Beat the Deficit Hawkism Frame or Lose
The corporatist-centrist politicians, such as Judd Gregg, Kent Conrad, Evan Bayh, no longer afraid of a total collapse of the world economy, are using deadly innocent frauds, scare, myths, and lies about the deficit and the national debt to undermine the possibilities of progressive change in the United States. It seems, also, that they're now being led by President Obama, who has emerged as a full-throated champion of deficit hawkism, while pretending to be concerned about the well-being of the Middle Class, during his first State of the Union speech, where the President treated us to the following statements, about the debt, and the deficit, among others.
“One year ago, I took office amid two wars, an economy rocked by a severe recession, a financial system on the verge of collapse, and a government deeply in debt . . . “
This was the President's first mention of the debt in the speech. He continued with this mention when talking about the health care initiative:
”Our approach would preserve the right of Americans who have insurance to keep their doctor and their plan. It would reduce costs and premiums for millions of families and businesses. And according to the Congressional Budget Office -– the independent organization that both parties have cited as the official scorekeeper for Congress –- our approach would bring down the deficit by as much as $1 trillion over the next two decades. . . . ”
No mention here of how many fatalities, bankruptcies, and foreclosures due to lack of health insurance would result from “our approach . . . ”, or that CBO only keeps score with respect to the gap between Government tax revenues and expenditures, but has nothing to say about the social costs and benefits of Government programs. But, of course, the important point is that this quote reflects Mr. Obama's assumptions 1) that the deficit matters and that it is important to bring it down, 2) that it is a significant accomplishment to bring down the deficit by an average of $50 Billion per year over 20 years, and 3) that it is worth mentioning that a health care reform will bring down the deficit by a fraction of a percent of GDP per year, when it will not end fatalities, bankruptcies, and foreclosures due to lack of insurance, or make insurance truly affordable for much of the Middle Class. The President continues with:
“. . . Our deficit will grow. . . ”
As if this was important and a bad thing. And then continues:
“Now, even as health care reform would reduce our deficit, it's not enough to dig us out of a massive fiscal hole in which we find ourselves. It's a challenge that makes all others that much harder to solve, and one that's been subject to a lot of political posturing. So let me start the discussion of government spending by setting the record straight. . . . ”
Again, there is the claim that the gap between tax collections and Government expenditures is a big problem. And then a little history:
“At the beginning of the last decade, the year 2000, America had a budget surplus of over $200 billion. By the time I took office, we had a one-year deficit of over $1 trillion and projected deficits of $8 trillion over the next decade. Most of this was the result of not paying for two wars, two tax cuts, and an expensive prescription drug program. On top of that, the effects of the recession put a $3 trillion hole in our budget. All this was before I walked in the door. . . .”
Again, we see the unquestioned assumption that the deficit resulting from the Great Recession is bad and also that the Clinton surplus was good, even though many economists now think that this surplus was a big factor in the relatively mild recession that occurred at the end of the Clinton Administration, and that the deficits resulting from the recession are actually stabilizing the economy. And Obama proceeds with:
“. . . Now, if we had taken office in ordinary times, I would have liked nothing more than to start bringing down the deficit. But we took office amid a crisis. And our efforts to prevent a second depression have added another $1 trillion to our national debt. That, too, is a fact. . . .”
Again, the assumption that deficits are bad, and that bringing them down is a worthy goal. And next the inevitable analogy:
“. . . I'm absolutely convinced that was the right thing to do. But families across the country are tightening their belts and making tough decisions. The federal government should do the same. So tonight, I'm proposing specific steps to pay for the trillion dollars that it took to rescue the economy last year. . . .”
So the justification of what's about to be proposed is the analogy of the Government and the nation of the United States of America to a family. Because families are having hard times, and have to tighten their belts, the Government needs to do the same. Never mind that if it does, then families will have to tighten their belts even further. Never mind that a family can't create currency that is legal tender and the Government can. In spite of these differences, the President evidently thinks that the Government, like a family, has to tighten its belt and to repay the trillion dollars it took to rescue the economy in 2009, even though, of course from the viewpoint of the 17 or 18% of the work force who are either unemployed or under-employed, and also many of those, who, in hope, voted for this President, the “rescue” of the economy is still far from complete. And so, the President continues with one of the most important proposals in his State of the Union Speech:
“Starting in 2011, we are prepared to freeze government spending for three years. Spending related to our national security, Medicare, Medicaid, and Social Security will not be affected. But all other discretionary government programs will. Like any cash-strapped family, we will work within a budget to invest in what we need and sacrifice what we don't. And if I have to enforce this discipline by veto, I will.”
Again, we see the false family analogy, and also a statement of the intention to enforce “discipline” because the American “family” is “cash-strapped.” Later we learned that Obama's “freeze” is really an overall cap on non-security discretionary authority, rather than on outlays, and also will not apply to Recovery Act extensions, or other deficit spending job-creating or saving, as well as other “emergency,” measures. Nevertheless, Obama's proposal is still asserting that America must economize because it is a “cash-strapped family,” a highly debatable proposition to say the least, since it's based wholly on the idea that the cumulative gap between tax revenues and other cash income and Government expenditures has grown substantially during the Bush Administration and since the beginning of the great recession, and not at all on the capacity of the American Government to create money. Mr. Obama assures us:
“We will continue to go through the budget, line by line, page by page, to eliminate programs that we can't afford and don't work. We've already identified $20 billion in savings for next year. To help working families, we'll extend our middle-class tax cuts. But at a time of record deficits, we will not continue tax cuts for oil companies, for investment fund managers, and for those making over $250,000 a year. We just can't afford it. . . . ”
While, I'm all for eliminating programs that don't work, and also for eliminating tax breaks for those who are not paying their fair share of taxes, the contention that we ought to do this because we can't afford to keep them is also debatable, since it is also based on the idea that the Government is “cash-strapped.”
“Now, even after paying for what we spent on my watch, we'll still face the massive deficit we had when I took office. More importantly, the cost of Medicare, Medicaid, and Social Security will continue to skyrocket. That's why I've called for a bipartisan fiscal commission, modeled on a proposal by Republican Judd Gregg and Democrat Kent Conrad. This can't be one of those Washington gimmicks that lets us pretend we solved a problem. The commission will have to provide a specific set of solutions by a certain deadline.”
“Now, yesterday, the Senate blocked a bill that would have created this commission. So I'll issue an executive order that will allow us to go forward, because I refuse to pass this problem on to another generation of Americans. And when the vote comes tomorrow, the Senate should restore the pay-as-you-go law that was a big reason for why we had record surpluses in the 1990s. . . . ”
These last two paragraphs again call for solving the deficit “problem” and state his intention to create an advisory commission in the Executive Branch after the Senate refused to pass the Conrad/Gregg proposal to create such a commission in the legislative branch, because he's concerned about “another generation of Americans” having to cope with the big bad deficit problem. By the way, the Senate passed the pay-go rule called for by the President the next day on a party-line vote, to match the one the House had passed in July. Pay-go probably would not have passed in the Senate if the Democrats had waited for Scott Brown to take the seat he just won in Massachusetts. This is interesting because the Democrats backed off any quick action on health insurance reform saying that the people of Massachusetts had spoken and that they should not try to act on health insurance and go around the results of the election. They had no such scruples about “pay-go,” however. Unfortunately, in my view, since the success of “pay-go” in the 1990s in bringing down the deficit and creating a surplus was one of the factors in causing the unfortunate recession at the end of Clinton's and the beginning of Bush 43's terms. Mr. Obama continues:
“Now, I know that some in my own party will argue that we can't address the deficit or freeze government spending when so many are still hurting. And I agree -- which is why this freeze won't take effect until next year -- (laughter) -- when the economy is stronger. That's how budgeting works. But understand –- understand if we don't take meaningful steps to rein in our debt, it could damage our markets, increase the cost of borrowing, and jeopardize our recovery -– all of which would have an even worse effect on our job growth and family incomes.”
Even though I can certainly agree with this, and am relieved that the “freeze” won't take effect until the beginning of fall 2011, when the economy may be stronger, it is much more likely that any overall cap on Federal discretionary will damage our recovery, than it is that failing to have one, or even greatly increasing Federal Spending on rebuilding our energy sector, or our system of public education, or our health insurance system, would. The idea that increasing our expenditures would lead to increasing our debt and would damage our markets is a theory for which there is plenty of contrary empirical evidence. And, as for increasing our cost of borrowing, whether we borrow or not to make federal expenditures is the Government's choice. If Mr. Obama doesn't want to pay higher interest rates, he can just have the money for additional expenditures created and pay no interest at all. The President continues:
“From some on the right, I expect we'll hear a different argument -– that if we just make fewer investments in our people, extend tax cuts including those for the wealthier Americans, eliminate more regulations, maintain the status quo on health care, our deficits will go away. The problem is that's what we did for eight years. That's what helped us into this crisis. It's what helped lead to these deficits. We can't do it again.”
What led to the very big deficits was the Great Recession. The precise causality that accounts for that probably has much more to do with lack of regulation, lack of investment in people, and lack of health care reform than it has to do with the Bush tax cuts, though the evidence is pretty clear that these certainly did nothing to forestall the Great Recession, and that the economy would probably have performed much better in the Bush years if health care and educational reforms had been passed rather than tax cuts and giveaways to the insurance companies. He continues:
“Rather than fight the same tired battles that have dominated Washington for decades, it's time to try something new. Let's invest in our people without leaving them a mountain of debt. Let's meet our responsibility to the citizens who sent us here. Let's try common sense. A novel concept.”
I think we can all agree that there are many “tired battles that have dominated Washington for decades” can be avoided if we try something new, but I think that the prime examples of tired Washington battles are those over budget deficits that must be opposed and eliminated at the expense of “discretionary expenditures” on maintaining and rebuilding a just society. This is the example of tired Washington thinking and myth-making that we must root out if we're going to solve our problems.
The reasons why deficits are not a problem are the following. First, the Government of the United States can never go broke, because it has unlimited authority to create money to use for whatever purposes it cares to. It cannot run out of money. It can never become insolvent, or fail to pay its debts, so long as it chooses to create more money. Second, the Government doesn't have to borrow money to repay its debts, or to spend more than it does now. If it does borrow money that is its choice, dictated by false ideas, not dictated by any real need. Nor does the Government have to increase taxes to collect money to pay for its spending. It doesn't need accumulated tax revenues to pay for what it spends unless it it needs to withdraw money from the economy to reduce inflation. As long as there's no inflation, and therefore no need to resort to increased taxation, or to other means to withdraw money from the economy to reduce inflation, there's no Governmental need for the tax money.
The belief that the Federal Government can't, or should not run, a deficit, is nothing more than a mistaken belief that prevents Progressives and Democrats from solving real problems. It prevents them from advocating for enhanced Medicare for All and making it effective within a year. It prevents them legislating an effective jobs program that will work quickly, and end the recession before the elections in the Fall. It prevents them from moving quickly to fund a rapid transformation to an economy based on alternative energy sources. It prevents them from rapidly improving our educational system or rapidly repairing our deteriorating infrastructure. It prevents them from spending the money needed in order to reconstruct our mass transportation system. The idea that when families tighten their belts, the Government, like a family, should also tighten its belt, is "stupid Hooverism." It is not only wrong but precisely the opposite of the right thing do, because when families tighten their belts, private sector demand falls and the economy spirals downward, unless business or Government increases expenditures and picks up slack demand. Since in recessions businesses also tighten their belts, Government must spend more and not less to stabilize the economy and foster renewed growth.
The truth is that the deficit hawkism of the Conrads, the Greggs, the Obamas, and even, yes, the Russ Feingolds (who's not only crazy for pay-go rules, but also for a line-item veto for the President, God forbid), is one of the greatest enemies of both the progressive movement and the Democratic Party on the horizon. In relation to our governing ideals of liberty and equality, and even in the sphere of having a society and a Government that works for most of our people, America has lost an enormous amount of ground since the 1970s, and, in our thinking at least, even since the 1940s. Progressives, and the rest of us, are not going to gain back that ground unless we set about solving our real problems and ignore false ideological myths like the need to reduce or eliminate the debt, or the deficit. Again, budget deficits are only a problem when inflation begins to appear. If there is no inflation, Progressives and Democrats should not even give lip service to the idea that deficits are important. We simply must not accord this frame of reference any validity at all, and we must fight the deficit hawks, regardless of Party, and including the President, every step of the way, when they attempt to push deficit hawkism or to make it a theme of our Government. Indeed, I think our choice hear is very stark. We must beat deficit hawkism and its deadly innocent frauds or progressivism will die, and neo-liberalism and a future in which life for ordinary Americans is "nasty, brutish, and short" will be the unchanging lot of the American people.