A Feminist Economist Speaks Out: Deficits are a Grrrl’s Best Friend

Listen up, sisters! Deficit hawks will eat your lunch, your kids, your jobs and your retirement.

An economy without a deficit is like a fish without water. Reducing the U.S. federal deficit will make unemployment and poverty worse–way worse. And that means that women’s economic condition will deteriorate even further.

Today’s deficit hawks (and way too many Democrats are flying with this flock), fundamentally and deliberately misinform by insisting on a fictional symmetry between private sector (household and corporate) bookkeeping and the U.S. federal debt.

Squawk squawk. “Families have to live within their means, they can’t borrow forever.”

“Businesses that run in the red risk bankruptcy.” Caw caw.

But the analogy—the budget of the U.S. government is like the budgets of households and firms—is false.

The mantra that “the budget must be balanced” is a throwback to the 19th century, originating from the same outmoded economic thinking that justifies women’s lower wages.

Here are the facts: U.S. government borrowing creates interest-bearing assets. The bonds are bought with dollars, the interest on them is paid in dollars and, at maturity, the bonds are paid off in dollars. Since the U.S. government is both sovereign in its own currency and the sole issuer of dollars, it can never run out of them. How could it?

Don’t think printing presses here: Federal debts are paid off by Treasury clerks making a few clicks on computer keyboards—keyboards identical to the one I’m typing on now.

In contrast, families and businesses have to earn income or sell assets to get dollars to pay off debts. The federal government does not face any such constraint. It can spend as much as it likes and borrow as much as it likes. With so many people out of work—nearly 30 million and counting–and so many firms operating well below capacity, there is no danger of inflation. So, right now, government borrowing and government spending will do one thing and one thing only: It will pump up aggregate demand, call jobs into being and reduce economic pain. Our children will be better off.

Meanwhile, the ceiling limiting the federal debt is an arbitrary constraint. There is no reason to be found, in either economics or accounting, that supports capping the federal deficit at or below its current level.

So Treasury clerk clicks transfer the ownership of U.S. treasury bonds to banks, people, or governments–the many entities which desire to hold what global capital markets deem the world’s safest asset. (How do we know these markets consider U.S. Treasury bonds to be so safe? Simple. Interest rates on them are at an historic low. Squawk, squawk you deficit hawk: In the late 1990s, the last time the budget was balanced, interest rates on Treasuries were way higher than they are now. Sorry guys, you can’t have it both ways: If interest rates are higher when the deficit equals zero, then deficits don’t drive up interest rates).

Next, a few more clerk clicks credit U.S. government accounts with the amounts generated by Treasury bond sales. No big deal. Nothing scary about it. It’s not even mysterious. Why, Old McDonald could do it!

When the U.S. has a debt, we/I, we/I, owe
Then a quick click here, and a quick click there
Here a click, there a click, now a little quick click
Then the U.S. paid its debt, we won’t, we don’t owe.

Sure, there are all kinds of regulations about how the Treasury can organize bond auctions, who can sell what to whom and when auctions can occur, but the actual process is as simple as it is misunderstood.

Deficit hawk ranting and raving about the supposed inability to pay the federal debt is a smokescreen. There is absolutely no bookkeeping, accounting or arithmetic possibility that the U.S. could “run out of money.” How could we? “We, the people” control the availability of dollars! And that means our government can, during a crisis of unemployment, spend what it wants to spend. Any other fiscal policy will cause more unnecessary pain and suffering.

Some who see through the barrage of misinformation on deficits and the debt ceiling hail from unexpected corners of the economic universe. Consider the words of Morgan Stanley’s former chief global strategist, Barton Biggs, now a managing partner in a multibillion-dollar hedge fund. In an interview with the Wall Street Journal Biggs advocated a temporary return to New Deal policies aimed at reducing unemployment during the Great Depression. He said,

What the U.S. really needs is a massive infrastructure program … similar to the WPA back in the 1930s.

According to the WSJ, Biggs’ plan is “to employ some of the many unemployed people, jump start the economy, as well as help catch up with Asia, which is building state-of-the-art infrastructure, from new mechanized port facilities to high-speed trains.”

Guess what? Briggs would finance these programs by selling U.S. Treasuries—i.e., increasing the deficit. And yes, increasing the deficit would require Congress to raise the debt ceiling. But Tea Party ideologues would rather cause another economic crisis. The important point here: There is no crisis but for the crisis deliberately created for political purposes.

Fiscal austerity—aka, reducing the deficit—endangers our lives. Deficit spending lies behind virtually all the social services, public amenities, and consumer safety standards that distinguish the U.S. from Rwanda, Bangladesh or Guyana. The Chicago Tribune recently reported that Congress is “moving to eliminate the only national program that regularly screens U.S. fruits and vegetables for the type of E. coli that recently caused a deadly outbreak in Germany.” Clearly, this $4.5 million program is too expensive. (Note to reader: $4.5 million is just over half the median pay for top executives at the nation’s 200 largest firms, according to The New York Times. Executive pay is up 23 percent over 2009. What if each of these guys chipped in a measly $22,500 so the rest of us could eat untainted food?)

Furthermore, the 2009 infrastructure report card issued by the American Society of Civil Engineers gave the U.S. a D–clear evidence that we are “underperforming” in all areas. Aviation, bridges, dams … the list goes on. America spends only 2.4 percent of GDP on infrastructure, while Europe and China spend more than twice as much. Want safe roads? Sorry, too expensive.

What about education? Secretary of Education Arne Duncan warns that as many as 300,000 more teachers could lose their jobs. Worried about overcrowded classrooms or underperforming schools? Sorry, our hands are tied. We can’t afford it.

Libraries are at risk, too. The American Library Association reports that “nearly 15 percent of libraries nationwide, and 24 percent of urban libraries” had to reduce their operating hours due to budget cutbacks. Want to read a book? Tough. Need a computer to help with that job search? Forget it. There’s just no money.

It’s summer and dozens of parks are closed. Pools and lakes too. No jobs programs for teens. No meals on wheels for Granny. Why? To solve the non-existent budget crisis of course.

In fact decent societies don’t “cost too much.” The real problem is that our government, held hostage by right-wing extremists, won’t spend enough.

Photo from Flicker user andy under Creative Commons 2.0


  1. Danny de Gracia II says:

    Except that America’s money comes from foreign investors such as China, Tokyo, Great Britain and the Arabs to name a few … if they even suspect for one minute that they won’t be repaid, they’ll dump their dollar holdings and the United States will go into a hyperinflation crisis where no amount of liquidity can save the economy. All credit expansions result in a bust, that’s basic economics. You can’t run an unlimited credit expansion – no nation has ever done that and survived.

  2. This is perhaps the most absurd article I have read in a while. There are so many economic fallacies in this article, I don’t even know where to begin. Let’s start with deficit spending. Government deficits siphon savings from the private sector and thus divert real resources from potential investment and waste them on unproductive lines. This means that the structure of physical capital goods that the next generation inherits will be less developed than if the government had refrained from deficit spending; our descendants will be materially poorer, because their labor and other resources will be less productive.

    “Since the U.S. government is both sovereign in its own currency and the sole issuer of dollars, it can never run out of them.” Really? While it’s true that the Fed can just punch in a few numbers to create money out of nothing, this is the problem! This means inflation, pushing more money into the market; it doesn’t matter for what purpose. This means reducing the purchasing power of each monetary unit. Instead of collecting the money that the government wanted to spend, the government fabricated the money. As a result the government is stealing the money to pay for this debt by reducing the value of the dollar.

    By your theory the gov’t should just finance everything to stimulate the economy. Why not just just create jobs for people to dig holes and then fill them again? Why not build a major university in every town so that everyone can have a college education? Why not just increase minimum wage to $500 per hour since we want everyone to be wealthy? Why not pay for everyone to have their own car, since they might get to work faster and be more productive?

    • well said!

    • “The real problem is that our government, held hostage by right-wing extremists, won’t spend enough.”

      The *real* problem is that there are enough people in the US and elsewhere who operate on the above kind of idea so that governments continue and even increase the amounts they spend – all of which comes from taxpayers either directly or through inflation via increased currency printing.

      Daniel Brackins in his comment pointed out several of this article author’s numerous fallacious statements. One true statement, however, is: “But the analogy—the budget of the U.S. government is like the budgets of households and firms—is false.”

      The analogy is false because no individual in private or through his/her business has legal enforcers and mostly captive neighbors/customers upon whom those enforcers are willing and do actually initiate physical force in order to extract compliance with some desire.

      Governments’ legislators, executives (President included), judges and bureaucrats do not get out into the field – towns, cities, countryside, wherever the people are – and enforce their own orders. They depend on the enforcers to put those written/spoken words into physical force. These enforcers – domestic policing agents and military too – are not robots, they are human beings and susceptible to the social displeasure of those around them.

      Know an agent of one of the enormous number of policing/taxing/regulating/military agencies? If logical persuasion has no effect in motivating him/her to get truly productive work, then I urge no voluntary association – no sales, service or camaraderie – no anything! This is shunning, with a long history of use as a method of social persuasion, but has not been given its due in mainstream media for the power it holds when large numbers of people join together to use it. It is included by Gene Sharp in his 198 Methods of NonViolent Action – part of Ostracism of Persons under THE METHODS OF SOCIAL NONCOOPERATION – sources online.

      Also, written for North Americans but applicable most anywhere: http://selfsip.org/focus/protestsnotenough.html and a more technical explanation – http://selfsip.org/solutions/Social_Preferencing….

      • Kitty Antonik Wakfer is correct in that the analogy is false. The government has a monopoly of force which creates a distinction between public law and private law. By this I mean if I print money on paper the government calls this counterfeiting. However when the government does this they call it boosting the economy. If I were to steal someone’s property and give it someone else they call it robbery and fencing, but if the government does this sort of thing they call it public aid or works. They even give politicians medals for these sorts of things, but they throw the rest of us in jail.

        What saddens me about this article is that Susan F. Feiner is an economics professor teaching this misconstrued view of economics to her students. I can only wonder how she explains away the hyperinflation of Wiemer Germany in 1921-1923, China in 1949–50, Brazil in 1989–90, Argentina in the late 1980s and early 1990s, Russia in 1992, Yugoslavia in 1994, and, most recently, Zimbabwe in 2006–09. Afterall these countries all could expand the money supply to infinity as Feiner is proposing.

    • Luke Johnson says:

      Agreed. Sounds like junk economics to me. I can understand wanting to ensure the equality of women, I find nothing objectionable about her Feminist POV. It is sad that some one would be misled into beliving that the best course of action is for the Federal Reserve to flood the already turgid market. This only hurts, even further, the less well off (statistically, women), by making each dollar worth that much less.

    • d mockercy says:

      “The mantra that “the budget must be balanced” is a throwback to the 19th century, originating from the same outmoded economic thinking that justifies women’s lower wages.”

      Really? Is there something wrong with not spending money you dont have? I don’t want my tax money spent on wastful government run anything, except what the constitution requires them to do. Anything the government can do, with the exception of the military, the private sector can do more efficiently, do a better job of, and cost alot less money, thereby freeing up capitol for the job makers to make better use of.

  3. “Since the U.S. government is both sovereign in its own currency and the sole issuer of dollars, it can never run out of them.”

    Yeah, Americans probably need to take an example from Zimbabwe.

    • Operations says:

      Apparently, she never heard of INFLATION with her fancy, liberal arts school econ education. Or she failed miserably. Hard to say. I’m leaning towards the latter.

  4. The family analogy works more like this….. Great Gramps & Gramma put their debt and Gramps & Gramma. Gramps & Gramma put both their own debt and their parent’s debt onto Ma & Pa. Guess what Ma & Pa are doing? We get the $117 trillion pile. Yay!

  5. Jake_nonphixion says:

    “Since the U.S. government is both sovereign in its own currency and the sole issuer of dollars, it can never run out of them. How could it?”

    Very true. The Federal Reserve can create and distribute as much money as it pleases. And it has been doing an awful lot of that in recent years.

    The pertinent point is where this money goes. It does not flow evenly and instantaneously throughout the economy. This system of printing money to solve our problems might actually work if it did! But sadly we live in the real world, and the people who get the money first are the bankers. The bankers don’t use this money to give out loans, because the economy is a bad investment right now. So the bankers buy stocks and commodities and bonds. They push up the prices of all of these things and make enormous profits doing so.

    Yes there is little risk of inflation as measured by the core CPI, but that’s because this measurement tool is overly weighted in rents, technology and wages. All of which are in deflationary deleveraging cycles. However nobody can argue that raw material prices have been soaring. Most are up over 100% in the last year alone! This means that while peoples incomes and primary mode of savings (their houses) have no risk of becoming inflationary (which would be a good thing), all the things we have to buy will certainly be getting more expensive.

    And the financial industry profits throughout it all.

    So if you are part of the wall street elite, you should be cheering the brilliant Keynesian tactics espoused by this article’s author. If she has her way, you’ll be getting even richer.

    But if you’re not one of the aristocrats or the bureaucrats, you might want to look up Austrian Economics.

  6. sumitra says:

    This is a fine article which demystifies a subject that has become a political football, being recklessly kicked all over the place. If the budget ceiling was not made into a tool to win political points by the extreme wing of today’s republican party, Danny de Gracia II’s worries about owing the debt to the Chinese and others would not be necessary. It is when the rating agencies start reacting to the threat of default that foreign investors will want to pull out. They still consider American treasury instruments the gold standard of investment and that’s why Susan Feiner’s emphasis on reducing unemployment is on the mark. Creating incomes to spend which will create demand for goods and services produced is the most effective way to get out of the recession. If the economy is stable and growing, foreigners will be satisfied.

    Daniel Brackins advances the failed arguments of conservative economists wholesale. If you look at the current situation, corporations are not investing because the demand for their products is lacking. They are known to be cash-rich, but do not know when the demand will grow. This is not the uncertainty of regulation, but the uncertainty of economic forces – an important fact learnt in intro economics. Yes, we should not hire people to dig and then fill ditches; but if you owned a supermarket where they buy groceries, you would be happy that they have money to spend. This is a simple multiplier effect – another basic principle of macroeconomics. We can do better by investing in the falling infrastructure and developing new energy resources.

    Private businesses benefit when the economy prospers and it needs just such help from the government when the recession is so long-lasting. Not to mention the workers who are jobless through no fault of theirs. The tremendously long lines of applicants for jobs advertised by Ford Motor Co. in Kentucky yesterday were heart-breaking. Some of the folks drove for hours and said they were likely to be homeless if jobs didn’t materialize.

    Most of all, I like the distinction the article makes between the family economics and the national economy. I wish President Obama would stop conflating the two, as he did it in the news conference today. This misleads people and becomes fodder for wrong thinking. The government has a responsibility, through the means available to it, to get as near full employment as possible.

    • Sumitra has brought of some interesting myths surrounding the multiplier effect. Sumitra even mentions this is a basic principle of macroeconomics. Yes if you are studying Keynesian economics. There other schools of economic thought out there not just Keynes.

      The implication of the multiplier effect is that the government can spend money it doesn’t have and grow the economy infinitely. The Rothbardian position is that factor prices in a deflation are not pushed above the market clearing rate since price changes are everywhere and always instantaneous. Thus the government can never stimulate the economy by means of simple inflation.

      In the Keynesian multiplier story the initial consumer expenditure creates new income for the next person, who in turn creates income for another person and so on. However, to have income for consumption one must first produce something useful that can be exchanged in the market. Money only helps to facilitate trade among producers, it doesn’t generate any real stuff. In short, money is just a claim on real saved goods. Money is merely the commonly used medium of exchange and it plays only an intermediary role. What the seller wants ultimately to receive in exchange for the commodities sold is other commodities.

      When an individual raises his spending by $100 all it means is that he has lowered his demand for money by $100. We can also say that the individual has exercised his claim over real saved goods for $100. The seller of goods has now acquired $100 claims on real savings. We can also say that seller’s demand for money has increased by $100. All this, however, doesn’t give rise to an overall increase in output, as suggested by popular thinking. The increase in monetary spending does not give rise to any increase in income in the economy. Likewise if the seller will now spend 90% of $100 all that we will have here is a situation wherein his demand for money has fallen by $90, i.e., he has exercised his claim on the existing pool of real goods to the extent of $90. (Somebody else’s demand for money has now risen by $90).

      Likewise loose monetary policy cannot give rise to the expansion of real output. All that it will generate is a reshuffling of the existent pool of real savings. It will enrich the early receivers of the new money at the expense of last receivers or no receivers at all. Obviously then, a loose monetary policy which is aimed at boosting consumers’ demand cannot boost real output by a multiple of the initial increase in consumer demand. Not only will loose money policy not lift production, but on the contrary it will impoverish wealth generators in exactly the same way as the enforcer in our previous example.

    • “The government has a responsibility, through the means available to it, to get as near full employment as possible.”

      Really? On what do you base this assertion? What empowers and/or requires the federal government to do this in any way?

      • You have heard of the Full Employment Act of 1946, and its more recent version: Full Employment and Balanced Growth Act of 1978 (Humphrey-Hawkins Act)Federal legislation that, among other things, specifies the primary objectives of U.S. economic policy – maximum employment, stable prices, and moderate long-term interest rates.

        To answer generally to some of the arguments made by others, it is irresponsible to accuse Obama’s policies to be pushing America on Zimbabwe’s path. Look at the interest rates and rate of inflation to debunk that fear. Read also what the economists of all stripes are predicting about their possible trajectory in the near term, which is when the unemployment problem needs to be solved. If you are a confirmed laissez-faire advocate, or a libertarian, all bets are off and discussion closed, since you believe only in the market to solve ALL problems. If only…

        It is true that we have a fractional reserve system, but the creator of money in the final analysis is the Fed. It will let the money supply change through the banking system by changing the federal funds rate, the interest it charges banks to borrow from its “window”. By engaging in buying and selling its instruments, the Fed tries to achieve the target Fed funds rate, in the process increasing or decreasing money supply, based on its goals to attain both stability and growth. It is done deliberately and with approval of all its governors. (Nobody claims that the Fed always does the right thing.) It is because of the fractional reserve system that the Fed can control the money supply, which it was entrusted to do.

        The idea that you cannot increase output, but only prices by increased (deficit) spending ignores the very important fact that in a recession there are unused resources lying idle, such as excess capacity and unemployed workers. The main reason businesses will start producing goods is if they notice an uptick in the demand for their products. As they reach near full capacity, only then will they think of expanding/investing. A growing economy is also the cause of optimism which will encourage businesses to invest even earlier. This is not junk economics; it is good theory and observed facts. Does that mean we shouldn’t worry about inflation? No, it does not. Economists and policy-makers want to avoid the stagflation of 1970’s at any cost. They are concerned about the potential of inflation and say so in their writings. But they also prioritize their goals in order of significance and impact

        As an aside, I heard on the radio a small business owner from upstate New York who makes cardboard boxes for other businesses describing his plight and the necessity of laying off workers. He will not increase production until he is sure he can sell more. He wasn’t talking about the debt ceiling, fear of more government regulation or any economic theory, Keynesian of Austrian.

    • Danny de Gracia II says:

      I really don’t see why this is such a complicated subject. As supply of money increases, demand for money decreases. In other words, lets say that every single person in the United States while sleeping was visited by Santa Claus who opened up their wallets and stuffed a cashier’s check for $4 million U.S. dollars inside. Is everyone in the United States richer because they now each have $4 million dollars? The answer is no, because once they go out to spend that money in said supermarkets or corporations whose demand was lacking the only thing that happens is demand curves rise but production does not. The purchasing power of money diminishes. That’s exactly what’s happening now. The reason why the cost of living is increasing is because we have too many dollars chasing after the same or less goods.

      Funding public works projects and sponsoring research doesn’t work either because central planning of an economy only produces what the planner wants, not what the market wants. You get unemployment when there is reduced demand for labor. You get a recession when there is a longer time preference to consumption. Anyone who says “the government should do this, the government should do that” is really saying the government should force consumers to do things that they would not under their own free will do.

      The proper injunction is to leave the economy alone, cut spending, cut taxes and allow the market to liquidate what needs to be liquidated.

    • charles M. Hill says:

      The problem is that you are not going to be reducing unemployment by raising taxes and allowing spending by the congress to continue to destroy any hope of reducing our nations deficit or maintain any balance in our Federal budget. Raising taxes further drains what assets the public has to deal with their present obligations. If their present obligations continue to remain the same or get worse and incomes do not increase, there is no hope. When no increase in the available assets to be spent occurs no expansion of supply will not appear because demand is non-existant. All this is easy to understand. Where this idea that the government can lend and borrow without end, while not affecting the peril of the economy comes from is beyond me. That simply is not true.

      Corporations in many cases are cash rich. Looking at the present state of our economy, you can hardly blame them for not wanting to invest in it right now. They are intelligent enough to not waste money on a loosing situation. You too easily dismiss the idea that the uncertainty of regulation plays a big part in this. There are regulations that regulate regulations to no end causing great demands on businesses and corporation that is not really necessary. I could make a never ending list such as mal-practice insurance, interference of use of owned property, double taxing income, requirements to provide benefits, the list goes on and on. Much regulation is redundent and uneccessary. Make work jobs created by any government solves nothing. It builds nothing. Temporary income goes away and doubles the effect when you no longer have it. That’s why only private sector job creating is the only thing that will bring an economy out of recession.

      Assistance from govenment entities is most useful when that assistance is to make it possible for private sector entities to expand and create jobs. The government can only create temporary jobs. They won’t be jobs that induce the dynamics of the economy to produce a growth in the economy.

      I object to the distinction between family economics and the national economy. There are technical diffrences that exist but bare bone principles are still true and are fully applicable.

      You people that think that conservative views of the economy are not the majority of the country are saddly mistaken. why do you think when you view the red-blue map at election time the greater portion of that map is red. Yes thaere are some sparsely poplulated areas across the ocuntry, but when you add it all up the conservative view is still and will continue to be the majority in this country. Yes liberals do maintain a majority in the media; thus, the gridlock in our nation to get anything done.

      Our government does have a responsibility to attempt to achieve full-employment in this country if possible. They won’t do it with President Obama’s plicies.

  7. Ah. Wow.

    Respectfully, most of the article is not a good idea. The majority of money created is not done by the Federal Reserve (which is semi independent from the US government), it is done by your neighborhood banks. Every time a loan is created, only a fraction of it is from “real money” and the rest is created. This is known as fractional-reserve banking, and it’s not a bad thing.

    Better to leave the majority of money creation in the hands of thousands of banks instead of one hand at the Board of Governors. The Fed controls the amount of money creation by various monetary controls. There is no silver bullet or magic solution. More money you create, the less it is worth. The government does on occasion do some magic wand “printing the money”.

    If someone is on fixed income, such as a single mother with fixed child support or someone on a pension, inflation is corrosive. Even those not on a fixed income are impacted when inevitably wages do not track along with inflation. Gas was $1.40 per gallon in 1999. It is now roughly $4.00. Most folks’ wages have not tripled in the last decade and change.

    There is no magic solution. Any option regarding the deficit spending and debt issue overall comes with heavy price. I suspect deficit spending will continue until it is unsustainable.

    • The fractional reserve multiplier does not exist. Take a look at the first graph in this article: http://bilbo.economicoutlook.net/blog/?p=14772

      If banks’ power to lend was restricted by reserve requirements, the huge increase in reserves around 2009 would have caused an enormous increase in the money supply. That graph shows an absolutely huge spike in bank reserves, but lending has not responded proportionally.

    • Gas has not gone up due to inflation, it has gone up due to an increase in demand and decrease in supply.

  8. This is the same argument that my children would use when they were small. If they wanted something we couldn’t afford, and I said I had no money, they would say ” Just go to the machine. It gives you money.” The author seems to think it is not “printing money” because there is no actual printing press involved. This explains a lot about the state we are in. Just a few ” clicks” away from Zimbabwe.

  9. Wow. This author must be too young to remember inflation, or worse, stagflation with double-digit interest rates. Been there, done that. Definitely don’t want to do it again. You can use monetary and fiscal stimulus to prevent a dangerous, rapid contraction of the Money Supply to avoid a systemic collapse (Great Depression), which is what Bernanke is doing. But as soon as inflation arrives the jig is up – ready or not, the spending must stop. We’re on borrowed time (and spending). That’s why it was such a mistake to use the Stimulus funds for public sector unions rather than investments to grow the private sector. That’s why Obamacare is such a mistake, given that we need every dime to pay back the loan from all the money we are spending to recover from this hangover.

  10. 5ftflirt says:

    It’s a relief to see so many of the commenters debunking the misconceptions in this article. Even at ultra-liberal Ms Magazine, some people understand that Obama is trying to turn America into Zimbabwe.

  11. Gas is a disingenuous metric to track inflation. Supply is limited and the market has been reacting to scarcity. The price of a loaf of bread (which includes increases due to gas prices) hasn’t gone up as much.

    • Gold and silver are pretty good indicators of inflation. Don’t hold your breath for them to decline anytime soon.

      • Lawrence says:

        Gold is the only real money in use today. All countries in the world now have fiat (fake paper, unbacked by anything of value, rather something like the “full faith and credit of the U.S. government” – I have no faith in them, and they have no credit with me).

        Gold has gone from $41 an ounce in 1971 (when we left what little remained of the “gold standard”). It is now $1585 an ounce. The U.S. dollar, due to the kind of thinking rampant in the above article, has lost 97% of its purchasing power over 40 years. Gold was at $1000 an ounce when Obama was elected. He and his policies are responsible for 30% of that 97%, and in just two years. It is about to get MUCH worse, rapidly. If you like deficit spending and inflation of the money supply by the government, you are going to LOVE the total collapse of the dollar.

    • mike bowler says:

      The rise in fuel prices is largely due to the perception, which controls the value of fiat currency, that the US dollar is worth less. That is the countries selling oil see the US dollar as worth less of their goods and the amount of dollars available to purchase their goods are increased.

      Basic inflation, more dollars chasing the same oil.

    • The price of a loaf of white bread in my neighborhood is north of three dollars. That’s ‘gone up much’.

      All we need to know about the wisdom (or lack thereof ) in this article is how all this government spending is working in the real world. Look around. How’s it doing?

  12. Ivo Vos says:

    Money for nothing and the chicks are freed

  13. Such elegant simplicity! Why then, does the government bother with taxes, budgets, or borrowing in the first place?

    Just because the Federals don’t conform to any of their own accepted rules of accounting doesn’t mean they shouldn’t – nor that it would be bad if they did.

    The statement that ““We, the people” control the availability of dollars” is not quite accurate; it assumes We have direct input into the process – which we do not. We might have more, if we did not consistently let our dog loose without benefit of obedience training.

    As for safety of goods and services and the creation and maintenance of infrastructure; all incentives favor doing good works – especially when there is little chance of obscuring bad works with government interference. Have we eliminated such bad works with government regs? No – defects or contaminations still occur and are routinely found after-the-fact.

    Perhaps if the Feds were to actually be held accountable to the same rules they insist for others – and within the letter of our Constitution – we wouldn’t need any of this discussion/debate.

    One thing is sure: this puppy won’t hook itself back on the chain – We the People need to do it.

  14. Bill Mitchell, professor of economics at the University of Newcastle, has a lot to say on this topic. Here’s one article about hyperinflation and how it isn’t caused by deficit spending: http://bilbo.economicoutlook.net/blog/?p=3773

    The problem is that the private sector is a closed system. The money supply can be increased through loans, but only temporarily. It is not possible for the private sector to save overall unless the government is running a deficit.

    The only consequence of continuous budget deficits is the possibility for inflation. The current levels of unemployment and private indebtedness are much more damaging.

  15. sumitra says:

    I need to make a correction in my previous post. Fed funds rate is not what the Fed charges for borrowing from the discount window; that is called the discount rate. Fed funds rate is what banks have to pay each other when they borrow funds overnight from each other for reserve shortfalls. It is an important tool in the fed’s arsenal of monetary police.

  16. Anyone who believes this tripe should read up on recent events in Portugal, Ireland, Greece, and Spain. Or about Japan 10 years ago. Or about any South American economy, pretty much at any time.

    If the US issues too many bonds, nobody will want to buy them any more. When this happens, the nation ends. Everything ends. The lights go off, water gets turned off, there are no jobs, and there is no future for anyone.

    Feminist economics is great on paper. Too bad it does not work in the real world.

  17. So why have other countries gone bankrupt?? Did they not have sovereign control over their money??

    • Billy Bob Thorton says:


      They have sovereign control over their money, but not all the products they import to sustain their luxurious lifestyles.

      The US can print/issue all the money it wants too, but the day foreign countries say enough is enough, that money will have no value outside of the United States.

      What this PHD Feminist economist doesn’t realize is that the millions of tons of foodstuffs the United States exports to foreign countries will become vastly more expensive, and condemn millions of women in developing nations to unspeakable living conditions and lifestyle choices.

      This PHD economist also doesn’t seem to realize that her standard of living will go up in smoke the moment Oil is no longer sold in Dollars, as the expensive of that Oil in Dollars will increase so dramatically that the U.S economy would be devastated, leaving millions of American women jobless and left to fend for themselves in a violent, potentially ungoverned, lawless America.

      If the outcome of a dollar collapse frightens me, a grown man, just imagine what it would do to the women of the United States and the world. There is nothing feminist about issuing more money, even remotely.

      • @ Billy Bob Thornton

        Yes, I am currently reading a book about hyper inflation in the Weimar republic which the author of this article should also do!! If lenders don’t have confidence in the ‘value’ of the dollar (it’s purchasing power, not its nominal value), the debt becomes unsustainable with either no lenders or with lenders demanding higher and higher interest rates. I can’t help thinking that the dollar is currently being helped by the HUGE uncertainty around the Euro at the moment – so pricing of global commodities doesn’t have another stable currency to go to at the moment.

        I’m a woman and I don’t see how this becomes a gender issue at all – just ignored that component of the article completely!

    • susan feiner says:

      No, these nations ARE NOT sovereign in their own currencies. Greece borrows in Euros, ditto for the other nations in your list. Some nations that are sovereign in their own currencies … Mexico for example … do not issue a currency that is widely held as a reserve currency. The US dollar is held as a reserve currency, and that is one of the reasons why we, the US, the nation that creates dollars, can’t run out of it.

      • US dollar is a reserve currency precisely because people believe it will hold its value. The minute that belief is lost, $ will sink – and creating more and more dollars will damage that confidence.

        • The US dollar will only lose its value if we are stuck in the recession much longer, our roads and other infrastructure deteriorates, new additions to our labor force are not skilled enough to supply companies with the workers to expand new tech driven activities. Not to mention the secondary consequences of prolonged underemployment for the deterioration of the social fabric. These displays of weakness would certainly erode confidence in the dollar.

  18. faithkills says:

    It may be helpful to consider the extreme cases.

    Either the government has infinite ability to create money or it doesn’t.

    Let’s assume the government finds several tons of actual gold and mines it and introduces it as currency to provide ‘stimulus’ in a downturn. It’s true that some people would be employed via this. But this is not _sustainable_ employment as it only exists because of the intervention. In this case the ability to ‘stimulate’ is real resources but finite, end eventually must end. At that point many actors will have mistakenly made decisions based on that ‘stimulus’ and at that point almost all of that industry must end. Shifting resources has a cost, and that cost will now be paid. Unemployment will grow again, until capital resources are put into _sustainable_ enterprise, which is that which can exist without government intervention. That is the wealth creating sector in all cases. Also note the not insignificant effect of this scenario is devaluing the savings of people with gold as savings for retirement or investment. This becomes more important in the second scenario. But the point is even if the government didn’t have to borrow, and had real wealth to spend, ‘stimulus’ can only delay, AT BEST, markets clearing and this would be if the stimulus was spent on things which were actually sustainable enterprise, which CANNOT actually happen, because prices drive costs. IOW the mere FACT of stimulus causes inefficiencies and so even if the government could predict the ‘next google’ the fact of the subsidy would over time cause it to be unsustainable because prices drive costs, always. For empirical studies showing this see Mountford/Uhlig, or Barro/Redlick. Stimulus always has a negative multiplier given enough time. The only difference between stimuli is how quickly you can observe the net economic loss.

    Second scenario. The government doesn’t have real resources but borrow and inflates. All of the previous applies except that now you are raiding the savings of everyone who owns currency. It’s true the government can print (or type up) all it wants. But this devalues the savings and pensions of anyone on a fixed income. This is horrific from a moral standpoint, even if stimulus COULD work, but it can’t. So we’re just impoverishing the poor, retired, old and needy who are affected most by inflation. The RICH can move their wealth into assets (which of course creates bubbles, but that’s another topic) so they are in fact the least affected. The poor get socked by increasing prices. Worse this discouraging anyone ELSE from saving for the future, which in turn poses a greater burden on social support systems as people are foolish to save for themselves since the savings are being raided by inflation.

    If we are to take the OP’s word that women as a group are wrongly underpaid and impoverished, then deficit spending is the absolute worst thing in the long term. The only one to benefit from stimulus or deficit spending are the people in the position of gaming the system short term. IE GE might get a lot of contracts, but they are smart enough to know the plunder cannot go on forever so they don’t hire anyone to do the work PERMANENTLY. Other unconnnected enterprise similarly knows the debt will be paid by taxes, inflation, or default, but they cannot predict which and how much burden they will bear. So they cannot possibly predict if expansion and hiring is a good idea, so they do not.

    Taxation isn’t really the problem per se. It’s the anticipation of increased burden caused by SPENDING that inhibits job growth.

    If spending was curbed and taxation was in fact increased, and the debt was on a _believable_ trajectory to be paid off entire, business might feel confident enough to hire, and capital might stop fleeing. Taxes are just the symptom. It’s spending that causes unemployment, and we saw this exact thing in the great depression. In fact correlation of employment shows this over any time period for, in fact, any nation. Google it.

  19. George Taylor says:

    Susan F. Feiner is a professor of economics and of women and gender studies at the University of Southern Maine. Let’s dissect Ms Feiner a bit. She is a Professor at a adjunct of the University of Maine system. State supported University’s are under increasing economic pressure as state’s are cutting there subsidies as most states are forced to balance there budgets as that concept is built into there constitutions. Most state schools have responded to cuts in state funding by raising tuition and relying that more and more students will pay by taking out as much student loans possible. So far most schools have not cut programs of study no matter how worthless they may seem. Why should they, student loans are guaranteed by the Federal Government. However Many predict the next bubble that the taxpayer will be on the hook for are student loans. There have been an increasing state of articles expressing statistics that at least some college degree programs are not worth it. The debt to employment potential and salary ratio is looking increasingly dim. Coming out of college with with a degree in Women’s studies prepares you for absolutely nothing in the private sector. All this degree will do is maybe get you into a government job, or a non profit organization that only exists due to there political relation with the government. As it becomes apparent that student loans are not being paid back and the battleground of forms of those who have government supported jobs and those whose taxes pay for those non essential Apparatchiks and related non profits will be under increasing pressure. Why did I get laid off yet these non producers still have a job at my expense? So Ms. Feiner is essentially doing the obvious, deficit spending protects her job, her lifestyle etc., it’s not so much about women but protecting her position in educational government industrial complex.

  20. Susan Feiner’s provocative post has sure created lots of responses that repeat myths about deficits.

    First off, when an economy is in recession and businesses are operating below capacity (i.e. have excess capacity), such as the case of the US economy now, there is no danger of inflation triggered by deficit spending. The examples of hyperinflation brought up by several people are completely irrelevant to the current U.S. situation. Further, the rise in food, oil, and raw material prices have nothing to do with the fact that U.S. has large budget deficits. China’s rapid growth is having an impact on the world prices of these items. Even if we were in the state of budget surpluses of the Clinton years, we would still experience those price increases, and no budget cutting deal would eliminate them.

    Then there is the “crowding out” response—-that government debt will raise the interest rate for private borrowing. Again, with the interest rate at their historic lows, despite the deficit, clearly this is not a concern. In fact, it is highly likely that more deficit spending at this point will “crowd in” private investment: business will see the profit opportunities generated by the government spending boost the economy. Why don’t businesses invest at the time of lowest interest rates? The demand is not there.

    It is true that wavering confidence in the U.S. dollar and the U.S. economy may lead our debtors to be reluctant to hold our debt. But the best medicine for that is to get the economy out of this slump by deficit spending. The crucial issue is deficit spending on what? If it is putting people back to work (including and especially keeping up state and local government employment) then this will have beneficial effects on businesses, which will see growth in demand for their products and services. In addition, spending on education, healthcare, and infrastructure has well-documented benefits on long-term growth—-say 10, 15 years down the line–as well as having immediate benefits on quality of life. (These are “productive” spending and they DO lead to expansion of output Brackins.) A well-educated, healthy workforce and state of the art infrastructure helps maintain and strengthen U.S. competitiveness as well as having intrinsic benefits for individuals—women and men.

  21. Stephanie Seguino says:

    Both Susan Feiner and Sumitra’s comments on the role of government spending and deficits are consistent with a large body of empirical evidence.

    Public sector spending can “crowd in” private sector spending (make businesses more profitable, in other words) by providing public goods such as education, roads, communications, immunization programs, etc. Public sector spending also can raise economy-wide productivity through investments in people’s skills and health. More productive workers are good for economic growth in the long run (good health, for example, lowers absenteeism, and worker productivity tends to rise — not only good for people but also for businesses). With that economic growth comes tax revenues to pay down the debt. One study several years ago (Aschauer 1989) estimated that for every $1 of public investment in infrastructure in the US, GDP increased $2, for example. We are finding now that public investments in children (and in gender equality) also improve an economy’s economic health and growth prospects (see, for example, Klasen and Lamanna 2009).

    These are all well-established empirical facts.

    Today, a group of Nobel laureates and other distinguished economists called on Congress not to enact a balanced budget amendment, since this ties the hand of government to respond to economic shocks. They underscore that deficit spending is not so much a cause of the problems we face but rather the solution to getting out of a crisis. Why is this? When there is too little spending, businesses lay off workers, who spend less, and the vicious cycle continues. We then stay stuck with high levels of unemployment, as there is nothing inherent in the system that will jumpstart the economy. Cutting the deficit in the middle of the crisis can actually make the deficit worse. Why? Cuts in spending, for example, school budgets and local infrastructure projects, lead to layoffs, and therefore fewer tax revenues. In contrast, what is needed during an economic crisis such as this one is deficit spending. One might ask why the first stimulus package didn’t work, then. The answer is it did create jobs, but not enough to get us out of the crisis. I encourage readers to examine some analyses of the effects of the stimulus package for more details.

    These are complex issues, of course, but a basic course in introductory macroeconomics covers these topics adequately. Even if you don’t go out and take such as course, it is useful to know that the points I make are part and parcel of the theoretical framework of a wide and deep spectrum of economists of many persuasions.

    This is not to say we should be unconcerned with deficits. I sometimes tell my students that a debt incurred by borrowing to go on a gambling spree in Las Vegas is not very smart. But well invested (like in an education), a debt can in fact raise your earning power over the long run. We can apply this analogy to government deficits.

    We therefore have an obligation to make sure our government is spending our funds in a way that promotes productivity growth and the longer run health of the economy.

    It is worth noting that the current deficits are in large part due to Bush tax cuts and the two wars we are fighting, and the remainder is due to social spending to cushion families during the crisis due to the prolonged unemployment.

    We can ask whether this is money well spent. The empirical evidence tells us that protecting families, especially children, during periods of economic distress is vital. Lack of good nutrition and other fundamental supports can have a negative impact on a child’s cognitive ability into adulthood. Less productive citizens are also harmful for the economy’s health – hence the link between social spending and deficits.

    The evidence also shows that women have a stronger preference than men for government social spending. This may be due to two factors: they tend to have greater responsibility for children’s well-being, and they themselves are more economically vulnerable due to lower wages with fewer benefits, more involuntary part-time work, and a host of other factors.

    Anti-government types responding to this article might protest, but as I noted, the points I make derive from a large body of economics research.

    I hope that we can move beyond ideological debates where government spending or corporations for that matter, are inherently good or bad. Each has a role to play and we need to carefully analyze what the costs and benefits are of their actions and how to ensure that their actions promote broadly shared well=being. Thanks to Susan Feiner for raising this important issue.

  22. Research by Dean Baker and others are the Center for Economic and Policy Research (www.cepr.net) strongly supports Feiner’s conclusions. Working people are being asked to subsidize the financial shenanigans of the extremely wealthy – while their own living standards are being reduced and their retirements made less secure. It’s amazing how the free-marketers (supposedly free-marketers; actually “subsidize the banks and corporations” supporters) have dominated the debate. Spending cuts are the last thing we need in the middle of a disastrous recession. (BTW, the evidence that government spending was interfering with private investment would be rising interest rates. Anybody looked at interest rates lately? They’re at historic lows.)

    Anyway, here’s Baker’s piece. Happy reading!

    And thanks to CEPR for letting me reproduce it.




    President Obama’s Big Deal: Cuts for Social Security but No Taxes for Wall


    By Dean Baker

    The ability of Washington to turn everything on its head has no limits. We are

    in the midst of the worst economic downturn since the Great Depression. Even

    though the recession officially ended two years ago, there are still more than

    25 million people who are unemployed, can only find part-time work, or who have

    given up looking for work altogether. This is an outrage and a tragedy. These

    people’s lives are being ruined due to the mismanagement of the economy.

    And, we know the cause of this mismanagement. The folks who get paid to manage

    and regulate the economy were unable to see an $8 trillion housing bubble. They

    weren’t bothered by the doubling of house prices in many areas, nor the dodgy

    mortgages that were sold to finance these purchases. Somehow people like former

    Federal Reserve Board chairman Alan Greenspan and his sidekick and successor Ben

    Bernanke thought everything was fine as the Wall Street financers made billions

    selling junk mortgage and derivative instruments around the world.

    When the bubble burst, one of the consequences was an increased budget deficit.

    This is kind of like two plus two equals four. The collapsing bubble tanked the

    economy. Tax revenue plummets and we spend more on programs like unemployment

    insurance and foods stamps. We did also have some tax cuts and stimulus spending

    to boost the economy. The result is a larger budget deficit.

    All of this is about as clear as it can possible be. The large deficit came

    about because the housing bubble, which was fueled by Wall Street excesses,

    crashed the economy. Yet, we are constantly being told by politicians from

    President Obama to Tea Party Republicans that we have a problem of

    out-of-control spending.

    The claim of out-of-control spending is simply not true. It is an invention, a

    fabrication, a falsehood with no basis in reality that politicians are pushing

    to advance their agenda. And that agenda is not pretty.

    According to numerous reports in the media, President Obama wants a “big deal,”

    on the budget that will involve cuts to Medicaid, Medicare and Social Security.

    The last is especially ironic, since Social Security is financed by its own

    designated tax. Therefore it does not contribute to the deficit. If there is no

    money in the Social Security trust fund, then benefits will not be paid.

    The plans to cut to Social Security also seem perverse since we know that the

    vast majority of retirees are not living especially well right now and the

    benefits already are not especially generous. If we exclude their Social

    Security income, more than 80 percent of people over the age of 65 get by on

    less than $20,000 per year.

    The average Social Security check is about $1,100 a month. This would be less

    than an hour’s pay for many of the Wall Street honchos whose greed and

    incompetence brought down the economy.

    Yet, when President Obama preaches equality of sacrifice, it is the elderly and

    the poor who are supposed to do most of the sacrificing. His plan to change the

    annual cost-of-living adjustment formula for Social Security would reduce

    benefits for someone in their 70s by 3 percent, in their 80s by 6 percent, and

    in their 90s by 9 percent.

    These are huge cuts. The Republicans are screaming bloody murder because

    President Obama wants to raise the top tax rate by 4.6 percentage points.

    Imagine that he proposed raising taxes on the wealthy by twice as much. That is

    effectively what he is proposing for people in their 90s who are entirely

    dependent on Social Security.

    And he is proposing to impose this tax on seniors who had nothing to do with the

    crisis, while leaving Wall Street untouched. A modest tax [http://www.cepr.net/index.php/publications/reports/the-deficit-reducing-potential-of-a-financial-speculation-tax]

    on financial speculation could raise more than $150 billion a year or $1.5

    trillion over the course of a decade.

    It is striking that a financial speculation tax (FST) [http://www.cepr.net/index.php/issues/fst/]

    has not been mentioned in the debt discussions. The European Union has been

    actively debating the imposition of an FST ever since the crisis. The European

    Parliament voted for such a tax by a margin of more than 3 to 1. The United

    Kingdom has had an FST for decades. It raises the equivalent, relative to the

    size of its economy, of almost $40 billion a year just by taxing stock trades.

    Even the IMF has come out in support of increased taxes on the financial sector.

    Presumably the continuing power of the financial industry explains why few in

    Washington are discussing an FST. After all, a director of Morgan Stanley


    Erskine Bowles, was the head of President Obama’s deficit commission.

    And this explains why we are looking to gut Social Security and Medicare in

    response to Wall Street’s wreckage of the economy. The basic story is that the

    average worker and retiree will have to sacrifice because of the damage that the

    Wall Street crew did to the economy. That is what democracy in America looks

    like now.

    –This article was originally published on July 18, 2011 by Truthout


    • Kim, 45% of American households don’t pay ANYTHING when it comes to income taxes. 10% of all taxpayers are paying after the freight. The top 1% are paying 38% of all of it. 86% is paid by the top 25%. The top 50% pay 97%

      You want to tax MORE???? Historically the REVENUE is an average of 18.5% of GDP, no matter how much you tax. We’ve long past the point where raising taxes brings in more revenue.

      Taxes are a percentage. 10% can be more than 100%. 100% of a low revenue vs. 10% of a much higher revenue after you lower the percentage of the take.

  23. Al Baran says:

    I admire the man who once said:

    “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here.’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.”

  24. As a nation, we should address what kind of government we would like to have and which tasks government should undertake. The answer can go from extreme right of advocating a free market economy with a very limited or no role for federal government to the extreme left of assuming government in charge of directing the economy. The middle ground that many economists would agree on is the fact that there are needed services in a capitalistic economy that private sector is not willing or able to provide.

    Even if we agree that private sectors should be considered as the main sources of job creations, historically both in the U.S. and other countries governments have played important roles in improving economic environment to stimulate private sectors’ activities. Right now, the world economy including the U.S. economy is going through structural adjustments with ever increasing globalization. Short sighted solutions that favor short run political gain will jeopardize the long run gains that come from helping the American economy to prosper globally. High unemployment among young educated are alarming in all countries across the world. Just recently in Middle East young educated unemployed took their disputes with their government to the street. We also saw demonstrations and protest in many European countries against their governments’ spending cuts at the time that unemployment rates among their younger generation are two digits. The unemployment rate in the U.S. among educated white men is very low, currently at 4.5 percent. However, the rate is at two digits for minorities. At the current economic environment in the U.S., when the economy is dealing with high unemployment and a fragile recovery from past recession, cutting spending or increasing taxes could be detrimental to the economy.

    The question is how urgent is to deal with government deficit now. Government unlike households does not have finite life span so it does not need to balance its budget over any specific time period. Since the wealth of a nation (mainly we the people) guarantees the future repayment of the debt, the government can keep borrowing indefinitely if the economy keeps growing and the government is able to service its debts. However, since we pay back our debt with added interest rate, the smart economics tells us that we better to use the funds on those activities that help the economy to grow at a point that the growth rate exceeds the interest rate paid on those debts.

    If the borrowing is domestically financed, mainly in future, we pay interest rate to those who saved today and purchased government bonds. Government deficits and payment of national debts will lead to redistribution of income from tax payers to savers. Now, one may raise the concern that when government is spending using the borrowed money, it is taking away from the pool of funds that should be available to private investors. However, at the time of recession, private sector is not interested in borrowing and investing. As we can easily see today, the problem is not lack of liquidity in private sector, but uncertainty on future demand.

    Now, if the deficit is financed by foreign borrowing, then interest payment will lead to welfare reduction in national economy. The amount of welfare reduction depends on the types of spending that government is undertaking today. If government spending leads to a higher economic growth in future that exceeds the paid interest rate, it will lead to higher standard of living for future generation; no matter the borrowing is a domestic or foreign source. In today’s globalized economy, spending on education, infrastructure, Research and development not only creates jobs now, but also contributes to future growth.

  25. Rwanda would still be Rwanda if it their legislature copied all our bills regarding amenities, standards, regulations etc (same for Bangladesh and Guyana). They are simply much poorer than us. An economist should know that. Try looking at more comparable polities to see the effect of the policies whose importance you want to highlight.

  26. faithkills says:

    @ gb re: “First off, when an economy is in recession and businesses are operating below capacity (i.e. have excess capacity), such as the case of the US economy now, there is no danger of inflation triggered by deficit spending. The examples of hyperinflation brought up by several people are completely irrelevant to the current U.S. situation.”

    Businesses are operating at the optimal capacity that they think they can survive. Expansion based on government imposed artificial demand s merely misallocation of resources which will have to be liquidated somehow later. The idea that business wouldn’t expand if they thought they could increase total revenue without putting themselves at significantly greater risk is absurd on it’s face.

    All stimulus has accomplished is temporary boost but no new jobs, because business taking advantage of stimulus knows it must end. Taking advantage of stimulus money is not a sustainable business model. Of course anyone that can take advantage will, it’s economically wasted. No sustainable enterprise can result.

    Further business that cannot take advantage of stimulus, due to not being politically connected, knows that the bill will come, in the form of taxes or monetization, and can’t predict how much they will have to bear. They will not only not be likely to expand, but if they have sense, retrench. They have to in order to maximize their chances of survival. Businesses aren’t looking at growth right now, they are looking at survival as a result of stimulus.

    Lastly, inflation is not only coming it is here, and will get worse. It’s true that a lot of capital is hiding right now, but as inflationary expectations increase (which is what the Bernanke said he wanted after all) it will start to move as all of that printed money starts to play a deadly game of musical chairs. Spend now before it’s worth less. The ifrit is out of the bottle, it just hasn’t started to do it’s mischief yet. But there is no way to put it back in the bottle without causing massive and sudden re-equilibriation of all the enterprise that reacted to the increased money supply. EG depression. This would be too proximal not to be blamed on the Fed. Whereas HI is a slow progressive process and Disney economists will oblige by blaming inflation on everything but the only possible cause of any inflation ever, inflating the money supply.

    The answer to inflation is simple, stop inflating. That we are unlikely to do, for political reason. Wall street will not be the loser in this game of musical chairs or hot potato. They will not be the last to hold US currency. The rich will not. The poor, whose only store of wealth is currency, will suffer ever decreasing real wages and ever increasing real prices for staples. And they will be told by the MSM that is anyone and everyone’s fault, China, Wall Street, speculators, hoarders, gold bugs, Big Oil, the Tea Party, and one at all.. except the truth that the real culprits are government and the Fed.

    The people that promulgate the lies of disney economists like Krugman or the OP know this is all true.. but somehow hope the inevitable won’t come. I suggest you stop spending energy spreading misinformation to the credible and start to protect yourself as best you can. The time is closer than you think, we’re one event away from a global rush out of the dollar and of US debt. I just hope people understand the implications of that.

  27. sumitra says:

    faithkills says: “Businesses are operating at the optimal capacity that they think they can survive. Expansion based on government imposed artificial demand s merely misallocation of resources which will have to be liquidated somehow later. The idea that business wouldn’t expand if they thought they could increase total revenue without putting themselves at significantly greater risk is absurd on it’s face.”

    You are forgetting that many of the jobs that were eliminated were part of basic structure of the economy, such as teachers, and librarians and related areas. The latest Bureau of Labor Statistics (BLS) data shows that thousands of workers have been laid of in the following fields

    Elementary and secondary schools

    School and employee bus transportation

    Temporary help services

    Food service contractors

    Child day care services

    In these alone, 70,000 workers were laid off last year. And the list goes on. These unemployed workers cut down on their spending and other businesses involved in selling to them also have to start laying off their employees. If their incomes are restored, I don’t see why it would be a misallocation of resources; and why the businesses that sell to them would worry about future decline in demand.

    As for new publicly funded projects, they can take some time to wind down, in the process creating vibrant new businesses and occupations that will be a long-term adjustment in the economy. The U.S. economy is one of the most dynamic and has always been aided by major public investment in infrastructure improvements. If the great recession is not the time to do it, thereby solving that problem as well as the strengthening the physical facilities, its a lost opportunity. Private businesses will not undertake them, because the profitability is not guaranteed. But society benefits in ways that only the public sector can do them by adding those positive externalities to the calculus. It is a fine blend of private ingenuity driven by competition and public responsibility fueled by a broader vision.

    In all the critiques of Feiner’s article that are pouring forth, there is a fundamental misunderstanding of the type of unemployment we are discussing. It is known as cyclical, as distinguished from structural and frictional, and needs to be solved, so we can get on with the business of long-run growth of the economy.

  28. faithkills says:

    “You are forgetting that many of the jobs that were eliminated were part of basic structure of the economy, such as teachers, and librarians and related areas”

    Those aren’t part of the “basic structure” of the economy. Those are ancillary services which exist at the expense of of the basic structure of the economy. The private economy is the sustainable portion of the economy, ie can exist without government subsidy whether totally or in part. The idea that infrastructure somehow abets the economy is purely cargo cult mythology. Sure if you educate people beyond basic needs some business, somewhere will capitalize on that trained asset, but it’s not nearly as sure as if that employer wasn’t able to shift that cost onto the taxpayer. If the people who benefit from whatever capital expenditure had to pay for it there would not be the colossal mismatach and waste of resources that we have in educating PHD’s to work as coffee monkeys. That subsidy also drives up the cost for people who actually do use their degrees. Clearly capital aggregation creates the opportunity for extended production cycles which is what education represents for labor. No capital, no extended production chain, and all you get is highly educated coffee monkeys, which is exactly what we have. We’re destroying and chasing off capital, you can’t ‘educate yourself’ out of that, just as you can’t educate yourself into prosperity if you never had the capital in the first place. IE you can’t go and train a hunter gatherer in a remote tribe to be electrical engineer and expect him to be able to do anything useful for the tribe unless he leaves and finds aggregated capital. Conversely if they found some natural resources that attracted capital, education would happen whether the tribe socialized the cost of the education or not. Capital precedes education which is just to say savings precedes investment. Business needs people educated in whatever they need to make a profit, they will pay for that education, else lose TR to competitors.. unless they can convince a gullible public to pay.

    All of Keynes is a means to screw workers (he explicitly says this in General Theory) and the means is getting people to conflate cause and effect.

    Keynesianism, that public spending does anything but reduce capital, is pure cargo cult from start to finish.

    There can be moral reasons for public spending, but never economic. As we see now. As we saw in the great depression. As Japan saw. As anytime Keynesian policy is tried.

  29. Inflation caused through deficit spending is reversible. All the government has to do is to refuse payment. You will see a deflation never seen before in history. But there has never been a democratic government that has chosen to do that.

    I agree that deflation is a more immediate threat rather than inflation. There is going to be a massive deleveraging of the private debt which is currently 300% of the GDP. People are going to rush to safer options like treasuries. You are going to see a rally in the dollar. To see hyperinflation you need Zimbabwean levels of money printing. That’s 20 times greater than what the Fed is doing right now.

    For more information on why the price of oil is rising, google PEAK OIL. And anyone who believes there is no scarcity of oil should get his head examined. I don’t remember money printing causing the price of air to inflate. It is not even causing the price of consumer electronics to inflate. Why? Because thanks to semiconductor technology and miniaturization, computing power is an almost infinite resource. The same is not true for oil. These are scarce resources. There has been no miniaturization of oil rigs either. If anything we are building larger and larger rigs in more and more dangerous areas, only to find less and less oil. And oil is not like burgers. There is no market substitute. The price of oil will continue to rise unless there is a recession.

    As for gold and silver, people are going to be terribly disappointed with what these things can do for them. If there are no resources, no amount of gold or silver is going to put it there.

    @ Susan Feiner

    I personally have a new found respect for feminists. The financial crisis was cause by degenerate fraudulent criminal bankers. But the only western country that has put one of these bankers behind the bars is Iceland, a country run by a female prime minister.

    In the meantime, the male leaders are busy assaulting defenseless maids.

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