The deficit fabrication and Jared Polis
I see my Democratic congressman Jared Polis is continuing his bold attack on American living standards with his ever growing focus on deficits and the Bowles-Simpson “compromise” agenda of slashing social security, medicare, and “discretionary” spending. He’s now teamed up with the Concord Coalition in giving “workshops” on balancing the federal deficit. What is the Concord Coalition?
The Concord Coalition is dedicated to educating the public about the causes and consequences of federal budget deficits, the long-term challenges facing America’s unsustainable entitlement programs, and how to build a sound economy for future generations.
Completely missing from the Bowles-Simpson / Republican Party / Democratic Party / Concord Coalition / Jared Polis Agenda is any semblance of a fair, logical, or democratic assessment of our world. Mr. Polis takes it as a given that living standards need to be reduced in order to “restore fiscal responsibility” but how can that be justified? With technological capacity and productivity at astounding heights, is there not something obscene, even evil, in suggesting to average people that life must get harder? Surely there’s no “real” basis for it.
The focus on the deficit is a total deception. It’s a plain and simple fact that the United States has the complete power to create dollars without cost. Shouldn’t it therefore be obvious to anyone with half a brain, to paraphrase Allan Simpson, that there’s something pretty odd with the idea we need to borrow our very own currency. Even the Fed, not a radical organization, recognizes this. Over the past few years it’s purchased massive sums of treasury obligations – and it’s a simple bookkeeping operation: bank reserves are exchanged for interest paying treasury bills, notes, and bonds. An interest rate of .25% is currently paid on the reserves but it’s completely discretionary. Nothing’s really changed after this exchange but somehow the deficit’s been reduced. Are we to consider bank reserves as federal debt? Of course not but consistency should say yes. The whole proposition that the monopoly issuer of a fiat currency can be in debt is an absurd accounting fabrication.
But this false fabrication plays a serious and highly regressive political role. It limits what society can spend outside of what’s decided by the large corporations, “investors”, and “markets”. Living standards therefore become subject to these powerful institutions and we’re led into the absurdity of being told we need to reduce retirement security, cut back health care, limit spending on useful programs, accept growing city and state bankruptcies, and put up with massive unemployment and poverty despite being so incredibly advanced in our technology and productivity.
The deficit fabrication is a right wing agenda completely bought into by Republicans and mainstream Democrats. I’m not sure what motivates our “progressive” representative here in Boulder. His wealth and much of his voting record surely indicate a laissez faire world view. But, to be fair, it could also be a simple lack of education. If that’s so, it would be fantastic if Mr. Polis, a great cheerleader for ever more education, would follow his own education agenda and educate himself on the basics of government spending, monetary creation, and the potential of fiat currency systems. He could then step forward, drop the deficit nonsense, and truly represent his district.
Comments on Inequality 
Of course I agree with you on Polis. But:
Nothing’s really changed after this exchange but somehow the deficit’s been reduced. No, the debt held by the public is, replaced by debt held by the Fed. Debt held by the Fed is meaningless, except that it counts toward the debt limit. But the meaninglessness comes from it being one pocket of the government owing another pocket.
Are we to consider bank reserves as federal debt? Of course not but consistency should say yes. Of course yes, we should & must. Consistency is good!
The whole proposition that the monopoly issuer of a fiat currency can be in debt is an absurd accounting fabrication. Very, very wrong. It isn’t an “absurd accounting fabrication” a “false fabrication”. It is the plain & simple truth that everyone understands, but whose understanding is blocked by deranged economics & beliefs about how one thinks & speaks, about definitions – that have nothing to do with how anyone thinks & speaks, about the real definitions. The idea that a monopoly issuer of a fiat currency can NOT be in debt is what is absurd. The word “debt” is implicitly redefined, to something incoherent that has nothing to do with the dictionary meaning, the meaning used everywhere, which emphatically does include government debt, which is exactly like anyone else’s debt, except that the government has so much economic power that its debt is the primary money and measure of everyone else’s debt.
Currency is government debt. The accounting is correct, crucial, true & enlightening. Debt is the primary concept, not currency. The point is to understand the accounting, not dismiss it – which is what the innumerate mainstream does. Geoffrey Gardiner (of gang of 8) is great – but far too brief for me to completely grasp him – but he makes the point that accountants just follow rules, but very few understand why the rules are as they are, must be as they are.
Unfortunately a lot of MMT fans get things wrong, and don’t see how simple it all is. Because the MMT gurus are not clear enough about this key point. They range from the positively misleading (Bill Mitchell) through Mosler (neutral), to Wray, who is always accurate & philosophical & clear, but doesn’t emphasize it enough in light of how many make this mistake. (I made it at first too, but reading Kalecki, Lerner & Mitchell-Innes enlightened me.)
I’m not criticizing any thinker’s theory – but the bad way they say things, the very misleading terminology, which makes things look more complicated than they really are. And which makes many learners want to redefine & eliminate precisely the good terminology, while keeping the misleading!
Deficit – well, I’m neutral on the word. If it is taken to imply that the government or anyone else subsequently has less of a thing which it is thus in deficit of, of course it is wrong & misleading – replace it with net new money, new NFA, nongovernment surplus, saving, or whatever. But I don’t think it has and has had the potential confuse thinking that the thinking about “debt” does.
Calgacus,
I think the only meaningful way to treat the Fed is to consolidate it with the Treasury. On any logical way of looking at things, the “deficit” between the government and non-government sectors has been reduced when the Fed buys debt. But you are of course correct that current law looks at Fed purchased debt as still subject to the debt limit. That, in my mind, is an accounting fabrication.
I think the assertion that currency is government debt is unhelpful and confusing. It’s certainly not debt the way the term is normally used in the English language. To whom does the government owe this “debt”? What happens to it if it doesn’t “repay” it? Does “repay” have any meaning? Do the “lenders” have recourse against the “debtor”? In a democracy (theoretical at least), how do you distinguish the debtor and the lender?
One has to do some mighty gymnastics to fit the idea of currency into debt. And I’m not at all sure why you’d want to perform such contortions when “debt” is a horrible word to everyone. If the goal is to convince the public to stop worrying about public “debt”, then I’d think we’d want to start by showing that public debt isn’t at all like we normally think of as debt. And in fact it’s not debt – it’s just currency. They’re not the same thing. A family can’t be in debt to itself.