The debt hawks are to economics as the creationists are to biology. Those, who do not understand monetary sovereignty, do not understand economics. Cutting the federal deficit is the most ignorant and damaging step the federal government could take. It ranks ahead of the Hawley-Smoot Tariff.
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If the Democrats take a beating this coming election, as is predicted, they have only themselves to blame. The Republicans want the economy to stay weak, giving them the opportunity to remove the recession blame from President Bush and to hang it on President Obama. So they have directed their efforts toward reinforcing the myth that federal deficits are bad, the federal debt is worse, and anything that is not austerity is worst of all.
This wonderful, though cynical strategy guaranteed a weak recovery, hurting the Democrats, while hurting the American people, worse. But hey, who cares about that?
The Democrats, rather than educating the public about federal finance, allowed the Republicans to stigmatize any recovery effort that required deficit spending. Either through ignorance or spinelessness, they fell right into the Republicans’ trap, thereby guaranteeing not only a continuation of economic weakness, but a loss this coming Tuesday. They now suffer, and we the people, suffer, though most of the people don’t know why.
The only thing that can create a recovery is deficit spending, the more the better, but the Democrats never tried to get that message across. They even agreed with the Republicans about the evils of federal debt. Talk about slashing your own throat.
The Republicans have succeeded. Deficit spending has been too little, too late, as I predicted way back in Letter dated April, 2008. The Democrats struggled to spend while not spending, the Republicans threatened to filibuster everything that smacked of deficit, the Democrats cowered in terror, and the economy languished.
What should the Democrats have done? Simple. Tell the truth. Rather than believing the voting public is too stupid to understand facts, the Democrats should have instituted a two-year educational program, starting immediately after the Obama election. Yes, at first the public would have rejected the counter-intuitive ideas that deficit spending is absolutely necessary for growth, our children and grandchildren will not pay for federal spending, and inflation is not a serious threat. But over time, these fact-based ideas would seem less radical, more acceptable and ultimately, desirable, because well . . . they’re fact-based.
That would have allowed the Democrats to improve Social Security, enhance Medicare, provide universal health care, save the economy and win the election. Oh well, there’s another election in two years. Maybe the Democrats will smarten up or “courage-up” in time.
On second thought, doubtful.
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
No nation can tax itself into prosperity. Those who say the stimulus “didn’t work” remind of the guy whose house is on fire. A neighbor runs with a garden hose and starts spraying, but the fire continues. The neighbor wants to call the fire department, which would bring the big hoses, but the guy says, “Don’t call. As you can see, water doesn’t put out fires.”
#Monetary Sovereignty - Mitchell 
Rodger,
The Democrats preferred to play to their base and wouldn’t consider the other side of the deficit equation, taxes. Every chance they have they push tax increases or demonize the “rich”. So you can blame Republicans for using deficit hysteria, but the Democrats use taxing the rich hysteria for their own deficit politics.
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I agree, Jason. The Republicans’ cynicism is impeding efforts to save the nation. The Democrats’ cynicism is its endless class-warfare strategy.
A pox on both their houses.
Rodger Malcolm Mitchell
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RMM in late March: “Instead, for many years and many elections, well into the future, Democrats will be able to throw this in Republican faces — “the party that voted against health care.” The Republican party, by pandering to the extreme right, has positioned itself as a fringe party, left behind in the social march to the future.”
Could any analysis be more wrong Rodger? I called you on it then. I hate to be all “I told you so” but this latest post of yours is equally misguided because it assumes that the GOP actually follows MMT or that there aren’t compelling arguments for less government spending, etc. As Warren Mosler says, the GOP is just buying into an innocent fraud. The DEMs would be making the same argument if the roles were reversed. So this isn’t some sort of purposeful thing to slow down the economy. They believe it. Wrong yes, purposefully evil/cynical no.
The DEMs are likely going to be crushed because of complete arrogance concerning the Health Care Bill which everyone still hates (contrary to your prediction), a poorly performing economy, and a general lack of change in that big hitters get bailed out and the middle class gets bupkis.
When are you going to buy me my beer?
Matt
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Thanks for reading this humble blog. I understand how much you hate to “be be all I told you so.” I feel your pain. But before you gloat too much, the fat lady has not yet sung.
Three things I didn’t consider:
1. The benefit delay built into the program. The vast majority of the benefits come after this election. Very few people even understand what the program will do for them. If you ask people today why they hate it, they really don’t know. The Republicans told them to hate it, so they do. Wait until more people start receiving benefits.
2. The terrible job the clueless Democrats did explaining the details of program, perhaps because even they don’t fully understand what’s in it. Obama himself, was particularly guilty of this omission.
3. The terrible job the Democrats did explaining the need for deficit spending. And no, I don’t believe the Republicans and the Democrats don’t understand it. The concept is fairly simple, and very little research is needed.
On the other hand, Warren offered $100 million to anyone who could prove federal spending is constrained by income, and so far no one has taken it. So maybe you’re right. The politicians are too stupid to understand the concept. Or maybe they don’t know what the word “constrained” means.
Anyway, pray you’re wrong, otherwise we all are in for a dismal economic future.
Rodger Malcolm Mitchell
The problem is that aside from Warren, no politician has had the courage to tell voters the truth.
I despair of #3 happening soon, but I #1 and #2 could happen before the next election. Social programs often run into early trouble with voters, and only later are they accepted. The South hated the civil rights act. You probably will see the same transition with gay marriage.
By the way, what is it you hate about the Act, aside from the fact that 100% of Republicans voted against it?
Rodger Malcolm Mitchell
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Ok, you are right, I don’t actually hate most certainly being correct. 🙂
The absolutely critical concept you are missing regarding healthcare is the way it was enacted. Your #1 goes to the substance of the bill. Your #2 goes to DEM PR or lack thereof. That bill was crammed down an unwilling population’s throat and was done so in a crass fashion. The DEMs couldn’t even agree amongst themselves about how to craft something that made some sense. So now we have DEMs actually running against it.
On the substance. The whole healthcare issue revolves around cost (this is not an MMT point I am making). Cost was the momentum behind doing something and people understand and the DEMs can’t explain away that the bill does not reduce cost. People were not unhappy with their treatment.
On #3 we are in agreement. My hope is that the GOP does what it usually does. Limits/reduces taxation and keeps spending going a bit.
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Have you ever seen “Jay Walking” on the Jay Leno show? He walks around asking questions like, “How many Senators are there?” The people don’t know. That’s the public.
The public are not leaders; they are followers. The Civil Rights Act was “crammed” down the South’s throat (and much of the North’s). Thank goodness.
There was no hope of getting any bill passed with Republican cooperation. They did not want a Democrat success. Period. Have you ever seen 100% of any group think the same way? But, like little soldiers, they voted 100% against it. They didn’t know what it was, but by God, they were against it.
“Cost was the momentum behind doing something . . .” No, the purpose was to insure more people and provide better coverage. Anyone who believed you can do that at a lower cost is a classic member of the Jay Walking public.
Rodger Malcolm Mitchell
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You said: “Anyone who believed you can do that at a lower cost is a classic member of the Jay Walking public.”
Very true, but I remember well our President selling the bill as “revenue neutral” Absolute hogwash and any citizen with a pulse knew that to be a bald-faced lie. It’s tough to rally support for a bill when your basic premise is so transparently false.
I have no idea if President Obama and the members of Congress understand MMT, but the public which doesn’t grasp it is nevertheless bright enough to know when they are being lied to.
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Rodger,
In reality, how can any Senator or Congressman read a 2,000 page bill crafted or better grafted at the last minute and vote intelligently on it? If someone threw a 2,000 page bill in front of me and said vote yes or vote no, pretty much take it or leave it. What would you do?
How can you possibly begin to consider the unintended consequences of any piece of legislation, never mind the meaning of the bill itself.
I’m not claiming I have the answer here, but faced with yea or nay on a 2,000 page bill no doubt loaded with special interest clauses, I’d probably vote it down too.
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The Republicans seemed to understand it well enough to provide many reasons to reject it. I don’t recall “no time” as being the primary one.
You seem like an intelligent person. Think about it. What do you honestly believe was the main reason 100% of Republicans voted against it?
Rodger Malcolm Mitchell
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No Rodger. The main reason was that it was going to cost a fortune which was not the plan and not how it was sold. Another main reason is that the GOP was locked out of the drafting of it. I know that 100% vote is sinister in your eyes. Well, as it turns out it was intelligent wasn’t it? And why was there no time Jason/Rodger? Because it was shady procedure.
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I forget. What was the Republican plan that was locked out? Seems to me their plan was executed perfectly.
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Honestly? Their constituents (these are Republicans) were opposed to it probably 70/30. That’s pretty compelling. Their constituents were opposed on a mixture of spending fears, bureaucracy fears (e.g. medical care being like Post Office or DMV service)and ideological differences.
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Where did they learn these fears? Not from reading the bill itself.
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Rodger,
I’ll give you an example of a Republican “no” vote that I believe was not ideologically driven in the sense of the “don’t allow the Democrats to succeed” rationale.
Gov Christie of NJ just vetoed a bill to build a tunnel under the Hudson connecting Manhattan and NJ. He did it because he correctly understands that there will inevitably be massive cost overruns that will leave NJ on the hook for billions which it doesn’t have. It’s certainly not to his advantage to stall the NJ economy which will reflect badly on him. He’s not blaming Democrats. He is supporting state fiscal sanity as the states are not monetarily sovereign.
Now if our leaders in Washington understood MMT, they would have met with Christie and told him, “don’t worry governor, the federal government has no monetary constraints, we’ll pay for any and all cost overruns”. Yet they didn’t do that. Now I have to conclude one of two things:
1) Our leaders don’t understand MMT.
2) They do, but the Democrats cynically see Christie as a Republican threat and are counting on his failure to fund the tunnel to be a political blunder that will ruin his career.
Which is more likely?
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Jason, that’s a terrible example, but I do agree the federal government should pay states a per capita fee. Depending on what else the federal government does, that fee should be anywhere from $500 to $10,000 per person.
Rodger Malcolm Mitchell
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To all:
If I were a Democrat (I’m not) speaking for the Democrats (I don’t), in defense of the health care bill, I might have said, “One day, every man, woman and child in America will have complete health insurance coverage. No one will be denied medical care for financial reasons. I hope that day is not far off, but even if it is, the longest journey begins with the first step.
“The Affordable Care Act is the second step. The first step was Medicare, which was instituted under the Democratic administration of Lyndon B. Johnson. It was criticized then, just as the Affordable Care Act is criticized now, but is there anyone today who would like to repeal Medicare?
“Is Medicare perfect? No. It has holes, which should be closed, and which I intend to close. Is the Affordable Care Act perfect? No, it too has holes, which should be closed, and which I also intend to close. But it is another step in the journey to provide every American, rich or poor, with the security and life-dignity of health care.
“The Affordable Care Act is an extension of Medicare coverage, which in itself is an extension of Social Security, which also was instituted by a Democrat, Franklin D. Roosevelt, and also criticized by the Republicans. Today, no one would want to repeal Social Security, either.”
That said, the real problem was the idea that it is possible to insure an additional 25 (?) million people, while improving the coverage for the other 300 (?) million people, and do this at no additional cost.
People who implied this were ignorant, people who inferred it were naive, people who still think it can be done are nuts, and people who don’t want to provide free health care for all Americans, when it so easily can be done, are rotten.
Rodger Malcolm Mitchell
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Bah! We pay far more per capita for a worse outcome than countries with a single-payer system — from procedures to care to drugs to equipment. It seems like every greedy bastard who doesn’t go into finance or law has his fingers in our health care system (sometimes you get all 3 in one package). It’s corrupt and dysfunctional. The only viable long-term solution is a plan to gradually migrate to a single-payer system. Health care doesn’t belong in the market. It’s tantamount to blackmail and torturous coercion as people will sign away their fortunes and future prosperity for the chance to live or be free from the pain and agony of disease and injury. There’s a tremendous bias against shopping around for a ‘deal’ (as if anyone wants to risk their life on a 2nd rate doctor), and thus an in-built propensity for health care costs to grow far faster than overall inflation. It’s disgusting and immoral. I always hear talk of legislation being crammed down some Republican’s throat. Well, the current system is happily jamming itself up America’s ass. Choose your orifice.
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Anon,
You said, “The only viable long-term solution is a plan to gradually migrate to a single-payer system. Health care doesn’t belong in the market.”
I agree. There is not a single, valid reason why the federal government does not pay for universal health care.
Rodger Malcolm Mitchell
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Rodger,
If all health care is 100% paid for by the government, how do you ration it? As it is now if you go to the doctor’s offices where I live, the waiting rooms are jammed with people. I imagine it will get much worse when health care is “free” for everyone.
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Jason, people who don’t have health care insurance, get their health care in the emergency rooms, which are even more jammed than the doctors’ offices.
If Medicare payed more, and was available to everyone, there would be more doctors, more nurses, more nurse practitioners and more hospitals — and we all would be healthier.
Rationing health care punishes the poor, and is a terrible idea. But that is exactly what the current system does.
Rodger Malcolm Mitchell
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