It's really sad it has come to this. There are many people that have jumped to branding President Obama as the second coming of famed economist John Maynard Keynes in what has become a rather sad attempt to deflect his austerity along with the deficit hysteria he preaches on a daily basis. Some people pretend the sequester he and Gene Sperling wrote along with putting chained CPI on the table(cutting seniors income) in order to get out it somehow "makes Obama a textbook Keynesian." Nope.
“The boom, not the slump, is the right time for austerity at the Treasury.”
- John Maynard Keynes (1937) Collected Writings
Maybe some are confused and think we are experiencing a boom, instead of the weak growth our inadequate pseudo Keynesian(as in not really) measures failed to make up for. The bailouts to the bond and stockholders with most of the gains in income in this supposed "recovery" via 121% since 2009 have gone to the 1%. I know some probably think mediocre GDP growth(which as Joseph Stiglitz and others reference is not always the end all to be all and has some flaws as a metric) means the economy is booming so we should just forget about the 99% suffering in the jobs crisis. Brilliant MMT economist Bill Mitchell explains why that is BS while using indisputable facts.
Last week (April 5, 2013), the – US Bureau of Labor Statistics – released their latest – Employment Situation – March 2013 – which showed that in seasonally adjusted terms, total employment decreased by 206,000 in March and the labour force shrunk by a further 496,00 persons. The twin evils – falling jobs growth and declining activity. While the unemployment rate fell to 7.6 per cent (from 7.7 per cent) that is an illusory improvement. The fact is that the participation rate fell by 2 percentage points and thus hidden unemployment rose. The 290 thousand fall in official unemployment arose because the drop in employment was more than offset by the fall in the labour force. There is nothing virtuous about any of that. The facts are that it is getting harder again for Americans to get work and easier for them to lose it. The data is signalling a fairly poor outlook and hardly the time for the President to be submitting austerity budgets. But in the same week that the data came out, the President did just that. The latest budget submissions from the Administration, designed to placate the mad Republicans, is an act of economic vandalism.
Bill Mitchell is right. It would be nice if those professing this fairy tale about our President being a textbook Keynesian were at least honest that they in order to believe such a fantasy one has to not really give a damn about the unemployed and the long term unemployed. It really shows from this ridiculous uneducated comparison. If they don't believe in full employment as part of the real boom in the future instead of just mediocre GDP growth now which isn't booming in order for Okun's law to make enough of a dent in real unemployment, then they should just admit it rather than confuse people who would benefit more from the truth. The truth is that Keynes really believed in full employment.
Late 1934 Keynes finishes writing his first draft of The General Theory of Employment, Interest and Money - an analysis of the causes of unemployment. Keynes argues against the classical economic theory that full employment could always be reached by making wages sufficiently low.
There is one disagreement Post Keynesian MMT proponents like myself have with Keynes in that we actually don't need to pay for our deficit spending even after the slump. That being said, Keynes did predict that governments would in the future eventually choose their own monetary systems and how they operate since money is a creation of the state in A Treatise on Money which he wrote before the General Theory of Employment, Interest and Money. One of my favorite Post Keynesian MMT economists L. Randall Wray explains this in this great paper.
Long before he wrote the General Theory, Keynes tried to explain money’s nature and origins (Ingham 2000). For example, in the Treatise on Money, he argued the “money of account comes into existence along with debts, which are contracts for deferred payment, and price lists, which are offers of contracts for sale or purchase.… [and] can only be expressed in terms of a money of account” (Keynes 1930: 3) He distinguished between “money and money of account by saying that the money of account is the description or title and the money is the thing which answers to the description” (Keynes 1930). Further, the state “claims the right to determine what thing corresponds to the name, and to vary its declaration from time to time—when, that is to say, it claims the right to re-edit the dictionary. This right is claimed by all modern States and has been so claimed for some four thousand years at least. It is when this stage in the evolution of money has been reached that Knapp’s chartalism—the doctrine that money is peculiarly a creation of the State—is fully realized” (Keynes 1930: 4). Finally, “the age of chartalist or State money was reached when the State claimed the right to declare what thing should answer as money to the current money of account—when it claimed the right not only to enforce the dictionary but also to write the dictionary. To-day all civilised money is, beyond possibility of dispute, chartalist” (Keynes 1930). That is a clear endorsement of Knapp’s (1924) state money approach
That would be German economist Georg Friedrich Knapp who was the founder of the Chartalist school of monetary theory which is very much a foundation of Modern Monetary Theory. So rather than say those who support MMT as I do have a disagreement with Keynes, though we do when it comes to deficit spending and needing to pay for it during the boom, it should be noted that on monetary theory we agree with the 1930 Keynes more than we do the 1936 Keynes. For today we live in a different monetary era and future Keynes predicted(Chartalism) and once endorsed which renders having to pay for deficit spending during the real boom invalid.
Since we have since abandoned the gold standard in 1972 when the Bretton Woods international financial system fell, we can and need to create dollars and run the deficits needed to close the output gap. We can do this without the same worries as having to mine gold for bank reserves to store at the fed and to be shipped abroad to pay trade deficits. We have to implore people to face reality and that absolute reality is that Obama is not waiting until after the slump to cut spending so even on basic Keynesian grounds, the comparison fails. This is on top of some of the most austere budgets(or stop gaps in replacement of one) since Eisenhower. I imagine the people making these weird comparisons don't know much about history, aggregate demand, or what a hole we are still in.
This is not a good thing. These are the forgotten facts that some are refusing to pay attention to and despite some peoples' hurt feelings in wanting to believe it, it's actually not good for the worst economic crisis since the Great Depression still ongoing. Thanks to my last diary, most know where I am coming from when I speak of sectoral balances, national accounting, and how there is no real responsible deficit reduction in this economy without full employment. It will only suck income out of the private sector that is hemorrhaging demand still from the bust of the housing bubble and overall leakages from our trade deficit.
It's also quite disingenuous how some people like to point to the triple dip in the U.K to say we're not really experiencing austerity. It's true that David Cameron's commitment to austerity is greater and is decimating the U.K sending them back into a recession a third time. Austerity has failed in the Eurozone and the UK, both concrete examples of the failure of austerity anyway you look at it, but the UK especially who has the same sovereign monetary controls we do, but look at how low they plan to go. Their spending will fall below ours by 2017, but look how little we really have planned to spend or invest in our future according to the World Economic Outlook Database.
This chart shows how much David Cameron has to cut just to get down to our level of minuscule spending in the future where he plans to completely destroy the British economy and the NHS. So it is true that the U.K is experiencing more austerity, but it's to get to our massive substandard of government spending and below it. This administration and Congress plans on keeping this substandard while edging even lower. We only have private for profit Dolecare and Heritage Foundation care. There is no effective public NHS to decimate nor many pensions and other public services left to eradicate here as there is in the U.K, so instead Congress and the White House are going after Social Security and Medicare to do Peter Peterson's bidding. He owns them just like Wall St owns our all of our government lock, stock, and barrel with very few exceptions.
Now you know the facts; none of this is proof that Obama is not an austerian. Yes, the U.K and the Eurozone are being decimated by sadomasochistic austerians, but that doesn't mean President Obama can't be a normal full fledged one because he is. This economic decimation in the Eurozone will surely affect us in a negative way, but have you heard a direct repudiation of what's going on there from the President, lately? You haven't. You have heard a glowing eulogy of Margaret Thatcher from the President that David Cameron can latch onto though. Therefore, the assumption that only the harshest form of Shock Doctrine medicine equals austerity is, of course, false and illogical.
A full fledged austerian (2+ / 0-)
simply believes that a fiat issuing, sovereign government that floats its currency can run out of money, and that such a government can only obtain its "deficit" money by borrowing from the financial private sector. Such creatures believe the government has already "borrowed" too much already and must balance a budget that by definition must be unbalanced most of the time to meet the private sector's desire for net saving. A jobs act without net deficit spending is not a jobs act. The auto industry move was a small scale gesture taken with the understanding, from Obama's point of view, that we cannot do more without reducing the deficit. The problem with the austerians is that they do not understand the "reality based" truth behind unemployment and aggregate demand. Simply put, Obama loves Money more than his constituents.
Great diary by him as well. I highly recommend it. This is austerity whether someone wants to make a poorly conceived effort to mangle Keynesian economics to deflect it or not. This is the way an austerian thinks. These are the lies they buy into and their misunderstanding on the way our economy(fiscal and monetary together) works. This factually includes the President. Now I can't blame all of this on commentators in blogs. Not everyone gets things right, especially when there are people that woefully mislead Democrats into believing the fairy tales of President Obama being a textbook Keynesian.
One of those people is TIME's senior national correspondent Michael Grunwald. He uses similar language and likes to attack the left while going on about matters he doesn't know much about. Sound familiar? One of those things is Textbook Keynesian economics and it's supposed relationship to the Obama administration and the ARRA. There is someone who does know what textbook Keynesian economics really is as well as the best defender of the New Deal and his name is History Professor Eric Rauchway. Professor Rauchway read Michael Grunwald's book on the stimulus and put forth some much needed reality.
1. Grunwald does not represent Keynesianism very well. He writes that the law “was textbook Keynesian economics“. But it wasn’t. As Paul Krugman put it, “Keynesian analysis provides numbers as well as qualitative predictions, and given reasonable projections of the economy’s path in January 2009, the proposed stimulus just wasn’t big enough.” There’s more on this at the link, but the basic point is clear: if you were familiar with textbook economics, as Krugman explained, you knew the stimulus bill wasn’t big enough. (Grunwald has a low opinion of Krugman, whom he associates with “the left.”)
But that’s not how you sell Keynesian stimulus, that’s how you sell inadequate Keynesian stimulus. Keynesian stimulus, you sell by saying, “The GDP gap will close by x points if we provide y stimulus.” And then (this part is important) you provide y stimulus.
So representing the stimulus as “textbook Keynesian economics” does Keynesian economics a disservice. The stimulus was well shy of what textbook Keynesian economics would recommend.
And that is a great explanation why Obama is not a Keynesian. People that try to peddle that nonsense like Grunwald while attacking "the left" can get angry about this fact. Hell, they can even write books trying to redefine Keynesianism to retrofit the Obama administration, but that still won't make the stimulus or President Obama Keynesian. So as David Dayen also pointed out to Grunwald Obama has implemented austerity, especially now with the sequester.
That is, except for the 1% who don't like airport and flight delays, and they always get their way unlike a disabled Grandma's meals on wheels. Her hunger pains come from the sequester that this administration wrote that they refuse to support repeal of. Instead recently we were told the same fairy tales about so called balanced deficit reduction from this President. Those are merely just code words for austerity including spitting in seniors face by offering Chained CPI for the shitty austerity deal instead of repeal. Some can whine. Some can cry. Some can try to deny, but this is precisely why the President supports austerity.
The lack of spending needed from this administration and Congress for net private sector saving and demand destroyed by the housing bubble and its private debt overhang during these times with the lowest spending since Eisenhower all amounts to austerity. Sorry! I don't know what's so hard to understand about that. I guess I shouldn't be surprised. It's hard convincing some people to care more about the people politicians are supposed to represent than the politicians themselves. When that becomes part of a belief system and an undying faith there can be no logic that escapes through to some.
Time to give back the shovel, because these observations are based on what actually happened. Some people lower the public intellectual discourse just like they do on red state by pretending reality is subjective like an abstract painting. Too bad for everyone across the board trapped in their own little bubble, this is how government spending or austerity is actually factually appropriated little by little everywhere.
So now you will see just how embarrassing it is when say someone like Joe Biden's former adviser Jared Bernstein points out that Obama has already implemented a good 70% of cuts based on Bowles Simpson and some spout mindless gibberish about cuts only taking place in the future while invoking Keynes. You remember Bowles Simpson right? That cat food commission so many of these same people screeched would never become a reality? Well in a way it sadly actually did as we said it would because it is a deficit terrorist zombie commission that keeps coming back to life and did come back to life.
These developments are poorly understood by those—most vocally, SB advocates—who continuously inveigh that we’re not “serious” about cutting spending. In fact, that’s the only thing we’ve been “serious” about so far, such that we’ve actually achieved 70% of the discretionary spending cuts called for in the SB budget plan. This does not count war savings, nor does it include savings on interest payments, which would add another $250 billion to the savings.
Policymakers and budget experts generally agree on the need to reduce projected deficits and put the federal budget on a sustainable path. They have focused less attention, however, on the amount of deficit reduction that the 112th Congress and the President have enacted. Reductions in funding for discretionary (i.e., non-entitlement) programs enacted last year, primarily in the Budget Control Act, have produced $1.5 trillion in savings in discretionary spending for fiscal years 2013 through 2022. This part of the budget includes defense, international programs, and an array of domestic programs ranging from education to law enforcement, food safety, and environmental protection.
Two-fifths of the $1.5 trillion in savings from cutting and capping funding for discretionary programs comes from defense, while the other three-fifths comes from reductions in domestic and international programs. These reductions will shrink non-defense discretionary spending to its lowest level on record as a share of GDP, with data going back to 1962 (see figure).
You see? Roughly 150 billion a year already being cut adds up to that 1.5 trillion in non defense discretionary spending which has already started. It's in law as the first link to the real paper outlines. I realize now that many commentators do not even understand how government appropriations in legislation and budgets work in relation to their outlines in the CBO baselines. You see, because of bottle necks as in not being able to get all that [$water$)= out at once, CBO baseline scores of 10 years or so as most of them are, project a certain amount of expenditures and a certain amount of cuts phased in over time from quarter to quarter each year to year based on current law. The 787 billion ARA stimulus had in it a mandate to make a report after each quarter, because this is how it was spent!
It couldn't be spent all at once and cuts of that size do not happen at once either. This is all taken into cumulative effect in the real appropriations process whether budgets, stop gaps, or all spending legislation amounts or lack thereof. I hope people spend more time and cumulatively begin to understand this. Once they do, they can't ignorantly deny facts like 1.5 trillion cuts already phased in quarter by quarter and year by year starting this year. 3.5 trillion in cuts is the goal of the White House sucking income and demand out of the private sector.
As the facts in those two papers Bernstein references also outlines, this austerity will lower discretionary spending in the US to its lowest record since 1962 as a share of GDP. Hell, I disagree with the CBPP sometimes, but at least they are operating on an adult level. It'a childish to say as some have in the comment section of this website:
"Nuh uh! All the cuts are in the future just like Keynes wanted."
It's hard to take arguments like this seriously. We are not past the slump even with GDP growth and jobs barely keeping up with population growth. These arguments really lower the discourse and should be considered embarrassing given that full employment and repairing our infrastructure, among other things, will not be a reality unless we deficit spend to make it a reality. That along with implementing a job guarantee to lower the supply of labor and drive up wages.
So sadly we are dealing with people who not only misunderstand Keynesian economics and economics in general, they seem to not get how the budgeting and legislative process works with regards to government appropriations and cuts to government appropriations carried out in real time.
Learning these basic facts should be a priority before making such a vain desperate effort to paint President Obama as the second coming of Lord Keynes. I just hope they learn this before it's too late.
"The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again."
-John Maynard Keynes, A Tract on Monetary Reform (1923) Ch. 3
English economist (1883 - 1946)
Sat May 04, 2013 at 4:22 AM PT: I'm going to add Robert Oak's wonderful analysis which pretty much supports the thesis of this diary. This is helpful info since some who don't even know what it means and cherry picked the 290,000 employed number and tried and failed to show something great happened in this month's report from last month. It didn't. How embarrassing.
The number of employed people now numbers 143,579,000, a 293,000 monthly increase. We describe here why you shouldn't use the CPS figures on a month to month basis to determine actual job growth. These are people employed, not actual jobs. In terms of labor flows, the employed has been static for the last seven months, a increase of of 251,000 employed since October 2012 and 302 thousand since November 2012. From a year ago the employed have risen 1.645 million, but bear in mind the noninstitutional population has also increased by 2.391 million during the same time period. This gives the impression for the last six months adding employed people has slowed significantly from the previous. The statistics from the CPS do generally vary widely from month to month.
Everything in my diary stands and with no real rebuttal.