Deficit spending by the government is merely the counterpart of private sector saving. What government deficit spending does is to permit the private sector to achieve its level of desired saving. When the latter changes, government spending ought to be adjusting in the opposite direction to offset it (unless the current account balance happens to do the job).
Domestic Private Balance + Domestic Government Balance + Foreign Balance = 0
is an accounting identity that provides a focus for macroeconomic analysis, explanation, and prediction by economists applying the Modern Money Theory (MMT) approach. It leads to a very critical line of thinking about the budget deficit projections produced for our consumption by the Congressional Progressive Caucus (CPC), Congressional Budget Office (CBO), the House, and the Senate. The US has recently had a sharp decline in its balance of trade deficit. It now stands at about 3% of GDP; which means that the rest of the world has a surplus, a balance of +3% of US GDP in its annual trade with the United States.
Assuming that surplus is unlikely to shrink anymore, we can see from the equation that unless the Government balance is less than -3% of GDP, the Domestic Private Balance in the United States economy will not be positive (a surplus, and addition to nominal financial wealth) and is very likely to be negative (a deficit, a subtraction from nominal financial wealth). So, the private sector taken as a whole will be losing rather than gaining Net Financial Assets (NFAs), every year for as long as the situation lasts. Read more about A Plague on All Your Budgets
More on liberty from Ryan's reply to the President's 2011 SOTU. These are about that old Republican hypocritical favorite, “small government.”
”The President and the Democratic Leadership have shown, by their actions, that they believe government needs to increase its size and its reach, its price tag and its power.”
What planet does Congressman Ryan live on? The Democrats have done very little to increase the size of Government. The measure of that is that the average annual growth in Federal Government spending is the lowest it's been in the period since Dwight Eisenhower became President. In addition, Federal spending as a percent of GDP is still extremely low compared to National Government expenditures by the nations mentioned in my last post, and has only risen about 5 percentage points from Bush Administration levels, in response to the economic crisis, which, remember, was caused by policies avidly supported by Paul Ryan and conservative Republicans.
In addition, the President, much to his discredit, has done all he could to keep Government expenditures revenue neutral or revenue positive, beyond expenditures for defense, the stimulus, and increases in social safety net expenditures resulting from the recession. His health care reform bill is a disgraceful attempt to bailout the insurance companies without taking them over, because he would not entertain Medicare for All, since it wasn't “revenue neutral.” Never mind that enhanced Medicare for All would have saved the private sector $900 Billion per year in Medical Costs, and that the stimulus involved in an additional $800 Billion of Federal deficit spending would probably have created an addition 2 million jobs, at least. Read more about Ryan's Follies: Back to Liberty
More Ryan's follies from his answer to the President's 2011 SOTU. These are about that old Republican hypocritical favorite, “small government.”
”So I’d like to share with you the principles that guide us. They are anchored in the wisdom of the founders; in the spirit of the Declaration of Independence; and in the words of the American Constitution.
They have to do with the importance of limited government; and with the blessing of self-government. . . .
We believe, as our founders did, that “the pursuit of happiness” depends upon individual liberty; and individual liberty requires limited government.”
Here's the next group of Ryan's follies from his answer to the President's 2011 SOTU.
On bureaucracy and innovation:
”Depending on bureaucracy to foster innovation, competitiveness, and wise consumer choices has never worked – and it won’t work now.”
That may be. But depending on the big banks and big US corporations to either get lending going again, or to bring innovation and jobs to the United States also won't work. What will work is for the Government to increase aggregate demand by deficit spending in areas of the economy we want to grow.
“Bureaucracy” is just a scare term. The big corporations that Ryan, the Republicans, and many Democratic Congresspeople serve are all just as bureaucratic, and in the case of the health insurance companies, even more bureaucratic than the Government. The dirty little secret of the social sciences is that bureaucracy comes with large size whether we're talking about private or public organizations. So, unless Ryan has plans to break up the large banks, insurance companies, pharmaceutical companies, telecommunications companies, and exporters he loves so much, he really ought to shut up about “bureaucracy,” because his precious private sector has absolutely nothing to crow about when it comes to that feature of large organizations.
If we don't like bureaucracy, then what we need is regulation that will break up large organizations, making them illegal beyond a certain size. Then perhaps we might create functioning markets and be able to shrink the Federal government too. But this kind of solution is off the table for Ryan and Romney since regulation is a no-no from the standpoint of their ideology. Read more about Ryan's Follies: Bureaucracy, Austerity, and Depression
Still more Ryan's follies from his answer to the President's 2011 SOTU.
On the Affordable Care Act (ACA)
”Then the President and his party made matters even worse, by creating a new open-ended health care entitlement.
“What we already know about the President’s health care law is this: Costs are going up, premiums are rising, and millions of people will lose the coverage they currently have. Job creation is being stifled by all of its taxes, penalties, mandates and fees.”
More on Ryan's follies and the overall quality of thinking we find in this young “guru”! Here's more from his answer to the President's 2011 SOTU.
”On this current path, when my three children – who are now 6, 7, and 8 years old – are raising their own children, the Federal government will double in size, and so will the taxes they pay.”
It will be roughly 19 years until Ryan's children are raising their own children, and guess what? GDP will be between two and three times what it is now, and, as we've already seen there's no reason why taxes should be any higher as a percentage of income for most people, unless of course, people like Ryan keep lowering taxes for the rich and raising them for everyone else in order to achieve a damaging budgetary surplus.
Hopefully, the tax rates for the top 2% of the population will be far higher than they are now, and estate taxes will return to their levels in the 1950s, so that gentlemen like Congressman Ryan can begin to pay their fair share again, and the United States can once again have a wealth distribution that is more equal than the likes of Russia, China, Turkey, and Jordan. Read more about Ryan's Follies: Oy! Taxes, Decline, and Austerity
In celebration of Paul Ryan's nomination, and in consideration of his reputation among Washington, DC villagers as a fiscal guru, I thought it might be fun to do a series of posts, of which this is the first, critiquing examples of Ryan's past wisdom. Here's the first example:
”We face a crushing burden of debt. The debt will soon eclipse our entire economy, and grow to catastrophic levels in the years ahead.”
The debt referred to here by the Congressman is the accounting construct of the national debt subject to the limit, or the face value of the debt instruments the Government has yet to redeem. But just why the “burden of debt” is so crushing, or even a burden at all to you and I really needs to be explained carefully by Ryan and the other deficit hawks to the rest of us.
I don't see any public debt burden on myself or any American people at all either at present or in the future. Why? Because a burdensome debt is one that you and I will personally have to pay back, and we just won't ever have to pay the public debt of the US back from taxes that we are asked to pay to the Government. That is, we won't unless Congress and people who believe the things Mr. Ryan believes, decide to pay the debt by levying taxes, cutting Government spending, and running Government surpluses until it is paid. Read more about Ryan's Follies: A Crushing Burden of Public Debt
This morning cable media shared images of Paul Ryan talking about “shared scarcity” instead of “shared sacrifice.” I just can't believe his handlers thought that this would make it better. Do they really believe that when he calls for “shared scarcity” people won't reply “Let's see Paul Ryan, the Koch brothers and the rich share some scarcity for a change”? Read more about Can't Believe He Thinks “Shared Scarcity” Will Make It Better!
Excellent post at a physician's blog on the Republican fantasy that a voucher system will lead to consumers making more efficient choices and driving down health care costs. Read more about Why "Skin in the Game" Isn't Going to Reduce Health Care Costs
In my last two posts I reviewed the deficit reduction aspects of Paul Ryan's Republican response to the SOTU. But Ryan also placed considerable emphasis on the idea of “limited government” in his response. In this post, I want to evaluate what he had to say on this theme.
So I’d like to share with you the principles that guide us. They are anchored in the wisdom of the founders; in the spirit of the Declaration of Independence; and in the words of the American Constitution.
They have to do with the importance of limited government; and with the blessing of self-government. . . .
Here's Part Two of my textual analysis of the deficit reduction portion of Paul Ryan's Republican response to the SOTU.
Then the President and his party made matters even worse, by creating a new open-ended health care entitlement.
What we already know about the President’s health care law is this: Costs are going up, premiums are rising, and millions of people will lose the coverage they currently have. Job creation is being stifled by all of its taxes, penalties, mandates and fees.
Many of my recent posts have focused on fairy tales I thought the President would tell in the SOTU and also those that he did tell. The reason for this is that I think people on the left have a greater need to be informed about Obama's fairy tales, then they do about Republican fairy tales, since they are automatically skeptical about what Republicans say given their 40 year history of systematically lying about reality every chance they get. Read more about Paul Ryan's Deficit Reduction Fairy Tales: Part One
In "All Together Now: There Is No Deficit/Debt Problem,” I warned against the message calling for deficit reduction that the President will probably deliver in his State of the Union Address next month. I view the coming narrative as very likely to be composed of a number of fairy tales. Two previous posts have criticized two of the many fairy tales I expect to be in the narrative. This post examines the third fairy tale, namely the idea that we can't keep adding debt to the national credit card. Paul Ryan, the Republicans' most visible fiscal genius is particularly fond of this one, as are both Ron and Rand Paul, and the tea partiers. Read more about Fairy Tales of the Coming State of the Union: We Can't Keep Adding Debt To the National Credit Card