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When Will the White House and OMB Ever Learn About Sector Financial Balances?

In my last post I asked this same question about the House Budget Committee. As my readers saw in that one, the attempts at deficit reduction leading to budget balance were so severe that they implied that if the House budget were followed, and if the economy did not collapse before the decade projection period ended due to a collapse of aggregate demand, then private sector deficits would be produced in every year from 2017 – 2025. In addition, since the budget provided for severe cuts to federal spending designed to benefit poor people and the middle class, it was likely that the private losses from this budget would be concentrated on the people who can least well absorb them.

In this post, I'll review the sectoral financial balances implications of the White House/OMB projections to see how they compare to those of the House Budget Committee. I'll begin by repeating the explanation of sectoral financial balances basics I included in my earlier post. Read more about When Will the White House and OMB Ever Learn About Sector Financial Balances?

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When Will CBO and the House Budget Committee Ever Learn About Sector Financial Balances?

It never ceases to amaze me that those who offer budget plans and projections never take into account the reality that their projections must be consistent with implications of trends in sector financial balances for their projections. This is a simple lesson that those playing the fiscal responsibility game never seem to learn. Certainly this is true of the Republican House Budget Committee, as we'll see.

The Sector Financial Balances (SFB) model is an accounting identity, and these are always true by definition alone. The SFB model says:

Domestic Private Balance + Domestic Government Balance + Foreign Balance = 0.

The terms refer to balances of flows of financial assets among the three sectors of the economy in any specified period of time. Why must there be flows? Because the three sectors trade financial assets with one another. So, the equation says that the sum of all the balances of flows for the three sectors of the economy is zero, because, since there's only so much in assets traded in any time period, the positive balance(s) of one or more sectors relative to the others must be matched by the negative balance(s) of the other two sectors. Read more about When Will CBO and the House Budget Committee Ever Learn About Sector Financial Balances?

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The New York Times Covers the TPP: A Commentary

Wikileaks did us all another service yesterday by releasing the “Trans-Pacific Partnership Agreement (TPP): Investment Chapter Consolidated Text,” and collaborating with the New York Times to get the word out. Jonathan Weisman wrote the story for the New York Times. Apart from providing a very high level and very selective summary of what the chapter says, the article contains talking points used by proponents and opponents of the TPP. I think a close commentary on the article and associated issues would be useful. So here it is. Read more about The New York Times Covers the TPP: A Commentary

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Thoughts About the Trans-Pacific Partnership

During a recent Amy Goodman interview of Lori Wallach, director of Public Citizen's Global Trade Watch, on her Democracy Now show, Wallach neatly summarized the problems of progressives with the TPP:

Well, fast-tracking the TPP would make it easier to offshore our jobs and would put downward pressure, enormous downward pressure, on Americans' wages, because it would throw American workers into competition with workers in Vietnam who are paid less than 60 cents an hour and have no labor rights to organize, to better their situation. Plus, the TPP would empower another 25,000 foreign corporations to use the investor state tribunals, the corporate tribunals, to attack our laws. And then there would be another 25,000 U.S. corporations in the other TPP countries who could use investor state to attack their environmental and health and labor and safety laws. And if all that weren't enough, Big Pharma would get new monopoly patent rights that would jack up medicine prices, cutting off affordable access. And there's rollback of financial regulations put in place after the global financial crisis. And there's a ban on "Buy Local," "buy domestic" policies. And it would undermine the policy space that we have to deal with the climate crisis—energy policies are covered. Basically, almost any progressive policy or goal would be undermined, rolled back. Plus, we would see more offshoring of jobs and more downward pressure on wages. So the big battle is over fast track, the process. And right now, thanks to a lot of pushback by activists across the country, actually, they don't have a majority to pass it. But there's an enormous push to change that, and that's basically where we all come in.

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The Value of the Right Ratio Is Zero

The public debt-to-GDP ratio is, perhaps, the most important measure used in discussions of the relative fiscal sustainability of nations. Nations with high levels of debt-to-GDP are viewed as having more serious fiscal problems than nations with lower levels. Nations having increasing ratios over time are viewed as becoming less fiscally sustainable, while those with decreasing ratios are viewed as more fiscally sustainable.

But is the public debt-to-GDP ratio really a valid measure of fiscal sustainability, or is it a measure that incorporates a neoliberal theoretical bias in its fundamental assumptions? In the United States, the total value of public debt subject to the limit at any point, is the total principal value of all the outstanding debt instruments sold by the Treasury Department. The GDP is the aggregate value of the production of goods and services in the United States within a particular period of time, adjusted for price changes.

So, the public debt is a variable measuring a cumulated stock, while GDP is a flow variable measuring economic activity within a particular period of time. Why compute a ratio of a cumulated stock to a flow within a circumscribed period of time?

Well, in this case of the debt-to-GDP ratio, neoliberal economists reason that the stock, the debt, can only be reduced if the government takes away part of the flow each year to repay a portion of the stock, the debt, leaving less of the flow to add financial savings to the private sector. After all, what other sources of government revenue are there except taxation? Read more about The Value of the Right Ratio Is Zero

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Maya MacGuineas: The Profound Fiscal Irresponsibility of Resistance to Facts

Just as every Spring we can count on the Peter G. Peterson Foundation (PGPF) to do a supportive press release when the CBO issues one of its budget outlook 10 year projection reports, we can also count on being treated to public statements by Maya MacGuineas joining in the Peterson Army choir, warning about the coming debt crisis, and singing about the glories of deficit and debt reduction. And this while completely ignoring the real and sad consequences of deficit and debt reduction policies throughout the world since the crash of 2008, as well as previous applications to Latin American, Asian, and the nations of the disintegrated soviet empire, most notably Russia itself. Let's look at Maya MacGuineas latest effort; her testimony to the Senate Budget Committee. Read more about Maya MacGuineas: The Profound Fiscal Irresponsibility of Resistance to Facts

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The Peterson Foundation Sings the Same Old Song

The Peter G. Peterson Foundation (PGPF) always does a press release when the CBO issues one of its budget outlook 10 year projection reports. The PGPF did another in January quoting its President and COO, Michael A. Peterson. Let's go through that press release and see how many troublesome or false statements we can find. Here's a breakdown of the press release quotation from Michael Peterson.

Today's CBO report reminds us once again that our nation has significant fiscal challenges that have yet to be solved.

It certainly does, but I doubt that Peterson and I would agree on what those challenges are. He thinks they have to do with bringing the national debt under control. I think they have to do with creating full employment with a federal job guarantee program, price stability, a robust economy, a great public and free educational system through graduate school, stopping and reversing climate change, providing everybody in, nobody out, no co-pays and no deductibles health care for all, a first class infrastructure, and a greatly expanded social safety net including a doubling of SS benefits.

He thinks the debt is a long-term problem that we have to start to solve now. I think there is, literally, no public finance-related debt problem for a fiat sovereign like the U.S., and that the problem that exists is not a debt problem, but a political problem created by Peterson and his allies across the political spectrum who have propagandized the view that there is a debt crisis since the mid-1970s, with increasing success since the 1990s. Read more about The Peterson Foundation Sings the Same Old Song

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The “Debt Crisis” According to Bruce Bartlett: Generational Accounting

This is the last post in my analysis and commentary on Bruce Bartlett's testimony to the Senate Budget Committee. There's one very significant issue left to discuss, and that is the issue of fiscal gap and generational accounting and whether it should be institutionalized in legislation. I'll begin this post with that discussion and then end the series with my overall evaluation of his effort.

Fiscal Gap and Generational Accounting

15. Generational accounting exaggerates the burden of debt. Intergenerational accounting attempts to assess financial burdens through time, especially with a view to claiming that financial decisions taken in one generation can impose burdens on another. But this argument refuses to count as real assets the infrastructure and other national assets that the current generation will leave for future generations, and it does not understand that federal government debt never needs to be retired. In real terms, there obviously are no intergenerational transfers, except for the knowledge, the physical assets and the larger environment, which the present leaves to the future. The real goods produced in 2050 will be distributed to those alive in 2050, regardless of the public debt in existence at that time. Meanwhile, the U.S. government can always meet its payments when they come due. . . .

. Read more about The “Debt Crisis” According to Bruce Bartlett: Generational Accounting

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The “Debt Crisis” According to Bruce Bartlett: Debt Thresholds, and Wars

This is the fourth in a series of commentaries on Bruce Bartlett's recent testimony to the Senate Budget Committee. I appreciated his testimony and his critical evaluation of the idea that there is a public “debt crisis” in the United States. I also agree that there is no debt crisis. However, I was disappointed that his views, for the most part, did not show the across the board relevance to most aspects of the “debt crisis” of the fact that the United States is a fiat currency sovereign.

In the previous three posts, I've outlined the many contexts in which the fiat currency sovereignty of the United States is relevant to showing that the idea that the United States has or can have a debt crisis is just bunk. In this post, I'll continue my discussion of Bruce Bartlett's testimony in the same way. Read more about The “Debt Crisis” According to Bruce Bartlett: Debt Thresholds, and Wars

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The “Debt Crisis” According to Bruce Bartlett: Household Analogy, Inflation, Savings, and Taxes

In the first two parts of this series of commentaries on Bruce Bartlett's testimony to the Senate Budget Committee, I've reviewed the first 8 paragraphs in his statement. These points debunked various concerns of those who think the United States has a serious “debt crisis” it must handle before it takes on trivial problems such as its unprecedentedly high level of wealth inequality, lack of true full employment at a living wage, roughly 30 million people still lacking health insurance, one of the worst infrastructure systems in the developed world, transitioning from fossil fuels and ending climate change, creating a first class public educational system from pre-K through graduate school, ending the student loan crisis, creating a single standard of law for all, including the various categories of violators categorized as too big to prosecute by recent Administrations, and ending the student loan debt crisis, just to name a few.

However, what was noticeably missing from the variety of arguments given in his eight paragraphs was a recognition that the United States is a fiat sovereign nation and that this fact has serious implications for most of the subject matter Bruce Bartlett covers in his statement. In this post I'll continue my analysis of his statement to explore the extent to which his views correspond to Modern Money Theory (MMT). Read more about The “Debt Crisis” According to Bruce Bartlett: Household Analogy, Inflation, Savings, and Taxes

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The “Debt Crisis” According to Bruce Bartlett: Capital Investment, the “Debt Burden,” Fiat Currency, and the Debt Limit

This is the second in a blog series of commentaries on Bruce Bartlett's recent statement to the Senate Budget Committee. The first post in the series discussed a number of his comments on aspects of the “debt crisis,” a crisis he and I both believe doesn't exist. I discussed a number of his reasons for doubting the severity of any debt problem and related each of them to the capabilities of the United States as a fiat sovereign.

In this post, I'll cover the issues related to capital investment, the debt burden, fiat currency, and the debt limit. I'll begin with Bruce Bartlett's statement on how capital investments ought to be treated in the budget. Read more about The “Debt Crisis” According to Bruce Bartlett: Capital Investment, the “Debt Burden,” Fiat Currency, and the Debt Limit

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The “Debt Crisis” According to Bruce Bartlett: Fiat Sovereignty

Thread: 

Today, I'll offer the first of five commentary posts on Bruce Bartlett's recent testimony before the Senate Budget Committee. Bruce Bartlett is a long-time veteran of the fiscal policy wars. He initially became known as a supply-side free market economist working for Ron Paul and then Jack Kemp in the 1970s. Later, he served as a senior policy analyst in the Reagan Administration, and then in the Bush 41 Administration as the deputy assistant secretary for economic policy at the Treasury Department. Since then he's worked at conservative think tanks and as a well-known writer on economic policy and politics, becoming increasingly critical, first of the Bush 43 Administration and then of the increasingly rightward trend of the Republican Party. Today I think Bruce Bartlett is best characterized as a fiercely independent voice still respected in conservative circles, and also, among progressives such as Jamie Galbraith and Stephanie Kelton, but never afraid to call balls and strikes on any Administration or Congress as he sees them.

With that brief introduction completed, I'd like to turn now to a commentary on his testimony to the Senate Budget Committee from my own, individual, but Modern Money Theory -informed point of view. This post will discuss the first four points covered in Bruce Bartlett's testimony. Read more about The “Debt Crisis” According to Bruce Bartlett: Fiat Sovereignty

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