Well, you heard it last week: Both Joe Biden and President Obama, talking about their beloved Simpson-Bowles plan. (Austerity! Shared sacrifice!) But here comes economics blogger Matt Yglesias pointing out just how pointless all this austerity talk is during a time of massive unemployment (and is a variation of Atrios’ suggestion to give free money to the people who need it):
Matt Welch at Reason makes the good point that none of the downballot mayors and governors who spoke last night at the Democratic convention grappled with the reality that a lot of them have been dealing with the thorny-but-necessary work of closing budget shortfalls, rolling back pension promises, and trying to wrestle with the limitations imposed by public sector labor agreements. He then concludes on a terribly wrongheaded note:
One of the great ironies of this convention already is that speaker after speaker denounces Republicans for being unable to tell the truth or get their facts straight. Meanwhile, one of the most important truths of modern governance—we are well and truly out of money—sits neglected in the corner. This might be a great way to rally the Democratic base, but it’s thin gruel for the majority of Americans who think, correctly, that the nation’s finances have spun out of control.
As Mark Schmitt wrote last year regarding a book from Welch and co-author Nick Gillespie, this assertion that America is “out of money” has become an all-purpose crutch through which Reason can push an ideological agenda of skepticism about programs without actually making the case in its particulars. But it’s simply not true that we’re out of money. Many states and municipalities are up against hard budget constraints, but the US government has the ability to create US currency in unlimited quantities. It hasn’t run out of money and won’t ever run out of money. It would be nice for people to understand this point separately from controversies over whether public sector programs are wise or just.
In principle, the US government could print up or borrow a ton of money, hand it to state governments, and then have all the money used to cut taxes rather than to finance programs. This would not be possible in a world where the US government faced a hard budget constraint but, fortunately, we don’t face any such constraint. The possible downside to a policy of greater reliance on money-finance or debt-finance is that it might make holding dollar-denominated financial assets less attractive to foreigners. That, in turn, would make imported goods more expensive domestically and American-made goods cheaper on foreign markets. If the United States were already at full employment that would be a very bad tradeoff, amount to a decline in average American living standards.
But at a time of mass unemployment, it looks like a pretty good tradeoff that should raise per capita output and average incomes. It’d be a bad deal for me personally (or for Welch) since there isn’t going to be a writing-on-the-Internet export boom, I buy lots of stuff that’s made abroad, and the DC regional economy that Welch and I participate in has no meaningful manufacturing sector. But for America as a whole it could be a boon.
But whether you think that would be a good idea or not, the important thing is that the question of whether we should be borrowing more is entirely separate from the question of whether the borrowing should finance additional spending or lower taxes.
Also good reading: “Seven Ways To End The Deficit Without Throwing Grandma Under The Bus.” [donate]
Matt Welch hasn’t made a good point since the first day he learned to talk. Printing “more money” creates more inflation. Just ask the German’s who did that in the 20’s. The real issue is how you reduce the debt so that the Capitalist bloodsuckers stop eating the last crumbs of food left in the people’s rice bowl? Last year we the people gave $350 billion of our tax dollars to these loan sharks. That was 10% of our entire federal budget expenditure. Debt is eliminated by: 1. Getting the loan sharks to forgive the debt (fat chance). 2. Cut spending and use the surplus cash to retire the debt. (That’s called austerity.) 3. Increase taxes to create a surplus. (Not while Republicans are in office.) 4. A combination of 2 & 3. That’s it. Which Grand Bargin do you choose?
I gather the other side of the MMT coin, the balance to printing money when money is short, is that when the good times roll the politicians are supposed to raise taxes.
Once I heard about that second bit, MMT made more sense. Unfortunately, it also makes it about as realistic as communism or libertarian capitalism.
“…hand it to state governments, and then have all the money used to cut taxes..”
These people cannot get off the idea of cutting taxes, instead of giving money directly to people. Those with little incomes who pay low taxes (except FICA and sales taxes) will get little or nothing in this kind of deal, and those who make the most will get the most and sock the savings into trust funds.
It is much more efficient and effective to give poor people money than to pay for the networks of social overseers to dole out bits of charity to those they deem worthy. Even Nixon came close to considering a guaranteed annual income. This would put food stamps, TANF (with its rules and work requirements), unemployment and SSI all out of business along with their attendant bureaucracies.
We give cash money to the rich all the time to do with as they please. When Prince Harry makes a royal ass of himself on his inherited wealth extracted by force from the British people, its just a big joke. But when Darlene the waitress buys a birthday cake for her son on Food Stamps, the moral foundations of the nation quake.
The word “cut” should be banished from any progressive’s vocabulary. No cuts in taxes, no cuts in benefits or spending.