Rep. Keith Ellison writes: "America has an historic opportunity. We have the chance to address our budget deficit in a manner not seen since President Bill Clinton created a budget surplus in 1999. And if we do it right, we could pave the way for a vibrant American economy based not on gimmicks like giveaways for special interests, but on job creation for working Americans."
Rep. Keith Ellison testifies during a hearing before the House Homeland Security Committee, 03/10/11. (photo: Alex Wong/AFP/Getty Images)
This Is Our Moment
28 July 11
merica has an historic opportunity. We have the chance to address our budget deficit in a manner not seen since President Bill Clinton created a budget surplus in 1999. And if we do it right, we could pave the way for a vibrant American economy based not on gimmicks like giveaways for special interests, but on job creation for working Americans. As co-chair of the Congressional Progressive Caucus, I urge us to avoid a default on the faith and credit of the United States while protecting Medicare, Medicaid and Social Security.
At every step of the way, Republicans in Washington have blocked a fair plan. The American people are demanding that our government resolves deficits while maintaining our promises to the middle class. Yet, an uncompromising political faction is stonewalling and ignoring the clarion call of this historic moment.
The Congressional Progressive Caucus stands with the American people. Long before Republicans took our economy hostage, we introduced the People's Budget, the most fiscally responsible deficit plan introduced this year. The People's Budget would eliminate the deficit in 10 years. Economists across the political spectrum have called it courageous and responsible. Introducing this budget was one of my proudest moments as a Member of Congress, because it shows the power of Progressive policies and values. Creating an economy that reduces deficits and creates jobs is a progressive value, not just a slogan as it is for the Tea Party.
As the People's Budget has proposed, and the president has affirmed, our solution must reflect the same values that have motivated us historically. We believe in a fiscally healthy America because it leads to an economically healthy America. A balanced budget is critical precisely because it allows us to maintain the services that the middle class depends on. Any deficit deal that takes money away from seniors and American workers who rely on Social Security, Medicare, or Medicaid undermines the original goal of deficit reduction. Any deficit deal that cuts food stamps but pampers the wealthy is not only bad for the most vulnerable Americans, but damages our fiscal health.
Progressive economic policies lead to a sustainable economy. Americans understand this and history confirms it. Progressive policies implemented since the early 1900s launched America into the modern age and created a vibrant, middle class. Yet, for 10 years, Republicans have given more money to special interests, while the middle class has footed the bill. They passed the biggest tax cut ever for millionaires and billionaires, without paying for a dime of it. They passed a giveaway to the pharmaceutical lobbyists that will cost $1 trillion over 10 years. And it was George W. Bush, not President Obama, who ran roughshod into two unfunded wars, which alone are estimated to have cost us $4 trillion, more than 20% of the deficit.
The stakes are too high now. Republicans have taken us to the brink of default, and it is already hurting our economy. If we do default, the pain our middle class feels would be even worse. Retirement investments would be threatened by plummeting stock prices; higher interest rates would make it more expensive for Americans to pay off credit bills; and the unemployment rate would skyrocket in the face of decreased consumer spending. House Speaker John Boehner's proposal is less a good-faith effort to avoid a default than an appeal to a narrow sliver of his political base. As Robert Greenstein, president of the Center on Budget and Policy Priorities wrote yesterday, "[Boehner's plan] could well produce the greatest increase in poverty and hardship produced by any law in modern US history." Most worrisome of all, it wastes our opportunity for a long-term solution and stalls progress for another six months. Credit agencies have already hinted Boehner's plan would not convince them that America is able to pay its bills.
Progressives know this is America's moment to lead. The deadline is upon us - but so is the opportunity.
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Comments
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The simple fact is this: A GOVERNMENT SURPLUS IMPLIES A DEFICIT IN THE PRIVATE SECTOR. And the private sector, unlike the public sector, cannot survive when it's running a deficit. Anyone who does not recognize this simple fact (intuitively or empirically) should not offer commentary on matters of such significance.
Government Deficits allow the private sector to net save financial assets. Balance the budget, and the private sector loses financial assets. Run a government surplus, and you drive the private sector into deficit.
Someone in Washington better figure this out pretty damn quick, or our children and grandchildren are going to be burdened like never before.
The Ph.D. Economists who blog here understand:
http://neweconomicperspectives.blogspot.com
1. Change the laws to permit looting the country. GW Bush did most of this. The code word for this is deregulation.
2. Let the big dogs steal at will -- from Social Security, education, everything we bought over the years with our taxes and contributions. This is called privatization.
3. Gut rich accounts like Social Security, Medicare and Medicaid. This is called reducing spending on social programs.
Combined with endless wars abroad and our police state at home, this is the tactic of our economic pirates who owe -- or give -- no loyalty to anything but profit-taking. The world of profit-taking is the perfect tool for destroying a country's ability at profit-making. It's still stunning to realize what a perfect Trojan Horse Obama was.
And for the U.S., the center of all this, the event that allowed it to happen, was 9-11. The neo-cons had begged for "a new Pearl Harbor" in their September 2000 PNAC. A year later, they had it. The rest is repulsive, but it's history.
A reverse stick for taxes may be an answer. Tax corporations at a higher rate but allow for the rate to drop relative to the number of jobs created in the US for the US.
Deregulation is a ship that may have sailed unless the debate can be framed that regulation is a matter of national security. Fuel, electricity, natural gas, telephone communication must be secured from the vagaries of a volatile stock market in order to make the country secure for all Americans. If you ask us to fight for the US and pay taxes then make those things secure for us in return.
Tax revenues will only go up once people go back to work.
Strong Labor Unions are an aid to reducing the problem of illegal alien workers. What the Immigration Service will not do the Unions could do by checking the status of all its members.
The key to the deficit is Alexander Hamilton's approach. He understood that managed debt is a good thing for an economy. At the time we had a national bank and not the Fed. as we have now. Maybe we need to look at the Fed anew. It is a private bank not a gov't bank and yet has the kind of control on an economy that makes private debts payable only by public taxes. Something odd there.
Government fiscal policy over the business cycle -- Keynesian deficit dove position: deficit spend in bad (less than full employment) times; have government surpluses in good (full employment) times.
MMT position: Government surpluses withdraw net financial assets from the private sector. Therefore, they should only be run when the private sector is over-heated and demand-pull inflation exists. Since the size of the Government deficit, without explicit Government attempts to raise taxes, is determined by 1) the level of savings of the private sector; and 2) the level of the trade deficit (surplus), it is perfectly possible that the Government may have to run deficits continuously to maintain full employment, if there is demand leakage from a trade deficit and/or private savings that the Government must make up for by deficit spending.
Significance: MMT says: ”Don't worry about this simple fiscal rule.” Whether deficits are needed depends on the situation and specifically on our trade balance and our desires to save in the private sector.
MMT: We shouldn't formulate plans for long-term deficit reduction. First, such plans assume that we can accurately predict the effect on deficits of attempts to close them by austerity measures. But, raising taxes or cutting programs ALWAYS reduces net financial assets in the private sector, which reduces aggregate demand, which, in its turn, drives up Government spending and, inadvertently increases deficits. We already see this in the UK.
I'll continue the MMT reply on this issue in my next reply.
Third, deficit owls, point to the capability of Government to spend without issuing further debt, use coin seigniorage, or issue only short-term debt as measures Government can take to either eliminate Treasury bond interest costs altogether, or lower them to a level close to zero. MMT deficit owls say: Governments having sovereignty are “in charge” in the markets, not bond vigilantes.
Significance: long-term deficit reduction plans are a no-no and should be opposed! They're based on false theories, put constraints on Federal deficit spending sure to damage the economy, and hinder progressives in solving real problems
MMT: CBO can produce long-term projections; but they aren't and can't be useful because their assumptions are always unrealistic, often self-contradictory, and always fail to take into account the emergent character of political and economic reality.
Look back at their fiscal projections in the past. In 2002 and after, where were the surpluses being projected by CBO at the end of the Clinton Administration? Where were the projections of the housing bust of 2007 back in 2006? Where were the projections in 2007 of the great crash? Where are the projections right now of what happens if the United States suddenly decides to stop issuing debt? The answer is that projections like these can't be made by CBO because their projections are always based on assumptions that cease to hold because of their sensitivity to unanticipated political occurrences.
Significance: Long-term deficit projections are invalid. Since they don't affect the Government's fiscal capacity, stop doing them! Stop worrying about them! Worry about jobs, poverty, education, energy foundations, health care, global warming, the environment, the rise of global plutocracy, etc. These are the real problems!
MMT: Government spending isn't “funded.” It occurs under the authority of the Government to issue currency, which authority is unlimited by any constitutional requirement for “funding.” There is therefore no intrinsic Government Budgetary Constraint, (GBC) either static or inter-temporal. This means that we never need to ask the question, “how will we pay for it?” when considering Government deficit spending. There are many things we do need to consider: the likely results of such spending, how it's targeted, its implications for full employment; its impact on inflation. However, we never have to ask “how will we pay for it?” or worry that “the Government is broke and can't afford it,” because the Government of the United States is the currency issuer, not the currency user and it always spends and simultaneously issues “currency” when it does so.
Significance: MMT says: We never have to worry about the Government finding financial resources or “how are we gonna pay for it!” So, we can just do what's right when it comes to balancing off the real resources being used to create real wealth!
MMT: Progressive reform programs must always be evaluated in the specific economic and social context of the proposed legislation and the key issue is always the assessment of their likely impact and their real benefits/costs. Considerations of the size of deficits, debt-to-GDP ratios, or trends in such statistics are not relevant. Impacts on employment, inflation, and a various social, economic, and political factors are all relevant. And whether or not there is deficit spending, is certainly important because Government deficit spending adds to private sector net financial assets. However, prioritizing a long-term deficit reduction plan over progressive measures that will result in greater benefits for Americans is fiscally irresponsible because it sacrifices real increases in well-being to an erroneous theory about non-existent Governmental Budgetary Constraints.
Since deficit doves as well as deficit hawks are doing just that with their long-term deficit reduction plans, they too are committed to fiscal irresponsibilit y over the long term. And in their willingness to compromise with deficit hawks out of a shared belief that there really is a long-term deficit problem, they also are willing to allow a certain amount of deficit reduction activity in the short and medium term, even though they know this is likely to be damaging to our already suffering economy.
Significance: Escape from real fiscal irresponsibilit y (trying to target abstract fiscal indicators of budget performance rather than real outcomes of spending) and fiscal unsustainabilit y (pursuing fiscal policy that reduces real economic capacity by destroying industry, manufacturing, and people skills) to true fiscal responsibility (targeting government spending at full employment, price stability, and other real public purposes) and fiscal sustainability (Government spending that at least maintains and generally increases the real, rather than nominal capacity of the economy to produce the goods, services, and conditions that people value and fulfill public purposes).
Congressman, I know your heart's in the right place and that you want to make the economy better. But you need to know how. See this discussion to get started: http://my.firedoglake.com/warrenmosler/2011/07/20/modern-monetary-theory-the-last-progressive-left-standing-2/ and read the material here: http://neweconomicperspectives.blogspot.com/p/modern-money-primer-under-construction.html
I like Keith Ellison. I think he can learn. Hope he'll try.
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