Phony “Fiscal Conservatives” – In The Midterms And Beyond

By Simon Johnson

Should we take seriously people who, in the current US political debate, argue that they are “fiscal conservatives”?  No.

These self-labeled conservatives are very far from even being willing to discuss the real issues – let alone make proposals that would have significant effects.  As Peter Boone and I argue on Bloomberg this morning, US “fiscal hawks” are just pretending.  Perhaps this will prove effective in the midterm elections, but then they will face the music – what exactly will they put on the table that will make any difference at all?

Unless and until you are ready to really reform the financial sector, you cannot be taken seriously in the fiscal space.  It’s the big banks that blew up the economy, caused a devestating recession, and pushed up debt by 40 (forty) percentage points relative to GDP

None of today’s “fiscal conservatives” showed up to work hard on constraining global megabanks over the past 18 months.  They have repeatedly and explicitly earned the right not to be taken seriously.

Here’s the full Bloomberg link:

22 thoughts on “Phony “Fiscal Conservatives” – In The Midterms And Beyond

  1. “Perhaps this will prove effective in the midterm elections, but then they will face the music – what exactly will they put on the table that will make any difference at all?”

    That is the key question.

    Right now, the Tea Party types are running on:

    – Repeal Healthcare Reform
    – Repeal Financial Reform
    – Extend the Bush tax cuts

    The problem is that even if they are successful in doing those three things, that essentially just takes us back to where we were in 2008, 2009, and the beginning of 2010. The message becomes “things were just fine the past few years until Obama overreached”. Does anyone really find that a credible message? Where are the ideas for addressing the real problems faced by the nation today?

  2. Fiscal responsibility? The criteria are simple:

    End the Bailout, the wars, Big Ag subsidies, institute Single Payer, tremendously cut the Pentagon budget, in general end ALL corporate welfare, and shift all taxation from productive work and income to unproductive rents – land and interest income.

    Do all this, and our fiscal situation would vastly improve. I’d say it would solve all alleged problems.

    But of course you’ll look in vain among the political class to find exemplars of this prescription. Which proves there’s no such thing as the “fiscally responsible”, and the very term is an Orwellian scam.

  3. I don’t think anyone can be serious about the deficit while not advocating repeal of the Bush and Reagan tax cuts on the wealthiest Americans, a 50% cut in our military/intelligence budget, and an end to the phony war on terror.

  4. Mr. Johnson also wrote in Bloomberg:

    “….U.S. will muddle through until investors grow tired of the risk or the banks blow themselves up again — or both. Then the question becomes: who bears the cost of the necessary fiscal adjustment?”

    “The tools of conquest do not necessarily come with bombs and explosions and fallout. There are weapons that are simply thoughts, attitudes, prejudices — to be found in the minds of men.

    Rod Serling wrote:

    “For the record, prejudices can kill and suspicion can destroy, and a thoughtless, frightened search for a scapegoat has a fallout all its own — for the children and the children yet unborn. And the pity of it is that these things cannot be confined to the Twilight Zone.”

    Rod Serling (1924 – 1975)

  5. With all due respect, I have to disagree.

    I agree that their ideas should not be taken seriously, though I’m not sure they have ideas in the sense of coherent and articulated policy arguments. The Tea Partiers seem to me more like the flogging Tories safely sitting on their back benches than the French street protesters.

    But as a phenomena, I think they are very important.

    If one believes that this situation will not be resolved without further conflict and crisis, then once must accept that a historical dialectic is at work. The arrival of a blocking cadre on the right wing of the national debate capable of preventing any action requiring legistlative approval or confirmation will tend to precipitate or at least intensify the crises through which the dialectic will operate.

    These people will curtail the possibility of further technical adjustments to protect the incumbent financial elite. Their arrival will alter on the margin the composition of the political class.

    And if, as seems increasingly likely, the intersection of the modern financial securitization practices and the domestic residential and commercial real estate markets has been half as disasterous for all involved as appears to have been the case, another financial crisis of some sort (perhaps slower moving and certainly not so threatening to the general economy as the last one) appears imminent.

  6. A useful prism I use to look at the tea party is this: consider them the slow kids in your high school. The ones who figured things out in 12th grade that the average and above average ones figured out in 9th or 10th grade. These are the ones taking geometry in 12th grade to graduate. The slow kids are also the troublemakers whose response to adversity is petulance and personal insults and occasional fisticuffs.

    They are finally aware of gigantic government deficits 8 years after GWB started them growing! The smart kids in the class knew what would happen in 2001. It took until 2009 for the slow kids to figure it out. And so on and so on. I know what will happen if the Republicans have their way with the economy and bending to corporate power; the slow kids need to sit the deleterious effects for 10 years before they get the picture. They can’t imagine the consequences unless it happens directly to them repeatedly.

    Thererfore, nothing will be done fiscally that makes sense although the solutions are easily before us until the slow kids test drive the Republicans again. They will come around perhaps before the country is destroyed…

  7. Oh no…. Oh no….. Oh No!!! You didn’t… Oh no You didn’t…. You didn’t compare us to the Frenchies!!! You didn’t compare us to the Frenchies!!! Oh Professor Johnson, we can never forgive you for that!! (haha). Slightly different like you said, Unions in France, lobbyists and the ABA (American Bankers Association) here in the states.

    I don’t like the Bloomberg tease, but we’ll forgive you today because the message was accurate.

  8. Simon says “It’s the big banks that blew up the economy, caused a devestating recession, and pushed up debt by 40 (forty) percentage points relative to GDP.”

    But Simon, it’s ALWAYS the banks. We have these booms and busts constantly in American history, the only exception being the during the glorious late lamented life of Glass-Steagall.

    In a recent interview, Lawrence Goodwyn, historian and author of “Democratic Promise: The Populist Moment in America,” points out:

    “…the creation of the Federal Reserve System…was a product of legislation written by bankers. Its purpose was not to “regulate banks but to help banks get the wherewithal to restore order to the market after ‘panics.’…The objective of the architects of the Fed system was to ‘settle’ what was called ‘the financial question’ by removing the issue from public discussion forever.”

    He continues “Essentially, the matter is unstudied…we know more about rockets to outer space, and more about dinosaurs, than we do about the prerequisites for a stable monetary system, much less a stable and democratic monetary system.”

    You can read the entire (long) interview at

    I disagree with Goodwyn’s worship of Obama and in fact find it difficult to understand.

    But none of the economists, on either the right or the left are really telling the truth about the Fed. In fact, its existence and the incredible damage created by private banking charging INTEREST to the government that constitutionally should be controlling our money is just criminal.

  9. Here’s a clue Carla, ANYBODY who holds a bond is charging interest to the government! And the gov’t is constitutionally banned from printing (and hence, controlling) money, that’s part of the reason why an entity like the Fed has to exist.

  10. your comments are very insightful and are probably what will be the repub. gameplan ,with some austerity components. to me it is not credible and we are entering a long period of economic stagnation .while fiscal stimulas on a major scale is the only thing not tried ‘it is not politically expedient and i am not knowledgable enough to know if it would work even though many mainstream economists recommend it.the only thing i can think of is a movement of concerned citizens ,along with the entire business comunity to think about a collective hiring program to begin to get people back to work again .the fortune 500 would be a starting point with a well publizied hiring program which would ultimately increase consumer confidence etc.also much more could be done to assist those who have the capacity to repay to refinance and stay in their homes.etc. maybe this is pie in the sky in todays dog eat dog society ,but just a thought.

  11. No, Scott, the Fed exists because bankers decided they wanted to subvert the very protections against bankers that the Founders put into the constitution. The Fed only came into existence when JP Morgan (the person) and other bankers lobbied for it, to make them richer.

  12. @Scott M:

    Where did you get that the government is constitutioncally banned from printing money? That AIN’T in the Constitution.

    The Constitution was written a LONG time ago, Scott. At that time, Money was in the form of coins.

    So we have the Constitution of the United States, Article. I., Section.8., listed under the powers of Congress: “To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.

    Too bad you too somebody else’s word for it, Scott.

    Are you aware that the Federal Reserve was founded in 1913 for the reasons cited in my post above?

    As Lawrence Goodwyn (who may be a better historian than either one of us, Scott, so I will quote him) says:

    “Because of population growth and radically increased production, the American economy had just gotten too big for somebody like J.P. Morgan and friends to ‘properly’ bail out the system after every stock market crash…the creation of the Fed constituted the harnessing of the power of the government for service to the bankers, not for service to the producing economy. The objective of the architects of the Fed system was to ‘settle’ what was called the ‘financial question’ by removing the issue from public discussion forever.”

    Later, Goodwyn continues “As a political and intellectual subject, we leave financial matters to bankers who take steps to ensure that representatives of the political parties who man the appropriate committees in Congress and both well-heeled and properly compliant. This is not a uniquely American achievement. There is no society in the world that is remotely liberated from those of its citizens who control the levers of finance.”

    So Scott M, whether you are in Congress or not, are you well-heeled and compliant?

    If NOT, what part of “the bankers bought Congress in 1913 and have owned it ever since” don’t you understand?

    Ever wondered why monetary policy is never taught in our schools? Here’s a clue, Scott: money is only an idea. Yet a national delusion ensures that 90 percent of the population–or more–is continually indebted to the owners of the private financial system some of us fondly call “FIRE” for finance, insurance, real estate.

    It’s entirely unneccessary. And yet this is the way we live.

  13. Sadly, Simon, you and Peter are right. All we here from fiscal “conservatives” is cut taxes and spending. They will even tell you that Obama has increased taxes. The David Stockman interview on this week’s sixty minutes. I thought that it was particularly interesting that there was no mention of the fact that even after the Reagan Revolution against taxation, the cuts only took the top marginal rate to 50%, much higher by more than 50% as to what it is now. And then they make the completely falacious argument that cutting taxes will cost jobs. They claim that it will effect small businesses. Just so much BS we can take. The average small business owner rarely even makes more than $250,000 a year, so where’s the beef?

    And the final question relating to who will pay for their ideas should they come to fruition without changing the way we deal with the largest banks. Of course, you didn’t give the answer because we all know who will — us, the disenfranchised electorate. But, then, we can’t complain if we are unwilling to stand up and be heard over the endless corporate campaign donations and advertising, lobbying and favoritism which is at the worst level in history.

    But then, plutocracy takes a heavy toll on all but the oligarchy and financial elite. I’m beginning to think that living in Angola or the Congo might not be so bad. As it is, we’ll soon be competing with them for a survivable existence.

  14. funny, the concept of “fiscal conservatism” itself (as opposed to or in addition to the false priests thereof) seems to be under attack here. Even after all we’ve so painfully learned, many of you folks sound like you think “fiscal abandon” is the right way to go??

  15. “These self-labeled conservatives are very far from even being willing to discuss the real issues – let alone make proposals that would have significant effects.”

    Until the “conservatives” put defense spending on the table – which most of them refuse to do – it is impossible to take their so-called fiscal conservatism very seriously. All they care about is rolling back Social Security and Medicare.

  16. As for health reform, since costs have been going up at multiples of inflation for years, the idea of going back in time to anything useful is absurd. What we needed was what the rest of the “developed” world decided on years ago. Given the economic inertia that’s been built into our Byzantine health care system over a long period of time, it wasn’t possible go get anywhere near that.

    What we got instead is a complex set of regulations that aims to unravel the Gordian knot – over time. Given the absolute money-driven insanity of our current politics, those regs may never be given anything remotely like a chance to work. But that would be par for the course, wouldn’t it?

    As for the so-called “fiscal conservatives” from both parties, their aims are so inconsistent and contradictory it’s hard to fathom what they really want. Do they want to bring down the deficit or do they want enormous tax breaks for the wealthiest? Do they want to do away with health reform and return to the out-of-control system we had? That system (1) delivers less while (2) costing more and (3) covering a smaller percent of the population than any of the ones it might reasonably be compared to. How will that help the deficit?

    Why hasn’t anyone hammered them about their support for complete de-regulation of the financial sector? Will they do it again? How will we not end up with the same fireball if they do, even as the previous one is set to re-ignite?

    What’s really pathetic, in the final analysis, is the moth-eaten blanket they – and supposedly smart people like Rubin and Summers – are now trying to cover themselves with. They can’t possibly argue that social programs are a give-away to the undeserving since they were they themselves infinitely undeserving, yet they were saved by taxpayer trillions from the dustbin of history.

    Instead, we need to trash Social Security, food stamps, and Medicare – the only barrier to destitution for many people – so that something called business confidence will not be irreparably harmed. This is a joke, right? Many of the business types at the highest levels would bust your balls for two cents. They lack for confidence like Tiger Woods lacks for mistresses. Give me a break.

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