Category: Economy

Battles over the debt ceiling cripple the economy

As of this writing (November 21, 2022), Republicans are poised to take over the House of Representatives next year, and one of the weapons they are expected to use to scare people with is the federal debt ceiling.  If the debt ceiling is not raised, all sorts of economic havoc could result, based on the failure of the government to pay its bills, and the government might even go into default after a short lag time.  A default would send shock waves throughout the global economy, and make the U.S.—both government and the private sector—a less desirable entity to do business with.

Just the threat of a default makes other countries jittery—when, they ask themselves, will the U.S. actually default because of political wrangling?  Recurring battles over the debt ceiling weaken our position versus the developing BRICS countries (Brazil, Russia, India, China, and South Africa) as well as established economies in the West.

What seems scary about the “national debt” and deficit spending

The “national debt” consists principally of the total of all the Treasury bonds, Treasury bills, and Treasury notes—or “Treasuries”— held by entities such as you, if you happen to hold a U.S. savings bond, as well as by the U.S. government itself. Currently the breakdown among all bondholders is about 36% held by American individuals and companies, 39% held by the U.S. federal government (used for such things as the Social Security Trust Fund, Medicare, and federal pensions) and 25% held by foreign investors such as China and Japan. The latter proportion  suggests the unlikelihood of the U.S. government being “held hostage” by foreign bond holders.

Continue reading “Reasons to Hate the Debt Ceiling”

[Preamble: Along with the prospect of a massive national infrastructure program has come talk of the necessity of raising taxes in order to pay for it—from Democrats as well as Republicans. That talk is a mistake. My apologies for writing the third post on this subject in the last month, but I realize I have failed to convey the importance of it. Perhaps it’s better to frame it in the negative: how balancing the budget produces not just suffering, but gratuitous suffering. ]  

The tax and budget debate and gratuitous suffering

Continuing to talk about federal deficits and taxation is  dull, particularly when politicians from Bernie Sanders to Paul Ryan trot out the same tired commonplaces about taxing the rich (Sanders) and saddling future generations with crushing debt (Ryan & his successors).  Arguments from Left and Right are both couched in the paradigm of either balancing the federal budget or courting future disaster. Stuff we’ve heard countless times before, and just as irrelevant now as in the past.

Cloaked by the dullness is the true human cost of decision-makers getting bogged down in  meaningless arguments about budget deficits and taxes, while those who bear the greatest costs of the decisions have little voice.

The bogging-down leads to what Modern Monetary Theory champion Stephanie Kelton terms “gratuitous suffering.” Kelton:

It is just about the worst kind of suffering, because we have the capacity to do better, and to do better for our fellow Americans. To do better by others.  And if we can improve economic life for millions of people without creating harm, why wouldn’t we do that? 

Gratuitous, because there is a way out, but getting out requires something that almost no one on the public stage is talking about: to shed the mindset of having either to balance federal spending with taxes, or having to rectify crushing debt somewhere down the road with even greater taxes.

If you—despite your generous impulse to provide tens of millions of people with economic relief through government spending—still worry yourself about terrible future costs incurred by relief given in the present, then just stop worrying. Worrying about balancing the budget keeps getting  in the way of real economic progress.

For a 5-minute primer on Modern Monetary Theory and how it does away with concerns over budget deficits, watch Stephanie Kelton below:

Continue reading “Budget Policy, Taxation, and Gratuitous Suffering”

COVID-19 Relief Bill draws another round
of pointless reiterations of
“how-are-you-going-to-pay-for-it?”

Those who had the patience and tolerance to wade through my earlier post on Modern Monetary Theory (find here) might not need to read the rest of this one. This one is something of a rehash of the reasons not to pay attention to the tired refrain, in respect to a government spending program, “how are you going to pay for it?”

Specifically, how are you (that is, we the taxpayers as distinct from zillionaires whose tax bills are barely a blip on their balance sheets) going to pay for the $1.9 trillion COVID Relief Bill, without bankrupting future generations?

It seems, from most of what I’ve been seeing and hearing, just about everyone on the political Left and Right is still buying  into “The Deficit Myth”—the fertile soil from which the how-are-you-going-to-pay-for-it commonplace sprouts. In the view of both sides, the National Debt looms as colossally menacing to American financial welfare as was Sauron’s redoubt Barad-Dur  to the welfare of the peoples of Middle Earth.

Interestingly, neither current Federal Reserve chairperson Jerome Powell nor past Fed chairperson and now Secretary of the Treasury Janet Yellen are sounding alarms about national debt risk caused by a $1.9 trillion economic stimulus.  Powell, to the contrary (and to the discomfort of fiscal conservatives dismayed to find out that Powell is not exactly Their Guy), has been advocating a big stimulus bill for months in order to head off another deep recession.

Continue reading “Stop Asking That Question!”

Overhaul of the Constitution sounds tempting: don’t bite

There are some things that liberals don’t like sitting like bedrock in the U.S. Constitution.  In particular, the Electoral College to elect the president, and the assignment of two senators to each state.  Then there’s the First and Fourteenth Amendments when extended by the Supreme Court going back to the 1880s to give the same protections to corporations as to real breathing humans.

Liberals, as well as many conservatives, also dislike the scope of powers conferred on the U.S. President that have expanded over the years. At least they dislike them when the president belongs to the opposing political party. (As a Virginian, I would like to point proudly to our Senator Tim Kaine’s principled crusade to limit the chief executive’s license to conduct wars, starting with the Obama Administration.)

How might these anti-democratic features of the Constitution be remedied? In fact, Article V of the Constitution provides for a method to completely overhaul the Constitution.

Say that again? What we customarily have in mind when we think of amending the Constitution is passing an individual amendment with two-thirds vote in both houses of Congress, then ratified by three-quarters of state legislatures.  It’s what’s been done to add all 28 amendments (28 in 229 years) to the original 10 in the Bill of Rights. That cautious procedure is in Article V, but also in Article V is something truly radical: a full-blown Constitutional Convention called for by two-thirds of the states (34 out of the current 50). The Congress would then be required to hold the convention, and a new constitution coming out of it could eventually be ratified by “the legislatures of three fourths of the several states, or by conventions in three fourths thereof”—i.e., 38 out of 50 states.

Continue reading “Watch Out! Article V Constitutional Convention Nears Reality”