EconoMonitor

Great Leap Forward

Fiscal Cliff and the Media

As predicted, the end of election season means its time for Republicans and Democrats to move on to deficit cutting. This is mostly a smokescreen to unravel the social safety net–that is, to cut Social Security and Medicare. That was the plan all along.

That is why Congress created the so-called Fiscal Cliff that beginning in January would destroy the economy by sucking about 600 billion of aggregate demand from GDP–through a combination of automatic tax increases and spending cuts. The CBO projects that growth would turn negative (to -0.5%) and unemployment would rise back above 9% as we return to recession.

The idea is that is such a horrible prospect that it gives Democrats cover for undoing the progressive programs we inherited from Franklin Roosevelt. The media and politicians continue to claim they “have no choice” because Uncle Sam has run out of money. The debt and deficit are said to be on an unsustainable course. No alternative opinion will be entertained.

Such as the obvious: the sovereign issuer of the currency cannot run out of its money; it can never be forced to default on commitments it makes in its own currency. You will not hear that within the Beltway, however.

Fortunately there are some voices against the group-think going on right now in Washington and in the mainstream media. As usual, the best alternative comes from MMT.

Here’s a panel broadcast on CSPAN: http://www.c-spanvideo.org/program/FiscalCliff

Also, a HuffPost story on it is here:
http://www.huffingtonpost.com/2012/11/13/fiscal-cliff-obama_n_2124832.html

Here’s a link to my colleague Stephanie Kelton’s powerpoint used in her presentation on the panel: http://www.businessinsider.com/stephanie-kelton-fiscal-cliff-presentation-2012-11#-1

Here’s a Press Release that counters the conventional views:

http://www.commondreams.org/newswire/2012/11/14-7

It quotes yours truly: “We all knew the election was a minor diversion because no matter who won, the first order of business would be to gut the social safety net. The ‘fiscal cliff’ was always part of the plot line, to stiffen the will of Democrats to reverse the progressive stance it had taken since the time of Roosevelt. Pete Peterson’s billions bought both parties and now it’s payback time. Don’t be duped by the dopes in Washington — there is no deficit and debt crisis now or looming in the distant future. The electorate must hold the feet of politicians to the fire: keep your darned hands off my Social Security and Medicare!”

Finally, that has generated some media interest. For those near NYC you can hear me on WRHU tomorrow at 8:45 am; for those near SF you can hear me at noon EST on KGO.

27 Responses to “Fiscal Cliff and the Media”

jerryNovember 14th, 2012 at 10:41 pm

Well Obama is coming out strong on the "rich must pay their share" line, which doesn't help us a whole lot.. but perhaps its a prelude for a new, stronger stance against spending cuts. Not holding my breath though.

Regarding the "tax revenues do not fund spending" tenet of MMT.. am I understanding it right that there isn't some continually growing account at the Fed/Treasury that builds up with all the tax money accumulated over time? The government issues the tax liability, and when it is paid by the citizen, the asset/liability are just wiped out from the balance sheets of the persons bank and at the Fed?

jonf34November 15th, 2012 at 3:14 am

I really do wish someone could get some of the to the WH, expecially Dr Kelton's presentation. But these dopes are barricaded figuratively and actually behind closed minds and doors and nothing can break through. The single minded objective is the Great Betrayal. One day maybe they will wake up and look back and wonder what they have done. Nah, the dopes in Europe haven't done it even though people are on the streets and unemployment is a quarter of the work force in Greece and Spain. Maybe it has to move to the core for the message to make sens. I am troubled.

princess1960November 15th, 2012 at 6:13 pm

you are right …but is allways the same with this politice …
thank you
ps media play deffinitive role for everything (this is not good) .
media is for information
law for executive ..
gv for fix the problems not before election ..after

benleetNovember 15th, 2012 at 8:10 pm

http://Econ4.org/films – has a good and short video on the deficit.
I left this comment elsewhere, but it works here too:
Some history: Between 1939 – 1944 GNP increased by 75%, that's six years of over 7.5% annual growth compounded. GNP increased from $319.8 billion to $561.9 billion, almost all of it increases in military expenditure. Employment increased by 42%, total employment rose from 45.8 million to 65 million, the unemployment rate also dropped from around 10% to below 2% for several years, and the national debt shot to around 120% of GNP. I'm looking at page 20 of Samuel Rosenberg's American Economic Development Since 1945. I believe we could reduce average household debt by adjusting mortgage principals, employ the unemployed in direct government employment, cut military spending and raise the capital gains and dividend tax rate from 15% to 50%, and the income tax rate on the top 5% who take in between 30 to 35% of all income, and grow the economy while maintaining national debt within reason. A better argued plan is the Progressive Caucus plan, A Budget for All. — see http://www.epi.org/publication/wp293-cpc-budget-f… — which purports to lower national debt too 62% of GDP by 2022. The Chicago Political Economy Group, CPEG, also makes a good case for direct government employment funded by a tax on financial transactions. In 2000 federal revenues were at 20% of GDP, then they sank to 14% in 2010, stand at 15% today I believe. A look at international tax bites, overall taxes as a share of GDP, U.S. 27.3%, OECD 36.2%, from http://www.taxpolicycenter.org/briefing-book/back… — my blog, http://benL8.blogspot.com

RationalistNovember 16th, 2012 at 3:27 am

Happy to provide my name in the email address the website requested.

Okay. I accept that a sovereign government can always pay its debts, albeit in depreciated currency. But, how does the government pay the retirement benefits "promised" to Americans without either very large tax increases or large borrowings from domestic or foreign sources that might decide they'd rather invest more productively elsewhere?

VerityNovember 20th, 2012 at 9:48 am

I think it would be helpful to do some math: the top 1 percent produces 9.2 percent of GDP. What is the most we can hope to extract from them? 6 percent of GDP? Then this get us roughly 3 percent of GDP more because this group already pays taxes. The IMF (2011) estimates that we need 15 percent of GDP more immediately and in perpetuity to pay the existing promises. The top 5 percent produces 12 percent of GDP–still not enough. The top 20 percent ($100,000 cut off) would need to pay 50 percent of their earnings more (I.e. Above what this group already pays) in federal taxes to cover the needed 15 percent mor of GDP.

Not going to happen,guys. The bloggersmhere are reallyntalking about what form default will take, not calling it default. If my Social Security pension is paid in dollars worth only 50 percent in purchasing power of what was promised, do you call that "paying" or defaulting.

Again, author and bloggers, get real. Get honest.

J HNovember 20th, 2012 at 11:32 am

Is this for real. Do you have a checkbook? Have you ever played Monopoly? Guess what the federal government is already broke and just because it can print money and inflate away debt can't obviate the facts. In 1983 SS and medicare took 6.7% of a paycheck and the same on the employer side up to something around 30,000. Medicare is now unlimited and has started dipping into capital gains. Ss is something around 7% on the pay side and higher on the employer side and goes over 100k. The total is 15.3% (see http://www.ssa.gov/OACT/ProgData/taxRates.html).

I ask you when is this going to stop?

It is unsustainable. Who the hell wants to work and see all their money end up in someone else's pocket. Your solution of printing money is at best a cop out. This is not a sustainable program. Serious action needs to be taken, you will see the end of the US$ as we know it. It is a forgone conclusion.

davosNovember 20th, 2012 at 12:35 pm

Don't ask a liberal to be rational. They struggle with basic math and prefer idological statement
' the sovereign issuer of the currency cannot run out of its money'
Of course not – they can keep printing till it is worthless – and they will!

LRWrayNovember 20th, 2012 at 2:24 pm

Verity: Default means not meeting nominal commitment. If I promise to pay you $10 in one year's time, and pay you $10 I have not defaulted. Prices of whatever it is you want to buy with that $10 (commodities, services, houses, stocks, bonds) could have gone up meantime but no sane person would claim that I defaulted.

LRWrayNovember 20th, 2012 at 2:25 pm

Tax rates have gone up unnecessarily. Blame Greenspan, not liberals–he headed the commission that did that.

LRWrayNovember 20th, 2012 at 2:26 pm

Ahh, the knee-jerk NeoCons have discovered this blog! Have you ever seen a presentation by Liberal Steve Keen. His math will boggle your mind. Not saying that is a good thing.

LRWrayNovember 20th, 2012 at 2:33 pm

Verity: Default means not meeting nominal commitment. If I promise to pay you $10 in one year's time, and pay you $10 I have not defaulted. Prices of whatever it is you want to buy with that $10 (commodities, services, houses, stocks, bonds) could have gone up meantime but no sane person would claim that I defaulted. Try to get past your neocon hype.

John HardinNovember 20th, 2012 at 8:28 pm

"…the sovereign issuer of the currency cannot run out of its money; it can never be forced to default on commitments it makes in its own currency."

Of course not. You are bringing up "default" as a straw man to attack the idea that we can't sustain the current levels of entitlement spending.

The federal debt now equals or exceeds our annual GDP, and the costs for existing mandated entitlement programs over the next decade or two is on the order of $200 – $250 TRILLION.

There simply isn't that much money available in our economy. Please tell me how the government will pay for that without devaluing the Dollar to near worthlessness? *THAT* is the risk, not "default"..

scott_nberkeleyNovember 20th, 2012 at 10:46 pm

How is it worthless, if that is what is used to pay taxes?? That's what makes sovereignty: the ability to tax.
This type of blanket simplification (a liberal to be rational) is the footprint of the small-thinking sloganeer, as is the "printing (until) it is worthless-and they will!" These are both assertions without a scintilla of evidence….except that Rush Limbaugh made tens of millions of dollars spouting them, so…they must have…"Value"!!

scott_nberkeleyNovember 20th, 2012 at 10:59 pm

Quick fix to our legislative gridlock: secret ballots in Congress. That way, no one has to lose their cover to Grover Norquist, if the vote is 80% in favor to raise taxes ( because it is the right thing for the country.) If an individual Congressmon, (that's "mon", as in 'man' or 'woman') wants to do a "Romney" (as in, not saying which loopholes would be closed in the tax system) that Congressmon could simply demurr until the next election cycle as to his voting record. Just like Congressmon/VP candidate Paul Ryan…well-practiced….He was asked about any, one, which, loopholes would be closed, and he said, (famously)

"It would take too long to explain". <<<<<!!!!!!!!!!

After all, we switched to the secret vote (called "Australian voting") for the electorate back in the post-Civil War era. Before that, voting was often "by voice" in the town square, and in every instance, a very public phenomena. Why not "secret ballots" in Congress?? Right now we are in gridlock, because the question every…
…every…
and I mean every Congressman has to any issue brought before him, is always this:

"How can this hurt me?" (< meaning, in the next election cycle)

Is this any way for our government to operate? How would "secret ballots" in the legislature, be any less democratic??

scott_nberkeleyNovember 20th, 2012 at 11:11 pm

The top 1 percent produces 9.2 percent of GDP???!!!
Hahahahahah!! So the Walton clan, by themselves, ….those five or twenty people, produce as much as the bottom 25% of the population in this country??? Hey, the net worth of both groups is the same!!!

I get your thinking….since the CEO of Home Depot was paid $60 million annually, he produced $6 million dollars worth of value for the company! Except, the company LOST money. So, where did the $6 million in value go, for the salary paid??? This "9.2%" is a hopelessly obscuring number.

19451949November 21st, 2012 at 1:20 pm

Rationalist, it can not as you already have correctly given the answers. SS and M & M, are simply socialist redistribution plans lacking in judgement and economic efficiency..

Virtually, all government programs are encumber by unabated rising costs.

Whether in is a cliff or a steep hill, CONgress lacking the will and backbone, shall by and large simply "kick the can" down the road…

If there is an effort, look for means testing to save these failed programs…

19451949November 21st, 2012 at 1:45 pm

JH, had SS been voluntary, we would have been out of this dilemma along time ago..
Market based solutions, rather than institutionalized socialism…

The government never has nor never will be a good shepherd, other than in fleecing its charge.

Now they are taxing SS, up to 85% of payout…Do you see what the Lords in CONgress have been up to…Oh, but wait, there is more, bring in an immigrate over 66 years of age and presto, they quality for SS…So much for requiring 40 quarters of labor…

America is head to Fiscal Hell and we are all responsible for it…From Professors to the layman, from liberals to conservatives, the piper shall collect from all…

tongoradNovember 25th, 2012 at 1:02 am

Wouldn't it be better to answer or respond to their claims? I say this as a layperson who is trying to get my head around MMT.

Unfortunately, the neocon mental model is the default view for most people, don't you think?

LRWrayNovember 25th, 2012 at 12:02 pm

tongorad: and just what claim did davos make that is worth responding to? Liberals cannot do math and are not rational? MMT makes use of accounting, proper stock-flow analysis and sectoral balances, and where appropriate math and complex modeling (ie: that is why I mentioned Keen; also see Fullwiler). Indeed, it was our use of these tools that allowed us to see the GFC as well as the Euro crisis coming.

jerryNovember 25th, 2012 at 6:03 pm

Who is it that is approving these comments? I've tried to post a couple times recently (non-troll commentary) and it never gets published on here.. was hoping for your insight regarding debt deflation/writedowns/jubilee, Mr. Wray.

LRWrayNovember 26th, 2012 at 6:09 am

Jerry: sorry, not sure what happened to your comments. In any event, I do support debt relief including jubilees. Sovereign govt can "afford" them.

Most Read | Featured | Popular

Blogger Spotlight

Emre Deliveli The Kapali Carsi

Emre Deliveli is a freelance consultant, part-time lecturer in economics and columnist. Previously, Emre worked as economist for Citi Istanbul, covering Turkey and the Balkans. He was previously Director of Economic Studies at the Economic Policy Research Foundation of Turkey in Ankara and has has also worked at the World Bank, OECD, McKinsey and the Central Bank of Turkey. Emre holds a B.A., summa cum laude, from Yale University and undertook his PhD studies at Harvard University, in Economics.

Economics Blog Aggregator

Our favorite economics blogs aggregated.