There is logic in advocating for policies that don’t have any realistic chance of being enacted in the short-term. It’s never wrong to ask politicians to the do the right thing, whether it is to free the slaves, give women the vote, end the war in Vietnam, or to close the prison in Guantanamo. On the other hand, there is something wrong with criticizing a politician for failing to do something he or she simply couldn’t do. Which brings me to Matt Yglesias’s dubious argument that not only can the deficit be safely ignored, and that we can use presently low interest rates as a predictor of future interest rates (how’d that work out in Greece or Ireland?), but that the president would find more stimulus spending to be “very much an option for the United States of America. It’s a good option, an appealing option, an option that will increase our wealth over the long term.”
But Yglesias is totally, ridiculously wrong about this. I don’t know how he can sit there in Washington DC watching the House Republicans spew their nonsense and think there is any chance in hell that the president can get appropriations to borrow money “to put people to work on useful infrastructure projects.”
Now, the president could make an argument for why borrowing money while its still cheap is a good way to invest for the future and lower unemployment. But he can’t actually get the money out of Congress. This is the kind of cold reality that Glenn Greenwald so easily dismisses with his theories that constrained politicians are always happily constrained.
The president isn’t powerless, and he can use his bully pulpit to shift public opinion over time. But there is no talking to Boehner’s House when it comes to Keynesian economic theory. So, if more stimulus spending on infrastructure can’t happen, it obviously isn’t an option, good or bad.
And that’s where the disconnect happens. The president isn’t running a seminar. When he builds a decision tree, it’s filled with dead ends. A lot of liberal commentators want the president to take the time to explain to the public why all his decisions are sub-optimal. No thought is put into what happens when the president never takes ownership of his decisions, never sells his own decisions as sound, and always appears to be complaining about his impotency.
We’re not getting another stimulus bill out of this Congress. So, go ahead and keep beating the drum for a Keynesian solution to the unemployment rate if you think it will convince somebody, but it won’t convince John Boehner or Mitch McConnell, and so it isn’t going to happen.
That the president isn’t beating a dead horse is actually something that should comfort rather than concern you.
How anti-stimulative was the president’s budget deal? According to the CBO, not very.
I’m not in favor of cutting money from programs only to spend more money on war, but the overall bill puts $3.3 billion more in the economy than it takes out (in the short term). So, essentially, it was a small stimulus bill. This is far from David Dayan’s analysis that the bill took $60 billion out of the economy.
Man…you’re either up really late or really early. Impressive. This is just a run-up to the government shutdown in the Fall. I’m more convinced of that now after yesterday’s speech. It’s like a 90’s revival. Democratic president. Shutdown!
I’m a little shocked at the continuing meme that the President isn’t a good negotiator. The effect of these “cuts” isn’t much. All it did was make Boehner look like he accomplished something for his team, while the actual win went to Obama’s team! That is some pretty slick negotiating.
Of course, I have to assume that Boehner isn’t a dope, or at least his staff isn’t. They knew what was happening. So I wonder whether the stated positions on the right (at least from the leadership) are really so far from Obama’s. My guess is that they aren’t very far apart about the workings of the government. Boehner has to play a part (act tought) to maintain his position as speaker. But behind closed doors, they might actually be agreeing that this isn’t the time to cut spending, except symbolically.
Let’s see how this house vote goes. Will the tea party folks, given the smoke-and-mirrors of these cuts, go along?
Great post Booman, one of the best I’ve seen in a long time that speaks to the reality that no one on the whiny left seems to have any clue about. Bravo, bravo.
It should be required reading for all people. I’m assigning it right now.
The big point that Booman misses is that Boehner and McConnell both have to be re-elected to keep power. They are simply politicians.
I can’t imagine a mindset that cannot comprehend that simple fact.
Boehner can be out after the next election. People need to start organizing to inform all of the people possible in his district that he is not only working against their interests, but that he is doing it knowingly.
Take down Boehner and the other politicians will roll over and play dead.
“how’d that work out in Greece or Ireland?”
That comment indicates you don’t have any understanding of how our monetary system works and undermines your criticism of Yglesias’ post.
Greece and Ireland can be compared to US states – they don’t control their own currencies.
The Federal government is the sole manufacturer of US dollars.
All money is introduced into the economy in only two ways, through direct spending or through banks.
If we borrow the money we are creating it from thin air by increasing the banks reserves and borrowing the same money back, paying interest to the private sector.
The Federal Government sets the interest rate for this transaction.
Of course, the government can also just create money and spend it directly, thus no interest.
It’s a choice, not a constraint.
Paul in Florida
Greece and Ireland don’t have that choice.
that’s not really the point. The point is that we are able to attract foreign investment at the moment while offering a low interest rate. Yglesias takes this to mean that all is well and that we can continue to borrow money cheaply in the future. But low interest rates often precede closely a sudden loss of confidence and a big spike in interest rates. When Washington is debating whether or not to default on our debt, it is not very smart to point at currently low interest rates to show confidence in our economy.
We may have more dexterity to control our fate than Greece but we’re not immune to a sudden loss of confidence that leads to higher interest rates.
Maybe so, but Goldman Sachs is practically begging the US government to increase demand and spend money in their own reports.
I understand but I still think you, like many others on the left hurt the debate by buying into the deficit and inflation hysteria.
That is accepting the right-wing framing of the argument and it makes no sense as the right has not (over the last 30 years) made any attempt at lowering deficits or curtailing the growth in the national debt.
We have run deficits in 64 of the past 80 budgets. Does that tell you something?
Any financial crisis we have ever had has been caused by bad behavior by the financial industry. Worker productivity has been rising for decades, and we have always been able to produce an excess of goods. Why should workers and the poor constantly pay for the misdeeds of the super-rich, playing high-risk poker with our money and no chance for them to have to pay.
I have to keep going back to the argument that deficits are a necessary component of economic growth.
Money (with velocity) is what makes the economy go. Spending = Income.
If no-one spends, there is no Income and there is nothing to tax.
Deficits are “financed” by creating money and loaning it to ourselves through private banks. Banks don’t have any money (compared to what they loan). The government creates that money out of thin air.
The net transaction between the Fed and the bank is zero – there’s nothing to pay back. It just shows up on the National Balance Sheet as a number, like points on a scoreboard. We don’t have to pay those “points” back. Never have, never will. It would destroy the economy trying to.
Some money we “borrow” from foreign investors but that is a small part of our total debt. We don’t “need” foreign investors.
“Borrowing” is a choice, we don’t have to borrow money, we create it in either case, so just create and spend directly without going through the banks. It’s a political choice.
I understand your argument that politically that won’t happen anytime soon and I agree, but it does us no good to buy into the argument that we are “broke” or the bond-traders will abandon us or deficits are destroying the country. Deficits can hurt if they are excessive but I hardly think with upwards of 30 million people unemployed or underemployed that tone can make the argument that we are spending too much.
Paul in Florida
Your understand of how we raise revenue is completely at odds with mine. Here’s an old 2007 explanation of how we raise money to operate our government.
Regarding Glenn’s post:
GG never provides an answer to the problem as he sees it. He derides anyone who yells and screams about Republican insanity as a “fearmonger who should be dismissed,” but then offers no strategy to fixing the problem. GG’s politicial analysis has always left me wanting, whether here or on the health care debate, especially because he doesn’t differ between what “Obama wants ideologically,” and “what Obama wants politicially.” Take the public option. Did Obama actually not want it, and did he just sell it down the river on a whim? The answer is no. Sure, “politically he never wanted it in the first place,” but that’s because he kneecapped a very powerful lobby to get the rest of the bill through Congress. Some might argue it’s no longer worth supporting once you do this, but it wasn’t some evil plot whereby he just didn’t want it on its own merits or because he’d get less campaign contributions; getting rid of it ensured the rest of the bill through, while including it would prove very difficult, if not impossible, to get any bill at all. He decided not to take the risk. It’s the same with any issue; he’s very technocratic and logical in how he makes his political decisions, and I can’t say I’m much different. Again, my deference to good political decisions based on statistical chance rather than populist firebreathing.
And regarding a solution: I give my undying loyalty to whatever Democrat gets nominated in the polling place. But that doesn’t mean I work as hard for them. And it also doesn’t mean we shouldn’t pressure them where it matters in a primary. Liberals and Conservatives decided on different strategies to punish their politicians. Conservatives act in a primary, supporting their ideological candidate no matter what, and accept the long-game of pushing the conversation to the right even if they lose; and even if a Republican — like John McCain — gets nominated and is nowhere near sufficiently conservative, they still rally around them. Liberals, on the other hand, take their ball and go home, pout, and do nothing to change the situation other than allow Republicans to win, pushing Democrats to think “Well, I just wasn’t conservative enough.”
Staying home and/or voting Third Party is ludicrous, and only pushes the conversation to the right. The time to vent our frustrations is in the primaries, as Republicans have done. It’s shown a proven track record.
I think that article is misleading. The monies it says we “borrowed” from Japan, China and the UK are largely trade imbalances.
That is a stretching of the term borrow.
China (or Japan or UK) sells us their stuff, in exchange for our US dollars. We don’t accept anything in payment except US dollars, and we are the only ones that manufacture them.
Where does China get dollars to pay us?
China has an account at the Fed – they send us TV’s and computers and we put numbers in their account.
The account is getting pretty big so China decides they want to earn interest on those funds – they transfer their funds into an interest-bearing account at the Fed.
Another name for those interest-bearing funds is bonds. We pay the interest (and we have control over the rate).
Same goes for Japan and the UK.
So what happens if China decides that they don’t want to sell us any more stuff for whatever reason? Maybe they don’t think dollars are worth anything anymore.
First, they have just destroyed their own economy since we are by far their biggest customer. Imagine cutting your income by more than half.
Second, they have a lot of dollars to spend, where do you think they would spend them? We would make a lot of money.
I don’t mean this in a condescending way but articles like that are really just opinions, I don’t put too much stock in opinions, unless I understand the underlying logic. Not that the author meant to deceive but there’s just not enough depth there for you base your argument on.
Without a basic understanding of monetary operations and money flows most economic articles have to be taken as an article of faith.
Trust yourself.
I’m not expecting you to take what I write as “the truth”.
Hopefully you will be curious enough to figure it out yourself.
Respectfully,
Paul in Florida
This doesn’t make any sense.
We don’t print all the money we need and the government doesn’t buy Chinese merchandise in exchange for putting money is some cash account. China get the dollars it needs because they enjoy a vast trade imbalance. They don’t need the Treasury to give them dollars.
What happens is that four times a year we figure out how badly we’re in debt and then we have an auction for people to give us the money we need to pay off our interest on the debt. We do not set the interest rate. That is done by the market for those bonds both in the primary and secondary markets.
You are mixing up different things, including the alchemy that goes on at the Federal Reserve, with the issuance of public debt.
Now, what Yglesias is talking about is that we are currently having success in borrowing money at a low interest rate. It’s always good to borrow when money is cheap, so why not borrow now and stimulate the economy? According to your theory, we don’t have to worry about that because we can set the interest rate any way we want it. You’re wrong and you’re missing the whole point of his argument.
My point is that there is a real danger in thinking you can glean investor confidence out of the interest rate their willing to accept for buying our debt. I used the recent examples of Greece and Ireland as examples where making that assumption would have lost you your shirt, pants, and underwear.
Additionally, my point is that Yglesias is asking Obama to do something that he cannot do, and there’s a limit to how much is gained by repeating the same argument over and over again when it is irrelevant.
Methinks you are the one who is confused.
There many of economists that would disagree with your characterization, not that that should make any difference.
Fed operations are not alchemy, they are simple (relatively, it’s not rocket science) accounting transactions.
Regardless of what you believe, money is created out of thin air. Its value is based largely on the productive capacity of the American Worker.
We haven’t been on the Gold Standard since 1971, and the quantity of money relationship to the value of the dollar is highly questionable.
What part of trading stuff for dollars don’t you understand?
Dollars are the only thing we will accept as payment. When we sell stuff to China, they pay us in dollars. When we buy stuff from China, we pay them in dollars.
As an aside, Japans debt-to-GDP ratio is about 200%, ours is about 70%. Japan can still sell bonds at about 1% interest. They have also acknowledged that they can create money by fiat if they choose, but that is a political choice.
You are still a prisoner of the false economic theories that have created the conditions of inequality and financial instability in the world. Economic theories pioneered under Reagan that have never worked except to transfer wealth upwards to the rich and leaving the rest of us behind.
Continue to shoot yourself in the foot if you like, for my money, Yglesias is right and you are wrong.
Paul in Florida
Yes, we can print money and do print money. But that is not how we go about issuing T-bills. In fact, as the Wall Street Journal worried back in late 2008, printing money has the potential to undermine our ability to issue T-bills. They are completely separate processes. Technically, the Fed buys T-bills when it prints money.
Technically, we don’t have to issue T-bills, it’s a choice.
The world won’t fall apart if we don’t, but the bankers would be pissed because it’s a sweet deal for them.
The Federal Government does not ever have to borrow money, this has been true since 1971 when Nixon took us off the Gold Standard and moved to a floating fiat currency:
http://en.wikipedia.org/wiki/Bretton_Woods_system
also see http://moslereconomics.com/ for a start to understanding MMT.
All I am saying is that functionally, the Federal Government does not ever have to borrow money from anyone – it’s a choice.
There are surely reasons why they choose to do so, mainly political. It’s another way to feed the fat cats.
The idea that the world will stop because the bond-traders wont buy our debt is just another scare tactic that we have never observed to happen in our history, much like the fear of the dreaded deficit causing us to go broke.
You said in a previous response that the “government doesn’t buy Chinese merchandise in exchange for putting money is some cash account. China get the dollars it needs because they enjoy a vast trade imbalance.”
The statement makes no sense – we have a trade imbalance because we buy more stuff from them than they buy from us. Its just another deficit, albeit external.
Where does China get those dollars? Do they buy them from someone? Trade Yuan or whatever they use for them? – No, we don’t accept Yuan in payment. That’s where the trade imbalance comes from – they trade their stuff for our dollars. Period. They can use those dollars to buy stuff if they choose, that’s what money is for. They choose not to and buy Treasuries instead.
For the stuff that represents the trade imbalance, lots of TV’s, appliances and computers, we have the stuff in our possession and they have…
Dollars. In an account at the Federal Reserve, which is joined at the hip with the Treasury.
Does that mean that they have a stack of dollars sitting in a room somewhere. The dollar has no intrinsic value, other than the BTU’s it would create if you burned it.
Commerce doesn’t work that way, money is effectively represented by numbers on balance sheets. There’s only enough cash in circulation to enable retail trade – about 800 billion dollars right now.
We can as a nation always afford to buy those things that are available for sale, no matter how big a deficit will result.
When I say we can buy things that are for sale I mean those things that are not being bid on by someone else.
Like 30 million unemployed or under-employed workers.
Without putting those resources to work we are reducing by a great deal our chances of growing out of this mess, which is how we have always gotten out of big debt positions.
Following WWII or economy was approx. 200 billion dollars and our National debt was about 250 billion (Debt/GDP ~ 125%).
Fast forward 30 years to 2010, our debt is around 13 trillion dollars and our GDP 15 3/4 trillion dollars (Debt/GDP ~ 80%).
The difference between the National Debt then and now is on the order of 12 3/4 trillion dollars. Did we ever pay back the 250 Billion?
Just asking.
Paul in Florida
I find your response to be incoherent.
I don’t even want to try to make sense of it because I can’t.
China has all the dollars it can eat without even talking to the Fed or Treasury because we send them nearly every spare dollar we have. When I say ‘we,’ I mean the American consumer. Eighty percent of everything I see for sale was made in China. The citizens of the United States make sure that China is flush with dollars.
China invests in T-Bills because they are a safe guaranteed investment. And they want us to have money to buy more of their products.
While it’s true is some abstract technical sense that we could print money instead of borrowing it, that is not what we in fact do. We mainly borrow money and we print it in extraordinary circumstances. China doesn’t like it when we print money and they complain.
I don’t even know what you are advocating. Are you saying we should stop borrowing money and just print whatever money we need? We seem to be saying that that is what we are doing right now.
All those dollars that consumers “sent” to China were created by the Treasury and are on the Treasury’s balance sheet. Simple accounting.
All that money was created out of thin air. “Printed”, but in a spreadsheet sense.
All money in use was originally created out of thin air – in the beginning there was nothing to borrow (see Greenbacks for an example).
but this is getting nowhere and it probably my fault.
My main point is that modern neo-liberal economics (free-market, supply-side) implemented under Reagan has been a miserable failure completely unable to predict the crises that have burdened our economy.
Before 1980 our economic policies were based on Keynesian ideas.
MMT is based on Keynesian Economics with the models based on the accounting view of transactions. I believe MMT does a better job of describing the dynamics of the economy. It makes logical sense to me. We have just been talking about bits and pieces of the theory and in that context I guess it makes no sense to someone not familiar with accounting.
I apologize for not making my point in a clear manner. I didn’t intend for this to become an argument.
I suggests you read some of the material on MMT since I am not doing a good job of explaining it.
http://moslereconomics.com/
http://bilbo.economicoutlook.net/blog/?p=14181
http://www.interfluidity.com/v2/1357.html
http://neweconomicperspectives.blogspot.com/
Respectfully
Paul in Florida
This is a straw man. I don’t know of any liberal commentators, even the most irritating, who want Obama to never do these things. As with all else in politics, it’s a balance. Politicians do it all the time. You state what you want, even if you know you’re likely not to get it, then, when the result of the legislative meat-grinder is from your point sub-optimal, you promote the result, then go back to working for what you want. All too often, Obama has skipped directly to promoting the result, without the context.
Ironically, now is as an odd a time for the liberal whinosphere to be complaining as it is for you to complain about their complaining, because Obama did a much better job of striking that balance with his budget speech. He made a strong case for something his opponents aren’t going to agree to (ending the tax cuts on the wealthy), which the libs should be applauding. And he also addressed the values disconnect driving the irritation over accepting the Republican frame of deficits being bad, an irritation that the vaults are wide open when it comes to funding wars or bailing out banks, but not for directly helping ordinary people.
At the same time, the fact that Obama did something the left has been asking him to do for at least the last two years doesn’t just mean they should give him credit for it now. It also means their previous criticisms had a point. So pushing him to do better on this score more consistently seems like a reasonable choice — if those same blogs have his back when push comes to shove. It’s that last part I’m doubting.
Let me give you an example of how my stomach churns.
I watch less and less cable teevee, but I try to tune in when big issues come to a head, and so I watched the MSNBC lineup the night before the budget speech and then again last night.
The night before the speech was filled with non-stop screeching that the president was about to sell us all out and that the budget deficit is not a problem and that he doesn’t need to offer anything and that he shouldn’t make any proposal on entitlements. It was scathing in its criticism of the president’s record, style, negotiating skill, and even (at times) his character.
Then, after the speech, it was so laudatory and applause filled that it was almost giddy. In Maddow’s case, it was giddy.
Both nights were just simply nauseating for me to watch. If I didn’t think these people were clowns, I’d have whiplash.
I mention this because everyone has a role. Someone on our side has to serve a role similar to the role the Tea Party serves on the right. I get that. They take absolutist opinions; they ask for more than they can realistically get. That’s important. But where it crosses a line for me is when it impugns the president’s integrity and character, or where the advice is simply bad from a political point of view.
It’s a balance, but asking for what you want, or even for more than what you want, does not have to involve tearing down the people who can’t give it to you.
Here’s an article for you
http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=3629
Pay close attention starting with the third paragraph.