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Lefty Thinker

Lefty Thinker's Journal
Lefty Thinker's Journal
November 14, 2012

Why we are listening to Wall Street instead of Bill Mitchell

comes down, I suppose, to who can donate the big bucks to the political campaigns. It's really too bad what Wall Street claims to want is going to sink our country and they'll get it because the money is there and the American people are not smart enough to recognize straw men and false equivalencies (please, America, prove me wrong!).

We are not Greece (we have currency sovereignty). We are not Weimar Germany (we have no debts denominated in foreign currency or commodities). We have no operational risk of governmental bankruptcy (since Congress can at any time coin new money). Public debt does not "crowd out" private borrowing (the net expenditure by the government widens the pool before soaking up some of the dollars) and isn't necessary, anyway (since Congress can at any time coin new money). All of the financial bogeymen the need-a-crisis press likes to write about simply are not real.

We need to make sure that any member of Congress who invokes any of these bogeymen is confronted. We need to get these concepts out in the media, to friends and family. The more people who can critically evaluate the country's financial situation, the better. Bill Mitchell's blog is a great place to start.

P.S. Public debt measures private wealth (savings over all time) plus net imports over all time (at least when the government borrows all net spending as ours has/is), so getting rid of the debt (not deficit) means either a tremendous increase in exports (not bad, but not under the government's control), a dramatic decrease in private wealth, or a move to net spending without corresponding borrowing. Each has it's own side-effects, and they can be mixed and matched. We should be realistic about what we are trying to accomplish.

November 8, 2012

I wish this were true

But cutting military spending, like any other deficit reduction measure, will only result in an economic downturn. Deficits are not inherently bad; they make up for drains on circulating currency to private savings and net imports. Cutting spending on the military (or on "entitlements" or anything else) reduces the deficit without changing the dynamics of the private or external sectors. This will absolutely lead to higher unemployment, which also means additional expenditures on unemployment and welfare programs, which adds more spending than the cuts removed.

This is what Greece is facing, forced on them by the Troika and their own insistence on staying in the Euro. There may be some structural spending problems in Greece, but the solution is not to cut spending as they have been forced to, but rather to spend as much or more in wiser ways - ways that build the future productivity of their nation. But they chose to relinquish their power to issue currency and must, until they reclaim it, play by the Eurozone rules.

If America wants to avoid Greece's fate we must, first and foremost, avoid misunderstanding the existing realities. Neo-liberal (and even Keynesian) economists slip into traps of worrying about the deficit. But, if we want a growing economy, the deficit must be determined from the private and external sector balances. Any attempt to act directly on the deficit (i.e. cutting spending or raising taxes) is actually self-defeating.

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Member since: Sun May 13, 2012, 06:04 PM
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