My fellow Kossacks, we NEED to take the tax cut "deal" to extend both tax cuts and unemployment insurance. I am going to try and lay out all the reasons. It's hard to explain why in a single diary. It's going to require a lengthy explanation. Here is the summary of my points. After the flip, I will go into each point in more detail to support each point.
- Budget Deficits don't matter(at least not in the way you may think they do)
- Reducing any taxes will help the economy(some cuts will help more than others)
- Increasing any federal government spending will help the economy(again, some spending will help more than others)
- The only way Democrats recover for 2012 is if the economy recovers.
- This "deal" will help the economy.
- Long term political benefits will outweigh the consequences
Therefore, since this "deal" will help the economy, it will help democrats in 2012. Details after the flip:
- Budget Deficits don't matter(at least not in the way you may think they do)
This point deserves not just one diary, but several. So at the risk of doing modern money theory a disservice, I will try to summarize this point as best I can. Google Modern Money Theory for more info.
We've been so beat down by neoliberal economic theory that almost everyone is Washington D.C. and most activists have forgotten something. We are no longer on the Gold Standard. We are on what's called a "fiat" monetary system. That is, our currency is backed by anything. Also, our currency "floats" which means it's value vs. other currencies is determined by market forces. Now, you may already "know" these facts; however, you probably don't fully understand the consequences of these facts.
The United States cannot go bankrupt unless congress CHOOSES to go bankrupt. All budget constraints on congress are self imposed. If the "debt ceiling" were eliminated tomorrow, then there would be no limit on congressional spending. "Wait a minute", you might say, "Don't they have to borrow or tax to get the money to spend?" The answer is: NO! The U.S. government can make as much money as it wants. Most people call this "printing" money, but in today's world, all it means is that our bank account balances go up.
"But maddogg, that will lead to inflation". If you just had that thought, you have just made my point. U.S. federal spending isn't constrained by "taxes and borrowing" it is constrained by inflation.
When our economy is sucking (like it is now), the federal government has less constraints on spending, not more. The reason is because a bad economy results in less "aggregate demand" which results in less inflation or even deflation. Right now, inflation in the United States is very low - therefore we CAN temporarily cut taxes and increase spending.
"But, But, hyperinflation! stagflation! Weimer Republic! Zimbabwe!"
These are usually the phrases you hear when people want to scare you into "balancing" the budget. It is beyond the scope of this diary to explain exactly how any why those examples are not applicable. I will just give you a short summary and depend on you to read the rest:
hyperinflation: This can only occur if government attempts to "prime the pump" beyond the structural(or 'natural') rate of unemployment.
stagflation: This happened in the U.S. 1970s because of the oil shock(s). Increased oil prices fed other prices which killed the economy.
Weimer: The original case of "hyperinflation" was caused because the government owed debt in FOREIGN currencies. (All. U.S. federal government debt is in our domestic dollar currency)
Zimbabwe: The current Zimbabwe situation was caused by a combination of corruption, and half their food supply disappearing.
In Summary, as long as inflation is low(which it is right now) the U.S. federal government is free to "deficit" spend.
- Reducing any taxes will help the economy(some cuts will help more than others)
Reducing any taxes will help the economy as long as the tax cuts aren't accompanied by a decrease in federal spending.
You might think that cutting taxes of rich people won't help much. I agree, and in a perfect world I would say cut other people's taxes more. However, I do see that cutting taxes for the very wealthy will help a little bit. Not much, but it is something. You can see on this graph based on CBO data that it does help.
It won't help as much as other things we could do, but at least it will help some. And it's not like we need to "pay it back". If you think we need to pay back our deficits, then you need to re-read point #1.
- Increasing any federal government spending will help the economy(again, some spending will help more than others)
Take another look at the chart from my second point. Increasing aid to the unemployed does a lot for the economy. The most of any other actions on that chart. If your goal is to keep the economy going, then you'll like the part of this "deal" to extend unemployment benefits.
- The only way Democrats recover for 2012 is if the economy recovers.
As long as unemployment is above 9% during 4 years of a democratic president, he is doomed. I think Markos understands that, and I think most readers of this site understand that. Managing the economy is suppose to be the strong suit for democrats. If you disagree with this we can duke it out in the comments section, but I think most people agree with this point.
- This "deal" will help the economy.
As you can see from the CBO chart, both increasing unemployment benefits and cutting taxes will help the economy. Therefore, this Bill will help the economy. I understand it's not ideal, but I don't think we'll ever get a better "stimulus" than this before the 2012 election.
- Long term political benefits will outweigh the consequences
Long term bad consequences of this "deal" is that the tax cuts for the upper income earners will have to be fought again in the future. If we don't take the deal, we'll have to either live with a worse deal once Republicans have control of the house or worse no deal. If there's never a deal, it'll mean that the government takes more money and spends less money which will further hurt the economy. That means the democrats will do even worse in 2012. When that happens it means that when the "temporary" tax cut extension comes up, we'll be in an even worse position for that fight. If the economy improves, we can better win that fight once the economy is doing better.
In conclusion, I know I may sound like I am capitulating to the republicans or that I am an Obama-bot. I do believe that the President should've pressed this more. To me, the ideal position would've made most tax cuts permanent, the top tax cuts temporary, AND extended unemployment benefits. However, that probably won't happen. Therefore, I am supporting this deal so as to help the economy so that democrats can win in 2012.
You probably want the President to start fighting and advocating. I agree. However, there will be plenty of time to fight and advocate once Republicans start passing their bat-shit-crazy agenda during the next 2 years.