More MMT moving up to the big time.
Maybe, of course, because it gives Republicans a basis to attack Clinton.

Did Bill Clinton’s Budgets Really Destroy the American Economy?

By Karl Whelan

26 Responses

  1. I’ve noticed conservatives suddenly become more receptive when I tell them it’s all Bill Clinton’s fault.

  2. I recall the republicans took credit for the surplus because of Newt’s “Contract with America”. Ironic, both sides tried to take credit for the surplus and in the future both sides will try to blame the other for the surplus.

    1. @markg,

      My recollection is that the Republicans tried to take credit for the surplus, which is a little different from actually taking credit.

      Fundamentally, though, Republicans are not afraid of deficits when it comes to cutting taxes. Their instinct is almost MMT-correct. They understand that taxes remove wealth from the private sector. I’ll admit they’re somewhat blinkered when it comes to cutting spending, but for the most part their fiscal policies have lined up with those who understand MMT and want smaller government.

      I don’t think you could say something similar about the Democrats. For example, they’ve turned this whole election into a referendum on whether or not the most important thing to reduce unemployment is to raise tax rates on the rich by 4.6 percentage points. And their argument (aside from the amorphous “fairness” doctrine) is that Clinton raised marginal income tax rates from 31% to 39.6% in 1993, and the economy started booming in 1995.

      1. @ESM,

        Supply Siders in the Republican party are less phobic about the debt and deficits, because I think because they see a connection between a deficit brought about by tax cuts and subsequent growth. I think most of them still have a way to go before fully grasping the MMT accounting identity between government deficits and private sector saving. That said, the green eye shade fiscal drag queen component of the Republican party has much in common with its Democratic counterparts with the difference being that the Repubs want to balance the budget by cutting spending while the Dems want to balance the budget by raising taxes.

      2. @Ed Rombach,

        “Supply Siders in the Republican party are less phobic about the debt and deficits, because I think because they see a connection between a deficit brought about by tax cuts and subsequent growth.”

        Too bad Laffer set the precedent of publicly lying about it (Jude and that damn cocktail napkin ;)) and essentially buried Warren’s treatise after he had helped get it off the ground.

      3. @Ed Rombach,

        Laffer Curve was a sales job designed to push tax cuts (a good idea at the time) over deficits and debt objections (the first Bush’s ‘voodoo economics’). When supply-side policies have worked, it’s because they have optimized (usually expanded) deficits.

        Re undermining MMT, it’s more a case of neglect, no idea if it is intentional or not. See page 98 of Warren’s 7DIF. Laffer helped him publish Soft Currency Economics and then washed his hands of it.

        Maybe this is what the Mundell-Laffer supply side wing couldn’t come to terms with? “…how gold standard rhetoric has been carried over to a nonconvertible currency with a floating exchange rate and is undermining national prosperity.”

      4. @ESM,

        “They understand that taxes remove wealth from the private sector”

        Taxes do not result in removing wealth from the private sector because with almost no exceptions the funds are spent back into the economy at the other end. This creates flow.

        This is of course a necessary condition for an economy to thrive otherwise wealth will tend to accumulate through saving until such point as the economy begins it’s inevitable decay.

      5. @paul,

        Taxes are separate and independent of spending.

        “[Government enforced flow] is of course a necessary condition for an economy to thrive otherwise wealth will tend to accumulate through saving until such point as the economy begins it’s inevitable decay.”

        If people are saving too much, taxes can/should be lower or spending can/should be higher. It’s somewhat perverse to suggest raising taxes in response to inadequate aggregate demand, although to first order it is the net that matters.

      6. @paul,
        “Taxes are separate and independent of spending.”

        That’s true in a sense (semantic sense) but the mathematical reality is that taxes are never actually “removed” from the economy, the funds are reintroduced as spending somewhere else. That is not to say taxes “fund” spending, as the government is free to spend without prior taxation. It is just to say that to date, taxes have never removed net funds from the economy.

        To ignore this is to ignore the transactional history of taxing and spending.

        If we had balanced budgets over history, the quantity of net dollars in the economy would have remained constant through those years.

        As it is, the quantity of dollars has increased through net deficit spending.

        In any case, it is only possible to destroy net dollars through surplus budgeting, which over trend we have not done.

        On a side note…semantics and arithmetic are often incompatible or in conflict. In this matchup mathematics always wins. This is because semantics is a man-made construct and math is an existing omnipotent natural system. Even if math was undefined in our language it would still be a part of our everyday life. We just may not recognize it.

    2. @markg,

      From Clinton’s own mouth:

      “Or, three, in spite of all the rhetoric, they’ll just do what they’ve been doing for more than 30 years. They’ll go and cut the taxes way more than they cut spending, especially with that big defense increase, and they’ll just explode the debt and weaken the economy, and they’ll destroy the federal government’s ability to help you by letting interest gobble up all your tax payments.

      Don’t you ever forget, when you hear them talking about this, that Republican economic policies quadrupled the national debt before I took office, in the 12 years before I took office…

      … and doubled the debt in the eight years after I left, because it defied arithmetic.

      It was a highly inconvenient thing for them in our debates that I was just a country boy from Arkansas and I came from a place where people still thought two and two was four.”

  3. correct me where I’m wrong, but Whelan is ignoring the driver of gross (not net) financial asset creation in the private sector banks, who wrote trillions in fraudulent mortgages in the housing boom rocket years post-2003. seen from that perspective, the banks’ housing fraud forestalled the collapse by a handful of years.

  4. Interesting response to Weisenthal, some good points, but Marshall’s objection in the comments is well-taken, AND let’s not forget what happened to the rest of the world during the Clinton years (Mexico, Asia, Russia, Argentina). As much as the GOP tried to take credit for the late 90s surpluses, it was Lloyd Bentsen who implemented the ‘strong dollar’ policy c. 1994 and Bob Rubin who pushed for higher taxes and deficit reduction.

  5. The Forbes article acknowledges the existence of MMT, but concludes by dissing the sectoral balances issue. So it’s not flattering to MMT.

    Yes, MMT is being used to bash Clinton for partisan reasons. No coincidence that several MMT articles about the Clinton surplus were published just before Clinton spoke at the convention.

    But Clinton deserves to be bashed, and the myth of Rubin-omics needs to be stomped on.

  6. “It’s somewhat perverse to suggest raising taxes in response to inadequate aggregate demand”

    take some of it from those that don’t spend it, and give it to those that do.

    1. @y,
      i don’t think the federal government needs to take from one to give to another. (unless you’re a hyperinflation guy).
      if you want non-spenders to spend more, stop giving them tax incentives to defer spending. and bolster social security, so there’s less need to save.
      the funny thing about people that push higher taxes–they normally want the bar set just above their own income.

      1. @vincent,

        “i don’t think the federal government needs to take from one to give to another.”

        In theory it doesn’t, but if wealth and/or income distribution are at odds with public purpose, there’s plenty of room to.

        Let’s not forget one of the the things that some of our ancestors fled in the old world–being born into lifelong ‘winner’ and ‘loser’ status:

        http://www.economist.com/blogs/lexington/2010/10/estate_tax_and_founding_fathers

      2. @Art Patten,
        I understand what you’re saying, but if you wanted to deal with that issue, you’d need to revamp the tax code with regard to trusts, since so much of the great wealth in this country bypasses tax and hangs out there. I don’t think there’s much risk of people making 250K morphing into an american aristocracy. From an economic point of view, the government does not need money from those people for any reason right now, so why take it?

    2. the ‘taking’ is pointless, demand wise, if they aren’t going to spend it any way?
      the argument for taking in that case is a social engineering argument, not a monetary argument, and should be discussed as such.

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