Short diary:
The Republicans have voted to increase the public deficit by 10 Trillion Dollars. But that won’t prevent them from selling the idea that the public “debt” is too large in order to cut social programs as fast as they possibly can, shovel government created dollars into the bank accounts of other vultures, and leave the rest of us with a pile of private bank created debt.
Will Democrats respond by being Deficit Hawks? Deficit Doves? Or Deficit Owls?
A short description of these birds that we live with:
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Deficit Hawk: Deficits are always bad. Down with deficits!
Private Savings are always good! Up with private savings!
Guess they pretend to not understand that Public “Debt” = Private Net Savings — Foreign Trade — Private Bank Debt — Taxes
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Deficit Doves: Largely agree with the Hawks, except in times of severe downturns, where they concede that the government, unfortunately, might need to run deficits to “prime the pump”. But once things are on the rise, governments should run a surplus. So, over the business cycle, the government should balance it’s budget.
See above.
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Deficit Owls: It’s not the job of government to balance it’s budget. It’s job is to balance the real economy. Public Deficits should float against the needs of the real economy, including insuring full employment and price stability. The only constraint on government spending is inflationary pressures and availability of real resources.
Government Spending = National Net Income — Taxes — Private Bank Debt — Foreign Trade
The only question is: How many dollars does the real economy need to insure full employment along with price stability?
The government “debt” didn’t cause the crash, private bank debt did, just like it always does. There’s too much focus on the government “debt” = private net savings v.s. private bank debt.
After the crash, and once the banks were stabilized, the focus should have been on bailing out the real economy which, in turn, would have saved the finance sector.
Only saving the finance sector is bad social policy, as we should have learned by studying history, as it tends to provoke right wing populism.
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James Galbraith’s “In Defense of Deficits”:
www.thenation.com/…
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Why national finance is not like household finance because households do not create dollars out of thin air in order to fund households with the net incomes:
www.nakedcapitalism.com/…
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When FDR took us off the gold standard for domestic settlement, taxes became obsolete for purpose of funding the government’s ability to spend for domestic purpose. Fed Chairman, Beardsly Ruml, in 1946: “Taxes for Revenue are Obsolete”:
neweconomicperspectives.org/…
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Here’s some videos with more: First a short clip from Stephanie Kelton’s “Angry Birds” talk followed by the full video. Second, a clip of economist Paul Samuelson explaining that putting the fear of deficits into the hearts of hippies acts like old time religion to keep the hippies from asking for too many nice things. Third, Steve Keen talking about the problem with neoliberalism — including ignoring private bank debt and obsessing over the public “debt” = private sector net savings. Fourth, Michael Hudson talking about the problem with private bank debt, how neoliberal economists ignore private debt (even like private bank debt because that’s who banks earn their living). Last, former Treasury official and current banker, Frank Newman’s talk: “How I Learned to Stop Worrying and Love the National Debt”: