 trillion to the deficit over the next two decades, according to an estimate from the nonpartisan Committee for a Responsible Federal Budget [CRFB].

The title of her article is “Shouldn’t Congress Tell Us How We’ll Pay for Tax Cuts?”  The Republican (and Democratic “blue dog”) “deficit hawks” inflicted great harm on our Nation by preventing the larger stimulus program that would have led to a far quicker and stronger economic recovery.  They used the same rhetoric that Pelosi now uses.  Indeed, Pelosi’s misleading rhetoric about “adding a thunderous $2 trillion to the deficit” (over 20 years) sounds exactly like Donald Trump’s misleading rhetoric in his campaign speeches.

The CRFB is a group composed of extreme deficit hawks extolling “mindful austerity.”  It spawned the notorious Simpson-Bowles group and the even more odious Campaign to Fix the Debt.  Both of these groups were exposed long ago as fronts for Pete Peterson, the Wall Street billionaire who has dedicated his life to destroying the safety net and privatizing Social Security.   The CRFB is “nonpartisan” solely in the sense that it represents the interests of Wall Street CEOs – whose great dream is the hundreds of billions of dollars of additional fees their firms would receive were Social Security to be privatized.  There are, of course, “New Democrats” like the Clintons who have devoted their careers to serving Wall Street.  But Peterson’s front groups need to be described accurately as pro-Wall Street rather than “nonpartisan.”  They exist to spread myths about the supposed virtues of austerity and the supposed depravity of budgetary stimulus – hyper-inflation is always just about to break out (as interest rates and inflation fall).

Pelosi then goes full-Pete Peterson in the remainder of her myth-filled article.

[T]he cost of this tax package is casting a long shadow over America’s future, threatening to crowd out essential investments for hard-working American families.

Why isn’t there a rule requiring lawmakers to account for new expenditures by finding offsetting budget cuts or revenue increases when Congress enacts them? In fact, there is.

In 1982, George Miller, a progressive Democratic Congressman from California, had a simple but transformative idea to cut the deficit and restore fiscal responsibility to Washington, which he called pay as you go, or paygo. Under this rule, when Congress wanted to pass a new law that would increase the deficit, legislators would have to pay for the cost with matching revenue increases or spending cuts.

Paygo still allows for flexibility in overall discretionary budget increases and in times of emergency, but it forces lawmakers to account for the impact of laws that have consequences for federal revenues or mandatory spending.

It’s so common-sense that most people would be surprised it hasn’t always been the rule. After all, even the priorities we want and need must still be paid for.

No, “paygo” is not “common-sense” – it is based on an economic myth that our nation has to “pay for” budget increases or tax reductions just like a private household.  A nation like the U.S. with a sovereign currency that borrows in that currency and allows that currency to “float” is nothing like a household when it comes to budget.  No, paygo does not provide proper “flexibility in overall discretionary budget increases and in times of emergency.”  Its constraints prevent adequate stimulus and would produce recurrent recessions and long-term reductions in economic growth.  Paygo is a disaster that prevents adequate funding of social programs.  No, paygo does not create “fiscal responsibility” – it typically does the opposite.  The failure to adopt a much larger federal budgetary stimulus plan was fiscally irresponsible and inhumane.

No, the Republican’s proposed tax cuts are not “casting a long shadow over America’s future.”  Pelosi is spreading the same myths that Republican deficit hawks spread about hyper-inflation being just about to break out (while interest rates are actually only barely above zero).  No, the tax cuts will not “crowd out” “essential investments.”  The correct argument, and the far better stimulus, would be to increase government spending now on “essential investments” that are not and will not be made by the private sector.  But that correct argument is impossible to make under Pelosi’s myths.

Pelosi gets the economics all wrong in the effort to score political points against the Republicans.

President Clinton handed his successor, President George W. Bush, a projected $5.6 trillion 10-year budget surplus and eight years of economic expansion. But Republicans quickly abandoned any measure of fiscal responsibility and began a catastrophic spending spree. The completely unpaid-for tax cuts, including huge tax cuts for the wealthy in 2001, and two completely unpaid-for wars shattered our multitrillion-dollar surplus and created a vast new deficit.

After President Bush left the White House, President Obama was faced with a staggering $1.2 trillion projected budget deficit in his first year alone, according to estimates from the Congressional Budget Office, and an economy in free fall. Under President Obama, the paygo law was reinstated, and we’ve brought the annual deficit from $1.2 trillion when President Obama took office to $544 billion today.

Clinton’s budget surpluses did not constitute “fiscal responsibility.”  They were wildly imprudent for a Nation with a huge trade deficit.  For a government with a sovereign currency, the budget surplus or deficit is not a matter of morality.  A surplus is not “virtuous” and a deficit is not irresponsible.  Depending on the circumstances, a deficit or a surplus may be desirable.  Large surpluses are, throughout U.S. history, very likely to be the preludes to severe recessions or Depressions.  Clinton’s budget surpluses were generated in substantial part by twin bubbles in the stock and real estate markets.

Bush’s deficits, which were small in historical and international terms prior to the Great Recession, did not create the Great Recession.  The Great Recession caused what Pelosi falsely labels the “staggering $1.2 projected budget deficit” for 2009.  That projected deficit was far too small rather than “staggering[ly]” too large given the depth of the Great Recession.  A much larger deficit in 2009 (via a much larger fiscal stimulus) would have produced a far quicker and stronger economic recovery.  President Obama’s action in reinstating paygo was one of the harmful actions he took that prematurely reduced fiscal stimulus.  Obama’s endorsement of paygo weakened the recovery and made it far harder to increase vital spending on infrastructure and training. We have reduced the federal debt too rapidly and by too much.  This slowed the pace and the breadth of the economic recovery.

Pelosi admits in her op ed that paygo made it exceptionally difficult – even seven years too late – to provide support for the 9/11 first responders.  That is a national disgrace, as is her call:  “To contain and reduce the national debt, we must return to a simple rule called pay as you go.”  No, we need to return to non-simplistic, real economics, and stop spreading simplistic myths about money and federal deficits spread by Wall Street vultures eager to profit from the destruction of the safety net.


  1. DakotabornKansan

    “Popular morality blames victims for going into debt – not only individuals, but also national governments. The trick in this ideological war is to convince debtors to imagine that general prosperity depends on paying bankers and making bondholders rich – a veritable Stockholm Syndrome in which debtors identify with their financial captors.” – Michael Hudson, Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy

    The media and political elites chose to pay more attention to the deficit hawks, while ignoring the high crimes of economic violence perpetuated by bipartisan deficit hawks. They are not telling us what is really going on because they have a stake in not telling us. The media washes the hand of their owning corporations. The public assumes that what they see and hear in the major media is all there is.

    Denying food and health care to our nation’s most vulnerable, by slashing “entitlements” and destroying the safety net, are acts of violence that are rendered invisible by the media. It is another version of their highlighting western victims of violence while ignoring victims of western violence.

    1. sd

      Well said:

      Denying food and health care to our nation’s most vulnerable, by slashing “entitlements” and destroying the safety net, are acts of violence that are rendered invisible by the media.

      I would also add housing to that list.

  2. James Levy

    Agreed. But they can get away with it so long as we have an incoherent normative base underpinning these discussions. We really don’t know how to think about the problem. Are the unfortunate among us entitled to help because they are human beings? citizens? former taxpayers? too young or sick to help themselves? a danger and a nuisance if we don’t? We have no clue and no consensus. Or are they entitled to nothing, but we will throw them a bone anyway either because it is out “Christian duty” or because it makes us feel good?

    I remember seeing an old campaign speech by LBJ from 1964. Johnson make two points powerfully: these are our neighbors, and we have an obligation to lift them up, giving them education and jobs so that they can make it on their own (“raise them up” in the old Protestant language he employed). It was an unimaginable rhetoric for these times–even Sanders would blanche at such a clear, unequivocal message. The problem is that America was so relatively wealthy in 1964, and had experienced such a bound of upward social mobility, that it didn’t seem like a zero sum game. Now, whatever the objective conditions are, it certainly seems like one to tens of millions of voters. The only way to square that circle is to appeal to the better angels of our nature. The top 20% is never going to be on board in any numbers, but the bottom 80% might.

  3. Torsten

    Paul Francis Pelosi, Sr. is an American businessman who owns and operates Financial Leasing Services, Inc., a San Francisco, California-based real estate and venture capital investment and consulting firm.

  4. Greg Kaiser

    Two Sense worth: There’s no such thing as a free market. Except for the free lunch that it’s constrained to provide for the biggest players. And it costs most of the rest of us everything and then some as we go deeper in debt to stay alive. In the end we all pay for the free market, as it inevitably must by mathematical certainty, self destruct at the exponentially growing rate of compound interest.

    Feel free to copy and paste this wherever it pleases you.

        1. bob

          I’m just looking for a number. According to the prior poster, it’s a mathematical certainty.

          Do the math. Come up with a number. Not a book. A number.

          1. diptherio

            it inevitably must by mathematical certainty, self destruct at the exponentially growing rate of compound interest.

            If you’re looking for a numerical price tag, you’ve misunderstood what the man is saying. Lending at interest creates more financial debts than financial assets with which to repay them. Debts grow mathematically, regardless of circumstances, since their calculation is unrelated to events in the real world. Eventually, you end up with a situation where a very few people hold debt claims over a great many. It is this dynamic that was the cause of the 7 year debt Jubilee commanded by the Bible and the many historical instances in places like ancient Babylon of massive debt write-downs, implemented to appease mass sentiment and avoid social strife.

            Read David Graeber’s Debt: The First 5000 Years for more detail.

            1. bob

              Gold buggery?

              “If you’re looking for a numerical price tag, you’ve misunderstood what the man is saying.”

              If they assert an absolute, they should then be able to use that absolute. Math results in an answer which is either correct, or incorrect.

              Where’s the math? There’s talk of math, but no math. What is this– economics?

              1. HotFlash

                Bob, please understand this is math we are talking about , not arithmetic. Some examples: E-mc2, C-πd, a2</sup+b2</sup+c2</sup, or, case in point, the compound-interest formula:

                A = P (1 + r/n) ^ (nt)

                You have to put in the variables to get a number. There is lots of help on the 'net.

                1. bob

                  “as it inevitably must by mathematical certainty, self destruct at the exponentially growing rate of compound interest.”

                  When and at what cost then?

                  A number, and a date. It should be pretty simple for someone so well versed in “math”.

                  Where is it?

                  1. Robert Coutinho

                    Okay, one more attempt:
                    Borrow 100
                    Pay 105 back

                    How long before you have zero left? Not 20, because of compound interest, but pretty close.

                    The reason we have not seen the potential catastrophe is because our government (USA) has constantly increased the debt ceiling. We should not have a debt ceiling. We should not have a debt. We should deficit spend w/o worrying about creating bonds. The only worry we should have is inflation. That is what the entire article is based upon.

                2. bob


                  E-mc2 – Physics, not math. Math may be used to answer the question, but the formula is not based solely on “math”, it’s based on, and proved by observation. A model. A model that works, unlike most economics navel gazing.

                  You can use that formula to come up with an answer.

                  Where’s the answer? Point me to the site.

            2. bob

              That quote is straight out of the von misses bible.

              I trust that *some* might see the problem with that comment on a post urging democrats NOT to be deficit hawks.

              That quote not only states with certainty that the deficit hawks are correct, but goes on to further state, with certainty, that “it” will self destruct, unless everyone becomes a deficit hawk.

    1. Yves Smith Post author

      So? He’s now appointed Stephanie Kelton as one of the chief economists to the Senate Budget Committee, so he’s taken a concrete step to oppose deficit hawkery.

    2. MyWag

      Hurrah for Stephanie Kelton.
      They aren’t being full on MMT though, as they are describing how to pay for his single payer healthcare. I think this is a smart approach… steps, baby steps.

  5. TheCatSaid

    Excellent overview article, and ditto for the comments so far.

    Question–do readers have links they can recommend to substantiate the post’s claim that CRFB and Campaign to Fix the Debt are linked to, or originated with, Pete Peterson?

    I plan to use this info to start putting pressure on my congress people. (I figure, regardless of their D or R status, it’s up to me to start asking for what I want, and help grow the numbers of voters making these requests.)

    1. Tom Allen

      Check out the “About Us” page of the crfb website. ( It lists Peterson as a director.

      Other directors: Erskine Bowles, Vic Fazio, Bob Packwood, Alice Rivlin, Chuck Robb, Alan Simspon, David Stockman, Paul Volcker. And Leon Panetta is one of the co-chairs.

      As for Fix the Debt, Pete’s son Michael (president of the Peterson Foundation) is on their steering committee. Simpson & Bowles are co-founders; Bloomberg’s a co-chair; and a lot of the CRFB directors are members as well.

  6. NotTimothyGeithner

    If I recall 2000 exit polls indicated that everyone who said the deficit was a concern voted for George W Bush.

    Voters who claim to care about the national debt are Republicans who don’t want to admit they are Republicans.

    There is no political advantage.

  7. SpringTexan

    Yes, the “paygo” rules make no sense for a nation and have been incredibly destructive. Thanks for writing.

  8. diptherio

    The line of argument that I’ve been using for awhile to refute that common understanding of national debt (that it’s a problem) is to point to the Fed’s bailout of the banks from ’07-???. “Look,” I say, “the gov’t can afford to spend as much as it wants on whatever it wants. It creates money. If the Fed can create 4 trillion in new money to bail-out the banks, they can create a couple trillion to fund Social Security and Single-Payer and free College too.” The reality clicks for most people right away, even if they’re not clear on the details. MMT actually isn’t nearly as hard for laypeople to understand as many seem to assume it is.

  9. Pelham

    Wouldn’t it be better to just get rid of the idea of national deficits and national debt?

    Money is just the stuff you inject into the real economy to keep it running, isn’t it? It’s like oil in a car’s engine. If you’re driving, and the idiot light on the dashboard flashes to indicate low oil pressure, you add a quart. But you don’t think, “Well, I added a quart today so I’m in an oil deficit. I’ll need to balance the oil budget by draining a quart next week.”

    That, of course, would be nuts. Same with the money supply, as I read it. The only things we need to keep an eye on are the level of private — not public — debt, the trade balance and inflation, with inflation serving as the idiot light on the dashboard.

    As for what we now know as the public or national debt, forget it. Not relevant to anything useful. Not interesting.

  10. Paul Tioxon

    With all of the sanctimonious history worship of the founding fathers, Alexander Hamilton in particular, with his hit bio Broadway show, you would think that the idea of public debt by the Federal Government would be settled. Amazingly enough, that same stupid arguments against banks, against conspiracies of speculators, Northeast merchant business interests was a part of the founding of the Federal government and fought inch by inch by so called Jeffersonian democrats who feared the move away from land and rural life as a sound economic basis for life in the newly founded nation.

    The out right hatred of Hamilton and his ideas about national debt being a useful tool of government, of economic progress and development of a widespread prosperity has not gone away, and is still present in the type of thinking Mr Black crusades against. The political warfare is not based on any principles, debt, fiscal stimulus are just cudgels used to inflict casualties on the political opposition with no thought of how they may actually work if well managed.

    We are playing out the same arguments and fighting the same battles over and over again. If the democrats were willing to take a stand and not try to be too clever in trying to affect some judo counter move against republicans, using the force of their own ideas about deficits against them, and instead stood up with manageable proposals for stimulating the economy, we all would be better off. It is not too hard for people to understand that it takes money to make money. National investments in the things the private sector will not spend on, like roads and bridges for Amazon to deliver stuff to your door or micro-grids fed by roof top solar panels is worth the effort to go into debt for. The eventual elimination of 100s of $billions per year exported to pay for crude oil imports to fuel our cars and trucks will stop completely, replaced by a vast national solar/wind powered electrical grid with electrical vehicles. The jobs for this huge transformation will explode, along with prosperity for all of the people required to manufacture, distribute and install and maintain the new power grid. We can go into debt for that with an enormous payback.

    No economy rises by cutting back on activity, by idling people, by letting resources remain untapped, by lecturing against deficit spending instead of marshaling financial institutions to facilitate and enable the people into organized efforts of enterprising activities. The promise of civilized progress is NOT built on belt tightening but on building and then sustaining the material prosperity. Austerity is a security checkpoint, economic suppression as the precursor to political suppression. A weakened and growing impoverishment of the great middle class will eventually succumb to anger, despair and the promise by anyone for anything other than the current misery.

  11. ke

    How many people do you know that can fix crap?

    Printing money to replace carp with worse carp is the easy part.

    Replacing people in an economy of arbitrary skills is like mowing the lawn.

    Silicon Valley is just mowing the lawn, with arbitrary code, which the critters are buying, to replace themselves. No, excel is not a real skill.

    1. ke

      The vast majority, including the programmers, have no idea how technology really works. They can’t fix their own car, and neither can their mechanics, without a computer, which tells them the wrong thing to do more often than not, and the engineers are just adding more carp on top of the carp. You might think they would put down the spade.

      A controller is just a conditional switch, replacing human beings without enough sense to think for themselves. Wire right around it, but leave it confirming itself, so the critters will have something to keep themselves busy with.

  12. HotFlash

    No, “paygo” is not “common-sense” – it is based on an economic myth that our nation has to “pay for” budget increases or tax reductions just like a private household. A nation like the U.S. with a sovereign currency that borrows in that currency and allows that currency to “float” is nothing like a household when it comes to budget.

    I ask people who use this argument: If the govt is like a private household, does that mean private households should not have debt? Shouldn’t put a vacation on the plastic, shouldn’t take out a student loan, shouldn’t take out a mortgage, just keep renting?

    Doh, *private households finance long-term assets with debt*. All the time! Hardly anyone can buy a house outright for cash, but most of us need a place to live all the time, and either we can pay rent *forever*, in which case we have nada *forever*, or we can take out a mortgage and have our own house, no more payments, after after 20-30 years? Now, that’s responsible!

    While it is probably not a good plan to use credit for short term benefits (groceries, restaurants, etc.), it’s only common sense to finance long term benefits over the expected term of the benefit. So, the annual vacation goes on the card, pay it off within a year, happiness, a nice tan and a renewed spitit! Costlier than saving, coz of the interest but not irresponsible. Student loan? A lifetime of value, or so goes the sales-pitch, anyway, not irresponsible. The house goes on a 20 yr or so mortgage, at the end of 20 years you own the house (no more ‘rent’ payments!) and you would have paid rent all that time anyway. Not only responsible, but a no-brainer! And in case of economic necessity, even short-term benefits go on the plastic — remember The Mamas & the Papas Creek Alley, “…eatin’ on American Express Card…” Totally worth it, this M&P fan says.

    I swear that the people who say “govt is like a private household therefore we shouldn’t go into debt ever” have never handled household finances.

    These are also good, responsible business reasons for debt. For instance, most new business start by ‘raising capital’ — for premises, for equipment, for machinery, for all that stuff. But wait! Investor capital, and later, retained earnings (that is, the accumulated profits held in a business after payment of dividends to shareholders) are, wait for it, debt!!!

  13. susan the other

    Economic illiteracy is a time honored tradition. Because people never really bartered. They would all have starved to death. Instead, they always gave each other credit, or time. A sort of living wage. We all still keep a mental tab for little debts of all kinds, right? Time is the only gold standard. Gold, actual physical gold, is really just a nutty, obscene little fetish. And when there is too much debt/money/credit/goodwill – as a result of unmet demand – all we have to do is have a big bonfire and reset the clock. Technically in a world so skilled at manufacturing all the goods and services possible, there should never be unmet demand. And blablablah; I might be channeling Mosler. And re PayGo let’s channel Kelton: there is no such thing as pay-go because somebody has to create a currency and spend it into the economy, to create the economy (GoPay), before anything exists with which to pay. So an economy is not sacrosanct pot of obscene fetishes – it is just the product of our innovation – as Hudson always tells us. Can’t we just all get on with it?

  14. Robert Frances

    Below are the interest payments made by the US government over the last 10 years to the (most often) wealthiest families on earth. Through February the US has paid out $166B for the current fiscal year. (Source: Treasury Direct webpage)

    These interest payments represent *real money* that could be – could have been – spent on much more effective government programs than feathering the investment portfolios of the very wealthy.

    Moreover, some of this *real money* is being collected via very regressive taxes (ie, payroll and excise taxes) and then transferred to the very, very wealthy who own the government bonds.

    If the US, as a “sovereign issuer,” can bypass the bond market, then it should do so by paying off the current bonds and using its currency issuing power to pay for whatever good and services its people want. But until that time, I don’t find it persuasive that people who call themselves lefties or progressives can support collecting regressive taxes from lower- and middle-income working families and then transferring the money to the wealthiest families that own government bonds. That system needs to end. If it’s Pete Peterson or whoever who can make the current system end, more power to them, regardless of whatever bad names they’re called on NC.

    2015 $402,435,356,075.49
    2014 $430,812,121,372.05
    2013 $415,688,781,248.40
    2012 $359,796,008,919.49
    2011 $454,393,280,417.03
    2010 $413,954,825,362.17
    2009 $383,071,060,815.42
    2008 $451,154,049,950.63
    2007 $429,977,998,108.20
    2006 $405,872,109,315.83

    The Interest Expense on the Debt Outstanding includes the monthly interest for:
    * U.S. Treasury notes and bonds
    * Foreign and domestic series certificates of indebtedness, notes and bonds
    * Savings bonds
    * Government Account Series (GAS)
    * State and Local Government series (SLGs) and other special purpose securities.
    * Amortized discount or premium on bills, notes and bonds is also included in the monthly interest expense.
    The fiscal year represents the total interest expense on the Debt Outstanding for a given fiscal year: October through September.

    1. SteveD

      ‘some of this *real money* is being collected via very regressive taxes ‘

      Perhaps you didn’t read the article. The federal government as a currency sovereign DOES NOT rely on taxes or loans to fund itself. Taxpayers DO NOT pay for any federal spending. Like all banks the Fed “pays off” federal savings account holders by transferring existing dollars from the holder’s securities account back to the holder’s reserve account. DEBT.PAID.OFF. Most of the interest is paid on very short term held bonds. (90 days typical.) This is absolutely not a problem for our Monetarily Sovereign federal government.

      1. SteveB

        ” The federal government as a currency sovereign DOES NOT rely on taxes or loans to fund itself. Taxpayers DO NOT pay for any federal spending.”

        Then why the heck do we have any taxes at all?

          1. DJ3920

            We don’t know if the federal gov’t willed money into the Treasury’s bank account following the founding of the Federal Reserve or if the private sector helped out via banks providing initial financing. Or what the gov’t did to its account during Treasury’s founding in 1789 when they took on central banking type functions. $ has existed according to book MMT Wray cited on his blog for 5000 years. $ & tax system that existed prior to US gov’t had an impact on its ability to get up and running. And current law affects it now.


          2. SteveB

            So let me get this straight:
            In the Carter years, taxes were high and we had rip roaring inflation… Since Reagan we’ve had lower taxes and inflation keeps dropping…
            So the solution to the deflation fears we have is to lower taxes… right?

        1. Robert Coutinho

          Please research (or just google) Modern Monetary Theory.

          Basically it goes like this:
          1) Federal Government does not need to borrow its own money
          1a) Federal Government borrows its own money because it used to give out gold in exchange
          1b) Federal Government makes money (literally), so it must tax in order to give the money value

          2) Spending by Federal Government creates money
          3) Taxing by Federal Government destroys money.
          4) The only reason to tax more is if inflation is a problem
          4a) Currently those who are awash in extra dollars are the very wealthy, so they should be the only ones taxed (or nearly so)
          4b) The very wealthy control all the politicians (or nearly so) so this does not happen

          5) State governments are different: they don’t get to print money so need balanced budgets

        2. Plenue

          A. When push comes to shove, it gives the currency value, since government only accepts the currency it creates as payment for taxes. No one wants to go to jail for not paying their taxes, thus the currency has value. No one in the real world actually thinks like this, but then people never think seriously about what backs up any currency, be it gold or anything.

          B. To combat inflation by destroying money. Taxed money isn’t turned around and re-spent as funding for anything, it’s literally erased from existence on an accounting sheet.

          C. Not really an MMT-specific notion, but per Galbraith taxing of the upper -bracket should exist simply because the bastards can’t be trusted with huge amounts of excess wealth. They get discontented and start using it to lobby for their selfish interests.

  15. washunate

    And MMTers need to stop thinking that structural deficits in perpetuity will necessarily solve anything. This focus on quantity of money has been and will continue to be misguided at both a theoretical and empirical level. No one in DC actually believes that government spending is constrained by cash flow limitations. It is a lie that MMT advocates are helping to propagate, with a nice side helping of legitimizing the kabuki theater that there is a meaningful difference between Republicans and Democrats.

    The intellectual justification MMT provides for cutting taxes is particularly corrosive. After all, since the government doesn’t need taxes, we don’t have to tax the rich. Win-Win.

    1. Skippy

      Whilst you don’t have too tax the rich based on funding… there is a more pressing issue of not subsidizing them either…

      Skippy…. the rich are not taxed at the moment in any meaningful way nor have been for some time… hence its a bit of a moot point…

      1. washunate

        Yep, that’s exactly the kind of academic semantics into which MMT advocacy breaks down in the real world. If MMT merely points out the technical mechanics of the plumbing, whether there are cash flow constraints, then it is wholly irrelevant, bringing nothing new or original to our policy options. Everyone in DC is already a chartalist.

        The basic question is this: are taxes an important component of public policy, or not? MMT proponents have been playing this coy game of vaguely answering the question both ways.

        1. Robert Coutinho

          Taxes are absolutely critical! MMT states that emphatically!

          Without taxes, the money would have no value. You need money to pay taxes. That is what gives it value!

          What MMT says is that “more” taxes are only needed when inflation is out of control. However, taxing those who would otherwise spend all their money, when inflation is low, is counter-productive. Meanwhile, taxing those with lots of “extra” money lying around is useful because it will help to curb inflation.

          So; Currently inflation is low. We do not need to cut spending. We do not “need” to increase taxes.

          It would be useful to get more money in to the hands of those who would spend it–since that is the best method of helping out the poor. It would also be useful to EMPLOY those people–since working for your money is usually a fulfilling activity.

          If the Federal Government added millions of people to its payrolls (by employing anyone who is willing to work and can not find work in the private sector) then its creation of money would skyrocket. If this happened, inflation would go out of control UNLESS we tax some of that money out of existence again.

          Thus: MMT insists that TAXES ARE ABSOLUTELY CRUCIAL. The advocates simply state that currently, we have unemployed people and that is not necessary. We can employ everyone–we just need to make sure that enough taxes are taken out of the system to prevent hyperinflation.

          1. Skippy

            Almost too a fault, the tax quires, if extenuated long enough, inevitably come to tax is theft – of ones labours…

            Skippy… seems the hard money sorts just beat around everything by constantly asking for further clarification, playing ignorant, etc….. when its bloody obvious…

          2. washunate

            Inflation is low? You must be joking. The prices for decent housing, quality healthcare, educational credentials, and so forth have risen dramatically. You are demonstrating the communication challenge MMT has when proponents try to apply ideas to the real world.

            The buffer stock theory on which mainstream monetarist economics is based (which includes MMT) isn’t an accurate description of the economy, and MMT refuses to even contemplate that notion, let alone allow it to become a falsifiable proposition. NAIRU, the current price anchor, hasn’t restrained inflation because inflation is a function of malinvestment, of looting by connected insiders. It’s who gets the money, not how much is printed. And we have had a lot of malinvestment over the past few decades.

            As far as employing everyone causing hyperinflation, how many people do you intend to hire? MMT advocates tend to downplay the total number to be employed.

            1. Skippy

              Washunate…. ascribing inflation for the things you do is not a factor of M supply as supply only represents the after affects of issuance. Now if you want to discuss the underwriting and regulatory factors which enable[d the prices you lament please do, tho fixation on monetary theory alone is just crankery.

              Skippy…. so you have AET and neoclassical philosophy to reconcile and not MMT.

            2. Robert Coutinho

              Inflation–total inflation–as calculated by the Federal Government–is low. Asset prices are high due to the low inflation. Sounds stupid but hear me out. Investors, the people awash in extra money as I mentioned, need to put that money somewhere. They already spend as much as they want, so they are not going to increase their spending per se.

              Thus, they want to either
              1) invest
              2) get bling

              Investments are really difficult during low inflation–you don’t get much of a return. However, some bling can be used as a pseudo-investment. Buy land, houses, paintings, gold bars–all these may increase in value faster than the rate of inflation. If enough wealthy people think this way (and they do) then the price of such items will go up faster than the prices of bread, water, clothing and other such necessities.

              So, in conclusion, yes, inflation (particularly of oil products, food, clothing) is very low. Asset prices are high–but asset prices are not the only figure when calculating inflation.

              1. washunate

                Good luck making that distinction in the real world.

                When people complain about things being expensive, they are not talking about an arbitrary calculation by highly paid government employees. They are talking about the rent being too damn high.

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