An Excerpt from Real Fiscal Responsibility, Vol I: the Progressive Give-up Formula
Below is an excerpt from my most recent e-book: Real Fiscal Responsibility, Vol. I: The Progressive Give-up Formula. The book is volume I of II critiquing austerity politics at the Federal level in the United States. It exposes its fallacies, its closed-mindedness and futility, and especially its reliance on wrong-headed conceptions of fiscal sustainability and fiscal responsibility.
In this volume, I relate neoliberalism, the Washington Consensus, and austerity politics pushed by the powers that be among the DC Village progressives, and the ideas of fiscal sustainability and fiscal responsibility, to the perspectives of Modern Money Theory (MMT), including MMT-based ideas about fiscal sustainability and responsibility. I also explain what I mean by real fiscal responsibility, rather than faux fiscal responsibility, and apply these ideas to an analysis of the US Government during the term of Jimmy Carter. I begin my analysis of current progressive ideas and activities by examining the views of Senator Bernie Sanders, and Elizabeth Warren, and then continue by analyzing the operation of the give-up formula among Congressional and DC progressives during the period 2009 - 2010, when the Democrats had big margins in Congress. I then move to the period 2011 – the present. Next, I analyze the Campaign for the American Future and its New Populism Campaign, and then conclude by relating the give-up formula to real fiscal responsibility.
Beginning of Excerpt: When it comes to protecting the legacies of the New Deal and the Great Society, and pursuing real fiscal responsibility in the United States, the Progressive give-up formula is alive and well among the political class in the United States. . . .
. . . Here is the general pattern of the give-up formula. Progressives in Congress, various “think tanks," and economists want to be part of “the village,” sometimes sardonically called “Versailles” in the blogosphere. So, to do that they decide to participate in the annual budget games in Washington, DC by offering their own deficit reduction plans.
Of course, “progressive” deficit reduction plans are better for working people than plans offered in past years (See vol. II, forthcoming) by Erskine Bowles and Alan Simpson, by people such as Alice Rivlin and Peter Domenici, and by foundations such as the Peterson-Pew foundations, and Congressman Paul Ryan. For one thing they prioritize jobs and lower unemployment ahead of short-term spending cuts. For another, they raise income caps on Social Security contributions in order to strengthen projections about social security solvency.
For yet another they address increasing health care costs much more “seriously” than the Bowles-Simpson plan, which just makes assumptions about cost-cutting without beginning to indicate how these cuts would be achieved. Still, the bottom line of progressive budget plans is that they have chosen to play the game of the neoliberals just listed and the President, and to offer plans for deficit reduction, rather than saying directly, as Jamie Galbraith did, that there is no deficit/national debt/debt-to-GDP ratio problem, and that in place of a deficit reduction plan they ought to offer a fiscal plan for returning to full employment and re-building America for the 21st century instead.
It is this acceptance of the President's game, this agreement to look at Government fiscal policy through the lens of deficits, the national debt, and the debt-to-GDP ratio that is the “give-up” aspect of the progressive plans.
To uncritically accept the problem framing of the opposition (and yes, President Obama is the opposition as much as the Republicans in the framing of the problem as well as in his actions) is to “give-up” the fight. It is not necessarily to accept full defeat, but it is to ensure at least partial defeat. And in this case, accepting the President's and the deficit hawk's framing of the problem is to accept, for the indefinite future, the idea that every progressive Government spending initiative must be evaluated from the viewpoint of whether “we can afford it” or not, or whether it de-stabilizes the debt-to-GDP ratio, regardless of the benefit it will deliver to Americans.
Government fiscal policy and the ideas of fiscal sustainability and fiscal responsibility need to be viewed from the broad viewpoint of the employment of Government spending to fulfill America's public purposes, and not from the narrow one of how Government fiscal activity will impact deficits, debts, and debt-to-GDP ratios. The reason for this is that for a nation like the United States with a fiat non-convertible currency, a floating exchange rate, and no debt denominated in any foreign currency, there is no risk of insolvency, however high the deficit, debt, or debt-to-GDP ratio may have grown in the past. Whatever the levels of these statistics are, the constitutional authority of the Government to spend on public purposes remains unimpaired and undiminished.
Given the lack of insolvency risk, issues of fiscal sustainability and fiscal responsibility are always about the extent to which Government fiscal activity can or have helped the real economy to achieve public purposes like full employment, elimination of poverty, economic sustainability, economic transformation, universal health care, and the various other dimensions of public purpose listed earlier in the book. Managing government fiscal activity by looking at the extent to which it succeeds in holding down debt, or stabilizing debt-to-GDP ratios, is not about managing for real fiscal sustainability for fiat sovereigns, because these numbers are not about the real economy, but are only statistics about the Government's nominal economic activity.
Nor is successful stabilization of the debt-to-GDP ratio a mark of fiscal responsibility. In fact, if unemployment, or lack of economic transformation, or poverty, or failing educational and health care systems, continue to exist, then a successful effort to maintain a particular debt-to-GDP ratio, or success in producing a fiscal surplus, are marks of fiscal irresponsibility, not fiscal responsibility.
So, in aiming towards stabilization of debt-to-GDP ratios, the progressive plans fall into the fiscal irresponsibility category just as the conservative plans do. They may not be as fiscally irresponsible, since they give more weight to economic needs than the conservative plans do in the course of seeking stabilization of the national debt. But the fact remains that they still do prioritize debt stabilization as a goal that Government fiscal activity should seek, at the expense of real economic needs, including sustainability of economic growth.
James K. Galbraith, in a post on the Bowles- Simpson (“Catfood”) Commission's report five years ago, called “Casting Light on 'The Moment of Truth,” takes the Commission's Report to task for its intellectual confusion, persistent lack of attention to evidence, lack of economic analysis, and use of the household analogy in describing the fiscal limits of the Government, Among other remarks, he says:
The only other effort at economic analysis in the report is the section entitled 'The Looming Fiscal Crisis.' This begins with the claim that, 'Our nation is on an unsustainable fiscal path.' No evidence is presented. . . .
However, the Bowles/Simpson Report isn't the only one that declares that the United States “. . . is on an unsustainable fiscal path . . .” All of the conservative budget plan reports offered in recent years do exactly the same thing, and the mainstream “progressive” plans, even if they don’t trumpet that claim up front, share the same framing about the necessity of deficit reduction.
They all share the Peter G. Peterson/Barack Obama “gospel” that we are “. . . on an unsustainable fiscal path . . . “ And they do that without any analysis or evidence, but take as self-evident long-term fiscal projections that are pure science fiction and will never materialize in reality.
On the basis of this gospel, all of the budget reports agree that we have fiscal sustainability, fiscal responsibility, and deficit reduction problems. But there is no deficit reduction problem for a nation like the United States. And the only fiscal sustainability and fiscal responsibility problem we have are the ones they are making by inventing a non-economic problem and diverting attention from the real economic and social problems of Americans and American society. . . . End of excerpt.
This Kindle e-book, along with the forthcoming vol II, is intended to contribute to an effort to dispel the austerian myths about fiscal sustainability/responsibility that prevent Americans from understanding what policies can contribute toward fulfilling public purpose and what policies only take us further away from that goal. A great struggle for the future of American Democracy and for the heritage of the New Deal, the Fair Deal, and the Great Society is underway. The outcome is likely to depend on people developing a correct understanding of real fiscal responsibility, so that the full policy space available to the Federal Government in seeking public purpose can be used, if there is a will to do that. The perspectives developed in the book, will, hopefully, help to secure and extend US democracy in all its dimensions, and also FDR’s Economic Bill of Rights, the unfinished business of the New Deal.
(Cross-posted from New Economic Perspectives.)