Fiscal Policy Quotes

We don't have a trillion-dollar debt because we haven't taxed enough; we have a trillion-dollar debt because we spend too much.

A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy.

I am favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible.

A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world's greatest civilizations has been 200 years. These nations have progressed through this sequence: From bondage to spiritual faith; From spiritual faith to great courage; From courage to liberty; From liberty to abundance; From abundance to selfishness; From selfishness to apathy; From apathy to dependence; From dependence back into bondage.

A democracy cannot exist as a permanent form of government. It can only exist until the people discover they can vote themselves largess out of the public treasury. From that moment on, the majority always votes for the canidate promising the most benefits from the public treasury, with the result that democracy always collapses over a loose fiscal policy--to be followed by a dictatorship.

And to preserve their independence, we must not let our rulers load us with perpetual debt. We must make our election between economy and liberty, or profusion and servitude. If we run into such debts, as that we must be taxed in our meat and in our drink, in our necessaries and our comforts, in our labors and our amusements, for our callings and our creeds, as the people of England are, our people, like them, must come to labor sixteen hours in the twenty-four, give the earnings of fifteen of these to the government for their debts and daily expenses; and the sixteenth being insufficient to afford us bread, we must live, as they now do, on oatmeal and potatoes; have no time to think, no means of calling the mismanagers to account; but be glad to obtain subsistence by hiring ourselves to rivet their chains on the necks of our fellow-sufferers.

I favor the policy of economy, not because I wish to save money, but because I wish to save people.

The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.

Lord, the money we do spend on Government and it's not one bit better than the government we got for one-third the money twenty years ago.

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.

Thank you. Since we decided a few weeks ago to adopt the leaf as legal tender, we have, of course, all become immensely rich. [...] "But we have also," continued the management consultant, "run into a small inflation problem on account of the high level of leaf availability, which means that, I gather, the current going rate has something like three deciduous forests buying on ship's peanut." [...] "So in order to obviate this problem," he continued, "and effectively revalue the leaf, we are about to embark on a massive defoliation campaign, and...er, burn down all the forests. I think you'll all agree that's a sensible move under the circumstances.

A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy...

A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury, with the result that a democracy always collapses over loose fiscal policy followed by a dictatorship. The average age of the world's greatest civilizations has been 200 years.

If," ["the management consultant"] said tersely, “we could for a moment move on to the subject of fiscal policy. . .” “Fiscal policy!" whooped Ford Prefect. “Fiscal policy!" The management consultant gave him a look that only a lungfish could have copied. “Fiscal policy. . .” he repeated, “that is what I said.” “How can you have money,” demanded Ford, “if none of you actually produces anything? It doesn't grow on trees you know.” “If you would allow me to continue.. .” Ford nodded dejectedly. “Thank you. Since we decided a few weeks ago to adopt the leaf as legal tender, we have, of course, all become immensely rich.” Ford stared in disbelief at the crowd who were murmuring appreciatively at this and greedily fingering the wads of leaves with which their track suits were stuffed. “But we have also,” continued the management consultant, “run into a small inflation problem on account of the high level of leaf availability, which means that, I gather, the current going rate has something like three deciduous forests buying one ship’s peanut." Murmurs of alarm came from the crowd. The management consultant waved them down. “So in order to obviate this problem,” he continued, “and effectively revalue the leaf, we are about to embark on a massive defoliation campaign, and. . .er, burn down all the forests. I think you'll all agree that's a sensible move under the circumstances." The crowd seemed a little uncertain about this for a second or two until someone pointed out how much this would increase the value of the leaves in their pockets whereupon they let out whoops of delight and gave the management consultant a standing ovation. The accountants among them looked forward to a profitable autumn aloft and it got an appreciative round from the crowd.

In fiscal policy as in monetary policy, all political considerations aside, we simply do not know enough to be able to use deliberate changes in taxation or expenditures as a sensitive stabilizing mechanism.

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 growing policy-reform movement is a broad church. It includes everyone from ganja-smoking Rastafarians to free-market fundamentalists and all in between. There are socialists who think the drug war hurts the poor, capitalists who see a business opportunity, liberals who defend the right to choose, and fiscal conservatives who complain America is spending $40 billion a year on the War on Drugs rather than making a few billion taxing it. The movement can’t agree on much other than that the present policy doesn’t work. People disagree on whether legalized drugs should be controlled by the state, by corporations, by small businessmen, or by grow-your-own farmers, and on whether they should be advertised, taxed, or just handed out free in white boxes to addicts.

Protectionism, such as what U.S. president Donald Trump was attempting, amounts in effect under these circumstances (that is, in the absence of any significant expansion of state expenditure financed either by a fiscal deficit or by taxes on capitalists) to an export of unemployment to other countries. It can work only if the other countries do not retaliate. If they do, then it gives rise to a competitive “beggar-thy-neighbor” policy that only worsens the crisis by creating further uncertainties and reducing investments further.

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.

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

As long as there are no routes back to full employment except that of somehow restoring business confidence, he pointed out, business lobbies in effect have veto power over government actions: propose doing anything they dislike, such as raising taxes or enhancing workers' bargaining power, and they can issue dire warnings that this will reduce confidence and plunge the nation into depression. But let monetary and fiscal policy be deployed to fight unemployment, and suddenly business confidence becomes less necessary, and the need to cater to capitalists' concern is much reduced.

What if we focused our human and fiscal resources on changing power and policy to actually make society, not just our feelings, better?

the discrimination was ignored or discounted, and the fiscal habits of Black people were blamed for the growing fiscal inequities and segregation created by the policies.

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.

Public debate is now undermoralized and overpoliticized. We have many shows where people argue about fiscal policy but not so many on how to find a vocation or how to measure the worth of your life. In fact, we now hash out our moral disagreement indirectly, under the pretense that we’re talking about politics, which is why arguments about things like tax policy come to resemble holy wars.

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.

In practice, the term “populism” has become the ultimate weapon in the hands of the objectively privileged social classes, a means to dismiss out of hand any criticism of their preferred political choices and policies. Gone is the need for any debate about novel social and fiscal arrangements or alternative ways of organizing globalization. It is enough to brand dissenters as “populists” to end all discussion with a clear conscience and foreclose debate.

What with the doctrines that are now widely accepted and the policies accordingly expected from the monetary authorities, there can be little doubt that current union policies must lead to continuous and progressive infl ation. The chief reason for this is that the dominant “fullemployment” doctrines explicitly relieve the unions of the responsibility for any unemployment and place the duty of preserving full employment on the monetary and fiscal authorities. The only way in which the latter can prevent union policy from producing unemployment is, however, to counter through inflation whatever excessive rises in real wages unions tend to cause.

The idea that the euro has “failed” is dangerously naive. The euro is doing exactly what its progenitor – and the wealthy 1%-ers who adopted it – predicted and planned for it to do. … Removing a government's control over currency would prevent nasty little elected officials from using Keynesian monetary and fiscal juice to pull a nation out of recession. “It puts monetary policy out of the reach of politicians,” [Robert] Mundell explained]. “Without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business.” … Hence, currency union is class war by other means. — Greg Palast, “Robert Mundell, evil genius of the euro.” Unlike

Ideally, a fair and equitable society would regulate debt in line with the ability to be paid without pushing economies into depression. But when shrinking markets deepen fiscal deficits, creditors demand that governments balance their budgets by selling public monopolies. Once the land, water and mineral rights are privatized, along with transportation, communications, lotteries and other monopolies, the next aim is to block governments from regulating their prices or taxing financial and rentier wealth. The neo-rentier objective is threefold: to reduce economies to debt dependency, to transfer public utilities into creditor hands, and then to create a rent-extracting tollbooth economy. The financial objective is to block governments from writing down debts when bankers and bondholders over-lend. Taken together, these policies create a one-sided freedom for rentiers to create a travesty of the classical “Adam Smith” view of free markets. It is a freedom to reduce the indebted majority to a state of deepening dependency, and to gain wealth by stripping public assets built up over the centuries.

There is a major difference between theoretical knowledge and experiential knowledge. Academics think they know how the economy should work; successful business owners know how the economy does work. They have been there and done it. Our government should be turning to those who have experiential knowledge when it comes to solving our fiscal problems. They would realize that many of their current policies may sound good but don’t work in the real world and must be abandoned. They would spend less and live within their means. They would be promoting the creation of more entrepreneurs and business owners, instead of hiring more bureaucrats, consulting more academics, and enlisting more lawyers to harass and prosecute the true wealth creators of this nation.

Keynes argued that when short-term and long-term interest rates had reached their respective lower bounds, further increases in the money supply would just be absorbed by the hoarding of money and would not lead to lower interest rates and higher spending. Once caught in this liquidity trap, the economy could persist in a depressed state indefinitely. Since economies were likely to find themselves in such conditions only infrequently, Hicks described Keynes’s theory as special rather than general, and relevant only to depression conditions. And this has remained the textbook interpretation of Keynes ever since. Its main implication is that in a liquidity trap monetary policy is impotent, whereas fiscal policy is powerful because additional government expenditure is quickly translated into higher output.

The three terms of Federalist rule had been full of dazzling accomplishments that Republicans, with their extreme apprehension of federal power, could never have achieved. Under the tutelage of Washington, Adams, and Hamilton, the Federalists had bequeathed to American history a sound federal government with a central bank, a funded debt, a high credit rating, a tax system, a customs service, a coast guard, a navy, and many other institutions that would guarantee the strength to preserve liberty. They activated critical constitutional doctrines that gave the American charter flexibility, forged the bonds of nationhood, and lent an energetic tone to the executive branch in foreign and domestic policy. Hamilton, in particular, bound the nation through his fiscal programs in a way that no Republican could have matched. He helped to establish the rule of law and the culture of capitalism at a time when a revolutionary utopianism and a flirtation with the French Revolution still prevailed among too many Jeffersonians. With their reverence for states’ rights, abhorrence of central authority, and cramped interpretation of the Constitution, Republicans would have found it difficult, if not impossible, to achieve these historic feats. Hamilton

Bankers are seeking to capture government and make financial policy immune from democratic choice. What promised to be a progressive social democratic Europe half a century ago is turning into a power grab by financial predators. The EU has confronted Greece, Cyprus and other indebted economies with an option of suffering debt deflation or leaving the eurozone. Since Greece’s Syriza coalition took the electoral lead in opposing the financial and fiscal austerity, the creditor response has been to dare Greece to withdraw – and to suffer a transitional financial chaos if it tries to save itself from being crushed by unemployment, bankruptcy and emigration.

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.

I interpret your question as applying more to financial stability in the euro area than to the euro itself. I do not think there has been a crisis. The euro is the single currency of 330 million people and enjoys a high degree of confidence among investors and savers because it has delivered price stability remarkably well over the last 11½ years. What we had was a situation in which a number of countries had not respected the Stability and Growth Pact. These countries have now engaged in policies of fiscal retrenchment that were overdue. They have to implement vigorously these policies which are decisive for the preservation and consolidation of financial stability in Europe.

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.

. . . one of the lessons of a UBI is that our policy outcomes are not inevitabilities but choices. The United States would be significantly richer right now if it had passed more fiscal stimulus at the onset of the Great Recession. It would be richer if it invested in infrastructure. It would be richer if it chose to ensure that no child grew up in poverty. It would be richer if it had worked to make black and white Americans, as well as men and women, true equals. . . poverty in the United States is a choice. Stagnant middle-class incomes are a choice. Technology-fueled mass unemployment is a choice. Racism is a choice. The patriarchy is a choice. This is not to discount how deeply entrenched existing policies, interests, and tendencies are—but to recognize that while they might be entrenched, they are not immutable.

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.

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.

Politicians are the only people in the world who create problems and then campaign against them. Have you ever wondered why, if both the Democrats and Republicans are against deficits, we have deficits? Have you ever wondered why if all politicians are against inflation and high taxes, we have inflation and high taxes? You and I don’t propose a federal budget. The president does. You and I don’t have Constitutional authority to vote on appropriations. The House of Representatives does. You and I don’t write the tax code. Congress does. You and I don’t set fiscal policy. Congress does. You and I don’t control monetary policy. The Federal Reserve Bank does. One hundred senators, 435 congressmen, one president and nine Supreme Court justices — 545 human beings out of 235 million — are directly, legally, morally and individually responsible for the domestic problems that plague this country. I excused the members of the Federal Reserve Board because that problem was created by the Congress. In 1913, Congress delegated its Constitutional duty to provide a sound currency to a federally chartered by private central bank. I exclude all of the special interests and lobbyists for a sound reason. They have no legal authority. They have no ability to coerce a senator, a congressman or a president to do one cotton-picking thing. I don’t care if they offer a politician $1 million in cash. The politician has the power to accept or reject it. No matter what the lobbyist promises, it is the legislators’ responsibility to determine how he votes. Don’t you see the con game that is played on the people by the politicians? Those 545 human beings spend much of their energy convincing you that what they did is not their fault. They cooperate in this common con regardless of party. What separates a politician from a normal human being is an excessive amount of gall. No normal human being would have the gall of Tip O’Neill, who stood up and criticized Ronald Reagan for creating deficits. The president can only propose a budget. He cannot force the Congress to accept it. The Constitution, which is the supreme law of the land, gives sole responsibility to the House of Representatives for originating appropriations and taxes. Those 545 people and they alone are responsible. They and they alone should be held accountable by the people who are their bosses — provided they have the gumption to manage their own employees.

Lynum had plenty of information to share. The FBI's files on Mario Savio, the brilliant philosophy student who was the spokesman for the Free Speech Movement, were especially detailed. Savio had a debilitating stutter when speaking to people in small groups, but when standing before a crowd and condemning his administration's latest injustice he spoke with divine fire. His words had inspired students to stage what was the largest campus protest in American history. Newspapers and magazines depicted him as the archetypal "angry young man," and it was true that he embodied a student movement fueled by anger at injustice, impatience for change, and a burning desire for personal freedom. Hoover ordered his agents to gather intelligence they could use to ruin his reputation or otherwise "neutralize" him, impatiently ordering them to expedite their efforts. Hoover's agents had also compiled a bulging dossier on the man Savio saw as his enemy: Clark Kerr. As campus dissent mounted, Hoover came to blame the university president more than anyone else for not putting an end to it. Kerr had led UC to new academic heights, and he had played a key role in establishing the system that guaranteed all Californians access to higher education, a model adopted nationally and internationally. But in Hoover's eyes, Kerr confused academic freedom with academic license, coddled Communist faculty members, and failed to crack down on "young punks" like Savio. Hoover directed his agents to undermine the esteemed educator in myriad ways. He wanted Kerr removed from his post as university president. As he bluntly put it in a memo to his top aides, Kerr was "no good." Reagan listened intently to Lynum's presentation, but he wanted more--much more. He asked for additional information on Kerr, for reports on liberal members of the Board of Regents who might oppose his policies, and for intelligence reports about any upcoming student protests. Just the week before, he had proposed charging tuition for the first time in the university's history, setting off a new wave of protests up and down the state. He told Lynum he feared subversives and liberals would attempt to misrepresent his efforts to establish fiscal responsibility, and that he hoped the FBI would share information about any upcoming demonstrations against him, whether on campus or at his press conferences. It was Reagan's fear, according to Lynum's subsequent report, "that some of his press conferences could be stacked with 'left wingers' who might make an attempt to embarrass him and the state government." Lynum said he understood his concerns, but following Hoover's instructions he made no promises. Then he and Harter wished the ailing governor a speedy recovery, departed the mansion, slipped into their dark four-door Ford, and drove back to the San Francisco field office, where Lynum sent an urgent report to the director. The bedside meeting was extraordinary, but so was the relationship between Reagan and Hoover. It had begun decades earlier, when the actor became an informer in the FBI's investigation of Hollywood Communists. When Reagan was elected president of the Screen Actors Guild, he secretly continued to help the FBI purge fellow actors from the union's rolls. Reagan's informing proved helpful to the House Un-American Activities Committee as well, since the bureau covertly passed along information that could help HUAC hold the hearings that wracked Hollywood and led to the blacklisting and ruin of many people in the film industry. Reagan took great satisfaction from his work with the FBI, which gave him a sense of security and mission during a period when his marriage to Jane Wyman was failing, his acting career faltering, and his faith in the Democratic Party of his father crumbling. In the following years, Reagan and FBI officials courted each other through a series of confidential contacts. (7-8)

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 state, too, is in decline, though perhaps less obviously than the idea of the national community. The reason is simply that the global community of capitalists will not let the Western state reverse its post-1970s policies of retrenchment, which is the only way for it to adequately address all the crises that are currently ripping society apart. If any state—unimaginably—made truly substantive moves to restore and expand programs of social welfare, or to vastly expand and improve public education, or to initiate programs like Roosevelt’s Works Progress Administration or Tennessee Valley Authority (but on a necessarily broader scale than in the 1930s), or to restore organized labor to its power in the 1960s and thereby raise effective demand, or to promulgate any other such anti-capitalist measure, investors would flee it and its sources of funds would dry up. It couldn’t carry out such policies anyway, given the massive resistance they would provoke among all sectors and levels of the business community. Fiscal austerity is, on the whole, good for profits (in the short term), since it squeezes the population and diverts money to the ruling class. In large part because of capital’s high mobility and consequent wealth and power over both states and populations, the West’s contemporary political paradigm of austerity and government retrenchment is effectively irreversible for the foreseeable future.

...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 legislation, essentially bipartisan, drives new fiscal policies, tax changes, also rules of corporate governance, and deregulation. Alongside of this began the very sharp rise in the costs of elections, which drives the political parties even deeper than before into the pockets of the corporate sector. The parties dissolved, essentially, in many ways. It used to be that if a person in Congress hoped for a position such as a committee chair or some position of responsibility, he or she got it mainly through seniority and service. Within a couple of years, they started having to put money into the party coffers in order to get ahead, a topic studied mainly by Tom Ferguson. That just drove the whole system even deeper into the pockets of the corporate sector, increasingly the financial sector.

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.

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 Federal Reserve promises to reverse field to contain inflationary pressures, but that commitment is suspect, with the memory of recession still fresh, unless Congress and the president agree to a balanced budget at full employment. Reckless fiscal policy threatens the dollar’s status as a reliable international store of value and the exorbitant privilege that confers on American consumers.

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.

freedom is always at risk, and democracy is no cure-all. It’s been said that “a democracy cannot exist as a permanent form of government” because eventually “voters discover that they can vote themselves largesse from the public treasury . . . with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship.”10

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.

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.

The legitimacy crisis sparked by the crisis of monetary union is aggravated by the refusal of the larger member states to accept their share of responsibility for the present predicament. A convenient theory has been advanced in order to justify this hypocritical stance. The theory, as summarized by Fritz Scharpf (2011: 21–2), runs something like this: if successive Greek governments had not engaged in reckless borrowing the euro crisis would not have arisen; and if the Commission had not been deceived by faked records, rigorous enforcement of the Stability Pact would have prevented it. So, even though the more ‘virtuous’ members are now unable to refuse to help the ‘sinners’, such conditions should never be allowed to occur again. Such arguments, which in the ‘rescuer’ countries still dominate debate about the origins of the crisis, are used to justify the disciplinary measures discussed in the preceding pages. The emphasis is on continuous, and rapid, reduction of total public-sector debt; on the European supervision of national budgeting processes; on greater harmonization of fiscal and social policy; on earlier interventions and sanctions; and on ‘reverse majority’ rules for the adoption of more severe sanctions by ECOFIN. As most experts agree, however, the received view on the causes of the euro crisis is only partly correct for Greece and completely wrong for countries such as Ireland and Spain. At any rate, it should not be forgotten that Greece was admitted in 2001 as the twelfth member of monetary union in spite of the fact that all governments knew that Greek financial statistics were unreliable.

In the words of the German finance minister, Wolfgang Schaeuble, as reported by the International Herald Tribune (Castle and Erlanger 2011): ‘In recent months it has become clear: the answer to the crisis can only mean more Europe. . .Without. . . further steps toward stronger European institutions, eventually Europe will lose its effectiveness. We have to look beyond the national state.’ Other members of the Berlin government, possibly including the Chancellor herself, seem to share the view that the crisis could, paradoxically, bring the EU much closer to a political union. The crisis, they argue, cannot be resolved without a much tighter coordination of the fiscal and social policies of the members of the euro zone, even if this implies additional limits on national sovereignty. Also the leader of the opposition Social-Democratic Party, Sigmar Gabriel, is of the opinion that the crisis calls for political union.

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.

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.

Another contentious issue concerned how to treat countries that, even after rigorous austerity, were unable to pay their debts. Should they be bailed out by other eurozone members and the International Monetary Fund? Or should private lenders, many of them European banks, bear some of the losses as well? The situation was analogous to the question of whether to impose losses on the senior creditors of Washington Mutual during the crisis. We (Tim, especially) had opposed that, because we feared that it would fan the panic and increase contagion. For similar reasons, we opposed forcing private creditors to bear losses if a eurozone country defaulted. Jean-Claude Trichet strongly agreed with us, though he opposed other U.S. positions. (In particular, he did not see much scope for monetary or fiscal policy to help the eurozone economy, preferring to focus on budget balancing and structural reforms.) On the issue of country default, though, Jean-Claude’s worry, like ours, was that, once the genie was out of the bottle, lenders’ confidence in other vulnerable European borrowers would evaporate.

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

the school leadership team should specifically: • Build consensus for the school’s mission of collective responsibility • Create a master schedule that provides sufficient time for team collaboration, core instruction, supplemental interventions, and intensive interventions • Coordinate schoolwide human resources to best support core instruction and interventions, including the site counselor, psychologist, speech and language pathologist, special education teacher, librarian, health services, subject specialists, instructional aides, and other classified staff • Allocate the school’s fiscal resources to best support core instruction and interventions, including school categorical funding • Assist with articulating essential learning outcomes across grade levels and subjects • Lead the school’s universal screening efforts to identify students in need of Tier 3 intensive interventions before they fail • Lead the school’s efforts at Tier 1 for schoolwide behavior expectations, including attendance policies and awards and recognitions (the team may create a separate behavior team to oversee these behavioral policies) • Ensure that all students have access to grade-level core instruction • Ensure that sufficient, effective resources are available to provide Tier 2 interventions for students in need of supplemental support in motivation, attendance, and behavior • Ensure that sufficient, effective resources are available to provide Tier 3 interventions for students in need of intensive support in the universal skills of reading, writing, number sense, English language, motivation, attendance, and behavior • Continually monitor schoolwide evidence of student learning

In the chaotic decades following the overthrow of the Qin dynasty in 202 BC, the emperors of the newly installed Han dynasty pursued a loose fiscal and monetary policy, spending beyond their means and financing their deficit by issuing new money.

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

investors tended to infer future changes in fiscal and monetary policy from political events, which were regularly reported in private correspondence, in newspapers and by telegraph agencies. Among the most influential bases for their inferences were three assumptions: that any war would disrupt trade and hence lower tax revenues for all governments; that direct involvement in war would increase a state’s expenditure as well as reducing its tax revenues, leading to substantial new borrowings; and that the impact of war on the private sector would make it hard for monetary authorities in combatant countries to maintain the convertibility of paper banknotes into gold, thereby increasing the risk of inflation.

The gold standard had its advantages, no doubt. Exchange rate stability made for predictable pricing in trade and reduced transaction costs, while the long-run stability of prices acted as an anchor for inflation expectations. Being on gold may also have reduced the costs of borrowing by committing governments to pursue prudent fiscal and monetary policies.

Sticking with the $2 trillion infrastructure proposal, MMT would have us begin by asking if it would be safe for Congress to authorize $2 trillion in new spending without offsets. A careful analysis of the economy’s existing (and anticipated) slack would guide lawmakers in making that determination. If the CBO and other independent analysts concluded it would risk pushing inflation above some desired inflation rate, then lawmakers could begin to assemble a menu of options to identify the most effective ways to mitigate that risk. Perhaps one-third, one-half, or three-fourths of the spending would need to be offset. It’s also possible that none would require offsets. Or perhaps the economy is so close to its full employment potential that PAYGO is the right policy. The point is, Congress should work backward to arrive at the answer rather than beginning with the presumption that every new dollar of spending needs to be fully offset. That helps to protect us from unwarranted tax increases and undesired inflation. It also ensures that there is always a check on any new spending. The best way to fight inflation is before it happens. In one sense, we have gotten lucky. Congress routinely makes large fiscal commitments without pausing to evaluate inflation risks. It can add hundreds of billions of dollars to the defense budget or pass tax cuts that add trillions to the fiscal deficit over time, and for the most part, we come out unscathed—at least in terms of inflation. That’s because there’s normally enough slack to absorb bigger deficits. Although excess capacity has served as a sort of insurance policy against a Congress that ignores inflation risk, maintaining idle resources comes at a price. It depresses our collective well-being by depriving us of the array of things we could have enjoyed if we had put our resources to good use. MMT aims to change that. MMT is about harnessing the power of the public purse to build an economy that lives up to its full potential while maintaining appropriate checks on that power. No one would think of Spider-Man as a superhero if he refused to use his powers to protect and serve. With great power comes great responsibility. The power of the purse belongs to all of us. It is wielded by democratically elected members of Congress, but we should think of it as a power that exists to serve us all. Overspending is an abuse of power, but so is refusing to act when more can be done to elevate the human condition without risking inflation.

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.

New York City’s laudable policies designed to reduce the gap between the rich and the poor were simply not sustainable. On average, residents paid 10.2 percent of their incomes to the city in 1975, more than a third higher than a decade earlier. The city’s elected officials (the mayor, comptroller, borough presidents, and city council members) provided services for its citizens and offered benefits to its municipal workers that the city could not afford.52 Mayor Robert F. Wagner Jr. set the tone in the 1960s. When submitting his last budget, he said, “I do not propose to permit our fiscal problems to set the limits of our commitments to meet the essential needs of the people of the city.” In Lindsay’s first term as mayor, the city’s labor force grew from 250,000 to 350,000 and the city’s budget rose almost 50 percent. The public university system eliminated all tuition charges and accepted any student with a high school diploma. State officials, including Rockefeller, enabled the city’s profligate spending. At the federal level, President Lyndon B. Johnson’s new programs to eradicate poverty passed along costly mandates to local governments.53

The truth is, a trade deficit is not in and of itself something to fear. America doesn’t need to zero out its trade deficit to protect jobs and rebuild communities. As long as the federal government stands ready to use its fiscal capacity to maintain full employment at home, there is no reason to resort to a trade war. Instead, we can envision a new world trade order that works better, not for corporations seeking to exploit cheap labor and escape regulations, but for millions of workers who’ve received such a raw deal under previous “free trade” policies in the post-NAFTA era. Reenvisioning trade also can lead to better policies for developing countries and for the global environment.

Bernanke, however, did not appreciate being put on the spot and tried to sidestep the question. “That is really fiscal policy, not monetary policy,” he said in his professorial tone.

To me, with more fiscal help unlikely, it seemed clear that the economy needed more support from monetary policy.

and because U.S. fiscal policy, although a headwind during most of the recovery, was less restrictive than elsewhere.

Since fiscal stimulus is politically unpalatable, governments have been left with only one mechanism for reviving their sluggish economies: monetary policy.

Tight fiscal policies were arguably offsetting much of the effect of our monetary efforts.

European countries might suspect that he would take the side of the debtor countries in making monetary policy or in fiscal disputes.

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

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.

Conservatism, in the world of American politics, no longer means “to struggle for the continuation of institutions and policies which best reflect values of moderation and fiscal prudence”.  Conservatism now means a type of extremism which is anathema to earlier incarnations of the GOP.

The Chinese people and the American people are not each other’s enemies. Rather, the main conflict in both countries is that between the elites and their wider populations. This has been driven by fiscal, industrial and monetary policies that have pushed widening wealth and income inequalities within both countries and led to significant imbalances in the commercial and financial relationship between them.

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.

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

As the 2019 elections were approaching, the Modi government felt the need to appear less pro-rich and more pro-poor again. But the union budget passed in February was somewhat a missed opportunity so far as the peasants were concerned. No loan waivers were announced in their favor, simply an enhanced interest subvention on loans and an annual income support of Rs 6,000 (80 USD)—6 percent of a small farmer’s yearly income—to all farmers’ households owning two hectares or fewer.131 In fact, the union budget was once again more geared to pleasing the middle class. The income tax exemption limit jumped from Rs 200,000 (2,667 USD) to 250,000 (3,333 USD), and the income tax rate up to Rs 5 lakh (6,667 USD) was reduced from 10 to 5 percent. The income tax on an income of Rs 10 lakh (13,333 USD) dropped from Rs 110,210 (1,470 USD) to Rs 75,000 (1,000 USD).132 The poor were doubly affected by the fiscal policy of the Modi government in 2014–2019: not only did the tax cuts in favor of the middle class, the abolition of the wealth tax, and, more importantly, the reduction of the corporate tax rates have to be offset by increased indirect taxes, but the stagnation of fiscal resources did not allow the government of India to spend more on public education and public health—all the more so as Narendra Modi wanted to reduce the fiscal deficit. First of all, tax collection diminished. The exchequer “lost” Rs 1.45 lakh crore (1.933 billion USD) in the reduction of the corporate tax, for instance. That was the main reason why gross direct tax collection dipped 4.92 percent133 in 2019–2020, a fiscal year during which gross tax collections were less than those in 2018–2019. Tax collections had never declined on a year-on-year basis since 1961–1962.134 Second, government expenditures diminished. The central government reduced its spending on education from 0.63 percent of GDP in 2013–2014 to 0.47 percent in 2017–2018. The trend was marginally better on the public health front, where the Center’s spending declined from 0.37 percent of GDP in 2013–2014 to 0.34 percent in 2015–2016, before rising again to reach 0.38 percent in 2016–2017.

A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship.

One of the reasons I was so bullish on the Deutsche mark was a radical currency theory proposed by George Soros in his book, The Alchemy of Finance. His theory was that if a huge deficit were accompanied by an expansionary fiscal policy and tight monetary policy, the country’s currency would actually rise.

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

called monetary policy. Fiscal policy is set by Congress, but the president has some control, too. Monetary policy is run almost entirely by government officials at the Federal Reserve System, the most powerful of whom, the Board of Governors, are appointed by the president for fourteen-year terms; the chair and vice chair are appointed by the board for four-year terms.

Hughes has put forward a number of promising policy proposals to remain competitive. These include collaboration between the U.S. private and public sectors to increase competitiveness; fiscal and monetary reform; technological innovation; the creation of a lifelong learning culture;3 and increased U.S. civilian research and development.

MONEY IS IMAGINARY!

But it all starts with one person, or two people, or tiny groups, in their small surroundings, engaging in energetic mobilization of antiracists into organizations; and chess-like planning and adjustments during strikes, occupations, insurrections, campaigns, and fiscal and bodily boycotts, among a series of other tactics to force power to eradicate racist policies. Antiracist protesters have created positions of power for themselves by articulating clear demands and making it clearer that they will not stop—and policing forces cannot stop them—until their demands are met.

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.

Interestingly, such a change is not illegal. An explanation might appear in a footnote to the financial statements, but then again it might not. Maybe you noticed in chapter 6 that the Hewlett-Packard footnote regarding revenue recognition policy mentioned 2009 and 2010. That’s because later in that same section the company describes what it did differently in 2008: For fiscal 2008 . . . HP allocated revenue to each element based on its relative fair value, or for software, based on VSOE of fair value. In the absence of fair value for a delivered element, HP first allocated revenue to the fair value of the undelivered elements and the residual revenue to the delivered elements . . . .

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.

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.

There should be no doubt by now that markets, economists, and pretty much everyone for the past generation has underrated the power/utility/capacity of fiscal policy, and overrated the power/utility/capacity of monetary policy.

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.

Despite claims that these radical policy changes were driven by fiscal conservatism—i.e., the desire to end big government and slash budget deficits—the reality is that government was not reducing the amount of money devoted to the management of the urban poor. It was radically altering what the funds would be used for. The dramatic shift toward punitiveness resulted in a massive reallocation of public resources. By 1996, the penal budget doubled the amount that had been allocated to AFDC or food stamps.100 Similarly, funding that had once been used for public housing was being redirected to prison construction. During Clinton’s tenure, Washington slashed funding for public housing by $17 billion (a reduction of 61 percent) and boosted corrections by $19 billion (an increase of 171 percent), “effectively making the construction of prisons the nation’s main housing program for the urban poor.”101 Clinton

The resulting financial overhead consists of claims on the economy’s actual means of production. Yet most people think of these bonds, bank loans and stocks and creditor claims as wealth, not its antithesis on the debit side of the balance sheet. This inside-out doublethink is a precondition for the bubble economy to be applauded by the mass media, keeping its corrosive momentum expanding. From the corporate sphere and real estate to personal budgets, the distinguishing feature over the past half-century has been the rise in debt/equity and debt/income ratios. Just as debt leveraging has hiked corporate break-even costs of doing business, so the cost of living has been increased as homes and office buildings have been bid up on mortgage credit. “Creating wealth” in a debt-financed way makes economies high-cost, exacerbated by the tax shift onto labor and consumers instead of capital gains and “free lunch” rent. These financial and fiscal policies have enabled financial managers to siphon off the industrial profits that were expected to fund capital formation to increase productivity and living standards. The