Gaius Publius: Deficit Talk Is a Trap. Will Democrats Fall Into It?

By Gaius Publius, a professional writer living on the West Coast of the United States and frequent contributor to DownWithTyranny, digby, Truthout, and Naked Capitalism. Follow him on Twitter @Gaius_Publius, Tumblr and Facebook. GP article archive here. Originally published at DownWithTyranny

Government can spend money on the many, on the few, or on no one (by running a budget surplus). Which is the better choice?

 

A budget surplus on the government side is a budget deficit on the economy’s side.

–A fact you’ll rarely hear spoken on big-donor-owned media

Just a few simple points about the recent tax bill here, but points critical to understanding what will unfold in the coming months and years.

1. As they did in the 1980s, Republicans are laying a “deficit trap” for Democrats. As they did before, they’re blowing up the budget, then using deficit scares to force Democrats to “be responsible” about cutting social programs — “because deficits matter.”

2. Big Republican donors want to see social programs — Social Security, Medicare, Medicaid — cut to the bone. (Big Democratic donors want the same thing, by the way. It’s why Obama’s many Grand Bargain attempts didn’t cost him a dime in big donor campaign contributions. But Republican are in charge now, so the attack is coming from them, and quite an attack it is.)

In the 1980s Republicans ran up the deficit, then forced Democrats, via the Greenspan Commission’s Social Security “fix,” to raise taxes on the middle class to unnecessarily over-fund the Social Security Trust Fund. This converted SS from a mainly pay-as-you-go system that increased revenues as needed via adjustments to the salary cap, to a pay-in-advance system, the excess money from which was then loaned back to the government to appear to offset large deficits.

Notice the use of deficit fear in the push for cuts to social programs.

Today, Republicans are expanding the deficit again with their big “tax reform” plan — a giveaway to the donor class of both parties — and are already starting to use deficit fear to argue for cuts in what they call “entitlements” — Medicare, Medicaid, and eventually Social Security, even though Social Security is self-funded.

Notice the use of deficit fear in the push for cuts to social programs.

To the extent that Democrats are willing to accept the obligation to “be responsible” — under an entirely big-donor definition of “responsibility” — those cuts will be agree to. (Big donors think it’s irresponsible to give money to anyone but them.)

3. The reality — Deficits aren’t dangerous at all until there’s a big spike in inflation, which is nowhere near happening and won’t be near happening for a generation, after which global climate chaos will make all economics discussions moot.

4. The reality — Government spending is good. It’s the way government puts money into the economy, making it possible for you and me to buy things.

So ask yourself: Do you want your government to shrink the money supply for no good reason, year after year after year, by running budget surpluses, or to grow the amount of money in the private sector, making more available for use by people like … you?

A budget surplus on the government side is a budget deficit on the economy’s side. Do you want the government to be taking money out of the economy each year, or putting money into it?

5. The reality — Everyone in DC knows these realities. That’s why both parties increase deficits when they want to spend on something they want, like war, and claim to fear deficits only when they don’t want to spend on something you want, like affordable health care, or free colleges. You know — to buy you nice things.

Consider: The trillions spent on this giveaway to the already-rich could have been given to college students in debt, or people stillunderwater in their mortgages since the Wall Street-created crash of 2008. What would be the effect of that reallocation of money? People who are struggling would spend it and grow the economy.

What’s the effect of giving money to the already-rich? They buy another chateau in France, or bid on the next Van Gogh that turns up at Sothebys. Or give it to their tax lawyers to send to the Bahamas.

6. The question for you — Which of these three options would you rather the government choose:

  1. Spend money on the already-rich and none on you and your needs?
  2. Spend money on you and your needs and ignore the pleas of the already-rich?
  3. Hoard as much money as possible in a vault and spend the least possible on anything?

The first is a plan for the few, disguised as the current big donor “tax” proposal.

The second is a plan for the many, a truly progressive, FDR-style economic policy.

The third is what Democrats will be asked to do after the already-rich have gotten their pile.

This is a trap. But there’s a way out. You can have nice things. All you have to do is convince your neighborhood Democratic Party office holder to give them to you.

Update: Here’s the above “what is money?” explanation in easy-to-digest (and share) video form:

Thanks to Twitter friend Alan Parker for the link. Enjoy.

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36 comments

  1. The Rev Kev

    I am going to say that the democrats will do what they always do, or rather what they are paid to do, and that is to fold like a bunch of cheap lawn-deck chairs – those that are left that is. What makes me think that? Last night I saw two top Democrats in their offices showing an A4 block of paper called the new Tax Act and complaining that they only had an hour to read it before voting on it. And that was it.
    If someone gives you a blank sheet of paper and demands that you sign and date it at the bottom, the answer is NO! You may even follow up and fold that piece of paper into an origami-shape and suggest to the person where they can put it but the answer is still no! What those Democrats should have said right then and there was to state out loud that as they do not know what is in that Act, then the answer is NO!
    Make clear that that was the official Democrat position. Say that anything else was a betrayal of the American people and an abandonment of their responsibilities but all we had after the Democrat whinge session was the sound of crickets. They would probably still lose but down the track the American would actually know just where the Democrats stand and on whose side they are on. People tend to remember stuff like that as they head into the voting booth.

    Reply
    1. cnchal

      . . . What those Democrats should have said right then and there was to state out loud that as they do not know what is in that Act, then the answer is NO!

      The Demoncrats are just being fair. Remember Pelosi and “pass the legislation to find out what’s in it” with regards to Obamacare?

      Reply
      1. Johnny Sacks

        No, I actually don’t remember. What I remember is months of policy discussion on what was available at the time. Followed by several weeks debate on the floor of both houses. And their own party snatching defeat from the jaws of victory in something as simple stupid as the public option.

        Reply
  2. cnchal

    6. The question for you — Which of these three options would you rather the government choose:

    1 Spend money on the already-rich and none on you and your needs?
    2 Spend money on you and your needs and ignore the pleas of the already-rich?
    3 Hoard as much money as possible in a vault and spend the least possible on anything?

    Option 2 is a fantasy with the brain damaged politicians running things today, so the logical choice is #3. Nobody get’s anything. Fairest of them all.

    Reply
    1. shinola

      Per today’s Kansas City Star, a quote from NY Rep. Chris Collins re. the tax “reform” plan:

      “My donors are basically saying, ‘Get it done or don’t ever call me again.'”

      Doesn’t even bother to lie any more…

      Reply
    2. jrs

      #1 might be the only possible option, all the neoliberalism in the world wouldn’t stop the bailouts of 2008, nor pouring money into the defense industry, because although people argue neoliberalism is a misguided but sincere belief, it seems to me it’s really kind of a cover story.

      I see what you mean though all the talk of deficits don’t matter and the ONLY thing we’d ever achieve from that if people actually believed it it in this money drenched political system is … well what we’ve already achieved: the Republican tax plan. Deficits don’t matter! Do here is another 1.5 trillion in deficit to give money to the rich! The bottom 90% don’t control the political system.

      Reply
    3. Allegorio

      “….so the logical choice is #3. Nobody get’s anything. Fairest of them all.” @cnchai

      What you don’t get, and what the article was articulating, is that if the government doesn’t spend money, there won’t be any money in the economy. It is simple as that. Where does money come from? Can a society function without money? Do we go back to barter?

      “…nobody gets anything, that’s the fairest” This is simple minded. Our economy is based on debt. When all the debt is paid, there is no money left? What about that do you not understand? This is the system we have. A better system would be for the government to issue debt free money, but a lot of banksters would have to be hanging from lamp posts to implement that system.

      Because Americans are so ignorant about how their economy works and are so worried that the “undeserving” will get more than they do, they allow corrupt politicians to loot the economy over and over again and virtue signal about how frugal and deserving they are. It is totally insane.

      Reply
      1. cnchal

        Option #3 is peasant resistance. The government is going to give you less than nothing, in the form an extra trillion in debt added to the pile, to stuff into the pockets of the “donors” as wealth.

        From the peasant viewpoint, nothing is better than less than nothing.

        Reply
  3. LD

    Politicians in both parties want the same thing. Democrats make the cuts in social programs because they’re the ones who can get away with it. Nixon did go to China.

    Reply
  4. Northeaster

    Neither Party care about deficits. Talk of it is a simple distraction. Both Party’s serve special interests in order to plunder for the benefit of the few.

    Reply
    1. MichaelSF

      And how often do leopards change their spots?

      They’ll do what they want to do, and no amount of citizens holding their feet to an unlit campfire will change those plans.

      Reply
      1. jrs

        Perhaps, but we can try. Hoping Dems become better all by themselves out of a change of heart is weak tea indeed, but like Counterpunch is suggesting today it is: “Time to Organize a Mass Movement in Defense of Social Security and Medicare for All”. Other than that voting for the few (and it’s really very few it seems) progressive Dems that run while too little, too late, is likely to do more good than harm.

        Reply
        1. nonclassical

          ..false equivalencies abound, ridiculous given current republicans:

          “As the tax cut legislation passed by the Senate early Saturday hurtles toward final approval, Republicans are preparing to use the swelling deficits made worse by the package as a rationale to pursue their long-held vision: undoing the entitlements of the New Deal and Great Society, leaving government leaner and the safety net skimpier for millions of Americans.

          Speaker Paul D. Ryan and other Republicans are beginning to express their big dreams publicly, vowing that next year they will move on to changes in Medicare and Social Security. President Trump told a Missouri rally last week, “We’re going to go into welfare reform.”

          Their nearly $1.5 trillion package of tax cuts, a plan likely to win final approval in the coming days, could be the first step. But their strategy poses enormous risks, not only for millions of Americans who rely on entitlement programs, but also for Republicans who would wade into politically difficult waters, cutting popular benefits for the elderly and working poor just after cutting taxes for profitable corporations.”

          https://www.nytimes.com/2017/12/02/us/politics/tax-cuts-republicans-entitlements-medicare-social-security.html

          Reply
  5. sleepy

    At some point down the road when the dems are again running the executive and legislative branches, a compromise will be offered up: cuts to social programs in exchange for token repeal of some of the more onerous tax cuts. It will be celebrated as bipartisan sanity returning to Washington. The only issue will be the extent of the cuts to social programs.

    Reply
  6. hemeantwell

    Good video. I look forward to their Kaleckian supplement explaining capital’s aversion to government interventions to achieve full employment.

    Reply
  7. Jim Haygood

    Do you want your government to shrink the money supply for no good reason, year after year after year, by running budget surpluses?

    Fiscal and monetary policy can be quite independent, though they tend to parallel each other in procyclical fashion.

    Remember the loose fiscal, tight monetary policy of the early 1980s, which drove the dollar to stratospheric heights? It could just as well have been tight fiscal, loose monetary policy had Reagan sought balanced budgets and a dovish Fed.

    In different words, the FOMC’s ability to buy Treasuries and MBS is not inhibited by a budget surplus. Their only constraint is running out of Treasuries to buy, as Greenspan fatuously fantasized in the late 1990s.

    Reply
    1. Jim Haygood

      Laurence Kotlikoff has estimated the negative net worth of the US gov at $200 trillion, of which unfunded social promises are the majority.

      There isn’t that much money in the world, even if the fortunes of the rich were confiscated in their entirety.

      A responsible few are trying to forestall an obvious approaching train wreck. Math don’t lie.

      *stirs up a fresh pitcher of austeritas*

      Reply
      1. PKMKII

        Having enough money is easy. The government could print $400 trillion tomorrow if it wanted to, it’s just an exchange medium.

        The real question is, do we have the resources to provide that which the social promises are associated with, the food, shelter, clothing, medical treatments, etc? If we don’t, then that’s a trainwreck. If we do, but it means a redistribution of wealth, well then what we have is a political battle.

        Reply
      2. Chauncey Gardiner

        Ah, the old “There just ins’t enough money in the world” canard that has been employed so successfully in the class war to cut funding for various government agencies and services and to kill spending on infrastructure, public education, bank and markets regulation, and a broad range of other government initiatives. Now it’s on to Medicare, MedicAid and Social Security. Well played. Got a link to the basis for that $200 trillion number? Amazing how it keeps increasing yearly by tens of trillions. Now up to nearly ten times our current national GNP? Presumably it includes not just the present value of the “estimated liabilities” together with the assumptions behind them, but the present value of the tax revenue streams and assumptions behind each. If you don’t have Kotlikoff’s assumptions readily at hand, I’m sure there is a well-funded think tank or two out there that can assist you with “the math that don’t lie”.)

        Austeritas; i.e., Austerity, is a political-economic term referring to policies that aim to reduce government budget deficits through spending cuts, tax increases, or a combination of both.

        “The responsible few”… especially nice…

        Reply
        1. jrs

          “There isn’t enough money in the world to fund Medicare”. Meanwhile Canada spends half of what we do on medical care PER PERSON and covers it’s entire population. There isn’t enough money in the world! Well that applies more to the American medical system than to anything else, there doesn’t seem to be enough money in the world to get everyone covered under a broken system.

          Reply
      3. Lil’D

        Some self-styled “responsible” few believe that there is a constraint on quantity of money?

        Not sure you’ve provided an answer

        Reply
      4. lyman alpha blob

        Are those responsible few also going to slash the war budget to ensure we don’t run out of money?

        Or is it only spending money on helping people live that leads to ruin?

        Your neologism at the end was pretty damn funny though, despite our difference of opinion.

        Reply
    2. Jamie

      Rodger Mitchell on his “Mythbusters” site explains it pretty well. Wealth is relative. You are only poor if you have few resources relative to someone else who has a lot more. The power of the wealthy comes from the size of the difference in wealth, not from the absolute amount of resources they accumulate. There are two ways to increase that inequality. 1) get more for yourself. 2) take some away from other people. It is the “gap” in what they have and what everybody else has that makes the difference—that makes the wealthy powerful. So they favor policies that increase that gap and sustain it, and disfavor policies that would close the gap and share resources more fairly.

      Reply
    3. nonclassical

      …we need study history: “Shock Doctrine-Rise of Disaster Capitalism”, U.S. imperialism, Sept. 11, 1973, Chile’ to comprehend…

      another view: those who contribute to GDP to be favored; anyone else, considered “burden” upon “society”…

      Reply
  8. Chauncey Gardiner

    “5. The reality — Everyone in DC knows these realities.”

    Of course they do. So does everyone on Wall Street, at the central bank, and in the 0.1 Percent. Remember, “Reagan taught us that deficits don’t matter.” And we see this daily in where the existing deficit is allocated. So what would cause them to change their policy positions and relinquish a portion of their wealth and political control?

    Reply
    1. Martin Finnucane

      That’s why I think the first step to conducting class warfare – our class warfare – is to bring home the point to our fellow peasants that the oligarchs and their hangers-on are not merely lording it over us, but that they’re laughing at us. We can all take our share of misfortune (it’s a peasant’s lot, after all), but being laughed at is unbearable.

      Reply
  9. Wukchumni

    Why does it seem as if our financial future is akin to the plot of Dumb and Dumber, where the dynamic duo raid money from a found briefcase, and leave IOU’s in it, as they spend it all?

    Reply
  10. Altandmain

    The Democratic Establishment is paid not to care. They get their money from billionaires, Wall Street, Silicon Valley, etc, so they will do whatever the donors want.

    Their plan seems to be to get another neoliberal like Clinton or Obama once the full extent of the crisis becomes apparent. Then they will get a few concessions for the worst parts, in return to further dismantle the state and any social benefits.

    It took a Democratic Administration, Clinton to end “welfare as we know it”, to pass NAFTA, and to end Glass Steagall. Had Clinton not kept his zipper down with the Lewinsky affair, social security would have been in serious jeopardy as he wanted to privatize it. Bush, notably was unable to do so, while Obama accepted cuts to benefits again.

    As Bernie Sanders notes, this so called deficit is being engineered to someday slash benefits again.

    Reply
  11. Ellery O'Farrell

    Probably too late for this discussion, but:

    – Suspect there aren’t two buckets (rich/MIC vs. those who need assistance, the working class and poor) but three: rich/MIC, upper- and middle-middle class (call them the comfortable 20%, who have stable jobs, houses, etc.), and the working class/poor. The current bill in both its Senate and House flavors disproportionately benefits class #1 (rich) at the expense of both others. This will, and already has, caused a very predictable outcry. But only in favor of class #2 (the comfortable), not class #3. Makes it likely that revisions in conference will favor class #2 and leave class #3 out in the cold. And objections to those revisions will be few and impotent.

    – Which is why I hope Mr. Haygood is misunderstood and that he’s being snarkish, not sincere. Because otherwise, I think we’re lost. We shouldn’t, won’t and can’t survive if we’re willing to let class #3 — people and children, after all — suffer or even die just because they need help.

    Reply

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