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These Folks are Soooo Clever . . .

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Last week, Reps. Michael Honda, Keith Ellison, Raul Grijalva, Jan Schakowsky, John Conyers, Barbara Lee and Lynn Woolsey stalwarts of the Congressional Progressive Caucus (CPC) begged for mercy from “the Gang of Eight” in a letter.

Here's what they said and my commentary on their “loser liberalism.”

”Thank you for your work - past and present - towards solving one of the greatest policy challenges facing us today: the unsustainable path of our national debt. We appreciate the bipartisan and collaborative spirit with which you've approached your negotiations. . . .”

Thanks vanguard progressives for embracing the major premise of the austerity ideology, namely that the national debt is on an unsustainable path. I'm here to tell you that this idea is false and also terribly harmful to progressive aspirations to end economic stagnation and get everyone, who wants to be, employed at a living wage. You can't win an argument if you start by agreeing with your opponent's false premise.

The US has a non-convertible fiat currency which it allows to freely float on international markets. It also has no debts in any currency not its own. It also has the constitutional authority to issue currency and coins in unlimited amounts to pay any debt obligations when they fall due. It also has a central bank, the Fed, that can determine the interest rates paid on new debt issuance unilaterally and in spite of any desire on the part of private markets to raise those rates. So, it should be obvious to you and everyone else that it doesn't matter how high our national debt, or our debt-to-GDP ratio is, the US always has the capacity to deficit spend what it needs to in order to buy any goods and services for sale in USD, including the services of all the currently unemployed or under-employed who would like full-time jobs at a living wage.

So, why are they agreeing with the austerity mongers? Why are they validating what the deficit hawks have to say? Why are they engaging in “loser liberalism?” How many times do they have to be told that they'll never persuade anyone that they're in the right when they reinforce the framing of people who want to impoverish the poor and the middle class?

The right way to do this is to send a letter to the Gang of Eight denying that there is any debt/deficit crisis at all and pointing out that the US has many problems, the most important of which is high unemployment; but that the unsustainability of the debt path is not among them. And you should demand that they quit wasting everyone's time and report back to the Congress that there is no debt problem; but that there are many other problems that Congress needs to solve.

”. . . .Given reports that a "down payment" is being considered to allow time to negotiate a broader budget deal, we write today to urge you to set a more balanced path and use only revenue for such a down payment in light of the billions in spending cuts agreed to so far.”

The down payment, of course, isn't necessary because there should be no effort at deficit reduction, but rather a larger deficit than we have now to compensate for the aggregate demand leakage to domestic savings and foreign imports. You need here to point out that the full employment deficit should be more like $1.6 Trillion annually spent on the right things, rather than $1.2 Trillion incurred as a result of doing nothing to get to full employment. There are good and bad deficits. And right now the US is running bad deficits whose fiscal multipliers are relatively small. We need, instead, larger deficits spent on programs that will get people employed.

As far as using only revenue to make that down payment is concerned, it isn't honest to deny that raising revenue from taxes, absent compensating deficit spending, won't cost jobs. It will. If the taxes involve ending the Bush tax cuts for the rich, then the impact on the economy will be only $.30 per dollar taxed, while if it's on the middle class and the poor it will be more like $1.25 subtracted from GDP for every dollar taxed. So clearly, it's preferable to tax the rich, if one has to choose.

But we don't have to choose. We don't need to raise taxes to get money to deficit spend. The government can just create the money in the act of deficit spending. That is what it should do if one is interested in growing GDP and creating jobs.

It does make sense to have higher taxes on the wealthy, if one wants to level the paying field of economic inequality. And I am all for raising taxes on the wealthy for that purpose, since extremes of wealth are destroying our democracy. However, having said that, the issue here isn't one of deficit/debt sustainability. And we should not pretend that it is.

There are two issues. One is getting to full-time employment for everyone, and the other is getting to greater economic equality so that the very rich can't afford to influence politics and buy elections so easily that what most of us want becomes superfluous. Let us address both issues, but let us not conflate them by trying to raise revenue on the rich, while costing jobs for those who need them, because we legislate no compensating deficit spending for those tax increases.

”Over the past few years, the only lasting and substantial contribution we've made to deficit reduction has come from spending cuts. While Democrats have conceded nearly $800 billion in cuts as outlined in the spending caps of the Budget Control Act, this achievement has not been matched by any real commitment on revenue. Not a single cent of our recent efforts towards paying down the debt has come from the revenue side of the ledger. Additionally, because of the lack of specificity in the Budget Control Act, the spending reductions could fall largely to the non-defense discretionary categories. From infrastructure and education to research and small businesses, these investments are critical in keeping our nation economically competitive in the 21st century. Continuing down a course of misplaced cuts is destructive, unsustainable, and an impossible route to the long-term deficit reduction we all seek.”

Right! So since we did the wrong thing by making spending cuts earlier, now we should do the wrong thing again by raising taxes on people without compensating increases in deficit spending? Have the CPC stalwarts ever heard the expression: “two wrongs don't make a right”?

They should never have agreed to the previous spending cuts and to the ridiculous idea of long-term deficit reduction come what may; and they should not now be supporting tax increases without insisting on compensating jobs programs. They should be calling for State Revenue Sharing of $1,000 per person, a Federal Job Guarantee, and a payroll tax holiday until full employment is reached. They should also be making this pledge for progressive candidates for office.

”Therefore, we urge you to send a signal that you are truly serious about brokering a balanced deal by breaking through the revenue stalemate. We believe any "down payment" should set the tone for the hard discussions to come by sidelining intractable pledges that are at odds with basic arithmetic. We believe you can send a strong message to the markets, to the credit rating agencies, and - most importantly - to the American people by adopting a down payment entirely of revenue. . . .”

They shouldn't be doing any deals. Deals on deficit reduction are losers for liberals and progressives. We don't need a deal on the revenue stalemate. What we need is no more deals that sacrifice the interests of poor people and the middle class. The CPC members are in Congress to represent them, not to beg for mercy from knuckle-dragging neanderthals who want to destroy the safety net.

As for the ratings agencies and the markets, don't worry about them. They have nothing to say about interest rates. Order the Fed to keep those interest rates near zero. Get the ratings agencies investigated, indicted and prosecuted for continuing fraud and complicity in causing the crash of 2008, and also for blatantly and fraudulently downgrading the ratings of both the US and Japan when neither nation can ever be forced to go bankrupt. That's what they should be writing letters to the Gang of Eight and doing press releases about, not begging “the Gang” for mercy in relation to further spending cuts.

The CPC letter then goes on to further implore the gang of eight to recognize previous spending cuts falling disproportionately on part of the polulation to take “. . . . into account the policies and priorities that have shouldered a disproportionate burden in the past.”

To that all I can say is fat chance! You don't get anywhere by begging tea party folks for fairness and justice, or mercy. The only way you'll get anywhere is to tell them that the whole CPC will vote against any further spending cuts whatsoever including and especially proposed safety net cuts.

”We look forward to working with you to pass a balanced, economically responsible deficit reduction plan.”

That's been the problem from the beginning. They shouldn't be working with the austerians at all on deficit reduction. The very idea of a long-term deficit reduction plan is stupid because government deficits are private sector savings to the penny, and as long we want to have both more imports than we export and private sector savings as well, we must run deficits or, alternatively, increase private sector debts, and why would anyone in the private economy want to see their debts increase.

Of course, there are times when we might want to decrease private sector savings to dampen demand-pull inflation caused by too much private sector demand. But we haven't had a situation like that since the US was exporting much more than it imported more than 40 years ago; and it is unlikely that we will see that kind of situation for many years to come.

So, there is no long-term deficit reduction plan over the next 10 years that could possibly be “responsible.” Any such plan would tend to depress the economy or decrease private sector savings as long as we're still importing 3-4% of GDP more than we export, and as long as private sector households retain their desire to repair the ~40% of the losses in their balance sheets that occurred during and after the crash of 2008.

And that's why CPC members need to "just say no" to any proposals about long-term deficit reductions, whether those proposals come from Republicans, or whether they come from the President of the United States, himself.

Whoever suggests such a plan is being “irresponsible” and is also being anything but “progressive.” CPC members owe it to the people who elected them to refuse to cooperate, and to commit to that refusal right now, before the election!

(Cross-posted from New Economic Perspectives.)

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mtngun's picture
Submitted by mtngun on

The CPC gets its economic advice from neoliberal Jeffrey Sachs (aka "Dr. Shock") and the Pete Peterson funded EPI.

Under the current management, the CPC consistently carrys water for the Obama administration. An example is the way most of the CPC, including the chairs, voted for the Neoliberal HR3606 "Jobs Act" which deregulated IPO's. Bernie Sanders called HR3606 the "Con Job Act."

The CPC is part of the problem, not part of the solution.

The CPC started out as a good thing, when Bernie Sanders was running it, but Raul Grijalva and Keith Ellison are Democratic party loyalists, not independent like Bernie.

I agree with almost everything you say, but have a question about this one line: "If the taxes involve ending the Bush tax cuts for the rich, then the impact on the economy will be only $.30 per dollar taxed, while if it’s on the middle class and the poor it will be more like $1.25 subtracted from GDP for every dollar taxed. "

What is your source for this claim ? You seem to be assuming a higher savings rate for the rich, which is debatable (see the Citigroup Plutonomy memos).

letsgetitdone's picture
Submitted by letsgetitdone on

The tax cuts for the rich were calculated by Mark Zandi to have produced $.30 in GDP for every dollar foregone by the Government. So, I'm assuming that tax hikes for them would cost about $.30 in GDP. Also, his estimates included a fiscal multiplier of 1.30 or so for payroll tax cuts, which I cut back a bit in my estimate to account for the possibility that other middle class tax cuts might be used.

More "lefty" economists accepted Zandi's fiscal multiplier estimates as pretty good ones. Jamie Galbraith used the estimates in his writing. I find Zandi's estimates from Moody's more credible than Citigroups estimates. Don't you?

mtngun's picture
Submitted by mtngun on

If I'm reading that right, Zandi is saying that the rich saved 70% of their tax cuts ? Actually more than 70% if there was any multiplier effect. Doesn't sound right to me. If Zandi backed that out of actual GDP growth, he would have to allow for all the other things going on in the economy, like the soaring capital account deficit during the Bush years.

I don't know where Citigroup got their savings data, but even if it was based on good data, that was before the crash, and saving habits have probably changed since then. Nonetheless, the Citigroup memo made a good point about the psychology of the rich -- that they didn't feel the need to save because they weren't worried about money (at that time).

In general, I found the Citigroup plutonomy theme consistent with my own business experiences. Businesses that catered to the rich did very well during the Bush years, and also rode out the crash better than most. The rich are where the growth is. That's still true today.

Seems to me that savings habits are constantly changing, so I wouldn't care to predict the multipliers. That's my takeaway from Bill Mitchell's balanced budget multiplier blog -- that nobody really knows what the multipliers are, and we shouldn't automatically assume that the rich save more just because a 1950's economics textbook said so.

Anyway, it's a small point, and I wouldn't worry about it except that folks like the CPC are throwing out budget proposals that assume a large multiplier effect.

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Submitted by letsgetitdone on

the Zandi multipliers don't have to occur from higher savings alone. They can also result from consumption and investment outside of the United States. the really rich spend quite a bit of their income on foreign travel, investment in the latest foreign business hotspots, residences in other nations. I don't know how that factors in here, but it could account for a considerable part of the low multiplier for the Bush tax cuts on the rich, and the much higher multipliers we seem to have already seen for the partial payroll tax cuts. Based on recent experience we have every reason to believe that raising taxes on the rich, when compensated for by greater spending on the poor will result in disproportionately greater GDP and employment growth

Also, the ARRA job impact predictions were made on the basis of these multipliers and they weren't contradicted by the evidence since passage of the ARRA, suggesting that the Zandi fiscal multipliers still hold.

And last, Bill's piece on balanced budget multipliers is excellent; but I don't think it speaks directly to the question of whether Zandi's recently estimated fiscal multipliers are correct or incorrect, and those were the basis for my conclusion. Also, the example Bill works through in his post does seem to support the view that fiscal multipliers can be way less than 1.0 depending on conditions, and this does support Zandi's very low multipliers for certain Federal initiatives.

Submitted by Hugh on

I agree with mtngun. The Congressional Progressive Caucus is nothing more than a Trojan Horse outfit. They were also big time cavers on the ACA (Obamacare).

letsgetitdone's picture
Submitted by letsgetitdone on

That was the reason for the hit piece. We need real people in these spots.

coyotecreek's picture
Submitted by coyotecreek on

He and Gabrielle Gifford and Ron Barber are all cut from the same cloth....ugly, plaid, nubby wool.

letsgetitdone's picture
Submitted by letsgetitdone on

I suppose that's true.

Submitted by Aquifer on

Why cut it back further? With less input to SS/Medicare, doesn't that strengthen the argument that these programs are "unsustainable"? Shouldn't they be maintained as self funding, where they can be considered "insurance" instead of repeatedly left to the mercy of Congress to fund as "welfare"?

Why not push for increase in minimum wage instead if you want to put more money in folks pockets?

mtngun's picture
Submitted by mtngun on

FDR argued that the payroll tax was good politics even though it was bad economics. Good politics because it made people feel they had "earned" the right to participate in the program, so there would be popular support for the program.

FDR's Fed Chair (and the brains behind much of the New Deal and one of the first to push for a national pension program) Marriner Eccles urged FDR to eliminate the payroll tax because it was regressive and a drag on the economy.

MMT holds that the funding issue is a moot point, since the Federal government can pay any bill with keystrokes. Problem is, our politicians live in some alternate universe where the US is still on the gold standard.

Agree with you that a major increase to the minimum wage would help in so many ways.

letsgetitdone's picture
Submitted by letsgetitdone on

avoiding fighting for what we believe is right, whenever we see a political problem. The point is, it's not just a political problem. It's a communication problem, and an educational problem, and it's our obligation to solve all of these things and win the political fight for a decent life for everyone. So, I don't care what universe they live in. Our task is to bring them into our reality and get them representing all of us and not just the 1%.

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Submitted by letsgetitdone on

the idea that the Government can't become insolvent; and that taxing is about regulating inflation, establishing the value of the currency, and reducing economic inequality, then there's no reason why it shouldn't provide for automatic funding of entitlements. The thing is you have to fight and win the political battle to get the heavy majority of people to accept that since there's no shortage of Federal money, Americans are entitled to a guaranteed job offer if they want to work and also to care and a decent standard of living when they become, ill, infirm, and/or old.

That kind of entitlement is the embodiment of FDR's second Bill of Rights. I think we need to go back to old values and militantly defend and advance FDR's concept of public purpose (realizing the second bill of rights), and simply reject out of hand the "welfare" argument. It's 16th/17th century bull shit. It's time we grew out of it. And, on the subject of the minimum wage; if we get a JG program with a regional cost-of-living adjusted wage, and full fringe benefits, then we'll have a living wage everywhere since the private and non-profit sectors will have no option but to exceed the Federal JG wages and benefits. Of course, we can afford that too if we use the full power of the government to spend.

Submitted by Aquifer on

one could take it a step further and argue that if there is no shortage of money then why should anyone have to work for it at all? This sounds a bit crazy, I realize, but once you decouple individual effort from income, it seems to me one could make that argument. Seems to me there has to be SOME yoking of effort to income somewhere along the line, just where could be the subject of discussion ....

Frankly, I think that SS has survived as long as it has because one COULD make the argument that it wasn't "welfare" - Clinton was able to "reform" i.e. gut, welfare in the 90's because there wasn't such a universal attachment to it as to SS..... Methinks somewhere along the line the idea of "earning" something is a very powerful incentive to defend it.

Economically you are no doubt correct - but at the "gut" level, which is where, let's face it, most folks practice their politics, I think it was quite a shrewd decision to have set it up that way. As far as regression. perhaps one could make it a more progressive tax ...

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Submitted by letsgetitdone on

de-couple individual effort from income. It's well-known that some of the poorest, hardest working people in America make far less than some of the laziest, most self-indulgent people whose less than diligent efforts create extreme damage to society. There is no way to coordinate useful deserving effort to just rewards. and it is also true that the many millions who have lost their livelihoods and their wealth as a result of the crash of 2008 didn't deserve their fate, any more than the Wall Streeters who used government largesse to continue to acquire their outlandish bonuses after the crash deserve theirs.

Why is it that we only talk about the dangers of de-coupling financial rewards from useful work when the subject is poor or middle class people, but we never raise this question about those already well-situated who demand outlandish tax cuts and other special advantages in advancing their businesses and their opportunities to get even more wealthy?

The issues here are not properly framed as de-coupling rewards from useful work. They are properly framed as a second bill of rights in terms of which every American has a right to a living wage and a decent standard of living whether they can work or not. That's the prior question. the question of economic justice, whether those who work really deserve what they get in return can be taken up thereafter. Bu, trust me, when it does get taken up new policies in that area may be every bit as disruptive of the current oligarchy, as the issue of the second bill of rights is.

Submitted by Aquifer on

You're talking to someone who makes a point of making a distinction between what folks "make" and what they "earn" - pointing out that many folks "make" more than they "earn" and many others "earn" more than they "make" .... not to mention someone who points out the absurdity of taxing "earned" income more than "unearned" income in a society that supposedly values "work" ...

Wondering if you might want to tweak your terms a little - what does a living "wage" mean for someone not "working"? I'm not being a pissant here, honest - simply trying to establish terms of discussion - terms that are more neutral in the sense that, ironically, they can then be used to discuss this in a "moral" framework no matter which "moral" universe you come from ... So we might talk about a baseline "income" for example - If you use the term "wage" you are, implicitly ISTM, cementing that coupling ....

Why not say that all are entitled to basics of food, clothing, shelter, healthcare, and education plus a bit left over for fun, within the parameters of what the planet can sustainably provide, and if we are to qualify as a "moral" society we need to set up an economic system that makes provision for these for all its members. Let's start there and see how far we get - if we can't even get basic agreement on that, and, sad as it is, it seems that may be the case, then we will have to get even more basic ....

ISTM no matter how far back you go and which tradition you use - the coupling of "a fair day's work for a fair day's pay" is deeply ingrained, and no matter how distorted this system has become this idea is a cherished one - and I am not so sure the energy it would take to uproot it is worth the effort - rather integrate it into a concept of "additional" income, say - to go beyond the basics. IMHO it would be better to re orient this coupling instead of trying to uncouple altogether ...

I just think you are more likely to get agreement/cooperation if you don't axe the idea of "merit" right off the bat ....

letsgetitdone's picture
Submitted by letsgetitdone on

In fact, I'd like to see it applied comprehensively so that people actually harming other people more than they help them, get negative income for it.

Apart from that however, I don't think I mixed the ideas of a living wage and a decent standard for people who can't work. I agree that those are separate ideas, and I didn't say they weren't. As a political matter though, I think implementing the right to a decent standard of living for those under 67 who can't work will be a heavier lift politically than getting a job guarantee passed providing for a living wage, simply because when there's a job involved it's easy to justify providing it at a living wage; but when there is none then people start crying "welfare," and they trot out the protestant ethic.

mtngun's picture
Submitted by mtngun on

Agree with your economics, Letsgetitdone (other than me being cynical about multipliers). It's the political challenges that are the obstacle.

Conservatives will ALWAYS oppose helping the poor for MORAL reasons. The business class will ALWAYS oppose full employment because they don't want the working class to become too secure and "uppity." Better for workers to be kept in a state of fear and desperation so they'll be grateful for that low-paying job where they're treated like cattle.

Even FDR could not get his 2nd Bill of Rights passed. It may take a revolution. IMHO, it will likely require direct democracy.

Getting back on topic ..... saw this article where CPC chair Raul Grijalva sez his priority if Obama is re-elected will be "revenue generation." Sorry, I can't get the link to display properly.
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http://thehill.com/homenews/campaign/259...

letsgetitdone's picture
Submitted by letsgetitdone on

are frequently moral cripples condemning others low morality while they excuse their own moral breaches with their sense of entitlement, like the well-known cases of well-off rapidly anti-abortion ladies, who when they become pregnant don't hesitate to visit other states or countries to get abortions for themselves while continuing to decry policies that would make abortions available to poorer women who cannot afford to visit those other States or nations.

However, conservative morality isn't even primarily about hypocrisy. It's just as much about flawed moral theories. The idea that it is immoral to help poor people to a minimally decent standard of living and the right to health care because it makes them dependent is just bad morality; because first, it doesn't make them dependent, and second, because real freedom means that people don't have to worry about their basic conditions of life. The freedom to starve or not have medical care is not the kind of freedom people ought to have. It is neither the kind of freedom they wish for themselves, nor the kind of freedom that anyone else would wish for. Yet freedoms like these are the kinds of freedom they advocate for.

This:

Even FDR could not get his 2nd Bill of Rights passed. It may take a revolution. IMHO, it will likely require direct democracy.

is far from conclusive because FDR died before he could attempt to implement those freedoms. He may not have been able to do it had he lived; but I think there is a good chance that the Rs wouldn't have won the Congressional in 1946 if he had lived. And had the Democrats won then, I believe he certainly would have tried to implement the economic bill of rights, and by appealing to patriotism, I there was a good chance he would have been successful.

In any event, these are different times, and while I might agree with you that we will never implement the economic bill of rights idea as long as people still think that the Government can run out of money, if MMT takes hold and people come to believe that the Government cannot run of money, then I think we will soon see Medicare for All and, if UE persists, a Federal Job Guarantee program. Once we have those, we will be much closer to FDR's ideal, and we'll also be in a much better to advocate for the rest.

Thanks for the link to the Grijalva quote. I had no trouble with it in Chrome, on my laptop, though I was amazed that he put revenue generation above jobs. What is wrong with that guy?

letsgetitdone's picture
Submitted by letsgetitdone on

just an example of untruth in labeling. You know, like Bernie Sanders being a socialist. -:) -:) -:)