Monday, December 04, 2017

Deficit Talk Is a Trap. Will Democrats Fall Into It?

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Government can spend money on the many, on the few, or on no one (by running a budget surplus). Which is the better choice?

by Gaius Publius

A budget surplus on the government side is a budget deficit on the economy's side.
–A fact you'll rarely hear spoken on big-donor-owned media

Just a few simple points about the recent tax bill here, but points critical to understanding what will unfold in the coming months and years.

1. As they did in the 1980s, Republicans are laying a "deficit trap" for Democrats. As they did before, they're blowing up the budget, then using deficit scares to force Democrats to "be responsible" about cutting social programs — "because deficits matter."

2. Big Republican donors want to see social programs — Social Security, Medicare, Medicaid — cut to the bone. (Big Democratic donors want the same thing, by the way. It's why Obama's many Grand Bargain attempts didn't cost him a dime in big donor campaign contributions. But Republican are in charge now, so the attack is coming from them, and quite an attack it is.)

In the 1980s Republicans ran up the deficit, then forced Democrats, via the Greenspan Commission's Social Security "fix," to raise taxes on the middle class to unnecessarily over-fund the Social Security Trust Fund. This converted SS from a mainly pay-as-you-go system that increased revenues as needed via adjustments to the salary cap, to a pay-in-advance system, the excess money from which was then loaned back to the government to appear to offset large deficits.

Notice the use of deficit fear in the push for cuts to social programs.

Today, Republicans are expanding the deficit again with their big "tax reform" plan — a giveaway to the donor class of both parties — and are already starting to use deficit fear to argue for cuts in what they call "entitlements" — Medicare, Medicaid, and eventually Social Security, even though Social Security is self-funded.

Notice the use of deficit fear in the push for cuts to social programs.

To the extent that Democrats are willing to accept the obligation to "be responsible" — under an entirely big-donor definition of "responsibility" — those cuts will be agree to. (Big donors think it's irresponsible to give money to anyone but themselves.)

3. The reality — Deficits aren't dangerous at all until there's a big spike in inflation, which is nowhere near happening and won't be near happening for a generation, after which global climate chaos will make all economics discussions moot.

4. The reality — Government spending is good. It's the way government puts money into the economy, making it possible for you and me to buy things.

So ask yourself: Do you want your government to shrink the money supply for no good reason, year after year after year, by running budget surpluses, or to grow the amount of money in the private sector, making more available for use by people like ... you?

A budget surplus on the government side is a budget deficit on the economy's side. Do you want the government to be taking money out of the economy each year, or putting money into it?

5. The reality — Everyone in DC knows these realities. That's why both parties increase deficits when they want to spend on something they want, like war, and claim to fear deficits only when they don't want to spend on something you want, like affordable health care, or free colleges. You know — to buy you nice things.

Consider: The trillions spent on this giveaway to the already-rich could have been given to college students in debt, or people still underwater in their mortgages since the Wall Street-created crash of 2008. What would be the effect of that reallocation of money? People who are struggling would spend it and grow the economy.

What's the effect of giving money to the already-rich? They buy another chateau in France, or bid on the next Van Gogh that turns up at Sothebys. Or give it to their tax lawyers to send to the Bahamas.

6. The question for you — Which of these three options would you rather the government choose:
  1. Spend money on the already-rich and none on you and your needs?
     
  2. Spend money on you and your needs and ignore the pleas of the already-rich?
     
  3. Hoard as much money as possible in a vault and spend the least possible on anything?
The first is a plan for the few, disguised as the current big donor "tax" proposal.

The second is a plan for the many, a truly progressive, FDR-style economic policy.

The third is what Democrats will be asked to do after the already-rich have gotten their pile.

This is a trap. But there's a way out. You can have nice things. All you have to do is convince your neighborhood Democratic Party office holder to give them to you.

Update: Here's the above "what is money?" explanation in easy-to-digest (and share) video form:


Thanks to Twitter friend Alan Parker for the link. Enjoy.

GP
 

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11 Comments:

At 11:03 AM, Blogger Garry Gentry said...

Nailed it with this article

 
At 11:15 AM, Blogger Gaius Publius said...

Thanks, Garry.

GP

 
At 11:35 AM, Blogger Ludders said...

Goddamn right! You're indispensable. Thank you!

 
At 11:50 AM, Anonymous Anonymous said...

Rinse, Wash, Repeat.
Except in this case, the DNC still is infected with dirty money and loses to candidates as ridiculous as Trump.
My only criticism: >>for you and I to buy things.<<

Should read "for you and me" Watch your pronouns! :)

 
At 12:00 PM, Blogger Gaius Publius said...

Thanks for the correction. Fixed.

GP

 
At 1:14 PM, Blogger Debtee said...

GREAT article!! Thank you - quite clear and simple for those who were like me and had no clue about the TRUTH re our monetary system.

By the way, your 'update' comment has a typo, has 'is' instead of 'in' re the video form.

 
At 1:36 PM, Blogger Gaius Publius said...

Thanks, Debtee. Fixed.

GP

 
At 2:06 PM, Anonymous Anonymous said...

Will they fall for it? The Dem's fell for Super-Delegates. Better question is: Our system is revolting, why aren't we?

 
At 9:20 PM, Anonymous Anonymous said...

You and your youtube thing are not totally correct.

First, the youtube thing presumes that government is altruistic. It hasn't been for at least 50 years. Wars mostly. But since Reagan, enriching the rich, ratfucking the poor. The end of the youtube thingie repudiates itself. Our beloved government, whether R or D, does NOT like taking care of the old, sick, young, poor and veterans. This bill is proof. And it stated that "WE" determine what we spend currency on. "WE" do not... have not for decades. It's only the vestiges of the "New Deal" that haven't been repealed yet by the rich, only the rich decide.

"Deficits aren't dangerous at all until there's a big spike in inflation, which is nowhere near happening and won't be near happening for a generation"

Not exactly true. It truly depends on the size of the deficits AND on the already accrued debt. While interest rates paid on our T(oilet) paper is very low, the total on $23 trillion and counting is considerable. But it's also the "and counting" thing that matters. We add a half trillion per year. After the pussy hound signs the reconciled bill, it'll be closer to 3/4 of a trillion. Couple of Katrinas and you can round up to a trillion per. Add a war or two and it could easily get to multiples of that.

At some point, it will get so high that those who invest in our paper may (and should) lose confidence in our "full faith and credit" thing and will either cash in, demand higher interest for their risk, or just stop. If we fail to honor any part of that debt ever... end of gravy train.

Rule of thumb: when it gets to over annual GDP, it's time to look at paying it down if possible. Our current GDP is about $17 trillion. We're getting too high too fast.

A spike in inflation would be a triggering event, true. But what might trigger that spike? Rapid growth in demand, which is highly unlikely due to shit wages that aren't going anywhere. But what about supply decreases whether contrived or not? Food and fuel are both very easily squeezed by the money that runs everything. To get prices higher, would they hesitate to constrict supply? Since it's happened before, the answer is no.

"The reality — Government spending is good. It's the way government puts money into the economy"

It is fundamentally good provided they spend money they have that was taxed from those who don't need it. If they borrow it, it isn't so clear cut. Depends on the terms of the debt and also, naturally, what they spend it on. Hoover Dam was a good. The Iraq war is a bad.

 
At 6:09 AM, Anonymous Anonymous said...

GP, the democraps have been "falling into it" for 40 years. It's partly that their money comes from the same sources as the Rs, so they also strive to help the same billionaires and corporations. The other part is they are morons.

But, to be fair, it is much harder to convince your third of the electorate that you truly care about the poor, sick, elderly, veterans, children and all others that are being ratfucked... all the while supporting those who are doing the ratfucking.

Molly Ivins used to call it "who is getting screwed and who is doing the screwing". But almost everyone was brain dead when Molly was writing this back in the '80s and '90s.

 
At 9:39 PM, Blogger Thornton Hall said...

But...Professional economists do not all *know* this.

1. Democratic electeds mostly consider themselves non-experts on this.
2. They listen to the experts.
3. Many experts say (incorrectly) that deficits do matter.
4. Electeds are temperamentally conservative.
5. Democrats want to enact the correct policy.

What follows from this is that the tendency of Dems to fall in deficit trap is a direct consequence of the inability of the Econ academy to incorporate empirical validation into the criteria used to award academic prestige and power.

 

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