Friday, May 25, 2012

Democrats Operate Under GOP Coercion?

Interesting observations from Bill Black at NEP today.

Professor Black brings attention to a recent interview of GOP candidate Romney by the WaPo where Romney exhibits what we often see in those outside of the MMT paradigm:  The inability to discern logical contradiction.

Romney at one point states in response to a question about the schedule of "budget balancing" policies under a hypothetical Romney administration:
"Well because, if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%. That is by definition throwing us into recession or depression. So I’m not going to do that, of course.”
OK, this makes sense (so far).  Reducing discretionary "G" by $1T would probably result in a 5%+ hit to US GDP.  But then Prof. Black points out:
Later in the interview, Romney claims that federal budgetary deficits are “immoral.” But he has just explained that using austerity for the purported purpose of ending a deficit would cause a recession or depression. A recession or depression would make the deficit far larger. That means that Romney should be denouncing austerity as “immoral” (as well as suicidal) because it will not simply increase the deficit (which he claims to find “immoral” because of its impact on children) but also dramatically increase unemployment, poverty, child poverty and hunger, and harm their education by causing more teachers to lose their jobs and more school programs to be cut.
Prof Black points out here how Romney is exhibiting the classic inability of those outside the MMT paradigm to discern the logical contradiction between their position on the one hand, to support higher government spending to support US GDP and the associated public purpose; and on the other hand, view fiscal deficits as "immoral" or something.

This behavioral phenomenon has become rather commonplace in those outside of the MMT paradigm.  We see it all the time.  It is behavioral exhibition of some sort of confused miasma of illogic and immorality, or in another way, a lack of mathematics and morality.  We continue to try to examine this phenomenon here at MNE.

Prof Black then opines:
I predict that he (Romney) will not act to protect our children or our economy from the suicidal and “immoral” austerity his Republican allies are trying to coerce the Democrats to inflict on our economy and our children.
Is Prof Black trying to assert that Democratic economic policy makers, who have established the Simpson-Bowles Deficit commission, foregone any prosecution of financial frauds, report to a President that claims the US government is "out of money", etc... only do this out of some sort of political "coercion" applied to them by Republicans?

Republicans who fail to exhibit basic logical cognition skills that would enable them to discern contradiction?  As if Democrats do not lack these same cognitive skills but instead only "choose" to pursue fiscal "conservative" policies due to so-called "political coercion"?


Professor Black, have you heard Gene Sperling or Tim Geithner talk lately?

You can't blame moron Republicans for the moron policies of Democrats;  both parties do quite nicely on their own.


Matt P. said...

As someone who comes from the center-right but generally believes in and follows the MMT paradigm, I cannot say how frustrating it is to discuss these issues with most of the MMT community because most are liberal Democrats. Your post is exactly right. BOTH parties are equally wrong and BOTH parties use deficits to their political advantage whenever they can.

paul said...

We don't need a 3rd Party. We need a 2nd Party.

Matt P.

Liberal-thinking people and Democrats are not the same thing. I haven't seen many folks here self-identify as Democrats.

Personally, Political Compass puts me as a strong-left-leaning libertarian, nearly an anarchist.

I also have a practical side.

For my first 60+ years I was a self-identified Republican-voting conservative.

Most people have no idea where their ideas put them on the political spectrum.

Our behavior is more tribal than anything else.

Thus Romney having to contort himself in order to be seen as a conservative, which he is not.

Daniel Larison over at the American Conservative comes across as a lot more libral than many so-called "liberals" (see Barack Obama).

Tom Hickey said...

"We don't need a 3rd Party. We need a 2nd Party."

Exactly. The choice now is just between who screws you and how. IN fact, the parties trade off. When it is time to cut military spending, then the GOP takes over. When it is time to cut social spending then the Dems rule. Because the party banking these things is the only one that convince the base to support cutting them.

Matt P. said...

Agree with you both. To amplify on Tom's thoughts it seems to me that only Democrats (at least since 1970) can shed blood on foreign soil without half the country acting like it is genocide, only the GOP will be able to put some type of reformed medical system in place, etc. At this point I have no idea who reforms wall street...

paul said...

Clinton was largely responsible for NAFTA and repeal of Glass-Stegall, although it was Republicans that were behind it in Congress. It was under that administration that our economic policy got Rubin-ized. That persists to this day.

I voted for Perot back then although that turned out to be a defacto vote for Clinton. I was as clueless as anyone could be. I'm marginally less clueless now hopefully.

We have a strange, disfunctional political system.

paul said...

Further proof, as if we needed it:

Full disclosure, I voted Obama, Bush, Bush in the past three Pres elections.

Bob Roddis said...

The problem for you MMTers, Keynesians and “progressives” is that deficits are indeed:

a) immoral; AND

b) contribute greatly to economic catastrophes.

Despite decades of confusion and muddle from the Keynesian elite in academia and the media, average people know this. In fact, only 20% of the 18-29 year olds agree that government spending is an effective way to economic growth.

What average people don’t seem to understand is that both deficits and inflation are purposeful government policies enacted and defended by people known as “Keynesians”. These points should be shouted from the rooftops. There should be ubiquitous airplane banners announcing the truth.

Romney is a bankster and Keynesian. Therefore, he has to fool the public into thinking he’s opposed to deficits while signaling to his masters in the elite that he is not going to abandon their Keynesian looting spree.

That's why you MMTers are so important to the cause. By being so explicit in your claims that fiat funny-money "printing" through keystrokes actually is a policy that should be enacted, you help alert the public to the true nature of Keynesianism and help undermine decades of Keynesian obfuscation.

Thanks again.

paul said...

Troll much?

OT, but

"fiat funny-money "printing""?

How is gold-backed money-printing different?

Tom Hickey said...

Bob, watch what happens when the country marches off the fiscal cliff if austerity is pursued. BTW, it won't be, because no political party is going to shoot itself in the head.

And what's up with Europe? Fiscal austerity is sinking their ship.

Oh and Japan just expanded its deficit to deal with the tsunami and grown increased? Coincidental? Of right, "inflation," except that Japan has been fighting deflation for a couple of decades not and yields are at historical lows.

Bob Roddis said...

The use of the word "austerity" by Keynesians is a distortion of the language. Going back to 2009 levels of spending is not "austere" and will invariably fail but be called "austere" by Keynesians to mislead average people.

Of course, when unsustainable spending is stopped, there is an inevitable period of pain as plans are changed to sustainable projects.

Unforgiven said...

OK, Bob. What is "unsustainable spending" for the US Gov't?

Anonymous said...


People like Bob know that "austerity" will be horribly painful so trying to convince them about MMT by warning them about the pain is not at all persuasive. In fact, quite the reverse. They view it as a sort of overdue justice. I know because until about a year ago I was in their camp and felt the exact same way.

Charles Hayden said...

Why are the anti-planners trying to "plan" the deficit?

Let it FLOAT!

Anonymous said...

FWIW, snide remarks to Austrians are not helpful. Bob's posts are not the remarks of a "troll". If he comes into the house of MMT he should be treated like a guest unless and until his posts become offensive in language or personal.

Anonymous said...

Matt, Absolutely correct on all points. Dems want to remove money from the economy by taxing everything. Reps want to do it by cutting down on spending. Both parties are guilty of lying, pandering and corruption.

Tom Hickey said...

I just put up a post linking to "Lord Keynes" on Austrian economics and liquidationism. Let's take this discussion there.

paul said...

"Bob's posts are not the remarks of a "troll""

Off-topic comments critical of the group he's trying to get the attention of by making hyperbolic statements to get some reaction is trolling from where I come from. YMMV.

The fact that he was or wasn't an Austrian wasn't brought up.

Bob rarely makes coherent arguments so most don't takes him seriously. That's his fault.

We read and listen to Ed Harrison, an Austrian. If you will note his approach is somewhat different than Bob's.

Some of the posters asked him to answer some legitimate questions - he hasn't responded yet.

Got any other complaints?

As Matt would say…


Bob Roddis said...

"Lord Keynes" doesn't even understand the basic Austrian concept of economic [mis]calculation. Not that any MMTers understand the concept.

Further, no Austrian is unaware of the tragedy and pain of depressions induced by unsustainable credit expansion and government spending. As a practical matter, Ron Paul has called for slashing the military budget while weaning people off entitlements over the long term. That's not exactly "liquidationism".

Unforgiven said...

Well, you got the unsustainable credit expansion part right, but that only applies to the private sector, not the US Gov't.

Wrong Paul and his son Ayn need to have a good solid read of "The 7 Deadly Innocent Frauds of Economic Policy".

Tom Hickey said...

Bob, let's look at the present situation in the US and optons for dealing with it.I posted a link to Edward Harrison, whose background is Austrian economics, on why deficits are effects of the sectoral balance identity, for which he credits Wynne Godley's monetary economics. As you know from reading about MMT, that's an important input for MMT, too.

IN order to reduced debt overhang, either the debt has to be written down or paid down. Paying down debt is counted as saving. Moreover, corporations are saving rather than investing. In addition, the US is a net importer and given the current state of world economy, it isn't likely to become a net exporter anytime soon. If you peruse Godley and Lavoie's Monetary Economics, you will find stock flow consistent modeling that uses official data to calculate aggregates, which gives a fair approximation of the sectoral balances and shows what is needed to offset the nongovernment surplus.

Presently, the domestic private sector is saving more than investing, i.e., is in surplus, while the external sector is in surplus is the capital account is the mirror image of the current account. By identity, the government has be in deficit in that amount, since the three sectors sums to zero. Godley's SFC modeling shows that this is significant and requires allowing the deficit to expand rather than shrinking it with austerity measures.

If government restricts its deficit, then either imports must fall or the domestic private sector will not be able to accomplish its saving desire, including deleveraging. While imports would fall somewhat, if they didn't fall enough, then defaults and bankruptcies would mount, forcing write downs. This would further dry up credit as creditors tightened. This can easily spiral into debt deflation, and more and more debts cannot be serviced been, even though they would have if the economy were at its previous level before austerity bit.

The result is recession, at least, and there is a risk of debt-deflationary depression in an era of high private debt, such as now.

Do you think that the pain of contraction is just an inevitable consequence and we should bite the bullet and ride it out whatever happens, or do you have another solution?

For example, Harrison thinks that write downs are inevitable, but we should run a large enough deficit to enable sufficient deleveraging to prevent a severe contraction while what he perceives as malinvestment is worked though.

Leverage said...

What has morality to do with maths? This feeds back into your recent post, Tom, into the mindset of the conservative, realism vs. idealism, actionable policies vs. fantasy economics.

Morality is this weird subjective thing where some 'moral' actions can cause harm to third persons, centuries of morals from religions have showed that to us. Austerity, for example is designed to penalize and harm 90% of the society.

The same way, deflation is mathematically speaking, an impossible endeavour, which will harm >90% of the population.

This morality is build on top of nihilism, is an auto-destructive sort of nihilism. I find the origins of this mindset extremely interesting, and also dominant in certain type of communities and societies.

But because the disruption it creates, hardly sustainable. In fact what they are asking for is for the inevitable end of violence and repression. "Morally", they would approve of it to protect their 'right's', their status quo, where private property trumps anything else.

When you have 10 dogs chasing 9 bones, and the share of bones 9 of the dogs is constantly decreasing, being marginalized... inevitably, corporate fascism is their preferred form of organisation. All to suit the mindset of the nihilist.

paul said...

Bob said

"…slashing the military budget…"

Slashing the military budget will remove money from the economy. Money (a proxy for things money can buy) is the fuel that drives it.

So far he's made things worse.

"…while weaning people off entitlements over the long term…"

He's going to starve them slowly instead of all at once.

"…while what he perceives as malinvestment is worked though…"

For me mal-investment is way over-rated as a problem. The Market™ is supposed to be the all-powerful God in dealing with this, and here they may have it right. Creative destruction. Species that couldn't compete or adjust went the way of the dodo.

We live in a trial-and-error world. Every event in the known universe is trial-and-error. Statistical events.

I don't see how mal-investment could be the cause of the GFC.

It didn't happen through trial-and-error. The cause was purposeful.

Leverage said...

The market constantly purges 'malinvestment', corporations close every day even if the economy is booming, and inflation is a feedback loop into the system which is always working. If you are unproductive inflation will eat your wealth, period.

The notion that you need some sort of great depression to sanitize the system is a moral tale which is based on wrong assumptions. Plus, no one of the maxim causers of the problem is going to be purged. It only feeds into a minority which end up with all the assets anyway by creating economic chaos and serfdom through money scarcity.

Silly economics.

Letsgetitdone said...

I agree with most of what's been said, of course, other than with Bob's views, which are always good for a laugh. However, I think's Matt Franko's inference that this:

"I predict that he (Romney) will not act to protect our children or our economy from the suicidal and “immoral” austerity his Republican allies are trying to coerce the Democrats to inflict on our economy and our children."

implies that Bill thinks the Democrats are acting the way they are because the Rs are coercing them is a stretch. As it stands the above quote is correct. It describes what the Republicans have been doing since Obama's election, and is even more to the point since the Rs got back the House.

Bill didn't mention that the Ds haven't needed much coercion to go along with their 'austerity'. But I think other things he's written certainly indicate that he knows very well that many of the Ds including the President are just as responsible for the austerity trope, and, in the case of the President, have even led the way telling the lie that "we're running out of money."

Tom Hickey said...

Leverage: "Plus, no one of the maxim causers of the problem is going to be purged. It only feeds into a minority which end up with all the assets anyway by creating economic chaos and serfdom through money scarcity."

This is the kicker. Naomi Klein has named it — "disaster capitalism." "Never let a good crisis go to waste, and if needed, just manufacture one."

Always been, and always will be if the institutional arrangements don't change.

In fact, it used to be that the financial sector would load the populace up with collateralized debt and recourse loans, and then call them in, forcing a reset with lenders owning the assets.

The Federal Reserve Act of 1913 was in part a reaction to this. The lenders realized that they had to compromise and wrote legislation as friendly to them as they could get passed.

Tom Hickey said...

@ Joe (Letsgetitgone)

The Dems have an excuse in GOP obstruction in both the Clinton and Obama administrations, but they aren't fighting it either, since the New Democrats in charge of the party and Rubinites. The Dems are just trying to blunt the attack to save face with the base, rather than to avoid the thrust at the heart of the New Deal and the Old Democratic Party. Progressives have no meaningful voice. If there were a moderate wing of the GOP, SS would already be delivered to Wall Street. Right now the intransigeant GOP extreme demands are preventing a deal that both parties could endorse and survive. The GOP wants to use this opportunity to drive a stake through the heart of the Democratic Party, and the Dems aren't going for that, obviously, secure that the electorate isn't that extreme..

Matt P. said...

@ Tom
This is exactly the type of BS I was commenting on originally where one party is labelled extreme and intransigent and obstructive. Dollars to donuts that wasn't your position on the Democratic party when they voted I believe unanimously against raising the debt ceiling. I mean the very thing at the heart of MMT they politicized. They were extreme. They were obstructive. It is called politics...

Our dear President at the time: The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.

Matt P. said...

I should add that I am speaking of the Democratic Senators in 2006.

Tom Hickey said...

@ Matt P.

Both parties will play to voters and the party out of power has more leeway in this than the party in power, since they won't be held accountable.

It's well known that politics is run by polling and messaging. Both parties spend huge amounts on determining where voters stand and what they want to hear. They craft a message favoring their constituencies around this, with enough appeal to the center to garner the votes needed to win.

Part of the messaging is also to weaken the opponent, and negative advertising has been shown be to be highly effective.

While many if not most of the public say they appalled by the tactics, at least of the party they don't support, the strategy and tactics will continue being used as long as it works on voters.

Campaigns are almost never about the actual issues because voters are not motivated by policy issues. Politics is much more visceral, which is why it is so ugly. It's a form of combat. In former times, there are actual blood flowing in contests for power. Today, not so much, but it is still ugly emotionally.

Matt P. said...

Tom I agree with you but that really doesn't address the pot shots you took at the GOP does it? The Democrats had complete control of the government for a good period of time and you want to call out GOP obstructionism? The Dems can't even get their own coalition to agree on basic things. Is it the GOP's fault that there is no budget for 3 years? The Dems won't even vote on one. Seriously?

paul said...

"…Is it the GOP's fault that there is no budget for 3 years?…"

Pretty much every budget proposal on the table over the last few years would have been economic suicide if enacted.

I for one welcome for a great deal more gridlock on this issue.

No change would be better than the changes proposed by either party.

Tom Hickey said...

@ MMT P.

My impression is that the GOP's goal in both the Clinton and Obama administrations was to undermine the president as a political strategy. The goal is to prevent the opposition from doing anything substantial until they can regain power. I would have to convinced otherwise.