The Certainty of Debt and Taxes – The Fiscal Cliff Burden of Proof

By Warren Mosler

38 Responses

  1. The 8th deadly innocent fraud is that American believe a fiat currency system results in free market democracy.

    As long as America has a fiat currency, the people in charge of the currency issuing get rich at the expense of everyone else.

    Mitt Romney, if elected, will continue to print money giving it to the bankers, politicians, and military industry.

    Obama, if re-elected, will continue to print money giving it to the bankers, politicians, and unions.

    1. @Alex,

      Alex, Gerald Friedman gives an excellent takedown of government policy since the 1970’s which has been designed to disenfranchise american citizens.

      The New Deal ushered in a period of unusually rapid and steady economic growth with the greatest gains going to the poor and the middle-class. Strong unions ensured that wages rose with productivity, government tax and spending policies helped to share the benefits of growth with the poor, the retired and the disabled. From 1947-’73, the bottom 90 percent received over two-thirds of economic growth.

      Then, the political coalition behind the New Deal fragmented in the 1960s. Opponents seized the moment and reversed its policies. They began to funnel income toward the rich. With a policy agenda loosely characterized as “neoliberalism,” conservatives (including much of the economics profession) have swept away the New Deal’s focus on employment and economic equity to concentrate economic policy on fighting inflation by strengthening capital against labor. That has worked out very badly for most of America.

      The GOP has led the attack on Roosevelt’s legacy, but there has been surprising bipartisan support. President Carter got the ball rolling with his endorsement of supply-side taxation and his commitment to fight inflation by promoting labor market competition and raising unemployment. Carter’s policies worked to reverse the New Deal’s tilt toward labor and higher wages. Under his watch, transportation and telecommunications were deregulated, which undermined unions and the practice of industry-wide solidarity bargaining. Carter also campaigned to lower trade barriers and to open our markets to foreign trade. These policies were presented as curbs on monopolistic behavior, but the effect was to weaken labor unions and drive down wages by allowing business to relocate production to employ lower-wage foreign workers while still selling in the American market.

      Carter also began a fatal reversal of economic policy by refusing to support the Humphey-Hawkins Full Employment Act. Instead of pushing for full employment, Carter appointed Paul Volcker to chair the Federal Reserve with the charge to use monetary policy to restrain inflation without regard for the effect on unemployment. Since then, inflation rates have been brought down dramatically, but unemployment has been higher and the growth rate in national income and in wages has slowed dramatically compared with the New Deal era.

      Already in the 1970s, a rising tide of anti-union activities by employers led Douglas Fraser, the head of the United Auto Workers to accuse employers of waging a “one-sided class war against working people, the unemployed, the poor, the minorities, the very young and the very old, and even many in the middle class of our society.” Organized labor’s attempt to fight with labor reform legislation amending the Wagner Act found little support in the Carter White House and went down to defeat in the Democratic-controlled Senate.

      1. in 1978 carter deregulated nat gas which is what brought down inflation
        along with tight fiscal- there was a small surplus in 1979 that caused the recession

      2. Ed Rombach, Volcker is certainly credited with ending inflation, but did he really? As Fed Chairman he raised rates to astronomical levels, which to me, crushed the economy in the early 80’s after it was trying to recover from Carter’s surplus. How did raising interest rates stop inflation? What is the mechanism? And if it is so good, then why do we fear inflation now, if it’s so simple as to have the Fed raise rates?

      3. @WARREN MOSLER,

        Guys – I have no particular axe to grind over whether or not Paul Volker slayed the inflation dragon. However, it seems logical to me that the fed is capable of raising interest rates enough to make it unprofitable for businesses to borrow, which could trigger a contraction. I remember the early 1980s quite vividly when the yield curve was sharply inverted and how everyone in the trading room was focused on the weekly money supply number. There was a small recession in 1980, but I can’t find any evidence of a small budget surplus in 1979. All the tables I’m looking at show a deficit of about 1.6% of GDP, which maybe was too small to sustain growth. Warren are you mistaking 1979 for 1969 when there was a small surplus?

        Raising rates per se does not reduce inflation, but causing a severe recession by raising rates to astronomical heights certainly would short circuit inflation. Fed policy of trying to manage inflation by way of the interest rate targeting mechanism seems to me like a pilot attempting to turn a jet airliner by shutting down the engines on one side of plane or the other, rather than simply using the airfoil rudders. The possibility of a hard landing goes up exponentially.

      4. @WARREN MOSLER,

        I understand your position that higher interest rates add NFA to the private sector, as the government is a net borrower.

        However, it seems to me there are other effects that overwhelm that one.

        For one, who are the net recipients of interest payments, and what is their marginal propensity to spend from that extra income? I think it is mostly “the 1%” as they are called now, and they will likely hoard it, mostly.

        For another, what changes occur among potential borrowers, most especially businesses considering expansion? The higher interest rate compares less favorably with their anticipated return, and they will undertake fewer projects, resulting in less spending, lower GDP, and less demand-push inflationary pressure.

        On balance, I think raising interest rates is anti-inflationary, if only because it reduces aggregate demand, despite the addition to private sector NFA.

        But I don’t think it is the best way to reduce inflation.

      5. i agree with those possibilities. but the evidence tells me with current institutional structure the Fed has it backwards.
        just my humble opinion.

    2. @Alex, PS, warren talks about some of the “lag” effects in japan maybe taking 20 years to flush out from policy choices, here we see perhaps some of the policies of carter (and others) taking 30 or 40 years to really manifest the “devil in the details” and have joe six pack gnashing teeth. If we send in a superhero politician or government today, and it takes 40 years or even 10 years to turn the 800lb gorilla, can people be so patient? Erickson gets a good read on these issues facing us, time is a critical factor, and people want solutions that work fast and adapt quickly, but that doesn’t seem to be realistic.

  2. I do understand and appreciate the elegance of the article. If you dont mind a bit of critique….I don’t know who this is aimed at. People without background reading on MMT may not get it at all.. They could get thrown off the horse at the first hurdle, when you say ” Taxation is required to allow the government to spend its otherwise worthless currency.” Everyone knows the Government is just wasting taxpayer dollars ;).

    You would need a whole article just to explain the first point to a layperson. An article challenging the myths behind the fiscal cliff followed by a series of articles expanding the MMT bullet points one by one might be better getting through to laypersons. As the right wing has careful crafted many bogus economic frameworks in layperson terms. These are entrenched beliefs in many skulls. You would have to deconstruct the bogus frameworks one by one and create another (proper) framework in layperson terms to replace it. Even then people will often forget or revert back to bogus beloef under pressure from mainstream press and peers.

    That takes the time and resources of a well funded think tank. I guess MMT doesn’t have that, so here we are. My advice to the MMT community is to get some solidarity, find a few drums to bang hard and hit them often. Start with something you can win easily. Win a few skirmishes before taking on a grand campaign. Alternatively just meet up and develop a strategy (any strategy) to get MMT mainstream.

    1. @Andrew
      It seems i have the repetitive task of reminding that the right wing is not your only problem. After all, Ronald Reagan practically invented modern deficit spending, and the 2 Bushes carried it along as well. It was Clinton who made the surpluses, and considering how often he and his sycophants invoke them, it’s safe to say they really don’t get it. Bottom line–There’s a lot of work to be done, and best not to delude oneself that the left has been convinced.

  3. @Vincent,

    I wasn’t thinking the left are convinced. The left can still come up with good progressive proposals but trip over their own shoelaces, when they are convinced there is a deficit to reduce.

    Having a convincing argument to defeat the deficit bull, hyperinflation bull and currency debasement bull would empower the hapless left.

      1. @WARREN MOSLER,

        “requires appropriate deficits at all times”

        This seems more absolute than you might mean to say. You are talking only about government deficits, right, not private sector or current accounts?

        In a country with a current account surplus, and the private sector leveraging up (in deficit – see 1998 US for instance), my understanding is that you (MMT) would say that is an appropriate time for a government fiscal surplus, not a deficit. In fact, according to the sectoral balance equation, anything else would be impossible, no?

  4. The Title of your next article:

    “Want Jobs? Print Money and Thou Shalt be Saved”

    It’s kinda catchy 😉

    Just need to follow it up with substantive, easy to follow arguments. You could incite an economic revolution! Really. As far as timing, now’s about as good as it gets.

      1. @Jon,

        Indeed. My thought was to try and think of a title that would:

        1. Include an outside the box suggestion on how to fix this mess. No one is just flat out saying, “Print money.”
        2. Incite enough of an emotional reaction for further reading.

        If the substance that followed was well written, it could get enough people talking, particularly in the media. Perhaps Warren could get on CNN, etc. for follow up interviews where he can reinforce the argument.

      2. @Jon,

        The problem is even deeper. Example: 2 yrs back Galbraith jr was asked 2 things at a Levy Institute Minsky conference

        1) don’t we need an organized, multidisciplinary campaign, first off?

        2) if that organized campaign started succeeding, what would we do with the success?

        His answer? “Not sure I’d want that, since I’d sell a lot fewer books.” [was he joking? even if so, it was in poor taste]

        Not to be mean, but the key hurdle is that the community connected to MMT has not yet defined success and rallied to the core campaign tenets needed to achieve whatever success is. The theorists & operations people are still in separate camps. Plus, the number of defections & turncoats is mounting. MMR & Circuit Theory being just two examples.

        Do people want to be personally successful, or achieve group success?

        Is a Public Purpose Party what we really need? Something to set the policy bar a little higher?

      3. @roger erickson,

        Success is the government implementing policies consistent with MMT with the measurable effect being a recovering economy. I’m not sure why that’s even a question. The goal is obvious, although some undoubtedly have self-interest as a priority. Everyone wants to be a hero…

        You are correct though, economics is worse that Protestant Christianity, with its ever splintering groups and factions. However like Protestants, there are core beliefs which the various groups agree on. The groups you mentioned can rally around beliefs they share and publically (for the sake of accountability) hash out those they don’t.

      4. @roger erickson, Reminds me of the story of the scorpion and the frog. You can’t blame them, its their nature. Seems if you want a political success you need to get a politician not an intellectual.

        My feeling is that politicians only spout what they think people want to hear so you need to change what people want to hear. Right now the common belief is that we have a budget crises so all the politicians and talking heads talk about is cutting spending or raising taxes depending on their camp. Turn that common belief on its head and then you have a chance.

    1. @Robert Rice, Step One: Write book about 150 pages at a 8th grade reading level targeted to everyday people
      Step two: Self Publish book soft cover and e-book
      Step three: Market book using tricks folks like Brendan Buchard use to get their book on best seller lists.
      Step Four: Appear on main stream media with your talking points on how Reps and Dems are both half right (spending, tax reductions) and half wrong (deficit). Say they either don’t understand or are deceiving use (play on Occupy, Tea Party, general public’s general distrust of congress)to maintain or increase inequalities.
      Step Five: Profit

      My two cents.

      1. @Jon,

        Ironically I’d made a similar suggestion on another blog recently. It seems to me Randy Wray could use the release of his new book to do the rounds on TV. He would have to stay on message though, consistent with your step four. He needs to stay off of topics like the job guarantee and focus first on the fundamentals, the real crux issues in this current political climate. This isn’t to say the JG isn’t important or useful, only it isn’t the priority at this particular junction in time. We need the basics established first, the JG can come later. Time on TV is very limited, so prioritizing the message consistent again with your step 4 would be perfect.

        Of course someone else might be able to do this too, but people like Randy, Warren, Stephanie, Scott, etc. have put a lot of work into this theory, and so it seems best for them to be out touting it, or at least they agree on someone to be doing such–with their blessing if you will.

        Bill Black has pretty darn good communication skills, he might be a good candidate. Randy has the new release though, so in terms of timing, he might be the best choice. I suppose another might write a book between now and the election, but that’s a lot to accomplish–writing, editing, publishing, printing–between now and the election.

        In terms of timing, I don’t see how it gets much better.

  5. Re: How about “Win Win:How Republicans and Democrats can spend more lower taxes and save America”

    Americans are nothing if not good salesmen. 🙂

    1. @Mort, Save america? I like that to, but here is what I really want to know:

      How many of you are willing to say hey, these DC idiots are NEVER going to hire people like warren mosler says with a jobs gaurantee program, these DC idiots are NEVER (either through ignorance or evilness) going to give the states, counties, cities, money on a per capita basis like warren mosler says.

      So its time to remove myself and my family from the CONTROL of these DC idiots and be under a system that DOES implement the brilliant memes of warren mosler?

      Warren, how long must the SLAVES endure the failures of the KINGS in DC before you say game over, time to start anew?

      How much more suffering would have to be endured before you say, ENOUGH, DC is a lost cause, time for the USVI, florida, north dakota, etc to do it on thier own? What is the point that would have to be reached before you agree the current currency union in the USA is not working for the people and that busting off from DC and doing it on thier own is better?

      I don’t like seeing homeless vets die in the streets and good families be demoralized to the point of suicide because idiots in DC won’t do a few simple things that you say do, why do you and the rest here keep beating your head against a brick wall that doesn’t seem like it is EVER going to budge? What would founding fathers do in this situation? Continue to tell the king in england we don’t like what you are doing to us and our families and the pain you are causing with bad policy? 😉

      1. @Save America,

        Another good article on the failure of our government to do the best for our people, referencing moslers website no less!

        Even professor delong has gotten in on the FAILURE of our current government to do best by the majority of the people,

        At the macro scale, I see smart people all over the web, from both sides of the aisle saying the same thing, the US government has FAILED the majority of US sheeple, it is such a COLOSSAL failure, either through evilness or ignorance, they can’t even implement 2 simple warren mosler ideas, jobs guarantee and give money to the slaves, and I see much gnashing of teeth saying we got to get those DC boyz to wake up and CHANGE.

        I was reading warren moslers blog back in the old days before this new format, at least 10 years ago, so that is one lost decade, (back then we talked about PAYGO rulez – LOL!) but how many more LOST DECADES are you MMT people willing to SUFFER for yourselves and your family before you say nothings gonna change under the current regime, the king is too powerful, time for insurrection? Or are you all such weaklings you will take 20 year lags (like warren jokes about japan) before you will even think about succeeding from the usa? Or 40 year lags, heck an entire century of lost opportunity. Citigroup chairman REED said we just the past 10 years years has equalled maybe 20 trillion in lost output, when is it too much?

        If I was a powerful rich capitalist with friends in DC, I still have nothing to fear from most of you to keep smashing my boot into your face and keep the status quo, you will take it, you are still all such sheeple SLAVES. A viking thief in norway who makes 180K a year can squeeze your gonads and you take it, what whimps, where are the decendents of the founding fathers? What happened to that genetic code? 😉

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