Yes, it's good that Planned Parenthood was defunded--I support Planned Parenthood. But the Democrats were routed on the economics. Right now, with U3 unemployment still near nine percent, and under- and unemployment essentially unbudged, we need more spending, not less (remember, government deficits mean an increase in private savings--in this case, unemployed people would get jobs and accumulate some savings or pay down debts). We also need these programs because they do useful stuff.
The House is controlled by batshitloonitarians, but the Senate Democrats and the Obama Administration, rather than calling for spending increases (which they couldn't do since they boxed themselves in by using Republican rhetoric) and thereby making the compromise the status quo, instead proposed a constant budget. Cuts were the only possible negotiated outcome (and at this point, it's probability not incompetence, it's intentional).
Digby nails it (italics mine):
Last December, the Democrats gave us DADT repeal in exchange for the Bush tax cut and now they're angling to give us Planned Parenthood in exchange for massive, immediate cuts in discretionary spending. At some point you have to wonder if everyone isn't getting exactly what they want out of this deal --- except, of course, those who are already clinging to the lowest rungs of society and working people....
I am not in favor of defunding Planned Parenthood or the EPA. I would expect any Democratic president and Senate to hold fast on those things. But allowing them to be held hostage for huge spending cuts in the middle of an epic recession isn't a win. My suspicions stem from the fact that I'm not at all sure that our entire governing class of both parties doesn't believe it is.
And I resent being bullied into being happy about this. It isn't a "compromise, it's a capitulation. Democrats aren't supposed to be the party of tax cuts for the rich and spending cuts for the poor and middle class, certainly not when there is almost 9% official unepmpolyment. I honestly don't think there's any reason we had to come to this --- the Republicans don't have a God-given right to set the agenda.
As I often write, people have to like this crap. And they're not going to like this at all--it will make unemployment no better. Because it will be a 'bipartisan' deal, Democrats will own this.
Is it possible to sue for political malpractice?
In your opening sentence, I think you meant to say 'it's good that Planned Parenthood was NOT defunded?
Mike, I try to keep abreast on Keynesian economics as best I can, and I understand the aggregate demand argument, but I don't follow you on
"government deficits mean an increase in private savings"
Could you elaborate please?
And doesn't the paradox of thrift mean increases in private savings harm the recovery, as saved money is not being spent?
If the private sector wants to net save rather than spend, then preventing it from doing so by starving it of money does not increase spending :-)
Public deficits imply private surpluses (excess of saving over investment spending - I'm simplifying by not considering the external sector separately) as a simple matter of accounting. Money that the government spends goes into private hands, where one of two things can happen to it: either someone saves it, or it gets spent, and re-spent, and re-spent until it all gets back to the government in tax revenue. Obviously, if the government budget is balanced then private net saving is impossible, since all the money spent by the government is coming back to it in taxes. Likewise, if the government is in surplus, then the private sector must be in deficit, borrowing in excess of saving (again, I'm not considering the external sector for simplicity).
This is why the term "national debt" is misleading - the "national debt" of a country (assuming a sovereign fiat-currency country) is equal, by definition, to the total worldwide savings held by private parties (or other countries) in the currency of that country. If they were not equal, it would mean someone's sums were wrong, just the same as if one's balance sheet did not balance.
This is all explained many different ways at some length by the various MMT economists Mike has linked to recently - start with Mosler's "Seven Deadly Innocent Frauds" or Bill Mitchell's blog.
I just read that here http://mosler2012.com/wp-content/uploads/2009/03/7deadly.pdf and I was surprised to see something I completely agree with (#5, exports are costs and imports are benefits) because everything else was Dick Cheney economics. The point in question was pitched to Larry Summers, who soundly rejected it.
I understand what it's saying about every dollar government spends is someones wage (and thus, every government cut is the cut of someones job) but that simply asks, can one envision a scenario where a Galbraithian would believe government is too big? I don't think that's possible with this simple view on the world.
From a basic Smithian perspective, money is not wealth - it is a proxy for wealth, and this balance of accounts between public and private creates additional dollars on paper, but the resources those dollars stand for do not increase. From this one can dive into a standard Keynes vs. Hayek debate.
Promising large amounts of money to select members of the public may stimulate the economy in the short run, but doing this enough will cause the ratio of money to goods-and-services to shift and create inflation.
but that simply asks, can one envision a scenario where a Galbraithian would believe government is too big? I don't think that's possible with this simple view on the world.
Size of government (beyond certain core functions) is, on the MMT view, primarily a political decision rather than a financial one (Mosler regards himself as some species of libertarian).
For example, unemployment in the MMT view means that either taxes are too high or public spending is too low. The decision whether to cut taxes or increase spending is, within certain constraints, a political one which people may legitimately disagree on.
Andrew, I regretted that after I posted it for that very reason. I meant the ratio of government spending to GDP. What I am saying is this assumes that everything will work out if the government spends, say, 2000% of GDP in one year and I don't think this holds up.
This same logic says, the government shouldn't worry about paying large executive bonuses because that will be more money in the economy.
Mosler seems to be a proxy for Galbraith. I already understood Milton Friedman had major disagreements with Galbraith, but this has influenced me read up on him a little and we can add Paul Krugman to the list. He called Galbraith's work "remarkably ill-informed" and said he was never taken seriously in academia.
I can completely understand someone following a fringe thinker, but the presentation-as-undisputed-fact here is unwarranted. Perhaps the reason Galbraith hasn't stood the test of time is that he was wrong.
What I am saying is this assumes that everything will work out if the government spends, say, 2000% of GDP in one year and I don't think this holds up.
It doesn't assume anything of the kind. It does say that the spending-to-GDP or debt-to-GDP ratios are not important per se; what matters is whether the real economy has enough available supply to meet the government's purchasing without driving up prices (i.e. causing inflation). It is unlikely that any real economy would have so much slack that it could absorb a spending figure of 2000% of (prior) GDP without inflation.
As for whether other economists take MMT seriously, do remember that academic economics has no record of predictive success or of weeding out failed ideas from its field. Much of Krugman's criticism of MMT, for example, is attacking strawman positions not the actual positions of MMT economists.
Can't speak to Mosler here, but you're missing a key component of the MMT angle on economics -- money is a proxy for wealth, therefore we should worry about the underlying real economy.
You can still get price increases (inflation) if you try to demand more Goods (generally) or more of any particular good (sectorally speaking) than can be produced by the real economy. Large unemployment means we have underutilized resources in the real economy. Nobody claims that everything'd be hunky-dory if the government spent 20x the country's output in a given year (an assertion which would indeed be not credible).
The quality of spending is important. Some uses of money lead to an increase in real productive capacity; and many do not. I have never read any MMT theorist claim there to be no distinction between the two, or that the latter uses are somehow preferable to the former; but I've seen plenty make the point that declining to invest in the real economy doesn't exactly lead to growth.
Er, "money is a proxy for wealth" -- not sure what I was talking about there -- meant to edit that out. Whoopsie.
This is a strange occurance - thoughtful, civil disagreements on hot-button political issues on the Internet =)
I still don't find it compelling. While I agree that macroeconomists are poor at predicting things, it doesn't mean the science itself is useless. Imagine yourself asking a biologist how many pounds the average penguin will weigh in 10,000 years. How confident would you expect that to be, or what about the relative population of guppies in 500 years?
That is the kind of predictions people expect from economists. What economists are actually good at is creating models and understanding how some phenomena work - just like biologists are good at understanding how animals evolve, or how certain adaptations increase survivability.
So saying that academic economists have no success in making grand predictions is irrelevant, and I simply disagree that bad ideas don't get weeded out. Some of them - rent control, protectionism, cost-push inflation, command economies - have already been weeded out and are only held by cranks. Does the presence of alternative medicine programs in ivy league schools mean that modern medicine in academia is complete nonsense? Of course not.
My understanding of field is that MMT is a fringe view, and while it may turn out to be correct (like I said, it was right on the money about exports-imports - that is one of the biggest focuses I do on economic science blogging) supporters should keep that in mind, and be atleast a little more humble when declaring its ideas to be metaphysical truth like the original post here does.
"That is the kind of predictions people expect from economists."
It's also touted by economists as what they do (hence they need to be paid millions a year).
Everyone's fine with an economist who asserts partial knowledge and prices themselves appropriately. We KNOW that the future is hard to predict.
But when you assert that your value is billions because you predict the future and in practice get it wrong, there's not a lot of sympathy.
See, for example, overpaid executives.