thatpoliticaldude:

American exceptionalism at its finest.

Progressives must stop the following: obsessing over China financing U.S. debt, touting fiscal prudence via cherry-picked spending cuts, and comparing our monetary issues with that of Euro-zone. Such things fall into the false logic of neoliberalism and its supposed solutions to America’s economic woes, and specifically, the propagation of austerity as the “only” option for economic recovery. 

Indeed, the political establishment does not have the will or the pressure from the populous to enact a New Deal kind of recovery mostly because we aren’t knowledgeable of how government spending actually functions. And the right wing has successfully pedaled the idea that our government should work like a household, but it shouldn’t, and William Mitchell, in this below section of “Beyond Austerity” in The Nation, lucidly explains how austerity will do nothing more than prolong our pain, especially at the expense of the already most economically vulnerable. This is a must-read article to educate yourself and others on how the current path of the Obama administration is a recipe for ruin.

The Myth of Austerity

The conservative agenda to dismantle workers’ rights was interrupted by the global financial crisis—which also refocused our attention on the importance of government spending in the form of fiscal stimulus or bailout packages. Before the crisis neoliberal economists and policy-makers claimed that the role of government should be limited to freeing up markets via deregulation. With unemployment seen as an individual problem, neoliberals argued that governments should not try to reduce unemployment by increasing public spending and/or reducing taxes. In fact, neoliberals claimed that whenever misguided governments did try to bring down unemployment in this way, they only made things worse—causing inflation and increasing debt burdens on taxpayers (now and later).

As the worst of the recent crisis abated, neoliberals launched a massive propaganda campaign to reinforce their claim that budget deficits are bad and should be avoided. Austerity is now viewed as inevitable. But is any of this true? The short answer is no, but it needs careful explanation, because the neoliberal arguments against deficits—at least some of them—are seductive.

Neoliberals claim that governments, like households, have to live within their means. They say budget deficits have to be repaid and this requires onerous future tax burdens, which force our children and their children to pay for our profligacy. They argue that government borrowing (to “fund” the deficits) competes with the private sector for scarce available funds and thus drives up interest rates, which reduces private investment—the “crowding out” hypothesis. And because governments are not subject to market discipline, neoliberals claim, public use of scarce resources is wasteful. Finally, they assert that deficits require printing money, which is inflationary.

But they go further than this. They claim that quite apart from these alleged negative impacts, deficits are not required to achieve the aims of the Keynesians. It used to be considered noncontroversial that government deficits could stimulate production by increasing overall spending when households and firms were reluctant to spend. In a bizarre reversal of logic, neoliberals talk about an “expansionary fiscal contraction”—that is, by cutting public spending, more private spending will occur. This assertion comes with the fancy name of “Ricardian Equivalence,” but the idea is simple: consumers and firms are allegedly so terrified of higher future tax burdens (needed, the argument goes, to pay off those massive deficits) that they increase saving now so they can meet their future tax obligations. Increased government spending is therefore met by reductions in private spending—stalemate. But, neoliberals argue, if governments announce austerity measures, private spending will increase because of the collective relief that future tax obligations will be lower and economic growth will return.

Economic policy is now clearly being driven by this idea that austerity is good. The only problem is that none of the propositions that support austerity are true.

It is difficult to expose the underlying myths because the assertions are framed in an opaque jargon. Further, the language of austerity has become ingrained in public debate by decades of miseducation and daily onslaughts from Fox News and its ilk. Those networks feature conservative politicians and denigrate those who challenge their views. Anyone who dares advocate larger deficits is shunned as being incompetent and/or a dangerous socialist. However, constantly shouting that government deficits are bad doesn’t make them so.

When British Prime Minister David Cameron said that the government deficit is just like credit-card debt and that Britain was facing bankruptcy, he was invoking the false neoliberal analogy between national budgets and household budgets. This analogy resonates strongly with voters because it attempts to relate the more amorphous finances of a government with our daily household finances. We know that we cannot run up our household debt forever and that we have to tighten our belts when our credit cards are maxed out. We can borrow to enhance current spending, but eventually we have to sacrifice spending to pay the debts back. We intuitively understand that we cannot indefinitely live beyond our means. Neoliberals draw an analogy between the two, because they know we will judge government deficits as reckless. But the government is not a big household. It can consistently spend more than its revenue because it creates the currency. Whereas households have to save (spend less than they earn) to spend more in the future, governments can purchase whatever they like whenever there are goods and services for sale in the currency they issue. Budget surpluses provide no greater capacity to governments to meet future needs, nor do budget deficits erode that capacity. Governments always have the capacity to spend in their own currencies.

Why? Because they are the issuers of their own currencies, governments like Britain, the United States, Japan and Australia can never run out of money. President Obama was wrong to suggest otherwise. Most people are unaware that a major historical event occurred in 1971 when President Nixon abandoned what had been called the gold standard (or US-dollar standard). Under that monetary system, which had endured for eighty-odd years (with breaks for war), currencies were convertible into gold, exchange rates were fixed and governments could expand their spending only by increasing taxes or borrowing from the private sector. After 1971 governments issued their own currencies, which were not convertible into anything of value and were floated and traded freely in foreign currency markets. Most nations have operated “fiat monetary systems” ever since, and as a result national governments no longer have to “fund” their spending. The level of liquidity in the system is not limited by gold stocks, or anything else.

Why, then, do governments borrow? Under the gold standard governments had to borrow to spend more than their tax revenue. But since 1971 that necessity has lapsed. Now governments issue debt to match their deficits only as a result of pressure placed on them by neoliberals to restrict their spending. Conservatives know that rising public debt can be politically manipulated and demonized, and they do this to put a brake on government spending. But there is no operational necessity to issue debt in a fiat monetary system. Interestingly, conservatives are schizoid on the question of public debt: public borrowing provides corporate welfare in the form of risk-free income flows to the rich because it allows them to safely park funds in bonds during uncertain times and provides a risk-free benchmark on which to price other, riskier financial products. The fact that bond yields have remained low throughout the latest economic crisis (reflecting strong demand for public debt) tells you that the parasitic bond markets do not buy the neoliberal rhetoric. They know that national governments (outside the Eurozone) have no solvency risk.

Zimbabwe! Yes, a Bob Marley song. But it has also become the one-word response conservatives use to scare us into believing that deficits cause hyperinflation (the cry used to be Weimar!). The reality is this: if the economy is operating at full capacity—which means it cannot produce any more new products—then attempts by the government to expand spending will cause inflation. But up to that point, governments can run deficits forever without causing inflation. By supporting spending in an economy not at capacity, deficits induce more production rather than higher prices, since companies will be happy to supply the growing demand.

Deficits will drive up interest rates! That’s funny, since deficits have risen sharply in recent years but interest rates have remained close to zero. Japan has been running large deficits since its property market collapsed in the early 1990s and has maintained zero interest rates and low inflation ever since. The neoliberal lie forgets to mention that the central bank sets interest rates, not the market. What neoliberals don’t tell you is that when government deficits stimulate growth, savings also grow as a result of higher incomes. So the claim that private and public borrowers compete for a finite pool of savings is a lie. Far from taking funds away from private investors, deficits expand the pool of available savings. Neoliberals also lie about the way banks work. Any credit-worthy private borrower can get credit from banks. Bank loans create deposits, which can be drawn down when banks make loans to borrowers. Yes, banks need reserves to back their loans, but they also know that the central bank will always supply those reserves should the banks fail to attract the necessary funds from other sources. So private borrowing is not constrained by existing savings. Borrowing typically increases income, which increases savings.

What about the central claim the British government is advancing to justify austerity—that private sector spending will increase if deficits are cut? All the evidence shows that firms are currently very pessimistic and will not expand employment and production until they see stronger growth in demand for their products. Consumers are also pessimistic because they worry about losing their jobs. They are also heavily in debt and are trying to save to reduce risks should they become unemployed. Cutting public spending will only deepen this pessimism. The greatest neoliberal lie denies human psychology. The early indicators from Britain—poor growth figures and surveys indicating growing pessimism among private firms and consumers—are already undermining the substance of the coalition government’s austerity strategy. The only way economies grow is if companies expand in response to increasing demand for their products. When private demand is subdued, the only way to increase growth is for government to spend, via deficits. Austerity will just withdraw the lifeline that has been keeping our economies growing in the past year or so.

Finally, the size of the deficit should never be the concern of policy. Fiscal sustainability is being defined by the austerity myth in terms of some arbitrary financial ratio (public debt to GDP, etc.). But actually deficits should be whatever is required to maintain overall spending at the level consistent with full employment. No more, no less. Fiscal sustainability is about fulfilling the government’s responsibility to maintain an inclusive society in which everyone who wants to work can.

Read the full piece here.

‘THANKS, BUT WE’D RATHER TRY DEMOCRACY’

I can hardly articulate home much I fuckin’ love this political cartoon.

(via political-cartoons)

Alabama Reclaims Title of “Most Racist State”

(via political-cartoons)

‘ZERO YEARS OF DEMOCRACY AND THEY’RE ALREADY BEATING US.’

Indeed, how can a nation who fancies itself as the greatest democracy in the world still be operating in a political duopoly of political parties, both of which are bought by and large by corporate interests?

Think Green. Live Green. Vote Green.

(via political-cartoons)

Data has a way of being more impactful to the human psyche when presented in startling visual terms. At AIDSVu.org, they have mapped out—with available information—statistics on how many, who, and where are people living with HIV in the United States. It’s startling, and in many ways devastating, to see what AIDSVu.org has to show on their interactive map, where you can filter by age groups, sex, race/ethnicity.

Hillbilly Xenophobia Meets Its Match

(via queerpocalypse-deactivated20110)

U.N. human rights investigators called on the United States on Friday to disclose whether there had been any plan to capture Osama bin Laden and if he was offered any “meaningful prospect of surrender and arrest.”

[Martin Scheinin of Finland, the United Nations Special Rapporteur on the Protection and Promotion of Human Rights and Fundamental Freedoms while Countering Terrorism, speaks during a news conference in Tunis January 26, 2010. Photo credit: Reuters/Zoubeir Souissi]

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America’s Worst Nuclear Power Plants

This slideshow at RollingStone.com highlights how growing our nuclear power capacity for the sake of “clean energy” is not only totally misguided, but arrests us on the cusp of disaster. “Clean energy” is an insufficient goal. “Sustainable energy” should be our aspiration, which recognizes how security of/access to nuclear material makes it problematic as a long term, energy source. Nuclear energy is unsustainable, as the Daiichi Fukushima proves.

The photo above is of Arkansas Nuclear One in Russellville. According to the Union of Concerned Scientists, the plant experienced security issues which prompted the Nuclear Regulatory Commission to investigate, the details of which have not been made public.