This is one of the most powerful articles on political economy that I've read in a long time. In it, Marshall Auerback assails Obama and his fellow Democrats' utter mismanagement of ecoconomic policy, and highlights the risks that continuing adherence to Rubinomics poses to them in future elections (not to mention, more importantly, current and future generations in terms of economic performance). Choice excerpts follow. This is highly, highly recommended reading.
Obama still genuinely does not have a clue as to why he has lost the trust of so many progressives. Many would have been prepared to cut him some slack if he had given them anything over the past two years, rather than a perpetuation of Rubinomics — an economically regressive blend of crony capitalism and deficit reduction fetishism...
Obama loves cutting deals, claiming that he is “getting things done for the American people”, even when the actual substance of his legislative efforts come to virtually nothing (as in the case of both financial regulation and health care). His presidency is all about form and presentation over substance.
I can offer some anecdotal evidence to support this criticism of Obama. Shortly after the fiscal compromise was announced, while estimating the net impact on our household's monthly cash flows (a slight but welcome bump), I learned that our health insurance premiums are going up 50% in 2011, plus another 36% on top of that as my stepson, a recent engineering grad from a very prestigious school, has not been able to find employment yet. So personally speaking, the tax compromise leaves my household slightly less worse off in 2011 than it would otherwise be. There's really not a lot of discretionary spending left for us to cut at this point, though I know there are many families in far worse shape than we are, which is distressing.
From the little bit of research I've done, we're not the only ones in this situation. Apparently a lot of small and medium business plan participants and individual policyholders are getting (and have previously gotten) a similar reaming from insurers, which would probably not have happened (at least not to the same extent) if a basic public option had been included in the legislation (whether it's gouging or the government's fault should show up in industry profit margins in 2011). It's also well established that young adults are having a horrible time in the job market right now, so it's safe to assume that many households are facing the same kinds of decisions we are. And a one-year, 2% payroll tax cut, with expiration of Making Work Pay netted out, is only going to ease the pain very marginally. Gee thanks, Mr. President.
Back to Marshall:
That said, the anger of the president’s base is somewhat misdirected right now. The real problem is that the repeal of the Bush tax cuts at the upper end wouldn’t have solved income inequality...Any good accountant worth his salt can always find a clever tax avoidance strategy for the super wealthy. The tax system’s very complexity facilitates this...To deal with income inequality, you need something more radical. You need reforms such as caps on executive pay and probably a system that simplifies the tax structure (to avoid creative tax avoidance), along with a broad base and a few basic, low rates to ensure a modicum of compliance.
Additionally, the notion that these tax cut extensions will “add” $700 billion to the deficit is nonsensical. One cannot predict the impact of government spending decisions absent a broader economic context. Applying a static revenue analysis to the deficit embraces deficit hawks’ logic, who make comparable claims when they argue that cutting government spending absent any consideration of the economy’s underlying condition will automatically reduce the budget shortfall as a percentage of GDP.
There have been scads of news stories with headlines about what this agreement will "cost" the federal government. As Marshall points out, that's an utterly meaningless construct. The U.S. government is self-financing and has been for almost four decades. Marshall then makes the critical point (emphasis added):
Ultimately, the president (and what’s left of his rapidly imploding party) needs to get off this deficit fixation. It muddles the Keynesian message to say that we don’t need fiscal austerity in the midst of a serious recession — except we urgently need to reduce the dangerous deficit by taxing the rich.
The whole focus on the deficit itself is profoundly misconceived. One of the state’s most important elements of public purpose is to maximize employment. Once the private sector has made its spending and saving decisions based on its expectations for the future, the government has to render them consistent with the objective of full employment. It can’t do this if it continues to focus on bogus questions of “affordability” and “national insolvency”.
Take that, Rubinistas everywhere! Marshall and his fellow 'modern monetary economists' still face a long Sysiphian struggle in bringing their views to the mainstream. But hopefully this piece will get enough attention from both the left and the right (personally, I'd be happy to see either party demonstrate an understanding of these dynamics) to at least ameliorate some of the prevailing nonsense about--and hysteria over--U.S. budget deficits.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.