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As we begin to engage in another round of deficit hysteria, it's helpful to remember that the notion that balancing the budget will help the economy is possibly the most widespread and most harmful lie in politics at the moment.

It's not hard to prove, either. No one disputes that a lack of jobs is due to a lack of business investment in creating jobs. The question is why businesses aren't creating those jobs.

We'll discuss the reasons below the fold.

The first and simplest conservative lie is that taxes and regulations are killing investment. Yet we know that effective business taxes are lower now than they were decades ago when many more jobs were being created, and we also know that corporate profits and stock prices are at record highs. That argument is easy to dismiss out of hand as partisan hackery.

The more sophisticated plutocratic lie is that uncertainty about America's fiscal future is causing a lack of investment. The argument goes that businesses won't invest in America because it's not clear that America will be able to pay its bills without hyperfinflation to cover unsustainable debts.

But this is also an easily disproven lie. Let's ignore for the moment the fact that the deficit is shrinking. It turns out that there is a market that directly prices the risk of the United States defaulting on our obligations: the U.S. treasuries market. The signal that global investors are leery of U.S. debt would be rising prices on treasuries, and/or investors fleeing the treasuries market. But the opposite has been happening. Not only are investors not fleeing U.S. treasuries, the market has been so strong that many have speculated there's a bubble in U.S. treasuries. Only with the Republican-led threat of default has the treasuries market started to destabilize.

It's important to restate this. There is an easy way to know if lack of confidence in U.S. debt obligations is causing lack of business investment. As long as the U.S. treasuries market is strong, saying that U.S. debt is the problem with business investment is a bald-faced lie. It's just objectively not true.

It's theoretically possible for debt to take on problematic levels at some point in the medium to far future. But the easiest and best way to reduce debt is by growing the economy. And if we know that low consumer demand is the reason for weak economic performance, it's insane to hurt consumer demand now by reducing government spending ni order to "solve" a possible long-term problem later. It makes no sense at all.

Whenever you see someone claiming that "reducing entitlements" now is the key to economic recovery, it's important to know that that person is either economically ignorant or deliberately conning you. More likely the latter.

They know that income inequality and corporate profits are at all time highs, and that maintaining current Medicare and Social Security obligations 20 years from now will likely mean higher taxes on them in the future. That's undoubtedly true, and entirely appropriate given rampant inequality. They also know that a much more progressive Millennial generation of voters won't hesitate to raise those taxes in 20 years.

So these people are lying to you, pretending that cutting "entitlements" will improve the economy today. They know it won't. They know it will do the opposite.

They're just lying. And nearly every major reporter in Washington is aiding and abetting that lie.

Cross-posted from Digby's Hullabaloo

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Comment Preferences

  •  Damn right. (5+ / 0-)
    Recommended by:
    katiec, tofumagoo, Dianna, Kevskos, rbird

    Thanks for this.

    Hey, Republicans, the whole world is watching.

    by TAH from SLC on Fri Oct 11, 2013 at 03:46:04 PM PDT

  •  I disagree (2+ / 0-)
    Recommended by:
    Gooserock, rbird

    Clinton balanced the budget and gave us the best economy in the history of the world, no exaggeration.

    Ideally, we would balance the budget by raising taxes to at least the Clinton levels (probably should be even higher), sharply increasing the effective corporate tax rate (rather than the joke 35% that no large corporation pays), and dumping the ridiculous capital gains and dividend tax discounts.  The massive national debt is a problem and will only become an even bigger problem over time.

    •  cart horse problem (11+ / 0-)

      the good economy balanced the budget, the balanced budget didn't create the good economy. Also important to note that the economy was an internet and asset boom economy: Clinton didn't really create that, any more than George Bush caused the economic meltdown of 2008. The repeal of glass steagall and commodity futures modernization act, both signed by Clinton, did that.

      The sad truth is that a Republican president in 1992-2000 would likely have presiding over the same good economy, and if that president had signed wall street deregulation, a democratic president would just as surely have presided over the economic collapse.

      What matters isn't the deficit. What matters is the relationship between asset values and consumer demand.

      •  Disagree again (0+ / 0-)

        Clinton was a major proponent of globalization which absolutely helped create the economic boom.  A Republican isolationist president may have gone in another direction.

        Further, a Republican president would have cut taxes, gutting the government.  That would have hurt the economy too.  Clinton did the opposite.

        Really can't believe the complete dismissal of Clinton's role in boosting the economy.  A Republic would have been just as good on the economy? Unreal.

        •  pretty much, yeah (7+ / 0-)

          unless they actively harmed the economy as you say, then probably yes. But Republicans haven't been economic isolationists since Warren Harding. Republicans are super globalizers.

          But keep in mind that Gingrich Repubs also claim credit for the balanced budget because he forced Clinton to cut govt. That much is actually true, for what it's worth--which isn't much.

          Also important to note that the "good" Clinton economy was largely the product of radically unsustainable asset value increases in stocks and housing. Wages were stagnant under Clinton and income inequality rose under Clinton. It's just that asset values were rising so fast no one noticed.

          In many ways the 90s boom created the conditions for the 00s crash, and the presidents involved had little to do with either.

          People tend to give presidents way too much credit and blame for economic conditions. What matters, again, is consumer demand and asset values. Wages, financialization and income inequality are the biggest factors there.

      •  In addition (5+ / 0-)

        fiscal policy (taxes and government spending) should be counter-cyclical.  When the economy has the slows, as it has now, then deficit spending can support demand and prevent inflation, two effects that encourage growth.  When the economy is strong, then a balanced budget or surplus can take the froth off the economy, reducing the risk that it would overheat.

    •  Best Economy Ever is a Huge Exaggeration. (7+ / 0-)

      First he balanced it at the end, around the time it began slowing down.

      Second, that economy did not bring a single cent of family net worth to the entire bottom 99%. All the advance under Clinton went to the 1%, most of that to the 0.1%.

      Chart I always post of this isn't mine so I'm not posting any more, it was in Feb 2001 Scientific American as I recall.

      Much of the growth was bubble that corrected finally in 2008. Housing for example had already blown past 100 year peaks before the GW Bush hyperbubble. Chart I used to post on this is a NYT housing prices graph from the early 1900's to mid 2000's and I don't know the link. The policies postponed the bubble correction to the next Administration along with the prices the people would pay for his increased free trade, increased media concentration and increased exporting of jobs.

      Very little about that economy that felt good for the people at the time was sustainable because it was a continuation of Reaganomics, only with tweaks. The 50's and 60's were almost incalculably better economies for the people.

      He did balance the budget and the economy did accelerate at the time, though. No question about proving that point.

      We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

      by Gooserock on Fri Oct 11, 2013 at 04:27:50 PM PDT

      [ Parent ]

    •  balancing the budget hurts the economy (5+ / 0-)

      As the economist Michael Hudson notes, every time the US has balanced the budget, a depression has ensued soon after.

      The federal government has achieved fiscal balance (even surpluses) in just seven periods since 1776, bringing in enough revenue to cover all of its spending during 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, 1920-30 and 1998-2001. We have also experienced six depressions. They began in 1819, 1837, 1857, 1873, 1893 and 1929.

      Do you see the correlation? The one exception to this pattern occurred in the late 1990s and early 2000s, when the dot-com and housing bubbles fueled a consumption binge that delayed the harmful effects of the Clinton surpluses until the Great Recession of 2007-09.

      When taxpayers pay more to the government than the economy receives in public spending, the effect is like paying banks more than they provide in new credit. The debt volume is reduced (increasing the reported savings rate). The resulting austerity is favorable to the financial sector but harmful to the rest of the economy.

      I would add that Bush's war in Iraq, and the attendant massive amounts of government spending, also actually postponed the effects of this recession until the end of his presidency. (Of course, there were better ways to spend that money than blowing up Iraqis, but it did put off the recession).

      "In America, the law is king." --Thomas Paine

      by limpidglass on Fri Oct 11, 2013 at 04:34:58 PM PDT

      [ Parent ]

  •  Increases taxes on business could help quite (8+ / 0-)

    a bit. Right now they have no reason to do anything with the trillions they have lying around. By taxing them on that money we could either get revenues or, better yet, get them to step up hiring and buying goods/services to stimulate the economy. Why this isn't #1 on the "List of Things to Do" is pretty much proof the plutocrats and the corporations are still running the show in DC.

    Spite is the ranch dressing Republicans slather on their salad of racism

    by ontheleftcoast on Fri Oct 11, 2013 at 03:48:40 PM PDT

    •  federal gov't doesn't tax to get revenue (3+ / 0-)
      Recommended by:
      Karl Rover, Kevskos, Sunspots

      it's sovereign in its own currency.

      Where did the people who pay taxes get that money? Ultimately through the government spending money into the economy. So how did the government get that money it spent? The vicious circle is squared when one realizes it simply created that money and authorized it to be spent.

      Taxes serve many purposes--adjusting the distribution of wealth, discouraging or encouraging certain kinds of behavior (Pigouvian taxes such as a carbon tax, a Tobin tax on financial transactions), etc. But the one thing they don't do is garner revenue (at least not at the federal level; states aren't sovereign and so do need to tax to get revenue).

      The best thing the government could do now is engage in a New Deal-style job creation program. This would pump money into the economy from the bottom up. Then, when it's going again, implement a progressive tax to ensure the wealth is distributed more equitably.

      "In America, the law is king." --Thomas Paine

      by limpidglass on Fri Oct 11, 2013 at 04:55:02 PM PDT

      [ Parent ]

  •  Good to see you, 'spoon (6+ / 0-)

    Absolutely right.  Measures like Social Security, in addition to being part of a national compact we've operated successfully for three-quarters of a century, also put cash into the hands of people with a high marginal propensity to spend (that is, if they have another dollar, they're likely to spend it rather than save it).  Social Security supports aggregate demand, and it's the lack of aggregate demand (due to the hollowing-out of the middle class) that's the reason businesses won't invest.  

    Balancing the budget in the current environment would be a disaster, because private savings (especially, alas, in the corporate sector) is at record levels, and without government borrowing that saving would lead to the ruinous deflation that Mr. Bernanke has labored so hard to prevent.  That isn't to say we should never balance the budget -- just as deficit spending is the right emollient when the economy is slack, a balanced budget is the right governor when things are booming.  But they sure ain't booming now.

    Oh, and on Social Security specifically -- it's called an entitlement, often with a sneer, but think about it.  Social Security recipients receive those benefits because they're entitled to them -- not just because the law says so, but because they've been making payments into the system for years, in the expectation that they'll receive payments from the system in their later years.

  •  Greek bonds were trading at 4% in Nov 2009 (0+ / 0-)

    Everything is always ok, until it isn't. Things can change quickly.

    (-5.50,-6.67): Left Libertarian
    Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

    by Sparhawk on Fri Oct 11, 2013 at 05:27:36 PM PDT

    •  America is not Greece (0+ / 0-)

      for a huge number of reasons which have been explained before at length by Krugman et al.

      Hyperinflation isn't coming, we're not pegged to someone else's currency, yada yada.

      •  My only point is (0+ / 0-)

        Past performance is no guarantee of future returns.

        (-5.50,-6.67): Left Libertarian
        Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

        by Sparhawk on Fri Oct 11, 2013 at 08:09:39 PM PDT

        [ Parent ]

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