By Simon Johnson
The conventional wisdom is that we face a serious budget problem, ballooning debt and political deadlock that prevents any semblance of progress either in the short term or over the next 20 years. “The sky is falling — cut everyone’s wages, slash Social Security, buy gold!” summarizes the mood of this midterm moment.
But step back and look at American public finances from any angle — historical, comparative with other nations, from Mars — and the picture is very different. We have a simple economic problem — we need to fix our tax system, irrespective of how much revenue we want from it. And we continue to face the central American political problem of the last 200 years: how much inequality are we willing to accept as reasonable and fair?
On Sunday, The New York Times invited everyone to weigh in on the deficit, posting a deficit puzzle that lets you make spending cuts and tax increases in an attempt to wipe out the deficit by 2040. I accept the invitation.
The key technical point is this: our tax system stinks. That much you have probably figured out — think back to how you felt on April 15 — but most likely you only encounter the tip of the iceberg (unless you are a tax professional). In terms of what we tax and how we tax it, almost every dimension of government revenue feels as if it were cobbled together in the early 20th century (which it was) and never properly modernized.
At some level a clunky government revenue system reflects sensible American reluctance to pay tax, as well as the deep political polarization that we have always had about the size of government. (Anyone interested in how we arrived at this point should read Steven R. Weisman’s “The Great Tax Wars”; let me note that Mr. Weisman is a colleague at the Peterson Institute and also the editor of Daniel Patrick Moynihan’s letters.)
We’ve reached the point where modernization of our system is long overdue. It is relatively easy to raise significant revenue without having significant distortionary or discouraging effects. The New York Times budget exercise does not encompass the full range of tax reform — blame the chairmen of the bipartisan deficit reduction commission for not fully putting this on the table — but nonetheless you can find some solutions without higher rates, as I have.
The carbon tax proposal in the Times chart is too modest. Over the next 20 years we could phase in something much more ambitious, and reducing our dependence on imported oil would be a major contribution to national security. The “national sales tax” idea is a bit vague; a properly designed value added tax, which protects poorer people by rating essentials at zero, would be better.
I’m not in favor of raising rates generally, but as my proposed budget shows, I do raise tax rates for the highest paid and wealthiest people. The process of job polarization in the United States looks set to continue — the people at the top of the educational attainment ladder are going to do very well; others not so well (this is why median wages haven’t increased). Even the Peterson Foundation — not a left-wing group — points out that the richest are paying less tax today.
Note, however, that I’m less sanguine than even most self-proclaimed “fiscal hawks” about our current budget situation. Consequently, I would eliminate all the Bush tax cuts, and this substantially takes care of our short-term projected deficit. On my joint Web site with James Kwak, he makes the case regarding why this would also be good politics for President Obama. No one who claims to be focused on fiscal responsibility should want these tax cuts, we have said previously in this space.
My proposal takes $2 trillion from the budget deficit by 2030. Personally, I would go even further (with more comprehensive tax reform). By refusing to reduce risks around big banks, we continue to carry big contingent liabilities — the crisis of 2008-9 pushed up federal debt by 40 percentage points of gross domestic product, and the same thing will happen again.
We need a margin of fiscal safety (and to fix the banks, but that is not going to happen – talk to your politicians about that). For more on these points, see my testimony to the Senate Budget Committee in August.
There are some obvious spending cuts — even the Pentagon is willing to cut back on programs for weapons that are no longer a top priority.
We also need to control Medicare costs, irrespective of anything else. Again the fiscal commission and The Times do not lay out all the options, but from the numbers ($560 billion by 2030) you can see how important this is. It’s a tough problem — and don’t think about just shoving these costs (or the qualified people) back onto private health insurance; that’s just another way to ruin the economy. Either health-care costs become an ever-increasing share of G.D.P., without limit — which is not possible — or someone is going to be squeezed. We’ll see if that will be beneficiaries, payers (insurers) or providers, but those are your choices.
My final proposal is a 50/50 split between spending cuts and tax “increases,” but I do not endorse any cuts to Social Security. Again, think about job polarization and the hollowing out of middle-income jobs from this economy — mostly from the effects of technology but reinforced by the likely effects of trade. This problem is common to most of the industrialized world, but almost every other nation is better at buffering the effects with transfers.
We do this a little with unemployment insurance, and you’ll see the effects in terms of the numbers claiming disability insurance. But for most, Social Security is the only transfer program we have that works. (For the historical background on how the government came to provide this and other forms of social insurance, see David Moss’s “When All Else Fails”; the United States has generally only acted when the degree of perceived injustice became acute.)
Highly unequal countries tend to become unstable and dangerous places. How unequal do you want the United States to become?
This post previously appeared on the NYT.com’s Economix blog; it is used here with permission. If you would like to reproduce the entire post, please contact the New York Times.
The Baseline Scenario 
Why on earth are we going along with this scam that there’s such a thing as a “budget problem”?
It’s manifest that no one among the elites actually believes this. Everyone, without exception, implicitly agrees that this government, sovereign in its own currency, and spending in a Depression economy, can spend as much as it wants, at will.
The Bailout, the wars, the Pentagon’s obscene budget, Big Ag subsidies, and corporate welfare in general, prove this.
So the only question is, will the government spend at will to further enrich and empower the parasites and criminals, or will it spend to help the productive people?
The only, indirect way in which deficit spending destroys the real economy is that corporatist spending further empowers the criminals to steal yet more real wealth from the productive people, and the opportunity cost foregone of spending which could have helped the people who are sinking into Depression.
Although it’s not really an opportunity cost; the government could easily spend on guns, bank bonuses, and butter. But the spending on guns and bonuses and the refusal to spend on butter are all part of the same class war strategy. As is the whole deficit terrorist scam.
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How about simplifying the tax system to get rid of all the loopholes.
Tax the money to the entity that earns it: no more “pass thru” entities. If you are entitling your business to the expensive benefits of limited liability (the court system, and all the people who are damaged by these companies without recourse to significant assets, etc). Make the LLCs, LLPs, S-corps and partnerships pay taxes, and you will see a huge number of them disappear because the only reason they existed was to evade taxes.
Tax the money WHEN it is earned. We give businesses endless deferrals when they are profitable, and then start giving it back when they start losing money (5 year NOL carrybacks, anyone?). Or they go out of business and how do you collect a deferred tax liability from a defunct or bankrupt company? Or they just “forget” about the other side of those deferral transactions or pass the liability on to an entity that can’t pay it. You can continue creating elaborate regimes to try to address these schemes, or you can just pull the plug on “pass thrus”. And I don’t want to hear about “the legitimate business reasons” for not taxing them. We all have legit reasons for not wanting to pay tax. If you are a legit business, then pay your share. Otherwise begone!
Change the foreign tax credit system. You get a foreign tax credit for those high European taxes your company pays, and you get to use it to pay the taxes you would have had to pay on the US profits you shifted to your Bermuda shell company. We’re basically subsidizing these businesses’ operations in the high tax countries. Change it so that the tax credits generated by the high tax country can only be used in future years where the taxes from that country are lower than the US. German tax credits against German foreign income (you’ll never get to use them). Bermuda tax credits against Bermuda income (you’ll never have any credits from here). “Oh, but that would be a recordkeeping nightmare!” Bullcrap!
Oh yeah, and how about a meaningful AMT for businesses. Like a tax on 80 to 90% of your book income. That won’t stop the lying, but at least you have to tell pretty much the same financial story to the IRS that you tell your investors. So even if more tax is not collected, someone benefits.
Let’s tax the nobles and the clergy!
Oops, wrong country, wrong century…but not necessarily the wrong moment.
My vote is for a VAT and eliminate the income tax.
By doing this you would eliminate two non-productive sectors of our economy: (1) the entire tax preparation industry, and (2) the entire tax collection industry (the IRS).
It would be very difficult to do that with an income tax. I would just get rid of corporate income taxes altogether and replace them with an 8 or 9% VAT. I would, however, keep the individual income tax. I would tax capital gains and dividends as ordinary income and make the income tax much more progressive (it’s silly that the rate structure currently ceases to be progressive around $382k, as if a person earning $400k should face the same marginal rate as someone earning $4 million.
Interesting ideas. You have convinced me. I am now in favor of letting the bush tax cuts expire. Also I agree, lets find a way to balance the budget long-term without cutting social security and other programs that support America’s middle class.
This is exactly right. The problem is not government spending but on what does the government spend. We permit limitless manufacture of money by a banking cartel and not one of these idiot deficit hawks so much as wimpers. This post should make us wonder once again about the bona fides of SJ.
The fake deficit crisis:
http://www.disequilibria.com/blog/?p=156
Russ and Jake — there’s a small cadre of people in Cleveland who are onto this, too.
So how do we get the message out? How do we teach ordinary Americans that “Everything you’ve ever been taught about money, the ‘Federal Reserve,’ banks, the ‘national debt,’ and the ‘federal deficit’ is a big, fat LIE.” And it’s a lie that will keep you and your descendents wage slaves in perpetuity if you don’t STAND UP and do something about it.
How do we get them to go to http://www.steadystate.org and sign on to the principles of a sustainable economic system? How?
All this is so unnecessary.
Why on earth is the government (the taxpayers) paying interest to private bankers for the use of money the banks create out of thin air via fractional reserve banking?
The government (that’s us) could take back the Constitutionally granted power over our money that we abdicated to the Federal Reserve system, SPEND money into circulation to rebuild infrastructure (physical such as roads and bridges and social such as education, health care and social security), and LOAN money out to businesses and individuals at reasonable interest rates.
As that interest is paid, the need to tax would diminish and eventually could disappear.
Hobart, I think this addresses your concerns.
A few comments.
Mr Johnson writes:
“At some level a clunky government revenue system reflects sensible American reluctance to pay tax,”
Ever since at least Reagan, we have been
bombarded with the mantra: “The gov’t sucks, in
what it does, and how it grabs the money that
ir rightfully yours” Even quite good economics
texts write about the “distortions” that taxes
impose on the “free market system”. Are not
taxes indispensible to any kind of society,
beyond the !Kung in the Kalihari? I think most
Murricans know this, but few are allowed to say
it.
An earlier commenter likes the VAT. Don’t
we know that a society prospers if there is
lots of trade, buying and selling? If we
know that — most people do, I believe —
why would we wish to tax exactly those
activities that bring us prosperity? It
seems to me that the income tax, and a
wealth tax, is the only rational kind of tax.
Re Medicare: Single payer advocates are
tired of pointing out that other developed
countries a) pay 10% of their GDP for
health costs, while we pay 16%; b) have
better health, as shone by longevity statistics,
weight of newborns, health of females in
childbirth, etc. I deduce that Messrs
J and K don’t read our effusions, otherwise
they would at least acknowledge this argument.
Best wishes to all,
Alan McConnell, in Silver Spring MD
THE ROARING 20s PROVED THAT ECONOMIES ‘ROAR’ WHEN THE WORKFORCE IS PAID JUST ENOUGH TO STAY BELOW THE POVERTY LINE!!!
OF COURSE WAGES ARE MUCH TOO DAMN HIGH FOR THAT TO BE POSSIBLE NOW, GETTING OUR POVERTY NUMBERS FROM 15%, UP TO ABOVE 70%, JUST AIN’T DOABLE FAST ENOUGH, BUT SOME TAX TWEAKIN’ COULD GET US TO WHERE WE NEED TO BE!!!
THIS POST ONLY BARELY MENTIONS THAT NEW NATIONAL SALES TAX IDEA THAT’S BEIN’ KICKED AROUND. BUT THAT COULD BE A GOOD THING. THE POST THOUGH MENTIONS ESSENTIALS BEING EXEMPT FROM THIS TAX AND YET IGNORES THAT ESSENTIALS LIKE LIQUOR AND TOBACCO ALREADY HAVE TOO MUCH TAX!!! AND OF COURSE THAT’S NO GOOD!!! THAT JUST PUNISHES THE FOLKS WHO DESERVE TO HAVE SOME FUN!!! THE OBVIOUS ANSWER TO THAT DILEMMA IS TO KEEP THE WORKERS FROM HAVING ENOUGH MONEY TO BUY FUN STUFF IN THE FIRST PLACE!!! HOW HARD IS THAT???
BUT POOR FOLKS ‘ARE’ PAYING FOR PART OF OUR PUBLIC SCHOOL COSTS NOW THROUGH THE STATE LOTTERIES SO THAT IS GOOD!!! OBVIOUSLY, THE SYSTEM NEEDS SOME WORK BUT THEN THAT IS WHY WE ARE HAVING THIS CONVERSATION.
PROBABLY THE MOST IMPORTANT CONTRIBUTION I CAN MAKE HERE ARE THE 2 FOLLOWING POINTS: LEARN YOUR HISTORY AND STOP INTERFERING WITH PROGRESS…(DAMNED liberals)!!!!!!
AND SOME ECONOMICS WOULD HELP Y’ALL SOME TOO, LIKE PAPPY ALWAYS SAID, LIQUIDITY IS LIKE MOONSHINE, THERE CAN’T NEVER BE TOO MUCH!!! AND PAPPY KNEW A THING OR TWO ‘BOUT ECONOMICS.
(A little humor from Texas)(WE TEXANS DO OF COURSE KNOW HISTORY AND ECONOMIC STUFF!)
I would like to suggest you to see: “A Real Market Revolution as a Solution for the Current Economic Crisis: A Reappraisal of Current Forecasts of Upcoming US Federal Deficit and Employment” http://t.co/2bLXYqT
The once booming market indices (Dow Jones over14,000 in mid-2007) prior to the subprime mortgage crisis and eventual financial meltdown, gave us a false sense of security. What we could have been doing — indeed, what we should have been doing — is explained in this article. More importantly, the author talks about what we must do now.
So we borrow 1 trillion dollars from China to give us more tax cuts and then but off the unemployed? Is that the plan?
http://americaspeaksink.com/2010/11/unemployment-benefits-update-november-2010-more-lies-and-misinformation/
It’s not quite that easy. The right will bring up Ricardian Equivalence – increased spending now will cause people to save more in expectation of higher taxation later. Few believe in full equivalence, but many believe in partial equivalence.
More generally, an expectation of future deep deficits creates an expectation of future monetization which (may) decrease long term investments of certain kinds, and/or create capital flight from the US (or an anti-dollar carry trade).
The goal, in real world terms, is to close the savings/investment gap.
The ideal case would be an expectation of no future monetization, combined with a threat of immediate monetization – people would rush to spend money on investments that would pay back in future dollars (and/or just spend money).
This is why everyone talks about needing a credible commitment to contain future budget deficits even while we wrestle with present day underperformance in capacity utilization.
Honestly, if we could close 70-80% of the future budget deficit, and get the Fed to just print permanent money (rather than buying bonds) to support a massive government infrastructure investment in the next 2-5 years, most of the problems would clear up quickly. We’d be left trying to fix the health care reforms, the financial reforms, and other structural problems (like aging and education reform).
It would be good for your line of thinking to
take a look at Prof.Michael Huson’s view:
“Ruling on Behalf of Wall Street’s “Super Rich”: The Financial End Time has Arrived ”
http://www.globalresearch.ca/index.php?context=va&aid=21947
With a name like joedee I figure that you’re probably a good ol’ boy. But… you have been mislead. We don’t “borrow” money from China, we instead are entrusted with their surplus dollars ’cause they need help with investin’. They are communists ya’ know, and so we bein’ capitalists and all, we gotta help ’em with what they don’t know nothin’ about. Simple as that.
The very fact that they don’t know ‘how’ to invest is proof too that they don’t know ‘where’ to invest. Given the responsibility of ‘investin’ their own money, that would almost certainly lead to them wastin’ precious funds on people who don’t know how take care of nice things, ’cause of course most of them people ain’t never had nothin’. And it ain’t like them people even have electricity, so what are they gonna do with money anyhow. What are they supposed to do? Buy TVs and then just pretend to watch football games and Nascar? Va-room, va-room.
Some dippy liberals call this dollar hegemony, but, I’m gonna let you in on a little secret here, nobody actually even knows what that word ‘hegemony’ means. Simple truth is that them Chinee woundn’t keep buyin’ them T-bills if they didn’t know that their money is better off bein’ spent how we see fit.
So, joedee, don’t be guilty of what my Pappy used to call ‘knuckleheadnomics’ (which is just a big word for dumb), just use some common sense. We are Americans after-all, and Americans don’t ‘just’ “borrow” from anybody.
Pappy always kept a likeness of that Hudson fellow pinned to his dartboard.
‘guest’,
The only thing believable about either of your comments is the ‘guest’ part. The way I see it, your folks probably gave you ‘guest’ as a nickname as soon as you started talkin’ and walkin’. They seem to have been sensible folks, you must have been quite a shock, like Ralph Waldo said, commies are like dead fish, after a couple of days you gotta throw ’em out. Your folks probably thought it was cruel to name you ‘commie’, so they called you ‘guest’ instead. They seem nice too.
You rant and rave about tax loopholes and the like as if you think life should be fair. Well, let me tell you somthin’, we tried that back in the ’60s and the country almost came apart at the seams. We was at war ya’ know and yet young Americans was refusin’ to fight. Think of it, sneaky little people needed killin’ and yet young Americans refused to do their duty. Is that what you want? Your womenfolk raped and you pickin’ rice all day!!!
The thing is, [always a] ‘guest’, when the workin’ folks get too much information (liberal media), and when they’ve got too many opportunities, they just ain’t capable of thinkin’ straight (especially coloreds). Honor and duty and American values erode into a wrongheadedness that weakens our great nation. And, as your comments clearly show, we already have more commies than we need.
(excellent comments otherwise)
It’s a gradual process of teaching whomever we can, and even more of providing the relocalization example.
More and more people are looking for answers, while more and more people are thinking and doing according to sustainability precepts.
So what do I do, for example? I volunteer extensively with such projects as a farmers’ marekt and an herbal medicine garden. I’m trying to figure out some business opportunities involving local, sustainable food distribution.
And I participate online, writing my blog, commenting here and there.
People just have to do their thing in a bottom-up, spontaneously evolving way, and the organic structures of economic and political relocalization, economic self-determination and direct democracy, will start to cohere.
The movement will first be its own exemplary message, and our overt teaching will supplement that. Eventually both will reach breakaway speed, and the movement will become general.
It’ll just take time, courage, and a lot of hard work.
Re: @ jake chase
“so the ghost busters want to kill the spirits of enlightenment?”
“when thy truthsayer speaks openly, yet adorned with malancholy – in no means waivered by the omniscient stilted crowds temerity”
“why would one attack knowledge if not for lack of -if not for shame – if not for the trammel of ignorance within – thusly to be outspoken as a xenophobic in perfect character”
“wretched is he who condems the future of enlightenment”
Thankyou, Simon and James for your hard work and labor. Please never stop the “good digging” for America’s sake :-))
@ rayllove___Where’s the love…Ray?
Thoughtful analysis, a tad big on the ego–as in, This Time My Ideas Count–but with a glaring political error. Writes Prof. Johnson, “We’ve reached the point where modernization of our system is long overdue.” Alas,given the current balance of political forces–which mandate gridlock for anything decent and great expectations for all things rotten and profitable–this is the very worst time to stick the tax system into the political machine.
Nov 15 2010 – Ian McAvity -excerpt
“… the most significant development this year—and the American media haven’t touched on it—is the agreement between Brazil and China to basically settle their trade balances with each other in reals and renminbi. Those are two of the largest holders of dollars in the world saying that they want to stop accumulating dollars. With your national debt scheduled to go from $13 trillion to $18 trillion, who’s going to buy that other $5 trillion?”
http://tinyurl.com/2a7dlpf
Fundamental Polemics (we will definitely not get from the Peter Peterson Institute). The “class bubble has to break. We need a top down restructuring and a bottom up restoration. We have to tell the big class bubble bankers, financial services and politicized money managers to take their hands “off of our JUNK!”
http://www.greedandgood.org/BookPDFs/gghistoric.pdf (chapter out of history for tax crisis reform)
http://en.wikipedia.org/wiki/Regressive_tax (full page review for “Regressive Tax” wikipedia)
http://search.aol.com/aol/search?s_it=topsearchbox.search&v_t=webmail-hawaii1-standardaol&q=regressive+taxes+critique
And on top of that, eliminate deductions for losses. You pay taxes on your profits. You eat your losses. I’ve had enough of this business school dogma that we need to reward risk takers. If someone is willing to risk a million bucks, I truly doubt that getting a fraction of that back as a tax savings is going to tip that decision one way or the other. People make business decisions to make money. Allowing losses just begs for schemes to create artificial losses.
And haven’t the last 10 years taught us anything about rewarding risk takers?
The answer, Simon is incredibly simple. For the first year, have the same rates be effective that were in effect in 1946, inflation adjusted on taxable income. For the second and third year (2012/13), have the rates be the same as were in effect after the Reagan tax reforms. After that, beginning in 2014, have a flat tax rate of 20% on all income from $50,000 to $2,000,000, and 40% on all earnings abobe 2$2,000,000. Simultaneously, cut the military budget by at least 60%, and freeze it at that level for 10 years. Tax petroleum products at 40%, and use half of that tax to fund development of alternative energies. As for Social Security, we know that it is actuarilly sound for at least the next 25 years. Increase the contributions of individuals up to an earnings level of $2,000,000 or means test the benefits. As for Medicare, we need to throw out the health reform, go to single payer, and take the total cost of health care and spread it as a tax surcharge evenly over the adult working age population.
Do your totals. This solves the problem. Oh, I forgot to mention, remove all subsidies for agriculture and pharmaceuticals, at least.
Oh, I forgot to mention. Nothing meaningful will be done in time to save us from utter devastation. Our country’s politics are insanity by definition. That is, we keep electing the same party politicians and somehow expect better outcomes. That’s insanity, pure and simple.
It is amazing how easy it is to solve this problem and indeed, doing this quickly tends to get a roughly 50/50 mix ofpending cuts and revenue increases.
Maybe we should make the NYT government?
Just to be absolutely sure, my intentions here were meant to be amusing, not insulting in any way. (Except perhaps to Texas Tea Party types [I live in Texas]).
Maybe my routine needs more work?
My comment above is intended as humor. I made that clear at the end of my first comment but I failed to consider that comments are not always read in the same order and etc.
If I offended anyone, I regret doing so.
Rickk,
(not humor)
The recent G-20 meetings were the end of an era, and then of course the beginning of another. Most Americans will not like this change.
Dollar hegemony played a much larger role in US policy than what is widely understood. The Bush Tax cuts for example would not have been possible without foreign inflows, naturally. The worst of it though is the fact that dollar hegemony puts too much liquidity where it is least needed, and too little where it is most needed. The result: not enough global AD, and too little upward mobility etc.
Now too, how does the US argue its importance to the global economy, it can not. The US became parasitic as funds that should have been used for global development were instead paying for militarism and wasteful consumption. The world has said ENOUGH!
As you suggest though, take away those cheap trillions, and there remains a choice between ‘austerity’ and something along the lines of the MMT.
It seems, just guessing, that once Americans understand just how un-productive they have become, and just how much harder life can be, the MMT will start to look tempting. QEII may be a harbinger of this change in sentiment. I doubt if it can be that easy.
I’m not sure if MMT thinking is sound, but I am sure that the Theory of Marginal Utility is deeply flawed. Measuring the contributions made by citizens in terms of earnings is ludicrous. Bernie Madoff for example, before being caught, was not making a contribution to society worth hundreds of times that of a garbage-man, secretary, farmer and etc. It is all deeply flawed and at the center of that is how we value contributions.
How much inequality are Americans willing to put up with? Dan Ariely already established that, Simon. Or did you guys forget that you linked his paper about it? ;-)
https://baselinescenario.com/2010/09/28/americans-want-to-live-in-sweden/
Turn the caps lock off and more people might read your comment.
3-D,
I was trying to be satirical.
Re: @ Bayard Waterbury___Your template is well defined and indeed workable…Excellent as usual :-) JMHO
Excellent comment. Congress lead by mental midgets is owned by corporate sector that controls the media to ensure the mindless desire of citizens for entertainment that stops all opportunity for real discussion of real issues.
Two facts need consideration first.
1) In 2008 (latest data available), 67% of all U.S. business paid NO income tax at all.
2)The 2009 Census showed that 20% of all U.S. households received 49.4% of ALL household income.
This is the place to start fixing the deficit problem. And you can find out how to solve the Medical Care problem and the Social Security problem at http://www.scribd.com/doc/16864582/The-Great-Recession-Conspiracy. It turns out that the solution to both “problems” ain’t that hard after all.
Free Internet Book: Enough is Enough
for 10-page summary or 130-page report, click on
Click to access EnoughIsEnough_Summary.pdf
Click to access EnoughIsEnough_FullReport.pdf
A currency war has no winners: Joseph Stiglitz
“For the global economy to revive, countries need to co-operate rather than devalue their currencies…
US monetary policy was largely responsible for Latin America’s lost decade… Now the US is again engaged in behavior that risks putting global stability in jeoprady. The irony is that the US is gaining little from the flood of liquidity.
Cheap money looks around the world for the best prospects, and finds them in the emerging markets. We know the havoc that can follow as this money flows in and out..
With a new global reserve system, the US would no longer enjoy the extraordinarily cheap borrowing that comes with being the minter of the most important global reserve currency. But the current arrangement is an anomaly. The world is at a critical juncture. The path it has embarked on today is marked by continued instability and anaemic growth. The co-operative path is better for all. It is, in fact, the only way that significant reductions in the global imbalances will be achieved and that the world will be restored to robust growth.”
Joseph Stiglitz is professor of economics at Columbia University and winner of the 2001 Nobel Prize for Economics.
to read Joseph Stiglitz’ article published in: The Guardian November 1, 2010, click on
http://www.guardian.co.uk/commentisfree/cifamerica/2010/nov/01/currency-war-no-winners
“So how do we get the message out? How do we teach ordinary Americans that “Everything you’ve ever been taught about money, the ‘Federal Reserve,’ banks, the ‘national debt,’ and the ‘federal deficit’ is a big, fat LIE.” And it’s a lie that will keep you and your descendents wage slaves in perpetuity if you don’t STAND UP and do something about it.”
Total strangers are JOKING with each other about a carpet sale happening because it is the right price (under 200 bucks) for getting rid of the bodies.
Carla, it’s too far gone…you have to learn about your enemy – you can’t promote a “steadystate.org” when some of us on this blog just escaped from a god-forsaken town where we read in the ONE newspaper allowed to exist that a swat team shot a killed a NJ man who walked out of his house in AZ with an UNCONCEALED weapon…THAT’s how bad they wanted HIS house in foreclosuregate…
People have been pushed into concentration camps that charge carefully calculated rent!
What kind of “steady state” can you build off of the housing situation that brought down the infrastructure of the USA?
Look, even Greenspam ADMITTED to being “wrong”. They’re FINISHED. They were WRONG about “finance” in the USSR, they were wrong about “finance” in the USA, and they were WRONG about “finance” in China and India.
It’s OVER. They can’t blame anyone this time around from preventing them from building their Temple to God. God won’t be coming to a place built by the math formula:
More misery for others = More money for ME ME ME
We have it CLEARLY written in the Declaration of Independence what we MUST do as a MORAL OBLIGATION when “secret” cabals do THIS MUCH DAMAGE.
Constitutional Convention and BURN the Patriot Act.
You do not have a STRUCTURE left in place in which you can BUILD a “steady state” – can’t you SEE that?
How much more pre-emptive VIOLENCE against We the People do you need to IGNORE before you acknowledge that this is a WAR that they started and have absolutely no intention of stopping – ever.
The US health care debacle at 2.8 Trillion a year and climbing is the US biggest problem.
The government paid and the government subsidized (non taxed) employer paid insurance have become a feeding frenzy of scammers and triple billers.
If the US does not change, all parties sufferings will only increase.
we might figure it out eventually, but when? When the bond market is on the verge of collapse?
It’s clear that people don’t react until events have hit an extreme and total destruction is imminent.
How much are we doing to mitigate peak oil?
http://www.planbeconomics.com/2010/09/21/robert-rapier-on-peak-oil/
Does this mean the government can create any amount of money, spend it as it likes and never have to repay?
Fantastic, then the Pres can create money to pay out all mortgages?
Also if the debt is tangible who collects the interest on the debt and can that interest be paid by creating more money?
Seems like we are on to a good thing. Can we stop payroll tax and income tax and also pay a subsidy making all our home production cheaper than any Chinese imports? That will fix unemployment quick smart!
So why is anyone running a credit card debt? In January we should pay off all our cards?
Why didn’t you tell us this marvelous news earlier?
Statguy, don’t stop at 70%! Print the whole 100%! Russ has a great fix and we should immediately pay out all State debt.
We won’t pay this magic money back from any tax just let it go hang.
It’s the ultimate “rent-seeking” scam there is – the FOR-PROFIT health insurance “business model”.
Everyone has to pay rent for their BODY, or else.
It is a MORAL OBLIGATION to not forgive and forget how depraved they ARE. What all these sadistic shamans NEVER say in their megachurches is that JUSTICE is how REAL “forgiveness” operates in the world. What kind of “religion” not only IGNORES what is “just”, but insists on promoting legislation specifically designed to PROTECT liars, thieves and murderers with their version of “forgiveness”?!
The “whistle blower” came out and admitted that whole “plan” of stealing the last two months of COBRA payments by sending off a letter saying that your payment was 21 cents, or whatever, but it was ALWAYS some penny amount, “short”
as a way to throw into chaos what “benefits” you still had at the tail end of the extension?
And if you had the energy, courage and BELIEF in what was “moral” to call the “corporation”
on the other end of the phone was a dude with a quote from the BIBLE calling you a “cheat” for not paying what you owed! Are you KIDDING me? That was SADISTIC psychobabble deployed and what IS frightening is how many hooligans they gathered up to DO that kind of crap to people in dire straights for a “job”.
Years later at least 50% of the people in those dire straights subjected to that kind of insanity are turning out to be GOOD people who were resisting the corruption of The Wrecking Crew in whatever “industry” they found themselves employed – there’s how the INCOMPETANT burrowed into the REAL jobs that REAL people were doing…btw, The Patriot ACT was already in place when this happened.
And in 2005, the CEO of United Health Care gave himself a 1.8 BILLION dollar “package”.
The Wrecking Crew is firmly entrenched in “rent-seeking” business models and their tyranny and SADISTIC cruelty knows NO BOUNDS – up to and including the BIBLE (and other “holy” books have PC’d their way into this business model) quoting to call YOU immoral when they were pulling the penny-short SCAM on YOU.
The Patriot Act spends BILLIONS on NOT collecting “real data” in “real time”.
And to increase the damage – they then run mathematical models to “control” the FACTS that they cherry-picked, at best, and INVENTED, at worst….so EVERYTHING they are saying and doing to “fix” the economy is based on covering up the FACTS of how things really ARE.
No one has a MORAL obligation to participate in HORROR.
Sure, there are women who are power-junkies and connive to snag a powerful man. But the gay guys take the cake for the slavish WORSHIP of powerful men. The predatory female never worships a man who holds “power”, hence the lack of BELIEF in their omnipotence and “god’s work”.
THE ENTIRE HISTORY of humanity is replete with stories about what happens next to the “powerful”.
The wanna-be hooligans are always the wild card – the reason WHY it always ends up being a “violent” overthrow of “powerful men” or oligarths, or plutoRats, or whatever else someone wants to call them.
I never watched The Sopranos so I could be clueless about cultural touchstones from an episode, but from living among them in the big cities and going to Catholic Schools with their kids, I can tell you one thing about “loyalty” – they KNOW that what they do sometimes means that they are in danger of getting “whacked”…
At least they never freekin’ quoted the BIBLE while ripping you off…
“It would be very difficult to do that with an income tax. I would just get rid of corporate income taxes altogether and replace them with an 8 or 9% VAT”
That’s exactly the kind of smug, glib response Republicans always give. Simplifying something we already have in place is “too hard” (they never give specifics about what’s so hard about it) then they suggest a brand new tax that we have no experience administering, as though it is simple and there is no way to cheat on it, and then they act as though they have cut some sort of gordian knot.
@ Marc Batko___Ref: “President Clinton Signing NAFTA” Quote: “I fear very strongly that if “NAFTA” is defeated it could have serious political and economic ramifications in Mexico. Under Salinas, jobs are growing, wages are going up. Mexicans want to stay in Mexico, and work in Mexico. I read the other day a prominent Mexican political leader said, pass “NAFTA” and we will have jobs for Mexicans in Mexico. Defeat, “NAFTA” and their will be a tremendous flow of Mexicans to the United States wanting jobs in the United States. We don’t want that. We want Mexicans to stay in Mexico so they can work in their own country. We don’t want a huge flow of illegal immigrants into the United States from Mexico. And I say with all respect to my former members of the House and the Congress (?) , don’t gamble. If you defeat “NAFTA” you have to share the increased immigration to the United States where they want jobs that are presently being held by Americans. It’s that “cold-blooded” and practical. And members of the House and Senate ought to understand that. I think it’s a matter of tremendous importance for “NAFTA” to be approved so we can solidify 370 million people in all of Western society” end Qoute (Clinton)
Note: Clinton was backed by “Walmart” and the “Auto Industry” for becoming the #42 President (from nowhere I might add…sound familar?). Oh, I can’t leave this tidbit out…Hillary (baby) worked hand-n-hand with Walmart to make this happen, pathetic!
http://www.historycentral.com/Documents/Clinton/SigningNaFTA.html
You sure know it’s true. As your hero Cheney said, “everybody knows deficits don’t matter.”
He meant the elites know this, though they’re now trying to keep it a secret.
For the sake of anybody reading this who isn’t familiar with Modern Monetary Theory (MMT), the fact is that banks don’t create money as a multiple of deposits, the way the propaganda has it. They simply create it out of thin air.
They of course do so for the sake of rent-seeking. Money creation and management was artificially put in the hands of the banksters in the first place by a corrupt government.
But the government could just as easily reclaim its monetary sovereignty and directly issue the money, and do so toward the goal of a healthy, productive real economy. We wouldn’t need the big banks at all, and could be rid of them.
There would be no threat of destructive inflation from this money issuance so long as there’s major capacity underutilization in the economy, as there is now.
MMT says the government should issue money to bring the money supply into accord with the economy’s productive capacity. This is the clearest route to restoring full capacity utilization, full employment, and smashing the banks.
I just wrote a post on it this morning.
http://attempter.wordpress.com/2010/11/20/guns-bonuses-and-butter-money-deficits-and-mmt-1-of-2/
Russ,
What Cheney meant when he said “debts no longer matter”, and what the Keynesians or the MMTers mean by the same suggestion, are two entirely different things. Cheney was talking about how clever it is to have foreigners lend money so cheap as to make deficits a positive due to the advantages of dollar hegemony.
The trick is to put other nations in a position that they must recycle dollars to maintain stable currencies. If the inflows are large enough the interest rates are kept low enough to make deficit spending a way of allowing tax cuts that increase capital formation and this leads to more global market share. Think of economic warfare with US/MNCs as in a war with other foreign MNCs and that is what Cheney was getting at. What the Chinese and others have been complaining about is entirely true.
Then, if one understands that much of that cheap liquidity was not welcome in foreign capital markets, mostly as a result of the Asian crisis/contagion, and as a result of the failure of the Washington Consensus etc., it becomes clear why that excess liquidity was invested domestically. Hence, the bubbles that led to the downturn. Dollar hegemony, taken too far, caused the downturn and this is easy to understand once one gets Cheney’s hubris.
If you want to talk about the MMT, I posted 2 comments at Econbrowser that you should read first. This conversation is more about Marginal Utility Theory than anything else, but alas, that is the apex of what is wrong. The article has ‘Fantasy’ in the title, I don’t remember the rest of the title but the author is Menzie Chinn and it is the most recent post. Other than my 2 comments, the rest is a waste of time, but then, some would say that in reverse.
@ Marc Batko___Don’t get me wrong, but anyone that wins a “Nobel Prize for Economics” (or any other prize from this phoney organization is a puppet for the “Money Changers”, period) is a planted seed of deception to win over our confidence. Sure, all crooks should be prosecuted and sent to prison. Where, and how many times have we all heard that before, eg. “Den of Thieves”(Milken, Boesky, etc.,)…yea right? The audacity to say, and place the “IMF” is such high regard makes me actually want too vomit out all I’ve just read! The “New-World-Order”, now coming to the Old World, New World, and Future World…now isn’t that special. JMHO :-)
If we were to tax the clergy, God’s wrath could cause a double dip.
We need to let the Bush-tax cuts expire for everyone. We then we need to end all Ag Subsidies and all other corporate welfare, especially for oil and energy corporations. We need to accelerate the troop removal from both Iraq and Afghanistan and cut back defense spending. We then need to eliminate tax deductions like home mortgage deduction (wealthiest get the largest benefit) and for businesses the deduction for employer-paid health insurance for employees.
Sorry Annie,
I cannot follow what your point is? Would you mind stating a condensed version of the problem and fix?
I know that Cheney meant something different. But the point is to assault the unity of the “deficits do matter” meme.
Citing Cheney as an authority in this context is evidence that the Republicans, at least, are lying when they claim to think deficits matter.
Of course, every action (as opposed to words) of both Reps and Dems proves that they don’t believe deficits matter.
That Big Lie goes hand in hand with the Big Lie involved in that Econobrowser post, that “trickle down” has any practical, rational, or moral validity whatsoever.
I started reading it and had the same reaction you did – why on earth are we still even debating “trickle down”? By now it has been empirically proven not to work. In addition to being immoral, it’s an empirical fraud. It doesn’t work.
That fraudulent frame as well, that whole way of thinking, simply needs to be assaulted and shattered, by whatever means necessary.
Russ,
Your puzzle pieces are not going to fit together. The fiscally responsible are now concerned about debt because the ROW is unwilling to lend the US cheap funds anymore. The Neokeynesian/MMT view on the other hand sees deficits as necessary, these are opposing views.
What you are claiming in regards to ex nihilo money creation is also flawed. The fact that money is created ‘out of thin air’ as ‘keyboard capital’ has never been a secret. The process of enlarging the economy via loans is openly stated and there is nothing wrong with the method, nor is there any reason to hide it.
One can argue that the money multiplier should be given more adherence although that is a conservative view more in keeping with risk aversion. MMTers on the other hand are claiming that debt can be rolled-over indefinitely so there is conflict here regarding risk. Your either willing to ‘let it roll’ in the name of progress, or your not. There is nothing wrong with higher leverage ratios so long as wages keep pace with productivity gains. It is the balance between liquidity volume and purchasing-power/upward mobility that matters, but the problems in regard to this balance are due to political constraints (corruption), and the effort to be competitive globally, not flaws in fractional reserve banking.
More deficit spending in the developed economies in the existing situation will only worsen the imbalances. The global economy is awash with liquidity and there is no sustainable way solve a debt crisis with more debt. Coming out of the Great Depression the savings/debt conditions, and the consequent demand factors, were the opposite of what they are now. And the Keynesians have difficulties showing that counter-cyclical stimulus worked even under the best of conditions.
The only apolitical progressive argument at this time, that is sound, is for increased development so as to stimulate global AD.
You’ll never get it, notabanker.
Hit a nerve, did I?
How much do you get paid to be a troll?
Ray, you’re the one trying to fit together incommensurable pieces if you think those responsible for the Bailout, the wars, the Pentagon budget, Big Ag subsidies, and the rest of the corporate welfare state (and all this at the same time that they want to extend all the Bush tax cuts and add more tax cuts on top) are doing anything but lying when they claim to suddenly care about the debt.
I’m saying it now for the third time in this thread:
It’s a lie that anyone who claims to care about the deficit or the debt really does care. Their actions PROVE IT.
So I want to expose that lie.
I didn’t say I wanted more deficit spending in principle. It’s clear that any new spending this government undertakes will only be further corporate welfare and/or for further power entrenchment. Obama’s corporatist “stimulus”, just a bailout by other means, proves that.
I do say we must resist all new taxes or increased taxes on the non-rich. And I do say we should draw a line vs. any further cuts to any public interest spending.
In both these case my watchword is:
Total Austerity for the Criminals, Not One Cent More from the People.
I say that for both taxes and spending. Whatever the hypothetical effects would be on the deficit are incidental. We could’ve “bailed out” Main Street many times over for what was stolen from us to bail out Wall Street. And it’s still millions more every day.
Again, this proves that literally no one among the elites really cares about the deficit. I want the non-elites to understand this, so they know what the correct response is to these lies and these assaults.
Let the government spend on the people, or let it spend on nothing and wither away. The latter is probably better.
But at all costs, we must fight any further government spending on corporatism and the police state.
A necessary step toward that fight is to attain mass understanding of the fraudulent nature of the entire government project. The people have to understand the Big Lies and stop letting themselves be stampeded by them.
Beyond simply balancing the budget, why not turn U.S. tax policy into a competitive advantage?
http://www.polycapitalist.com/2010/11/surprising-key-to-unlocking-us-global.html
The money is there, and it always has been. It’s just that since we are beholden to the corporate citizen, and within that the military industrial complex. It won’t ever get spent wisely and on the most important investments; that being the country and the citizenry. I’d argue that so long as the corporate citizen of the United States of America has equal rights and grievances as the individual citizenry of the United States of America. Fixing the US Budget. I mean putting the money where its really and truly needed is not going to happen. So long as we’re listening to the casino mentality of the corporate citizen and its Wall Street buddies. We are too beholden to short term profits over long term investments. It’s easier math and an easier sell, and it always will cut the nose off to spite the face. .
It is the way Obama thinks:
http://americaspeaksink.com/2010/11/a-socialist-thanksgiving/
Notabanker,
Don’t get too excited. While the government can spend as much money as it wants (theoretically) there are limits. If the government trys to spend more than the economy can accomodate or supply then inflation ensues. That’s actual what taxes are for in a fiat currency economy. Taxes reduce consumption in the private sector allowing the public spector to spend more (if it so chooses) – taxes don’t fund government spending anylonger.
annie,
class warfare, it’s not just for the elitist ultra-rich anymore!
the system is so broken it can not be fixed. burn it down and rebuild! kill the rich (and eat their children)!
when the revolution comes there will be plenty of retribution to go around!
right-on sister! power to the (incredibly pissed-off and well armed) people!
You do risk inflation eventually, if you have too much money chasing too few service providers, but that doesn’t exactly seem to be a problem today.
If the Federal Government continues to go further into debt, the taxes required for debt payment gets to be somewhat out of hand. But the Federal Reserve can buy T-bills any time it wants, right? So, it could effectively retire, by purchasing T bills, the entire government debt, and then “burn” those T bills. It would weaken the dollar, but that’ll only help manufacturing, though oil prices will also rise.
It’s nice having debt denominated in your own currency, a feature I’m sure the Irish and Greeks are learning to appreciate right about now.
@ PghMike___So once all the “T bills” are burnt we have a zero balance with a defunct treasury…not to mention a “Bankrupt Government” where “Reorganization” is literally thrown out of the English Dictionary as a misnomer!
Please stop commenting, earle. You are wasting pixels. Thanks.
What do you expect from someone who used to work for the IMF?
We need to let the Bush-tax cuts expire for everyone.
We then need to end all Agricultural Subsidies and all other corporate welfare, especially for oil and energy corporations.
We need to end all subsidies for ethanol production.
We then need to eliminate tax deductions like home mortgage deduction (wealthiest get largest benefit).
We need to accelerate the troop removal from both Iraq and Afghanistan and cut back on defense spending. The Defense Secretary has already identified $100 Billion in cuts.
We need to eliminate the employer tax deduction for employer-paid health insurance.
FREE DOWNLOAD: http://bnarchives.yorku.ca/259/
Capital as Power: A Study of Order and Creorder
by Jonathan Nitzan and Shimshon Bichler
In our book contract with Routledge, we gave up our royalties in return
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allowing us to post a free PDF copy 18 months after the original
publication date (May 22, 2009). In line with this agreement, the
complete book is now freely available in PDF format (subject to the
Creative Commons License).
FREE DOWNLOAD: http://bnarchives.yorku.ca/259/
On Social Security, why not extend the level of taxable income for those people with high AGI? Just for an example, why not impose the FICA tax on the first $175,000 of income for those individuals with AGI above $350,000?
The government could spend the amount of money necessary to achieve full employment — that should be the economic policy of every administration. The U.S. government issues and destroys its own currency and thus is not in the position to default on debt issued in its own currency. This is not theoretical, it explains how government finance operates. The U.S. government spends by having the treasury write checks on its account at the Federal Reserve. And yes, the President can create money to pay out all mortgages, 100x over! But we cannot stop payroll and income taxes because these taxes create a demand for the US $$, and if you eliminate taxes, you eliminate that demand, creating a worthless currency. So what is the tipping point to government spending? No one really knows, but going to hysterics over deficit spending during a severe recession when there is fear of deflation is probably not the tipping point. Instead of pretending that there are all these hard restraints and that we cannot afford to save social security, we should do the spending that will benefit our seniors and the poor and middle classes. Inflation is a restraint, and no one in MMT believes you should push the policy far enough that you have price instability. The economic inefficiencies of having all this unused labor is the real tragedy, not deficits.