I read an interesting report this morning, which resonated with some other work I had…
When you have a madman sounding, well “presidential” (according to the obsequious US press) what would you expect a Democrat politician to say in response? Yes I am talking about the Democratic response to the speech given by the US President on February 28, 2017 to the joint session of the United States Congress. The last thing I would want is for the response to begin with a report card on how the responder was fiscally responsible because he had achieved fiscal surpluses during the GFC. But then this is the Democratic Party circa 2016 we are talking about. The Party that lost an unlosable election to a showman who is sparing of the truth. This is the Democratic Party that having just lost an election because its candidate was seen as part of the neo-liberal establishment that has brought grief on millions of Americans, decides to replace its administrative head with another neo-liberal corporatist. But this problem is not uniquely American, although Americans do like to think they are unique. All around the world, political parties who should be defending workers and the poor have morphed into right-wing look-a-likes preaching fiscal rectitude (they would do it fairer) and cuts to public services and all the rest of it. They have so let down their natural constituents that real right-wingers preaching hate against immigrants and refugees and the like have seized the political initiative and taking votes from them. Trump is a sort of hybrid of that. Until the Left abandons its notions that fiscal responsibility does not mean running fiscal surpluses as a matter of course, it will continue to lose ground. And, we will all be worse off as a consequence.
Remember back to December 3, 2009, when the last US president delivered an address to his Jobs and Economic Growth Forum.
The Speech has been removed by the new administration – not archived which is standard practice when administrations change – but just plain deleted. That, alone, should tell you something.
After repeating his sense of urgency on how bad unemployment was (in 2009), President Obma then made this most extraordinary comment:
But I want to be clear – while I believe that government has a critical role in creating the conditions for economic growth, ultimately true economic recovery is only going to come from the private sector. We don’t have enough public dollars to fill the hole of private dollars that was created as a consequence of the crisis. It is only when the private sector starts to reinvest again, only when our businesses start hiring again and people start spending again and families start seeing improvement in their own lives again that we’re going to have the kind of economy that we want. That’s the measure of a real economic recovery.
We don’t have enough public dollars … when ‘we’ being the government (central bank and treasury) has all the dollars one would need to buy all the real resources available for sale, including labour that cannot find another buyer (the unemployed and underemployed).
And the government is the only buyer in the economy that has that capacity. The private sector certainly doesn’t have that capacity and that is why recessions occur.
The statement “We don’t have enough public dollars to fill the hole of private dollars that was created as a consequence of the crisis” was preposterous.
The speech writer should have been dismissed and Obama signalled his lack of fitness for office by repeating the comments.
Keyboard operators within the US Government could type 1,000,000 billion or 1,000,000,000 billion into their computer when making one of the electronic transactions we call government spending and the funds would show up as increased reserves in the banking system.
It might be undesirable that the higher amount actually was injected into the spending stream (depending on the available real capacity of the economy) but that is a separate issue.
The point is that the US Government can spend as much as it likes as long as there are goods and services available for sale.
This was a Democrat President … paving the way for the mania that is the Trump Republican Presidency.
And then in response to the new US President outlining a plan to revitisalise the economy with government spending (albeit on rockets and other armaments), the Democrats wheel out an ex-State governor Steve Beshear, who after saying who he was and how long he had been married, lays out his credentials:
By being fiscally responsible — I even cut my own pay — we balanced our budget and turned deficits into surpluses without raising taxes.
Fiscally responsible = balanced budget = deficits into surpluses.
Now, to cut him some slack, he was a State governor, a user of the US currency. But, he was talking about the US President in this response.
The Democratic Party seems to have completely lost the plot, while the Republicans under Trump are carving out an agenda according to his speech of restoring a “new national pride” and ensuring that US “children will grow up in a nation of miracles”.
It was all about big things – nation building, massive infrastructure projects – $US1 trillion worth (never mind he is going to sublet the public assets to Wall Street under his PPP schemes), new jobs and a future!
Compare that ‘vision’ to the Democrats. Bleeding from the way they hacked into Bernie Sanders during the primary process, they hardly said boo when Trump parades his cast of henchpersons for Congressional approval (how can someone who wants to privatise all public education being installed as the person responsible for public education).
And then, most recently, they installed a neo-liberal corporatist as the new head and wheel out the likes Mr Fiscal Surplus Beshear to respond to Trump’s address to Congress.
That tells you everything about why the progressive side of politics has lost out to these morons.
Relatedly, the UK Guardian article by Ken Loach (February 28, 2017) – Don’t blame Corbyn for the sins of Blair, Brown and New Labour – was also telling.
The likes of Tony Blair and his sycophants who remain as Labour Party MPs have been continually calling for Jeremy Corbyn’s head. This has become almost hysterical in recent days after the Labour Party lost the byelection in Stoke-on-Trent and Copeland.
As an aside, the most credible candidate for the Stoke-on-Trent byelection appeared to me – on the most cursory analysis – to be The Incredible Flying Brick who represents the Official Monster Raving Loony Party. Leadership qualities I would have thought. Upon closer analysis he/she received only 127 votes (0.6 per cent).
Labour has held Copeland (which is in Cumbria) since the 1980s and lost the seat to the Conservatives – a shocking result to say the least.
But there was a 6.69 per cent swing to the Tories away from Labour, which has seen it lose the seat (Tories 44.25 per cent, Labour 37.34 per cent). It is a seat that the Tories should never win.
The last time a sitting member in the Opposition has lost to government at a byelection was in 1982.
In the Stoke-on-Trent election, there was a swing of 2.14 per cent from Labour to UKIP, but Labour still held the seat with 37.09 per cent of the vote. UKIP gained 24.72 per cent and the Tories 24.35 per cent.
But it was seen as a bad result for Labour.
Corbyn said “our message was not enough to win through in Copeland”.
Ken Loach’s Guardian article offers some very interesting insights into the outcome. Just before the poll, he visited both electorates on a tour screening his new movie “I, Daniel Blake” (arranged by Momentum).
We went to Labour clubs in neglected areas, old estates away from the centre.
And found packed audiences – the “discussions were passionate, informed and invigorating, a world away from the tired cliches of the public discourse. This was not a marketing exercise but a real engagement with people and their concerns.”
He notes that in Stoke, for example, poverty, food shortages and debt defaults are significant issues. UKIP (the loony far right) is seizing on this suffering and making political headway at the expense of Labour.
He says it is a similar story in Copeland – lost jobs, closed mines, steel works etc
But “Labour is seen to be as culpable as the Tories” – the anti-establishment vote that emerged reflects the fact that “Labour is the local establishment”.
The by-election came about because the sitting member (Jamie Reed) resigned. He was a Blairite and extremely critical of Jeremy Corbyn.
Reed wrote a cynical letter in the New Statesmen (March 14, 2016) – Memo to Mark Serwotka – where he railed against those who were calling for the deselection of candidates disloyal to Corbyn.
He wrote about the “aims and values” of the Labour Party and extolled the virtues of Blair’s period in office.
New Labour – neo-liberal central.
Remember the “light-touch regulation” that Gordon Brown was so proud of, which allowed the banks to go crazy and descent into greed and criminality – and then go broke only to put out their hands for public assistance.
Remember trickle down theory – aka “make the already obscenely wealthier wealthy and it will eventually eke down to the poor”.
Remember the pernicious anti-union laws.
Remember the privatisation and user-pays public service delivery.
Remember the PFIs
Remember the decimination of Britain’s national education system (tuition fees, academies etc).
And remember Blair lying when taking Britain into Iraq – with the obvious negative consequences that have followed. Even Trump acknowledges that the massive US intervention (and spending) in the Middle East has made the world a more unsafe place.
Reed wrote on January 30, 2015 – The Last Word: A Blairite writes … – that he was “proud of the record of the last Labour government” and that he had been a “front-bench Blairite”.
He was unpopular in Copeland which had suffered a lot as a result of New Labour. His predecessor (Jack Cunningham had similar credentials).
Ken Loach writes that when organising these public meetings (and film screenings):
In both constituencies the Labour candidates, neither from the left of the party, were invited, but both candidates ignored the meetings. With coverage on television, radio and the press, this is bizarre. Could it be because Momentum were the organisers? We were there to support Labour. There was not even the courtesy of a reply.
The disdain they showed is why Labour lost in Copeland and went backwards in Stoke-on-Trent.
The engagement that the likes of Trump made with the losers of neo-liberalism is why he is now President. Hillary Clinton was seen as another neo-liberal hack – part of the establishment that has created these problems.
Ken Loach wrote:
The problems are well rehearsed but rarely related to the leadership question. A vulnerable working class that knows job insecurity, low wages, bogus “self-employment”, poverty for many including those in work, whole regions left to rot: these are the consequences of both Tory and New Labour’s free market economics. Employers’ “flexibility” is workers’ exploitation. Public services are being dismembered, outsourced, closed down, the source of profit for a few and an impoverished society for the many. The central fact is blindingly obvious: the Blair, Brown and Peter Mandelson years were central to this degeneration. That is why Labour members voted for Jeremy Corbyn.
And Trump. And Brexit. And why Marine Le Pen is high in the polls. And the rest of the politicians that are appealing to these concerns rather than mouthing tired rhetoric that they will run fiscal surpluses.
The people know that these neo-liberal aspirations are part of the problem, even if they might not know why.
And amongst all those politicians that are making headway at present – very few come from the Left traditions. The Right are taking up the votes and they mix better economic sense (like Marine Le Pen vowing to Frexit) with sordid policies regarding immigration, gays etc (although these hate type policies are not uniform across all the Right popularists).
While Ken Loach considers Corbyn’s choice of John McDonnell as the Shadow Chancellor to be sound, I think otherwise. Note, that I am saying nothing about the person as a person.
But John McDonnell as the Shadow Chancellor talks about the “deficit deniers” and how he would deliver fiscal surpluses quicker than (at the time) George Osborne.
I wrote about him (in his role not as a person) in these blogs:
It is the same old story – progressives trying to appear reasonable by being more neo-liberal than those with neo-liberalism in their DNA (the Tories).
And things are just as bad in Australia. For our sins, we have the Australian Labor Party, the so-called workers’ party, founded out of the trade union movement to give it a political voice.
It is currently in opposition and it should stay there unless it is willing to abandon the same pretense to fiscal responsibility that talks about the urgency of fiscal surpluses.
Its Shadow Treasurer, one Chris Bowen is constantly claiming that if returned to office it will restore the surplus. The surplus he is talking about was achieved in 10 out of 11 years of conservative government (1996 to 2007) on the back of massive growth in non-government indebtedness (to record levels), a negative household saving ratio, and elevated levels of labour underutilisation.
Without the private debt buildup, which is now a serious problem, there would not have been any fiscal surpluses.
On August 24, 2016, Labor’s Shadow Treasurer released a press statement – Labor’s Budget Repair Package – which talked about making “significant structural improvements to the budget worth $8.1 billion” which will be a “a significant down-payment on Budget repair that is fair, urgent and achievable”.
Aah, the fair austerity line. This is what the so-called progressives have morphed into – the merchants of austerity lite – we will cut hard but fairly.
Meanwhile more than 18 per cent of the labour force (or near labour force) are unemployed, underemployed or hidden unemployed.
The language is off-putting from the start.
Cars that have problems need repair. A roof on a house that leaks needs repair. But a fiscal balance? The terminology is totally inappropriate and inapplicable.
Repair to these characters means moving to surplus. Why is that a fix? We fix a car because it won’t drive anymore. But a fiscal deficit is doing its job of supporting demand and income generation in the non-government sector.
Further, what might “improvements to the budget” constitute? Well for these faux-progressives, it means a smaller fiscal balance. Cuts to spending and increases in taxes.
The conservatives and the faux-progressives (the old Left) argue relentlessly about whether the ‘repair’ should come from tax hikes or spending cuts. But while they duel about this irrelevance they fail to see that they are really about the same thing – perpetuating myths about the capacities of governments and the meaning of fiscal balances.
A 10 per cent deficit to GDP might be perfect as might a deficit of 1 per cent of GDP or a surplus of 2 per cent of GDP. Perfect in relation to what?
Answer: the saving and spending decisions of the non-government sector and the levels of capacity utilisation (labour and capital) in the economy.
It might be that the appropriate fiscal stance is to invoke discretionary cuts in spending and/or increases in taxes to bring the government commmand over real resources back in line with the politically-defined balance between public and private.
But, equally, it might be appropriate to increase the fiscal deficit given real resource usage in the economy.
In other words, the numbers that appear under the heading fiscal balance or public debt are irrelevant in their own right. They only have meaning if they are understood in the context of the real economy – how close it is to full employment.
Merely claiming the fiscal situation has to be ‘fixed’ if there is an outstanding deficit – and fixed means reduced – is mindless.
Especially, as I note above the Australian labour market is very weak and around 2 million people want more work but cannot find it (both in jobs per se and hours of work).
Let a central bank sort through all this nonsense
In this context, I was reminded this week of an article that was published in The Regional Economist (October 2011) – Why Health Care Matters and the Current Debt Does Not.
This is the journal of the Federal Reserve Bank of St. Louis and the authors are economists there.
They were writing at a time when the hysteria about the US government fiscal deficit and the increase in the public debt to GDP ratio was raging. Not long after the President had declared the US government had run out of money.
There were claims by economists that the US would experience rampant inflation and accelerating interest rates and that China would stop ‘funding’ the deficit.
These were made on an almost daily basis.
Commentators who still parade around as experts on these matters were predicting dreadful outcomes – including the bankruptcy of the social security system.
History tells us they were all wrong. And it is no accident that their predictions have come to nought.
The Federal Reserve Bank of St. Louis economists knew they would come to nought.
The fresh sense of urgency that this has ignited to solve the debt situation, however, obscures the fact that U.S. government spending was no more sustainable prior to the Great Recession than it is now. Put another way, the recent large deficits change almost nothing about the long-term fiscal prospects of the United States.
This, of course, is a basic insight that Modern Monetary Theory (MMT) has expounded for many years, long before the GFC and long before all these commentators came out of the scum.
Deficits are flows of net spending (spending over taxes and transfers) and the US government, or any currency-issuing government can make these flows anytime they want (from a financial perspective).
The Bank’s analysis is somewhat blurred though because they talk about the “unsustainable” nature of US health care expenditure without any reference to the real resources that might or might not be involved.
While we can have a debate about why “Health care spending in the U.S. far exceeds that of other high-income countries” (Source) and why this level of spending delivers inferior health outcomes.
The data shows that (in 2013):
… the U.S. spent 17.1 percent of its gross domestic product (GDP) on health care in 2013. This was almost 50 percent more than the next-highest spender (France, 11.6% of GDP) and almost double what was spent in the U.K. (8.8%). U.S. spending per person was equivalent to $9,086 (not adjusted for inflation).
It also shows that mortality rates in the US (from heart disease) are up the second highest (using OECD Health Data), lower extremity amputations as a result of diabetes third highest, and so it goes.
So there are clear questions for the US to answer as to why they spend so much being so sick! The answer will lie in eliminating rent-seeking private health providers, cutting back on food portions in cafes, exercising more and all the other things that are indicated.
But none of them impinge on the financial viability of the US government.
And so, after the Federal Reserve Bank of St. Louis was warning the readers about the unsustainability of public health care spending, I was surprised when I read under the commentary of the “Current Situation” that:
… it is important to remember that the government differs critically from businesses and individuals.
As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills … In this sense, the government is not dependent on credit markets to remain operational. Moreover, there will always be a market for U.S. government debt at homebecause the U.S. government has the only means of creating risk-free dollar-denominated assets …
Pull up the stumps folks, the game is over! (cricket analogy for those non-cricket type readers meaning, in this context, that your cover is blown).
The obsequious media
Ken Loach noted in his article that the newspapers:
… that present themselves as radical have been revealed to be nothing of the sort. The Guardian and Mirror have become cheerleaders for the old Labour establishment. Column after column demands that Corbyn should go. Extinct volcanoes from New Labour are quoted with glee. A big headline for Mandelson: “I work every single day to oust Corbyn.” Mandelson had to resign twice from the cabinet in disgrace. Why give him such prominence, except to add to the anti-Corbyn mood music? …
… during the campaign for Corbyn’s re-election the BBC chose twice as many interviewees who were hostile to Corbyn as were supportive.
The media’s response to Trump is also pathetic. Somehow this buffoon is being called “Presidential”.
I think Jon Stewart’s sudden reappearance on the Late Show on Monday said it all about the media and is a good way to close.
So next time you hear a so-called progressive politician claiming they have to balance budgets, or that it is fiscally responsible to run surpluses (and destroy non-government wealth), or that fiscal repair is a high priority (remembering that cars need repair) just reflect back on those few words from the economists at the Federal Reserve Bank of St. Louis.
And then tell the politician you are refusing to vote for them in any election, including branch pre-selection processes, until they stop lying to the public about matters they know nothing about (obviously).
Tell them that they are dead in the water if they refuse to embrace MMT insights and push for better public services and full employment.
And tell them you don’t want to hear them try to garner ‘progressive cred’ by claiming they will ‘tax the rich to pay for it’ (it being some progressive spending target like a public school etc).
Sort them out before it is too late.
Administrative note – Travel
I have a long flight to Brussels tonight and so for the next 24 hours at least I will not be able to closely monitor the comments section of my blog.
So if your comment has a link in it please be patient and I will get to it in due course.
I will be in London (Friday and Saturday) and will meet up with some disenchanted Labour Party members among other commitments. Then I head over to the real Europe on Sunday for various events and functions. More about which later.
The Weekend Quiz will appear at the same time as usual.
That is enough for today!
(c) Copyright 2017 William Mitchell. All Rights Reserved.