Fiscal Economic Quotes

And that's just the beginning. More and more, conventional wisdom says that the responsible thing is to make the unemployed suffer. And while the benefits from inflicting pain are an illusion, the pain itself will be all too real.

Most economists would concede that, in theory, government has the tools to smooth the business cycle. The problem is that fiscal policy is not made in theory; it's made in Congress.

If economic catastrophe does come, will it be a time that draws Christians together to share every resource we have, or will it drive us apart to hide in our own basements or mountain retreats, guarding at gunpoint our private stores from others? If we faithfully use our assets for his kingdom now, rather than hoarding them, can't we trust our faithful God to provide for us then?

There is a correlation between the fiscal wellbeing of municipality and the economic wellbeing of a municipality.

If Americans actually understood the structure of our taxes, they would not only become angry, they might also find our economic and political systems intolerable because they are the cause of our unjust tax codes ... We could revolutionize the financial conditions of every American city and town—solve all or most of its tax revenue problems—if the property tax system were simply extended from tangible property to also include intangible property. If you want some quick solutions to our nation's fiscal problems, that would be one. Even on the simple basis of fairness, how can we justify having a property tax system that exempts the intangible property owned mostly by the richest amongst us? What a prime example of the Occupy movement's central point about the economic injustice perpetrated by the 1 percent against the 99 percent.

But when States did debase the coinage, it was always from purely fiscal motives. The government needed financial help, that was all; it was not concerned with questions of currency policy.

The national debt—that is, the unfunded liabilities and fiscal operating debt—amounts to tens of trillions of dollars. The Government Accountability Office, the Congressional Budget Office, and numerous other public and private institutions have sounded warning alarms about the oncoming crash. But no serious or effective steps have been taken to address this simmering financial and economic implosion.

The United States is now a bloated military empire on the cusp of steady and irrevocable economic decline. Historically, the danger in such cases is that when the fiscal stability of the empire begins to weaken, the governing elites double down on the very policies of military profligacy that caused the fiscal crisis in the first place. And that appears to be what the people who run America would like to do. This

The central lesson of the COVID-19 fiscal response is that money is not scarce. Without delay, governments around the world appropriated budgets that dwarfed any other post-war crisis policy.

Inequality is neither economic nor technological; it is ideological and political. This is no doubt the most striking conclusion to emerge from the historical approach I take in this book. In other words, the market and competition, profits and wages, capital and debt, skilled and unskilled workers, natives and aliens, tax havens and competitiveness—none of these things exist as such. All are social and historical constructs, which depend entirely on the legal, fiscal, educational, and political systems that people choose to adopt and the conceptual definitions they choose to work with.

The combined effects of growing inequality, a faltering education system, demographic headwinds, and the strong likelihood of a fiscal correction imply that the real median disposable income will grow much more slowly in the future than in the past.

Money is only a vehicle. It will take you where you want to go, but it can’t take the helm. You must learn to navigate yourself towards your own economic success and create your own path to becoming fiscally fit and financially savvy. In school we’re not taught about the wonderful world of finance. We’re taught to get good grades so we can get a good job. We all now realize that a job is the worst way to build wealth. Without the proper knowledge and wisdom our views about money remain distorted.

Much of America is now in need of an equivalent of Mrs. Thatcher's privatization program in 1980s Britain, or post-Soviet Eastern Europe's economic liberalization in the early Nineties. It's hard to close down government bodies, but it should be possible to sell them off. And a side benefit to outsourcing the Bureau of Government Agencies and the Agency of Government Bureaus is that you'd also be privatizing public-sector unions, which are the biggest and most direct assault on freedom, civic integrity, and fiscal solvency.

For fiscal policy, the appropriate counterpart to the monetary rule would be to plan expenditure programs entirely in terms of what the community wants to do through government rather than privately, and without any regard to problems of year-to-year economic stability; to plan tax rates so as to provide sufficient revenues to cover planned expenditures on the average of one year with another, again without regard to year-to-year changes in economic stability; and to avoid erratic changes in either governmental expenditures or taxes.

Of course, many have benefited from Social Security over the decades, especially the elderly. But the overall structure, which as Roosevelt insisted at the outset, put politics before economics, was and is, in the end, economically and fiscally irrational and irresponsible.

The post-2020 fiscal reckoning does not require higher payroll taxes or lower retirement benefits, as new sources of fiscal revenue are available from drug legalization, increased tax progressivity, tax reform that eliminates most tax deductions, and a carbon tax that provides incentives to reduce emissions.

We were born a nation of entrepreneurs. That is why so many people came to this country from so many different nations and cultures around the globe. The entrepreneur sees the opportunity, takes action, and successfully learns from the experience. They go on to create wealth. They become part of that demographic that is called “the rich.” They, not the government, drive the economy and create jobs. Only a mind with an envious, greedy perspective would consider punitively taxing the rich as a viable solution to our fiscal miasma. This is a solution springing from the fount of ignorance and deemed wise only by fools.

Instead of wasting his time in Frankfurt and Tokyo, the finance minster should focus on Indian housewives and help them balance their budgets by reducing inflation and the fiscal deficit. Unfortunately, our housewives do not have access to the Nashik note printing press like our FM. The solution to India’s problems lie inside, not in wooing FII and FDI inflows.

The euro and the ECB were designed in a way that blocks government money creation for any purpose other than to support the banks and bondholders. Their monetary and fiscal straitjacket obliges the eurozone economies to rely on bank creation of credit and debt. The financial sector takes over the role of economic planner, putting its technicians in charge of monetary and fiscal policy without democratic voice or referendums over debt and tax policies.

The historical record is clear. Each and every time the government substantially reduced the national debt, the economy fell into depression. Could it have been a remarkable coincidence? Thayer didn’t think so. He blamed the “economic myths” that drove politicians to wrestle their budgets into surplus on the flawed belief that paying down debt was both morally and fiscally responsible.45 As we see from the insights of MMT, government surpluses shift deficits onto the nongovernment sector.

The larger Europe grows, the more diverse must be the forms of co-operation it requires. Instead of a centralised bureaucracy, the model should be a market — not only a market of individuals and companies, but also a market in which the players are governments. Thus governments would compete with each other for foreign investments, top management and high earners through lower taxes and less regulation. Such a market would impose a fiscal discipline on governments because they would not want to drive away expertise and business. It would also help to establish which fiscal and regulatory policies produced the best overall economic results. No wonder socialists don't like it.

THE economic consequences of fluctuations in the objective exchange-value of money have such important bearings on the life of the community and of the individual that as soon as the State had abandoned the attempt to exploit for fiscal ends its authority in monetary matters, and as soon as the large-scale development of the modern economic community had enabled the State to exert a decisive influence on the kind of money chosen by the market, it was an obvious step to think of attaining certain socio-political aims by influencing these consequences in a systematic manner. Modern currency policy is something essentially new; it differs fundamentally from earlier State activity in the monetary sphere.

Neoliberalism doesn’t want to do away with politics – neoliberalism wants to put politics at the service of the market. Neoliberals don’t think that the economy should be left in peace, but rather they are for the economy being guided, supported and protected through the spreading of social norms that facilitate competition and rational behaviour. Neoliberal economic theory isn’t built on keeping the hands of politics off the market, it’s built on keeping the hands of politics busy with satisfying the needs of the market. It’s not true that neoliberalism doesn’t want to pursue monetary, fiscal, family or criminal policies. It is rather that monetary, fiscal, family and criminal policies should all be used to procure what the market needs.

Fiscal considerations have led to the promulgation of a theory that attributes to the minting authority the right to regulate the purchasing power of the coinage as it thinks fit. For just as long as the minting of coins has been a government function, governments have tried to fix the weight and content of the coins as they wished. Philip VI of France expressly claimed the right "to mint such money and give it such currency and at such rate as we desire and seems good to us" and all medieval rulers thought and did as he in this matter. Obliging jurists supported them by attempts to discover a philosophical basis for the divine right of kings to debase the coinage and to prove that the true value of the coins was that assigned to them by the ruler of the country.

In 2036, the USA elected an over-the-top, unapologetic fundamentalist president named Andrew Handel. Yes, that Handel. During his term, he tried to ban election of non-Christians to any public post, and tried to remove the constitutional separation between church and state. He was nominated, supported, and elected based on his religious views, rather than on his political or fiscal expertise. And of course, he appointed persons of similar persuasion to every post he could manage, in some cases blatantly ignoring laws and procedures. He and his cronies rammed through far-right policies with no thought for consequences. In a number of cases, when challenged on the results, he declared that God would not allow their just cause to fail. He eventually brought the USA to its knees in an economic collapse that made the 2008 recession look like a picnic in the park.

Why do we look to everyone else to see what to do? Why don't we understand that they're all as lost and scared as we are? Why do we look at a random consensus, shaped by opinions and powers that drift like dunes, as an absolute truth? If "normal" could change tomorrow, why are we such slaves to it? And where has "normal" gotten us, anyway? We live in a society that can't stop pollution or environmental destruction, that can't raise educational standards, can't stay healthy and non-obese, can't balance a budget, has no sense of fiscal responsibility, is in an economic tailspin, and is rife with crime and murder and violence. Most people in this "normal" society of ours begin sitting still in a room for six to eight hours beginning in childhood. They continue that for twelve years and then begin sitting still in a different room for another forty years, at which point they hope to retire and sit still in a chair in front of the TV until they die.

For example, the benefits of a taxpayer bailout to a failing carmaker are immediate and evident for the carmaker, its investors, and its employees. But the financial dislocation and lost fiscal opportunities resulting from the diversion of economic resources to tax subsidies are distant and disregarded. If the carmaker files for bankruptcy, the company is able and required to streamline its operations, including reducing its workforce and employee benefits and offloading certain debt. Although this allows the newly organized company a fresh opportunity to regain profitability and survive in the longer term, including expanding and hiring down the road, the immediate upshot of the reorganization, with its downsizing, and so on, is visible and tangible. Hazlitt explained the phenomenon this way: In this lies almost the whole difference between good economics and bad. The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences. The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups.

The notion that property is the means to all other means was ruled out by the new radicals. The deep seated ressentiment towards private property, indeed towards anything private, blocked the conclusion that follows from any impartial examination of wealth-producing and freedom-favouring mechanisms: an effective world improvement would call for the most general possible propertization. Instead, the political metanoeticians enthused over general dispossession, akin to the founders of Christian orders who wanted to own everything communally and nothing individually. The most important insight into the dynamics of economic modernization remained inaccessible to them: money created by lending on property is the universal means of world improvement. They are all the blinder to the fact that for the meantime, only the modern tax state, the anonymous hyper-billionaire, can act as a general world-improver, naturally in alliance with the local meliorists - not only because of its traditional school power, but most of all thanks to its redistributive power, which took on unbelievable proportions in the course of the twentieth century. The current tax state, for its part, can only survive as long as it is based on a property economy whose actors put up no resistance when half of their total product is taken away, year after year, by the very visible hand of the national treasury for the sake of communal tasks. What the un-calm understands least of all is the simple fact that when government expenditures constitute almost 50 per cent of the gross national product, this fulfills the requirements of actually existing liberal-fiscal semi-socialism, regardless of what label is used to describe this situation - whether people call it the New Deal, 'social market economy' or 'neoliberalism'. What the system lacks for total perfection is a homogeneous worldwide tax sphere and the long-overdue propertization of the impoverished world.

KEYNESIAN ECONOMICS AND STIMULUS Keynesian economics is based on the notion that unemployment arises when total or aggregate demand in an economy falls short of the economy’s ability to supply goods and services. When products go unsold, jobs are lost. Aggregate demand, in turn, comes from two sources: the private sector (which is the majority) and the government. At times, aggregate demand is too buoyant—goods fly off the shelves and labor is in great demand—and we get rising inflation. At other times, aggregate demand is inadequate—goods are hard to sell and jobs are hard to find. In those cases, Keynes argued in the 1930s, governments can boost employment by cutting interest rates (what we now call looser monetary policy), raising their own spending, or cutting people’s taxes (what we now call looser fiscal policy). By the same logic, when there is too much demand, governments can fight actual or incipient inflation by raising interest rates (tightening monetary policy), increasing taxes, or reducing its own spending (thus tightening fiscal policy). That’s part of standard Keynesian economics, too, although Keynes, writing during the Great Depression, did not emphasize it. Setting aside the underlying theory, the central Keynesian policy idea is that the government can—and, Keynes argued, should—act as a kind of balance wheel, stimulating aggregate demand when it’s too weak and restraining aggregate demand when it’s too strong. For decades, American economists took for granted that most of that job should and would be done by monetary policy. Fiscal policy, they thought, was too slow, too cumbersome, and too political. And in the months after the Lehman Brothers failure, the Federal Reserve did, indeed, pull out all the stops—while fiscal policy did nothing. But what happens when, as was more or less the case by December 2008, the central bank has done almost everything it can, and yet the economy is still sinking? That’s why eyes started turning toward Congress and the president—that is, toward fiscal stimulus—after the 2008 election.

...the centrality of competitiveness as the key to growth is a recurrent EU motif. Two decades of EC directives on increasing competition in every area, from telecommunications to power generation to collateralizing wholesale funding markets for banks, all bear the same ordoliberal imprint. Similarly, the consistent focus on the periphery states’ loss of competitiveness and the need for deep wage and cost reductions therein, while the role of surplus countries in generating the crisis is utterly ignored, speaks to a deeply ordoliberal understanding of economic management. Savers, after all, cannot be sinners. Similarly, the most recent German innovation of a constitutional debt brake (Schuldenbremse) for all EU countries regardless of their business cycles or structural positions, coupled with a new rules-based fiscal treaty as the solution to the crisis, is simply an ever-tighter ordo by another name. If states have broken the rules, the only possible policy is a diet of strict austerity to bring them back into conformity with the rules, plus automatic sanctions for those who cannot stay within the rules. There are no fallacies of composition, only good and bad policies. And since states, from an ordoliberal viewpoint, cannot be relied upon to provide the necessary austerity because they are prone to capture, we must have rules and an independent monetary authority to ensure that states conform to the ordo imperative; hence, the ECB. Then, and only then, will growth return. In the case of Greece and Italy in 2011, if that meant deposing a few democratically elected governments, then so be it. The most remarkable thing about this ordoliberalization of Europe is how it replicates the same error often attributed to the Anglo-American economies: the insistence that all developing states follow their liberal instruction sheets to get rich, the so-called Washington Consensus approach to development that we shall discuss shortly. The basic objection made by late-developing states, such as the countries of East Asia, to the Washington Consensus/Anglo-American idea “liberalize and then growth follows” was twofold. First, this understanding mistakes the outcomes of growth, stable public finances, low inflation, cost competitiveness, and so on, for the causes of growth. Second, the liberal path to growth only makes sense if you are an early developer, since you have no competitors—pace the United Kingdom in the eighteenth century and the United States in the nineteenth century. Yet in the contemporary world, development is almost always state led.

Many models are constructed to account for regularly observed phenomena. By design, their direct implications are consistent with reality. But others are built up from first principles, using the profession’s preferred building blocks. They may be mathematically elegant and match up well with the prevailing modeling conventions of the day. However, this does not make them necessarily more useful, especially when their conclusions have a tenuous relationship with reality. Macroeconomists have been particularly prone to this problem. In recent decades they have put considerable effort into developing macro models that require sophisticated mathematical tools, populated by fully rational, infinitely lived individuals solving complicated dynamic optimization problems under uncertainty. These are models that are “microfounded,” in the profession’s parlance: The macro-level implications are derived from the behavior of individuals, rather than simply postulated. This is a good thing, in principle. For example, aggregate saving behavior derives from the optimization problem in which a representative consumer maximizes his consumption while adhering to a lifetime (intertemporal) budget constraint.† Keynesian models, by contrast, take a shortcut, assuming a fixed relationship between saving and national income. However, these models shed limited light on the classical questions of macroeconomics: Why are there economic booms and recessions? What generates unemployment? What roles can fiscal and monetary policy play in stabilizing the economy? In trying to render their models tractable, economists neglected many important aspects of the real world. In particular, they assumed away imperfections and frictions in markets for labor, capital, and goods. The ups and downs of the economy were ascribed to exogenous and vague “shocks” to technology and consumer preferences. The unemployed weren’t looking for jobs they couldn’t find; they represented a worker’s optimal trade-off between leisure and labor. Perhaps unsurprisingly, these models were poor forecasters of major macroeconomic variables such as inflation and growth.8 As long as the economy hummed along at a steady clip and unemployment was low, these shortcomings were not particularly evident. But their failures become more apparent and costly in the aftermath of the financial crisis of 2008–9. These newfangled models simply could not explain the magnitude and duration of the recession that followed. They needed, at the very least, to incorporate more realism about financial-market imperfections. Traditional Keynesian models, despite their lack of microfoundations, could explain how economies can get stuck with high unemployment and seemed more relevant than ever. Yet the advocates of the new models were reluctant to give up on them—not because these models did a better job of tracking reality, but because they were what models were supposed to look like. Their modeling strategy trumped the realism of conclusions. Economists’ attachment to particular modeling conventions—rational, forward-looking individuals, well-functioning markets, and so on—often leads them to overlook obvious conflicts with the world around them.

The Seventh Central Pay Commission was appointed in February 2014 by the Government of India (Ministry of Finance) under the Chairmanship of Justice Ashok Kumar Mathur. The Commission has been given 18 months to make its recommendations. The terms of reference of the Commission are as follows:  1. To examine, review, evolve and recommend changes that are desirable and feasible regarding the principles that should govern the emoluments structure including pay, allowances and other facilities/benefits, in cash or kind, having regard to rationalisation and simplification therein as well as the specialised needs of various departments, agencies and services, in respect of the following categories of employees:-  (i) Central Government employees—industrial and non-industrial; (ii) Personnel belonging to the All India Services; (iii) Personnel of the Union Territories; (iv) Officers and employees of the Indian Audit and Accounts Department; (v) Members of the regulatory bodies (excluding the RBI) set up under the Acts of Parliament; and (vi) Officers and employees of the Supreme Court.   2. To examine, review, evolve and recommend changes that are desirable and feasible regarding the principles that should govern the emoluments structure, concessions and facilities/benefits, in cash or kind, as well as the retirement benefits of the personnel belonging to the Defence Forces, having regard to the historical and traditional parties, with due emphasis on the aspects unique to these personnel.   3. To work out the framework for an emoluments structure linked with the need to attract the most suitable talent to government service, promote efficiency, accountability and responsibility in the work culture, and foster excellence in the public governance system to respond to the complex challenges of modern administration and the rapid political, social, economic and technological changes, with due regard to expectations of stakeholders, and to recommend appropriate training and capacity building through a competency based framework.   4. To examine the existing schemes of payment of bonus, keeping in view, inter-alia, its bearing upon performance and productivity and make recommendations on the general principles, financial parameters and conditions for an appropriate incentive scheme to reward excellence in productivity, performance and integrity.   5. To review the variety of existing allowances presently available to employees in addition to pay and suggest their rationalisation and simplification with a view to ensuring that the pay structure is so designed as to take these into account.   6. To examine the principles which should govern the structure of pension and other retirement benefits, including revision of pension in the case of employees who have retired prior to the date of effect of these recommendations, keeping in view that retirement benefits of all Central Government employees appointed on and after 01.01.2004 are covered by the New Pension Scheme (NPS).   7. To make recommendations on the above, keeping in view:  (i) the economic conditions in the country and the need for fiscal prudence; (ii) the need to ensure that adequate resources are available for developmental expenditures and welfare measures; (iii) the likely impact of the recommendations on the finances of the state governments, which usually adopt the recommendations with some modifications; (iv) the prevailing emolument structure and retirement benefits available to employees of Central Public Sector Undertakings; and (v) the best global practices and their adaptability and relevance in Indian conditions.   8. To recommend the date of effect of its recommendations on all the above.

Tomorrow's outcome for our nation is dependent upon how we act today to create the outcomes we desire for our country. Individual accountability is each of our responsibilities if we want to rebuild, renew and restore the great values that made America a global super power and light of hope to the rest of the world. Each of us is either part of the problem or the solution.

On taxes, he had repudiated his 1980 “voodoo economics” language. It was a large price to pay for political viability, for Bush had been right that tax cuts alone could not lead to long-term fiscal health. Together with a general failure to curb spending in the Reagan years, the supply-side view, with its emphasis on lower taxes, was driving up the federal deficits and debt. Reagan’s successor, whoever he might be, would be forced to reckon with unpaid bills and persistent shortfalls.

Suppose someone were to describe a small country that provided free education through university for all of its citizens, transportation for schoolchildren, and free health care - including heart surgery - for all. You might suspect that a country is either phenomenally rich or on the fast track to fiscal crisis.

Prior to the opening up of the economy in 1980, the government relied on the artificially protected profits of SOEs to pad its budget. When economic reforms were introduced, SOE profits plummeted and government’s revenues fell precipitously to around 10 percent of GDP until the major fiscal reform in 1994 which introduced new valued-added and consumption taxes. The restructured fiscal system has steadily increased government revenue, which is currently around 22 percent of GDP, but it has also created an imbalance between the central and local governments. While the local governments were left responsible for funding more than 70 percent of government expenditures, they only collect about half of the tax revenue.24

The father of the scientific method, Francis Bacon, said it this way, “A little philosophy inclineth men’s minds to atheism, but depth in philosophy bringeth men’s minds about to religion.”11

The Chicago boys and their mentors had the good sense to maintain the highly efficient, nationalized copper producer Codelco, the world’s largest. That’s, of course, a radical violation of market principles, of neoliberal principles, but worthwhile since the company was the source of much of Chile’s export earnings and the basis of the state’s fiscal revenues. In general, it was close to a perfect experiment. It looked like a great success, if you ignored the human costs. In 1982, Friedman published the second edition of his manifesto, Capitalism and Freedom, celebrating the triumph of the cause. The timing was auspicious. In 1982 the Chilean economy crashed and had to be bailed out by state intervention. The state then controlled more of the economy than it had under Allende. Analysts who had their eyes open called it “the Chicago road to socialism.” The prominent OECD (Organisation for Economic Co-operation and Development) economist Javier Santiso described the “paradox [that] able economists committed to laissez-faire showed the world yet another road to a de facto socialized banking system

O.K., Lerner: His argument was that countries that (a) rely on fiat money they control and (b) don’t borrow in someone else’s currency don’t face any debt constraints, because they can always print money to service their debt. What they face, instead, is an inflation constraint: too much fiscal stimulus will cause an overheating economy. So their budget policies should be entirely focused on getting the level of aggregate demand right: the budget deficit should be big enough to produce full employment, but not so big as to produce inflationary overheating.

and prominent intellectual and political elites leaves the playing field open for others to step in and present themselves as advocates for the entire working or middle class or other distinct underrepresented groups. Indeed, politics since 2000 has been marked by the rise of populists—politicians who spurn “out-of-touch experts” and who claim to speak on behalf of millions of people with whom they in fact have no authentic connection, and in whom they have no genuine interest beyond securing votes to support their own often very personal agendas. In America, the first sign of things to come was during the Great Recession, with the emergence of the Tea Party movement in the Republican Party, inside and outside Congress. The movement formed in reaction to the efforts by the administration of Barack Obama to bail out the U.S. financial sector in the midst of the economic crisis. Its members initially presented themselves as fiscal conservatives, calling for the kind of lower taxes and limited government spending espoused by Ronald Reagan. They quickly moved on to oppose the administration’s promotion of universal health care and other social policies, and soon morphed into an activist protest movement supporting new candidates for office with a mixture of conservative, libertarian, and right-wing populist credentials. Many of these Tea Party candidates would later support Donald Trump’s election in 2016.

In principle – and after Nehru – in practice, the choice came to be posed simply: either democracy had to be curtailed, and the intellectual, directive model of development pursued more vigorously (one of the supposed rationales offered for the Emergency of the mid-1970s); or democracy had to be maintained along with all its cumbersome constraints, and the ambition of a long-term developmental project abandoned. The striking point about the seventeen years of Nehru’s premiership was his determination to avoid this stark choice. Any swerve from democracy was ruled out; the intellectual arguments had, however, to be upheld. The claims of techne, the need for specialist perspectives on economic development, were lent authority by the creation in 1950 of an agency of economic policy formulation, insulated from the pressures of routine democratic politics: the Planning Commission. Discussions of national progress were by now being formulated in the technical vocabulary of economics, which made them wholly unintelligible to most Indians. The task of translation was entrusted to the civil service, and as the algebra of progress moved down the echelons, it was mangled and diluted. The civil service itself provoked deep ambivalence among nationalists: mistrusted because of its colonial paternity, but respected for its obvious competence and expertise. In the 1930s Nehru had called for a radical transformation of the Indian Civil Service in a free India, though by the time independence actually arrived he had become decidedly less belligerent towards it. It was Patel who had stood up for the civil servants after 1947, speaking thunderously in their favour in the Constituent Assembly. But by the early 1950s Nehru had himself turned more wholeheartedly towards them: he hoped now to use them against the obstructions raised by his own party. The colonial civil-service tradition of fiscal stringency was preserved during the Nehru period, but the bureaucracy was now also given explicitly developmental responsibilities.

Arbitrary limits on deficits and debt hinder a nation’s development. Austerity for the sake of balanced budgets or for the sake of preserving fiscal space for the future is counterproductive.

...misunderstanding how sovereign currency works prevents many nations from living up to their resource capacity by adopting an unnecessarily restrictive fiscal stance while they leave domestic resources unemployed.

For less developed countries, a currency-issuing government faces different issues to that of an advanced nation, especially where essentials like food and energy must be imported. In the case of less developed countries, specific problems cannot be easily overcome by just increasing fiscal deficits.

These economies featured high savings and prudent fiscal authorities. Dubbed the Asian Tigers, South Korea, Malaysia, Indonesia, and Thailand were touted as models of economic transformation. They nurtured a cadre of dynamic companies with global reach—but as it turned out, those companies were fueling their own growth with massive levels of debt, often in foreign currency. Private debt can be just as destructive, if not more so, than public debt.

Trump’s hour-long campaign speeches could be boiled down to four lines: The Chinese are taking away your factories. The Mexicans are taking away your jobs. The Muslims are trying to kill you. I will beat them all up and make America great again. It was a message of nationalism, chauvinism, protectionism, and isolationism. Trump broke with many core elements of Republican economic orthodoxy, promising never to cut entitlements like Social Security and Medicare, which reversed decades of Republican fiscal conservatism.

Jim Cramer’s Mad Money is one of the most popular shows on CNBC, a cable TV network that specializes in business and financial news. Cramer, who mostly offers investment advice, is known for his sense of showmanship. But few viewers were prepared for his outburst on August 3, 2007, when he began screaming about what he saw as inadequate action from the Federal Reserve: “Bernanke is being an academic! It is no time to be an academic. . . . He has no idea how bad it is out there. He has no idea! He has no idea! . . . and Bill Poole? Has no idea what it’s like out there! . . . They’re nuts! They know nothing! . . . The Fed is asleep! Bill Poole is a shame! He’s shameful!!” Who are Bernanke and Bill Poole? In the previous chapter we described the role of the Federal Reserve System, the U.S. central bank. At the time of Cramer’s tirade, Ben Bernanke, a former Princeton professor of economics, was the chair of the Fed’s Board of Governors, and William Poole, also a former economics professor, was the president of the Federal Reserve Bank of St. Louis. Both men, because of their positions, are members of the Federal Open Market Committee, which meets eight times a year to set monetary policy. In August 2007, Cramerwas crying outforthe Fed to change monetary policy in order to address what he perceived to be a growing financial crisis. Why was Cramer screaming at the Federal Reserve rather than, say, the U.S. Treasury—or, for that matter, the president? The answer is that the Fed’s control of monetary policy makes it the first line of response to macroeconomic difficulties—very much including the financial crisis that had Cramer so upset. Indeed, within a few weeks the Fed swung into action with a dramatic reversal of its previous policies. In Section 4, we developed the aggregate demand and supply model and introduced the use of fiscal policy to stabilize the economy. In Section 5, we introduced money, banking, and the Federal Reserve System, and began to look at how monetary policy is used to stabilize the economy. In this section, we use the models introduced in Sections 4 and 5 to further develop our understanding of stabilization policies (both fiscal and monetary), including their long-run effects on the economy. In addition, we introduce the Phillips curve—a short-run trade-off between unexpected inflation and unemployment—and investigate the role of expectations in the economy. We end the section with a brief summary of the history of macroeconomic thought and how the modern consensus view of stabilization policy has developed.

The panic of 2007–2009 had hit Western Europe hard. Following the Lehman shock, many European countries experienced output declines and job losses similar to those in the United States. Many Europeans, especially politicians, had blamed Anglo-American “cowboy capitalism” for their predicament. (At international meetings, Tim and I never denied the United States’ responsibility for the original crisis, although the European banks that eagerly bought securitized subprime loans were hardly blameless.) This new European crisis, however, was almost entirely homegrown. Fundamentally, it arose because of a mismatch in European monetary and fiscal arrangements. Sixteen countries, in 2010, shared a common currency, the euro, but each—within ill-enforced limits—pursued separate tax and spending policies. The adoption of the euro was a grand experiment, part of a broader move, started in the 1950s, toward greater economic integration. By drawing member states closer economically, Europe’s leaders hoped not only to promote growth but also to increase political unity, which they saw as a necessary antidote to a long history of intra-European warfare, including two catastrophic world wars. Perhaps, they hoped, Germans, Italians, and Portuguese would someday think of themselves as citizens of Europe first and citizens of their home country second.

Monetary policy involves changes in money supply or interest rates by the central bank of a country and fiscal policy involves changes in government expenditure and/or taxes.

Soros (2013) notes that the euro crisis has already transformed the EU from a free association of states enjoying equal rights to a more or less enduring relationship between debtors and creditors. The creditors risk losing a good deal of money if a member states leaves the union, while the debtors are forced to accept conditions which can only aggravate their economic depression, and place them in a subordinate position for an indefinite period of time. In this way the euro crisis threatens to destroy the EU itself. According to the American financier these are the consequences of the fatal flaw of the European monetary union: in creating the ECB as a fully independent central bank the member states indebted themselves in a currency which they cannot control. As a consequence, when the risk of a Greek default became concrete, the financial markets reacted by reducing the status of all heavily indebted members of the euro zone to that of developing countries with large debts in foreign currencies. In this way, these members of the euro zone were treated as if they alone were responsible for their present condition. The correct response to this situation, Soros concludes, would be the creation of Eurobonds and a banking union, together with the necessary structural reforms. However, Germany refuses to choose between the two alternatives: either accept the Eurobonds or leave the euro zone. On the other hand, a solution of the crisis would also require a level of centralization of the economic and fiscal policies of the member states that is, most likely, politically unfeasible. Thus the end of monetary union appears to be only a question of time, while the position of the major German parties – pro monetary union but against Eurobonds – is clearly contradictory.

According to the survey conducted by the Pew Research Center in 2012 (see the Introduction) Germany is today the only member of the EU in which most people, 59 per cent, think their country has been helped by European integration. Majorities or near majorities in most countries surveyed now believe that the economic integration of Europe has actually weakened their economies. This is the opinion in Greece (70 per cent), France (63 per cent), Britain (61 per cent), Italy (61 per cent), the Czech Republic (59 per cent), and Spain (50 per cent). The survey data also show that the crisis of the euro has triggered a full-blown crisis of public confidence: in the economy, in the future, in the benefits of European economic integration, in membership in the EU, in the euro and in the free-market system. Again, Europeans largely oppose further fiscal austerity to deal with the crisis; they are divided on bailing out indebted nations; and oppose Brussels’ oversight of national budgets. In short, the European project is a major casualty of the ongoing sovereign-debt crisis: we are witnessing the failure of the attempt to integrate Europe through a ‘positive’ law that has neither produced the promised benefits for the people, nor has it been enacted by the people itself.

Three things stand out. First, the bottom 90 percent’s share began to drop dramatically between 1982 and 1990. Second, with each upturn, more and more of the benefits have gone to the top. Third, the real incomes of the bottom 90 percent dropped for the first time in the recovery that began in 2009. Never before had median household incomes dropped during an economic recovery. The three-decade pattern suggests the vicious cycle has accelerated: Those with the most economic power have been able to use it to alter the rules of the game to their advantage, thereby adding to their economic power, while most Americans, lacking such power, have seen little or no increase in their real incomes. FIGURE 8. DISTRIBUTION OF AVERAGE INCOME GROWTH DURING EXPANSIONS Source: Pavlina R. Tcherneva, “Reorienting Fiscal Policy: A Bottom-up Approach,” Journal of Post Keynesian Economics 37, no. 1 (2014): 43–66. This trend is not sustainable, neither economically nor politically. In economic terms, as the middle class and poor receive a declining share of total income, they will lack the purchasing power necessary to keep the economy moving forward. Direct redistributions from the rich sufficient to counter this would be politically infeasible. Meanwhile, as ever-larger numbers of Americans conclude that the game is rigged against them, the social fabric will start to unravel.

The full employment advocates’ optimism, even if genuine, could not possibly have been more misplaced, as the context of the Carter administration’s other actions in the fall of 1978 quickly revealed. Almost simultaneous to the passing of the full employment bill, Carter announced a three-part anti-inflation strategy that included restrictive fiscal and monetary policy, voluntary wage-price guidelines, and regulatory reform—almost all of which cut against the spirit of the original Humphrey-Hawkins Full Employment Act. Congress, for the first time since it went Democratic in 1932, passed a tax cut not to redistribute wealth but to give relief to the upper middle class, suggesting a very new mood among Democrats more broadly. With inflation climbing into the double digits in 1979 (topping out at 13.5 percent in his last year in office), Carter had, according to Herbert Stein, “assumed the look of a conservative in economics.

Detroit had an accumulated debt of $20 billion, including a $9 billion debt with the public workers pension plans. The fact Puerto Rico and Detroit, showcased many similarities, led to speculation about the real possibility of the island’s fiscal collapse. In Puerto Rico’s case, at that point, the debt amounted to $71.3 billion and the local economy’s structural problems were very similar to those in Detroit. The effects of the end of Section 936 in the island, the eventual economic stagnation, and the public debt, professional’s emigration, and the continued reduction of the tax base have generated a sort of spiral fall.

Markets are reasonably efficient institutions for allocating society’s scarce economic resources and lead to high productivity and average living standards. Efficiency, however, does not guarantee fairness (or “justice”) in the allocation of incomes. Fairness requires the government to redistribute income among the citizenry, especially from the richest members of the society to the poorest and most vulnerable members. Markets systematically underprovide certain “public goods,” such as infrastructure, environmental regulation, education, and scientific research, whose adequate supply depends on the government. The market economy is prone to financial instability, which can be alleviated through active government policies, including financial regulation and well-directed monetary and fiscal policies. Samuelson

Relying on the breadwinner ideal of manhood, those in favor of pension reform began to define disability not by a man’s missing limbs or by any other physical incapacity (as the Civil War pension system had done), but rather by his will (or lack thereof) to work. Seen this way, economic dependency—often linked overtly and metaphorically to womanliness—came to be understood as the real handicap that thwarted the full physical recovery of the veteran and the fiscal strength of the nation.

The disposition of universal discussion—the unending, discursive process of public altercation which was so admired, and so execrated, for much of the eighteenth century—was concerned, often, with economic policy. “From the scholastic disputes of theologians to matters of trade,” d’Alembert wrote, “everything has been discussed and analyzed, or at least mentioned.”55 For Edmund Burke, “it has been the misfortune (not as these gentlemen think it, the glory) of this age, that everything is to be discussed”; the age was one of “oeconomists, and calculators.”56 Taxes and regulations, guilds and excise inspections, were a principal preoccupation, together with religion, of enlightened opinion. Adam Smith’s most serious offense, for his Edinburgh contemporary the Reverend Alexander Carlyle, consisted in “introducing that unrestrained and universal commerce, which propagates opinions as well as commodities.”57 The commerce in opinions was itself, in large part, a commerce in opinions about commerce, or about commercial policy. The “focal point of enlightenment,” Kant says in What is Enlightenment?—the subject to be disputed, in the imperative to “argue as much as you like and about whatever you like”—consists in matters of religion. But economic matters are also a subject of enlightened discussion in Kant’s description; the tax official says, “‘Don’t argue, pay!’” and the cosmopolitan citizen “publicly voices his thoughts on the impropriety or even injustice of such fiscal measures.”58

Paul Krugman warns of the cumulative consequences of defunding education: Until now, the results of educational neglect have been gradual—a slow-motion erosion of America’s relative position. But things are about to get much worse, as the economic crisis—its effects exacerbated by the penny-wise, pound-foolish behavior that passes for “fiscal responsibility” in Washington—deals a severe blow to education across the board.

Indeed, the consensual nature of the EU itself has meant that EU-level institutions are far weaker than certain federal institutions in the United States. These weaknesses were made painfully evident in the European debt crisis of 2010–2013. The United States Federal Reserve, Treasury, and Congress responded quite forcefully to its financial crisis, with a massive expansion of the Federal Reserve’s balance sheet, the $700 billion TARP, a second $700 billion stimulus package in 2009, and continuing asset purchases by the Fed under successive versions of quantitative easing. Under emergency circumstances, the executive branch was able to browbeat the Congress into supporting its initiatives. The European Union, by contrast, has taken a much more hesitant and piecemeal approach to the euro crisis. Lacking a monetary authority with the same powers as the Federal Reserve, and with fiscal policy remaining the preserve of national-level governments, European policy makers have had fewer tools than their American counterparts to deal with economic shocks.

You know what I’ll say to the first person in our company who comes to us with a proposal to invest a billion dollars in Iraq?” asked the CEO of one of the supermajors a month before the war. “I’ll say, ‘Tell us about the legal system, tell us about the political system. Tell us about the economic system and about the contractual and fiscal systems, and tell us about arbitration. And tell us about security, and tell us about the evolution of the political system. Tell us all those things, and then we’ll talk about whether we’re going to invest or not.’”9

Louisiana’s fiscal troubles can be traced to the economic boom that followed Hurricane Katrina in 2005, when rebuilding efforts, insurance payouts and federal money pushed cash into the state budget. Many lawmakers expected the heady times and increased revenue to last, and they made the bold decision to cut income taxes by roughly $700 million annually for the highest brackets — a decision some are now second-guessing.

The message: Paris and Rome must reform their economies, removing barriers to the creation of businesses and jobs. Countries with the flexibility to spend more while staying within EU deficit rules should do so, creating what Mr Draghi described as “a more growth-friendly overall fiscal stance for the euro area”. Though the ECB president did not name names, that suggestion was widely interpreted as a call for Germany, the eurozone’s dominant economic power, to raid its fiscal coffers. “The part of Mr Draghi’s speech on the fiscal stance was an innovation,” says Lucrezia Reichlin, a professor at London Business School and a former head of research at the ECB. “The idea of co-ordination between monetary and fiscal policy from a euro area perspective is a hint to Germany.” France, already used to the ECB’s grumbles that it should do more to restructure the economy, received Mr Draghi’s calls warmly.

The key architects of the nation’s economic policy in the Clinton era (Greenspan, Rubin, and Summers) allowed the build-up of forces that would eventually blow the housing and banking industries sky-high. These forces were then multiplied by the reckless fiscal policy of the Bush Administration that enlarged the size of the national debt and set the stage for an economic train wreck.

Banking and Prosperity in the Thirteenth Occupation or even A Child’s Treasury of Economics or The Young Person’s Illustrated Omnibus of Fiscal Prudence.

Greece can balance its books without killing democracy Alexis Tsipras | 614 words OPINION Greece changes on January 25, the day of the election. My party, Syriza, guarantees a new social contract for political stability and economic security. We offer policies that will end austerity, enhance democracy and social cohesion and put the middle class back on its feet. This is the only way to strengthen the eurozone and make the European project attractive to citizens across the continent. We must end austerity so as not to let fear kill democracy. Unless the forces of progress and democracy change Europe, it will be Marine Le Pen and her far-right allies that change it for us. We have a duty to negotiate openly, honestly and as equals with our European partners. There is no sense in each side brandishing its weapons. Let me clear up a misperception: balancing the government’s budget does not automatically require austerity. A Syriza government will respect Greece’s obligation, as a eurozone member, to maintain a balanced budget, and will commit to quantitative targets. However, it is a fundamental matter of democracy that a newly elected government decides on its own how to achieve those goals. Austerity is not part of the European treaties; democracy and the principle of popular sovereignty are. If the Greek people entrust us with their votes, implementing our economic programme will not be a “unilateral” act, but a democratic obligation. Is there any logical reason to continue with a prescription that helps the disease metastasise? Austerity has failed in Greece. It crippled the economy and left a large part of the workforce unemployed. This is a humanitarian crisis. The government has promised the country’s lenders that it will cut salaries and pensions further, and increase taxes in 2015. But those commitments only bind Antonis Samaras’s government which will, for that reason, be voted out of office on January 25. We want to bring Greece to the level of a proper, democratic European country. Our manifesto, known as the Thessaloniki programme, contains a set of fiscally balanced short-term measures to mitigate the humanitarian crisis, restart the economy and get people back to work. Unlike previous governments, we will address factors within Greece that have perpetuated the crisis. We will stand up to the tax-evading economic oligarchy. We will ensure social justice and sustainable growth, in the context of a social market economy. Public debt has risen to a staggering 177 per cent of gross domestic product. This is unsustainable; meeting the payments is very hard. On existing loans, we demand repayment terms that do not cause recession and do not push the people to more despair and poverty. We are not asking for new loans; we cannot keep adding debt to the mountain. The 1953 London Conference helped Germany achieve its postwar economic miracle by relieving the country of the burden of its own past errors. (Greece was among the international creditors who participated.) Since austerity has caused overindebtedness throughout Europe, we now call for a European debt conference, which will likewise give a strong boost to growth in Europe. This is not an exercise in creating moral hazard. It is a moral duty. We expect the European Central Bank itself to launch a full-blooded programme of quantitative easing. This is long overdue. It should be on a scale great enough to heal the eurozone and to give meaning to the phrase “whatever it takes” to save the single currency. Syriza will need time to change Greece. Only we can guarantee a break with the clientelist and kleptocratic practices of the political and economic elites. We have not been in government; we are a new force that owes no allegiance to the past. We will make the reforms that Greece actually needs. The writer is leader of Syriza, the Greek oppositionparty

Aghion’s conclusion is that we have to redesign fiscal systems so they distinguish clearly between the creation of value and the enjoyment of economic rents, even if, in practice, this distinction is not always easy to make.

A letter published in the Times of London on March 30, 1981, signed by 364 prominent economists, predicted that Margaret Thatcher’s stringent fiscal policies would be disastrous. The UK’s spectacular economic turnaround proved they were dead wrong.

MONEY IS IMAGINARY!

What does waterboarding involve? You take a subject, lay him on his back and engulf his head with water so that he suffocates. Just before he dies, you stop, you allow the subject to take a few agonizing breaths, and then you start again. You repeat until he confesses. Fiscal waterboarding is obviously not physical, it's fiscal. But the idea is the same, and it is exactly what happened to successive Greek governments from 2010 onwards. Instead of air, Greek governments nursing unsustainable debts were starved of liquidity. At the same time they were banned from defaulting to creditors. Facing payments they were being forced to make, they were denied liquidity till the very last moment, just before formal bankruptcy. Instead of confessions, they were forced to sign further loan agreements, which they knew would add new impetus to the crisis. The troika would provide just enough liquidity in order to repay its own members. Exactly like waterboarding, the liquidity provided was calculated to be just enough to keep the subject going without defaulting formally, but never more than that. And so the torture continued with the government kept completely under the troika's control.

While the rich became richer, the taxation policy of the government, instead of correcting this trend, actively strengthened it. One of the first decisions of the first Modi government was to abolish the wealth tax that had been introduced in 1957. While the fiscal resources generated by this tax were never significant, the decision was more than a symbolic one.126 The wealth tax was replaced with an income tax increase of 2 percent for households that earned more than Rs 10 million (133,333 USD) annually.127 Few people pay income tax in India anyway: only 14.6 million people (2 percent of the population) did in 2019. As a result, the income-tax-to-GDP ratio remained below 11 percent. Not only has the Modi government not tried to introduce any reforms to change this, but it has instead increased indirect taxes (such as excise taxes), which are the most unfair as they affect everyone, irrespective of income. Taxes on alcohol and petroleum products are a case in point. As some state governments have also imposed their own taxes, this strategy means that India has one of the highest taxation rates on fuel in the world. The share of indirect taxes in the state’s fiscal resources has increased under the Modi government to reach 50 percent of the total taxes—compared to 39 percent under UPA I and 44 percent under UPA II.128 Modi’s taxation policy, a supply-side economics approach, is in keeping with the managerial rhetoric of promoting the spirit of enterprise that the prime minister, who readily presents himself as an efficiency-conscious “apolitical CEO,” relishes. One of the neoliberal measures the Modi government enacted in the name of economic rationality, right from his very first budget in 2015, was to lower the corporate tax.129 For existing companies it was reduced from 30 to 22 percent, and for manufacturing firms incorporated after October 1, 2019 that started operations before March 31, 2023, it was reduced from 25 to 15 percent—the biggest reduction in twenty-eight years. In addition to these tax reductions, the government withdrew the enhanced surcharge on long- and short-term capital gains for foreign portfolio investors as well as domestic portfolio investors.130

stockpiling of goods, runs on banks, and widespread urban discontent. This put Zhao seriously on the political defensive and under attack from the conservative Old Guard. Over the summer of 1988 a comprehensive plan to control inflation and stabilize the overheated economy was worked out by senior leaders Yao Yilin and Li Peng, as well as State Council think tank economists—which was presented to the Third Plenum of the Thirteenth Central Committee in September. As a result, prices were frozen, foreign trade was recentralized, a very tight fiscal policy forced on state banks, investment controls were put in place, and capital construction halted. Zhao himself came in for six-and-a-half hours of harsh criticism and was forced to make a self-criticism. This was the all-important backdrop to the dramatic demonstrations of the spring of 1989 (which were triggered by economic discontent as much as by political demands). Among the many other economic reforms stimulated during Deng’s tenure, two others deserve brief mention. The first concerned changes in the ownership structure, and the second concerned efforts to establish a regulatory structure (as distinct from an administrative structure) for qualitative oversight of economic activity. With regard to the first, a key part of creating the hybrid state-collective-private economy that Deng and his colleagues envisioned necessitated the creation of truly private enterprises and private ownership.56 Citizens in both rural and urban areas were permitted to purchase long-term leaseholds on property (often their homes) and to pass it from generation to generation. Another example of

In the absence of social goods, ‘profit-first’ economic growth has fed a crony capitalism that serves not the common good but speculators in the ‘liquid economy.’ Collateral banking systems, offshore sites providing fiscal havens for corporate tax avoidance, extracting value from companies to boost the earnings of shareholders at the expense of stakeholders, the smoke-and-mirrors world of derivatives and credit default swaps-all these suck capital from the real economy and undermine a healthy market, creating historically unprecedented levels of inequality. There is a major disjuncture between the awareness of social rights on the one hand and the distribution of actual opportunities on the other. The stupendous rise in inequality of recent decades is not a stage of growth but a brake on it, and the root of many social ills in the twenty-first century. Barely more than one percent of the world’s population owns half of its wealth. A market detached from morality, dazzled by its own complex engineering, which privileges profit and competition above all else, means not just spectacular wealth for a few but also poverty and deprivation for many. Millions are robbed of hope.

the Republican Party’s adoption of policies that voters perceived as anti-Black (opposition to affirmative action and welfare, harsh policing and sentencing) won them millions more white voters than their unpopular economic agenda would have attracted. The result was a revolution in American economic policy: from high marginal tax rates and generous public investments in the middle class such as the GI Bill to a low-tax, low-investment regime that resulted in less than 1 percent annual income growth for 90 percent of American families for thirty years. According to Roemer and Lee, the culprit was racism. “We compute that voter racism reduced the income tax rate by 11–18 percentage points.” They conclude, “Absent race as an issue in American politics, the fiscal policy in the USA would look quite similar to fiscal policies in Northern Europe.

Rather, it is that Europe’s economic recovery created new centers of financial power, new situations for potential friction, and new opportunities for fiscal resentment.

United States failed to match its greatly enhanced economic importance with a commensurate geopolitical role.84 Power remained disproportionately in the hands of the victorious European empires, the British and the French, but both were so constrained fiscally and domestically that they could not preserve the fruits of their victory.

Although liberal by American standards, Europe’s biggest economies were almost all led by center-right governments, elected on the promise of balanced budgets and free-market reforms rather than more government spending. Germany, in particular—the European Union’s one true economic powerhouse and its most influential member—continued to see fiscal rectitude as the answer to all economic woes. The more I’d gotten to know Angela Merkel, the more I’d come to like her; I found her steady, honest, intellectually rigorous, and instinctually kind. But she was also conservative by temperament, not to mention a savvy politician who knew her constituency, and whenever I suggested to her that Germany needed to set an example by spending more on infrastructure or tax cuts, she politely but firmly pushed back. “Ya, Barack, I think maybe that’s not the best approach for us,” she would say, her face pulling into a slight frown, as if I’d suggested something a little tawdry

An alternative conception of full citizenship that also doesn’t regard work as a civic requirement holds that citizens are entitled to a guaranteed, unconditional basic income or initial capital stake. On this view, each individual has a right to his or her fair share of society’s assets, which have been built up over many generations; and each should be free to use this fair share as he or she sees it. Those who want to work, either for greater income or intrinsic satisfaction, are free and perhaps encouraged to do so. But those who choose not to work and instead live off their basic income or capital stake (at least for a time) are not acting unfairly toward their fellow citizens who choose to work. The goods and services that we all take advantage of are the product of, not only contributions from contemporary workers, but also work from past generations and, just as important, technological advance and nature’s bounty. On this view, there should be an all-volunteer workforce, where no one is compelled to work under threat of penalty or out of economic need. Fiscal policy would focus on growing the economy and spurring technological advance, while tax policy would distribute the gains of increased productivity equitably to all citizens and not just to those who work or own capital.

In retrospect, The General Theory would set the intellectual agenda for Friedman’s entire career, but when it appeared, he barely noticed. As Keynes’s ideas were making landfall in American universities, Friedman offered a course through the Columbia University extension school that was a throwback to the early 1930s. Focused on individual demand curves, individual marginal utility, and individual economic decision-making, Friedman’s course, Structure of Neo-classical Economics, made no mention of business cycles, national income, or current economic conditions. Drawing on the approach pioneered by Knight and Simons, it placed the question of “how free enterprise system solves economic problem” front and center.45 At the same time, Friedman did offer an implicit critique of the fiscal revolution, particularly Hansen’s concept of secular stagnation. Picking up a theme from Knight, Friedman told his class, “Once wants are satisfied, new wants are going to be formed; the process of want formation is part of the basic drive.”46 There were two critical implications. First was that perpetual wanting would keep economies always in motion: “Impossibility of completely satisfying all wants. If the greatest want is the desire for new wants … the notion of satiety is silly.” It was more than a philosophical point. Not only was it impossible for the economy to stagnate, but it would be impossible to design a government program that would adequately satisfy wants, which tended to continually increase. Friedman drew out the second implication in another comment. “Attitude toward all policies will be affected by our ideas concerning wants,” he argued.47 In a letter to Arthur Burns, he was more direct. Reflecting on a road trip to visit Rose’s family, he wrote, “The whole West, particularly California, and more particularly Southern California, gives you the feeling that the frontier is not yet gone and makes you feel like telling the stagnationites to come out and take a look.”48 Although he worked for the New Deal, Friedman was not a New Dealer. Nor was he a Keynesian. He thoroughly rejected the ideas that would most profoundly shape economics in the years ahead.

In the course of the 1960s, the left adopted almost wholesale the arguments of the right,” observed Daniel Patrick Moynihan, a domestic policy adviser to all three of the decade’s presidents. “This was not a rude act of usurpation, but rather a symmetrical, almost elegant, process of transfer.” Exaggerating for effect—but not to the point of inaccuracy—Moynihan remembered that by decade’s end, “an advanced student at an elite eastern college could be depended on to avow many of the more striking views of the Liberty League and its equivalents in the hate-Roosevelt era; for example that the growth of federal power was the greatest threat to democracy, that foreign entanglements were the work of demented plutocrats, that government snooping (by the Social Security Administration or the United States Continental Army Command) was destroying freedom, that the largest number of functions should be entrusted to the smallest jurisdictions, and so across the spectrum of this viewpoint.”2 Driven primarily by the expanding war in Vietnam, this new current on the left took up individualistic and anti-statist themes that were once the province of the right. Another part of this convergence was the rise of the economics profession. The new economics appeared a success on its own terms; growth had picked up across the Kennedy years. By 1965, GNP had increased for five straight years. Unemployment was down to 4.9 percent, and would soon drop below the 4 percent goal of full employment. As James Tobin reflected, “economists were riding the crest of a wave of enthusiasm and self-confidence. They seemed, after all, to have some tools of analysis and policy other people didn’t have, and their policy seemed to be working.”3 With institutional economics a vanquished force, most economists accepted the tenets of the neoclassical revolution: individuals making rational choices subject to the incentives created by supply and demand. Approaching policy with an economic lens cut across established political lines, which were often the creation of brokered coalitions, habit, or historical precedent. Economic analysis was at once disruptive, since it failed to honor these accidental accretions, and familiar, since it spoke a market language resonant with business-friendly political culture.4 Amid this ideological confluence, Friedman continued his dour rumblings and warnings. Ignoring the positive trends in basic indicators of economic health, from inflation to unemployment to GDP, he argued fiscal demand management was misguided, warned Bretton Woods was about to collapse, predicted imminent inflation, and castigated the Federal Reserve’s basic approach. Friedman’s quixotic quest—and the media attention it generated—infuriated many of his peers. Friedman, it seemed, was bent on fixing economic theories and institutions that were not broken.

This has led to several years of discussion about stronger economic governance, albeit with only limited progress. The most consequential element has been the creation of a banking union, which provides an integrated set of supervision and bailout mechanisms. Nonetheless, the consequence of all of these developments has been to move Emu into a new phase of its existence, where the pressures of very negative market forces have exposed the limitations of the asymmetric design laid out in the Maastricht Treaty. In so doing, Eurozone members have been forced to reinforce their commitment to the euro, and strengthen a number of key aspects of their economic and fiscal integration.

German domestic economic policy contributed to worsening the debtors’ crisis. Wage restraint was largely responsible for the weakness of its internal market, which didn’t absorb the potential exports her neighbours needed to balance their current accounts. Furthermore, the restraint resulted in low inflation within Germany, making it extremely difficult for its troubled neighbours to regain competitiveness through internal wage and price deflation. In this situation any basic economics textbook would have recommended that Germany relax its wage/fiscal restraint, allow some inflation and expand its domestic demand to help other Union members in difficulty. To the contrary, the German trade surplus continued its unstoppable rise and the burden of adjustment fell entirely on the shoulders of the debtors.

Israel was ahead of the curve, seemingly able to bring the disease under control while others could not. It was then that I made a cardinal mistake. Responding to public pressure, the government lifted restrictions on public gatherings, restaurants, bars, eateries, large parks, swimming pools, and public transportation too quickly. To make matters worse, I gave a press conference in which I thanked Israel’s citizens for their cooperation and then added, “We want to help the economy and ease your lives, to make it possible for you to get out, return to normalcy. Go get a cup of coffee, a glass of beer, have fun.”3 The public did just that and the infection rate soon began to rise again. “Prime Minister, are we out of it?” I was asked by my staff. “Of course not,” I answered. “As long as there’s even one infected person around, the disease will reappear and again spread exponentially.” “So what should we do?” “You ever play an accordion?” I asked. “That’s what we’ll do. We’ll open up and close down the country, depending on the infection rate and our hospitals’ ability to handle the severely ill, until we can get this damn thing under control.” The “accordion policy” was an attempt to strike a balance between keeping the hospitals from crashing and keeping businesses from collapsing. We shelled out billions of shekels to help small businesses, employers, and laid-off workers. This largesse was frowned upon by those who had previously supported my tight fiscal policies. Two prominent officials in the Finance Ministry unabashedly briefed reporters against the government’s economic aid policy. “Prime Minister Netanyahu is working against Finance Minister Netanyahu,” carped my critics. Not quite. Unlike in previous economic crises, the world was awash with cheap credit. The cost of an economic collapse from a general health breakdown would be far greater than the interest payments we would have to make to keep business alive.

The crucial issue when a subsidy is proposed is the impact on the finances of the local government, known as fiscal impact. Unless the annual flows of tax revenues more than pay for the bonds being issued, then some other part of the municipal budget will suffer. Even then it will probably suffer because people’s budgets for recreation are limited. A dollar spent at the ballpark is a dollar not spent at a restaurant, bar, or other place of leisure time activity, thus transferring the jobs and economic effects from many businesses to a single sports team.

The variables which were apt for management by central authorities were interest rates and taxation, which he proposed that governments should adjust in order to stimulate investment and to seek full employment. However, he said little of emergency public works, and nothing about fiscal methods of demand management. He did not recommend increasing the government’s current expenditure by running a budget deficit to meet a deficiency of demand. He gave no encouragement to profligate finance ministers. He urged that additional government expenditure should be on capital account and financed from a separate capital budget while so far as possible the regular budget should be kept in balance. He suggested that full employment might be maintained by redistribution of income. If wealth was more equitably dispersed in the population, effective demand would be stimulated and would thus help capital growth. As the scarcity of capital diminished, investors would be rewarded less. He never believed that state planning would eliminate economic instability. He saw national economies as inherently wobbling: they were susceptible to rational management, but with irrational elements.73

A poll tax (jizya) on non-Muslims was introduced. The details of how this tax was assessed and collected varied greatly across the Middle East, but it was an important element of the fiscal system of the early Islamic polities. It provided a strong incentive for Islamic rulers to deter forcible conversion to Islam, as this would hurt revenues.

The orthodox prescription of ‘fiscal austerity’—cutting public spending in an attempt to reduce public deficits and debt—has not restored Western economies to health, and economic policy has signally failed to deal with the deep-lying and long-term weaknesses which beset them.

the creation of expectations about future growth is a crucial role for government, and not just during downturns. It is why mission-oriented innovation policy—bringing Keynes and Schumpeter together—has such an important role to play in driving stronger economic performance. Indeed, Keynes argued that the ‘socialisation of investment’—which, as Mazzucato suggests, could include the public sector acting as investor and equity-holder—would provide more stability to the investment function and hence to growth.53 It is because public expenditure is critical to the co-production of the conditions for growth, as Kelton highlights, that the austerity policies which have reduced it in the period since the financial crash have proved so futile, increasing rather than diminishing the ratio of debt to GDP. And as Wray and Nersisyan emphasise, the endogenous nature of money created by ‘keystrokes’ in the banking system gives governments far greater scope to use fiscal policy in support of economic growth than the orthodox approach allows.

Because [Jeff Bezos] and [Mark Zuckerberg] own $100 billion in the current state of the legal system, the current state of the fiscal system, the current way the international economy is organised, people say, ‘OK, $100 billion, exactly the right level.’ But with a different legal system, different international taxation, it could be 200, it could be 50. So what would be the story? Any level that they will attain, it will be the best? This kind of sacralisation of special individuals is a form of religious thought. People who use this kind of argument: ‘He's great, therefore –‘ therefore what? Therefore we should subsidize him so that he's even richer?

Consider one of the most important developments in local government finance in the last 50 years - state constitutional taxation and spending limitations. Starting with Proposition 13 in California, adopted in 1978, many states began to severely limit local governments' ability to tax and spend. In the California case, these limits were arguably spurred by rapid rises in property values as newcomers found their way to California in the 1970s. Again, an institutional reaction appear to *follow* economic growth - California was growing rapidly and existing residents were concerned about the fiscal effects brought about by the influx of immigrants. Colorado's Taxpayer Bill of Rights (TABOR), adopted in 1992, also appears to have been in part a reaction to rising tax rates brought about by increasing service demands of increasing populations.

I do not think this moral leadership ideal justifies our engaging in any preventive war, or going to the defense of one country against another, or getting ourselves into a vulnerable fiscal and economic position at home which may invite war. I do not believe any policy which has behind it the threat of military force is justified as part of the basic foreign policy of the United States except to defend the liberty of our own people.

The economic theory propounded by John Maynard Keynes in the 1930s dwelled heavily on the role of governments vis-à-vis cycles. Keynesian economics focuses on the role of aggregate demand in determining the level of GDP, in contrast with earlier approaches that emphasized the role of the supply of goods. Keynes said governments should manage the economic cycle by influencing demand. This, in turn, could be accomplished through the use of fiscal tools, including deficits. Keynes urged governments to aid a weak economy by stimulating demand by running deficits. When a government’s outgo—its spending—exceeds its income—primarily from taxes—on balance it puts funds into the economy. This encourages buying and investing. Deficits are stimulative, and thus Keynes considered them helpful in dealing with a weak economy. On the other hand, when economies are strong, Keynes said governments should run surpluses, spending less than they take in. This removes funds from the economy, discouraging spending and investment. Surpluses are contractionary and thus an appropriate response to booms. However, the use of surpluses to cool a thriving economy is little seen these days. No one wants to be a wet blanket when the party is going strong. And spending less than you bring in attracts fewer votes than do generous spending programs. Thus surpluses have become as rare as buggy whips.

In November 2013, Credit Suisse published research confirming this, saying that “US net business investment has rebounded – but, at around 1.5% of GDP, still only stands at the trough levels seen during the past two recessions”.[46] It showed that since the early 1980s, the peaks reached by net business investment as a share of GDP have been declining in each economic recovery. As John Smith writes in Imperialism In The Twenty First Century: “A notable effect of the investment strike is that the age of the capital stock in the US has been on a long-term rising trend since 1980 and started climbing rapidly after the turn of the millennium, reaching record levels several years before the crisis.”[47] Smith points out that in the UK the biggest counterpart to the government’s fiscal deficit (the difference between total revenue and total expenditure) of 8.8% of GDP in 2011 was “a corporate surplus of 5.5% of GDP, unspent cash that sucked huge demand out of the UK economy”.[48] The problem is even worse in Japan, where huge corporate surpluses and low rates of investment have been the norm since the economy entered deflation in the early 1990s. According to Martin Wolf in the FT, “the sum of depreciation and retained earnings of corporate Japan was a staggering 29.5% of GDP in 2011, against just [sic] 16% in the US, which is itself struggling with a corporate financial surplus”.[49]

The current constellation of government spending, regulation, and taxation benefits some and hurts others. But as we saw, there is little evidence that shifts in these policies would have a significant effect on economic growth. Thus the arguments over the proper level of all three are best had in terms of their effects on different groups, as opposed to their effect on aggregate growth. In particular, claims that specific policies will 'pay for themselves' in any capacity are fatuous. Government fiscal and regulatory policy is, to a large degree, about the division of the economic pie, not its size.

As of July 2017 public spending per capita had fallen by 3.9%.[58] But this figure obscures the the fact that the government is allocating proportionally less of its budget to public services. Per person, day-to-day spending on public services has been cut to about four-fifths of what it was in 2010.[59] Public sector employment was slashed by 15.5% between September 2009 and April 2017, a reduction of nearly one million jobs, primarily affecting women, who make up around two-thirds of the public sector workforce. Overall, £22bn of the £26bn in ‘savings’ since June 2010 have been shouldered by women.[60] Lone mothers (who represent 92% of lone parents) have experienced an average drop in living standards of 18% (£8,790). Black and Asian households in the lowest fifth of incomes are the most affected, with average drops in living standards of 19.2% and 20.1% – £8,407 and £11,678 – respectively.[61] The Office of Budget Responsibility (OBR) has said that the cumulative scale of cuts to welfare are “unprecedented”, with real per capita welfare cap spending in 2021-22 projected to be around 10% lower than its 2015-16 level.[62] The Conservative-Liberal Democrat coalition government initially aimed to eliminate the deficit – the difference between annual government income and expenditure – by 2015. But weaker-than-expected economic growth forced the government to push the date back to 2025. The government tried to spin this as a generous easing of austerity, but it was merely giving itself several years longer to take on the deficit. In December 2017 the OBR said that GDP per person would be 3.5% smaller in 2021 than was forecast in March 2016. Contradicting the government, the OBR said the deficit would not be eliminated until 2031. The Institute for Fiscal Studies added that national debt – then standing at £1.94 trillion, with an annual servicing cost of £48bn – may not return to pre-crisis levels until the 2060s. Pressure on the public finances, primarily from health and social care, is only going to increase. In all of the OBR’s scenarios, spending grows faster than the economy. With health costs running ahead of inflation, the National Health Service (NHS) – already suffering from a £4.3bn annual shortfall – requires a 4% minimum annual increase in funding to maintain expenditure per capita amid a growing and ageing population.

Almost all of those making the key decisions had attended college in the 1960s, when campuses were at the very epicenter of political ferment, and they felt strongly that such things must never happen again. As a result, while they might have been concerned with declining economic indicators, they were also quite delighted to note that the combination of globalization, gutting the power of unions, and creating an insecure and overworked workforce—along with aggressively paying lip service to sixties calls to hedonistic personal liberation (what came to be known as “lifestyle liberalism, fiscal conservativism”)—had the effect of simultaneously shifting more and more wealth and power to the wealthy and almost completely destroying the basis for organized challenges to their power. It might not have worked very well economically, but politically it worked like a dream. If nothing else, they had little incentive to abandon such policies.

Fiscal surpluses suck money out of the economy. Fiscal deficits do the opposite. As long as they’re not excessive, deficits can help to maintain a good economy by supporting incomes, sales, and profits.42 They’re not imperative, but if they disappear for too long, eventually the economy hits a wall.43 As Frederick Thayer, the prolific writer and professor of public and international affairs at the University of Pittsburgh, wrote in 1996, “the US has experienced six significant economic depressions,” and “each was preceded by a sustained period of budget balancing.”44 Table 1 details his findings.

Very few people I knew voted for Reagan, but given that he didn't do anything crazy and started making peace with the Soviet Union, affluent college-educated people, liberals and otherwise, didn't disagree very ferociously about politics in the 1980s and '90s, and certainly not about economics. In retrospect, that rough consensus looks like the beginning of an unspoken class solidarity among the bourgeoisie--nearly everyone suspicious of economic populism, but some among us, the Republicans, more suspicious that the rest. Affluent college-educated people, Democrats as well as Republicans, began using the phrase socially liberal but fiscally conservative to describe their politics, which meant low taxes in return for tolerance of ...whatever, as long it didn't cost affluent people anything. It was a libertarianism lite that kept everything nice and clubbable and, unlike Republican conservatism, at least had the virtue of ideological consistency.

consequence of the global economic misery from the pandemic of 2020 could be greater prevalence of fragile and failed states, which would create new security challenges that, at some point, would reach beyond their borders. Yet governments would be hampered in responding to domestic and international needs, whether around security or health or energy and climate, by the huge debt and fiscal armor they have assumed in battling to preserve their economies.

As many countries in Europe experience growing fiscal strains as a result of low fertility and an aging population, active family policies are likely to become more important—not just as a response to political demands, but also as an economic imperative. The key for the success of such policies in today’s world is not that they subsidize families with children—a strategy that, as noted, has met with limited success when attempted—but rather that they empower women to pursue careers without having to sacrifice family. This means spending on high-quality, full-time child care, and the creation, or subsidization, of flexible, general skills jobs in the public sector.

Combined with the New Deal and suburban housing construction (in developments that found legal ways to keep Blacks out), the GI Bill gave birth to the White middle class and widened the economic gap between the races, a growing disparity racists blamed on poor Black fiscal habits.19