>    Posted By Warren Mosler on January 15, 2003 at 13:04:00:
>   Here’s what’s being set up.
>   1. Bush tax stuff is way too small to turn the economy.
>   2. Over the next 24 months the economy weakens as the deficit grinds its way to the usual
>   5% of gdp or more – $500 billion + – mainly through falling revenue as unemployment
>   rises, corporate earnings wither, etc.

A month or so after this was written I met with Andy Card, Bush’s chief of staff, and told him much the same. He got it and they took immediate action to increase spending and cut taxes. It was shortly after that meeting that Bush was asked about the deficit and said he doesn’t look at numbers on pieces of paper, he looks at jobs, and did all he could to make the deficit as large as possible. It got up to 200 billion for Q3 or about 800 billion annually; enough to turn the economy enough to not lose the election.

>   3. Hillary Clinton wins the Presidency by a landslide promising to increase taxes on the
>   rich to assist the poor and balance the budget.

I forget why she didn’t run and/or lost to Kerry?

>   4. After the innaguration the program gets passed while the federal deficit remains around
>   $600 billion.
>   5. The economy recovers as it always does after a couple of years of 5%+ deficits restore
>   non govt net financial assets/savings/aggregate demand.

This is pretty much what happened under Bush.

>   6. Once again the Clintons ‘prove’ balancing the budget is good for the economy and win
>   two terms.
>   7. Half way into her 2nd term the strong economy drives the budget into surplus further
>   proving Clintonomics.

This happened under Bush as the strong economy driving by private credit expansion took the deficit down to 1% of GDP by mid 2006. Unfortunately the expansion included the sub prime fraud which was seriously unsustainable.

>   8. The next president is Hillary’s VP who gets the votes counted in his favor this time.
>   9. This next president gets clobbered with another economic downturn caused by the
>   previous surplus, and the federal budget goes into deficit.

It happened during the last few months of the Bush administration. And Obama did get clobbered by it.

>   This time they aren’t ‘fooled’ by Bush style tax cuts anymore, and try instead to again raise
>   taxes on the rich to assist the poor and balance the budget, but they do it too soon, before
>   the deficit is large enough to turn the economy, and it gets much worse.

My timing was far from perfect, but not terrible for a 10 year forecast?
Any other 10 year forecasts from back then on record?

28 Responses

  1. Hey I think you MMT folks are on to something – here is a bit form the U.S.S.R constitution, sounds like Warren Mosler really knows his stuff. LOL

    Article 40. Citizens of the USSR have the right to work (that is, to guaranteed employment and pay in accordance wit the quantity and quality of their work, and not below the state-established minimum), including the right to choose their trade or profession, type of job and work in accordance with their inclinations, abilities, training and education, with due account of the needs of society.

    This right is ensured by the socialist economic system, steady growth of the productive forces, free vocational and professional training, improvement of skills, training in new trades or professions, and development of the systems of vocational guidance and job placement.

    1. @Alex The Truth,
      Right, because full employment isnt something we should strive to achieve.

      And if you understood MMT, you wouldnt be talking like that. Learn about something before you criticize it…otherwise you just sound like those folks wayback when saying the Earth was flat.

    2. sounds good! unfortunately their ‘command economy’ where govt owned all the means of production didn’t work out so well.
      they had plenty of rubles but nothing to buy. as the workers used to say, ‘we pretend to work and they pretend to pay us’
      the result was lots of money and empty shelves.

  2. Card’s response could be looked at as also in concordance with the $650 tax rebate that Bush/Cheney engineered in early 2008 (pre-election) as a quick fiscal adjustment that seemed to indeed help at that time…. was not followed up on as McCain went on the record against deficits (“drunken sailors”, etc..)

    Question remains; are these GOP individuals (Card, etc..) influential in GOP politics anymore? Or have they been shouted down by the moron faction (Ryan, Bachmann, et al.)? Who seem to be siding with Pete Peterson who’s David Walker as Comptroller sued VP Dick Cheney while in office…. or have Card, et al retired and now the morons have full control by default… hard to tell what is really going on there…


  3. It happened during the last few months of the Bush administration. And Obama did get clobbered by it.

    Unfortunately, the clobbering didn’t teach them the right lessons. They are still focusing on cutting the deficit and bringing back the Clinton surplus. Jobs, progress and economic development? I guess that’s Job Two.

  4. Back then Krugman was predicting that the US would face a “financing crunch” and the rate would “go through the roof”. As usual, no definite timeline to be safe 🙂 Now he can claim he got it right, LOL.

    1. @RonT,


      You and many bloggers have claimed that recession will follow a government surplus. Let’s see, the recession hit 7 years after the surplus disappeared. Guess you can claim you got it right.

      I don’t understand how you can also claim that any and all government deficits (i.e. the Romney/Ryan deficits) must be good for the economy. As Deep Throat says: follow the money. Who gets the money? The already wealthy. Who doesn’t? The poor and middle class: in fact they will be hit by spending cuts that force them to pay more for necessary goods and services. So how does taking money away from those who have the private sector debt and giving it to those who already have no debt and no spending constraints (and who will save most of it – Romney’s 100 million IRA could become 200 million) increase aggregate demand?

      1. @dean, Dean, I believe the economy went into technical “recession” as soon as the end of Clinton’s second term going into the period right when Bush II was sworn into his 1st term….

        The recession you are talking about was the late 2008 recession caused by the fiscal drag of the end of Bush II’s second term…

        There were 2 recessions during Bush II’s 8 years …. rsp,

      2. @dean, Actually the recession hit in 2000 and Bush inherited it. His tax cuts, additional spending and big deficits served to end it. Then as Warren explains above, his moving towards surplus later, coupled with the housing crash led to the Great Recession.

      3. @WARREN MOSLER,
        I’m not entirely convinced of the causality here, in that to me, it looks like surplusses (recent ones at least) are more a result of private sector credit booms, which inevitably bust leading to a recession, and accompanying deficits.

        So surplusses and deficits are more of a temperature guage for the economy, and like a temperature guage, pouring cold water on the radiator in an effort to make it rise, is completely retarded.

      4. yes, the counter cyclical tax structure and unemployment and welfare spending drives the budget towards surplus as the economy grows. they are called ‘automatic fiscal stabilizers’ because it was once presumed they are active agents.

        And, for example, we can see private sector credit expansion growing in the late 90’s to ‘feed’ the govt surplus, and we can measure the drop in savings/net financial assets, and watch the debt service ratios deteriorating to where the economy no longer qualified for a loan, followed by recession, etc. So there is pretty good econometric evidence the automatic fiscal stabilizers do work. Including a fed paper on just that on my mosler.org website

    1. @Jeff Burek, That’s what the growers get for running a corrupt operation based on illegal workers for decades… macro Labor issues dont turn on a dime.

      If they want to correct this situation they are going to have to make it attractive for legitimate workers to come back into the industry… this may take years.

      What do they expect, that people are just going to “drop everything” and come running out into the ag areas “on spec”?

      Corrupt and short sighted industry leadership as usual… rsp,

  5. Your first point (and most important one) was totally wrong. The total government deficit as a % of GDP averaged 450 billion between 2003 and 2007. And nominal GDP averaged 6%.

    You’re revising history to make it sound like they took your advice and turned things around when the fact is that the barely grew at all in 2003/2004 and shrank to 470 billion by end of 2007. Check the data.

    Private investment is what led to the boom. Not government spending. And if the USA hadn’t had all those crazy regulations in place your housing market wouldn’t have boomed and the world might have actually reallocated that private investment boom into worthwhile projects.

    I don’t know why MMT always thinks the government fixes all the problems. This is a clear case where you’re just making things up to satisfy your own conclusions.

    1. @FDO15, FDO I am glad to see you back.

      Point number 9 that mosler predicted a decade ago seems to be very valid, the policy will go back into “balanced budget” debate and will send us into trouble before deficits get high enough. This is exactly what Ryan has done and current congress has done, they are less than useless. Delong was strong supporter of clinton surplus from what I remember, he has done total 180 and now strongly on board with many similar ideas as here, but can get no traction and is equally astonished how obama administration is failing in needed policy goals.

      Warrens calls on the policy relating to deficit/taxes seems precient, although the exact political party wins/outcomes were wrong (but do they really matter – as long as the right policy gets enacted, I don’t care what government is in)

      Warren is having an effect, here this was just posted at zero hedge:


      •Taking the thought experiment (as ridiculous as it may be) to its absolute extreme, wouldn’t numerous quasi-socialist goalseeking “theories’ such as MMT be perfectly validated if instead of collecting any tax revenue, the government funded itself exclusively with debt? After all, to both the GOP and the Democrats, it increasingly appears that “deficits don’t matter.”

      Agreed that zerohedge still ridicule, but AT LEAST they are starting to THINK in terms of different paradigm, is this not productive in some way? Delong and others have changed thier tune, and it took a decade, maybe in another decade zerohedge types will also change thier tune.

      1. @Save America, this ZH post is irrational and still WAY out of paradigm, but perhaps to your point at least we now know they can spell MMT over there … rsp

    2. @FDO15, All private sector booms eventually crash. It is called Minsky’s financial instability hypothesis.

      “Minsky argued that a key mechanism that pushes an economy towards a crisis is the accumulation of debt by the non-government sector. He identified three types of borrowers that contribute to the accumulation of insolvent debt: hedge borrowers, speculative borrowers, and Ponzi borrowers.
      The “hedge borrower” can make debt payments (covering interest and principal) from current cash flows from investments. For the “speculative borrower”, the cash flow from investments can service the debt, i.e., cover the interest due, but the borrower must regularly roll over, or re-borrow, the principal. The “Ponzi borrower” (named for Charles Ponzi, see also Ponzi scheme) borrows based on the belief that the appreciation of the value of the asset will be sufficient to refinance the debt but could not make sufficient payments on interest or principal with the cash flow from investments; only the appreciating asset value can keep the Ponzi borrower afloat.
      If the use of Ponzi finance is general enough in the financial system, then the inevitable disillusionment of the Ponzi borrower can cause the system to seize up: when the bubble pops, i.e., when the asset prices stop increasing, the speculative borrower can no longer refinance (roll over) the principal even if able to cover interest payments. As with a line of dominoes, collapse of the speculative borrowers can then bring down even hedge borrowers, who are unable to find loans despite the apparent soundness of the underlying investments.[5]”

      You are claiming without evidence if the government did not regulate, prosperity would never crash.

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