“When the sky is falling, Congress will act,” Claudia Sahm told Bloomberg, for a Thursday piece on automatic stabilizers.
Sahm, whose name you may have encountered lately, penned an Op-Ed for The New York Times earlier this month. “As soon as the crisis stabilized enough for partisan inaction to not be political suicide, legislative paralysis returned,” she wrote, of the seemingly intractable stimulus stalemate inside the Beltway. “It was far too soon to end relief but Congress did it anyway.”
Yes, they did. And while there’s plenty of blame to go around, you’d be lying to yourself if you didn’t acknowledge the 800-pound gorilla in the room: Mitch McConnell and the GOP-controlled Senate.
The clumsy waltz between Nancy Pelosi and Steve Mnuchin grabbed virtually all of the headlines in October, but the fact is, without McConnell’s blessing, no comprehensive relief package ever had a chance of becoming law.
Americans have come to expect legislative gridlock from their elected representatives. Those expectations go a long way towards explaining Congress’s pitiful public approval ratings, which have languished below 25% for the better part of 15 years.
The latest figures from Gallup show just 19% approve of the way Congress is handling its job. Believe it or not, that is actually an improvement from the August 31-September 13 reading, which was 17%.
While lawmakers acted to avert an outright economic calamity when the pandemic forced a nationwide lockdown earlier this year, it doesn’t say anything good about Congress that the sky had to fall (to use Sahm’s metaphor) in order to compel legislators to legislate.
As seen over the past three months, the problem comes when the sky isn’t necessarily falling anymore, but millions of people are still jobless, hungry, and generally suffering from the kind of precarity that should never be widespread in any advanced, currency-issuing economy, let alone across the richest nation in the world.
The failure on the part of lawmakers to reach a stimulus deal prior to the election is a disaster of epic proportions, but perhaps even more lamentable is the extent to which the public doesn’t demand better.
The Democratic establishment’s argument for Joe Biden essentially came down to the idea that nothing could be left to chance in this election — that this wasn’t the time to run a “radical” because that risked a second term for Donald Trump.
If Biden loses, that calculus will seem woefully misguided in retrospect. But even if he wins and Democrats do manage to take back the Senate, you can be almost certain the chart above will look about the same four years from now as it does today. Americans will still have almost no faith in government.
Why? Well, a comprehensive answer is the purview of books, not short articles, but part of the problem is that the majority of Americans don’t seem to understand their own interests. If they did, they’d vote for a socialist.
There’s also an element of self-deception. Most people cling to the idea of upward mobility in a sad attempt to escape the mathematical odds, which are unambiguously stacked against any one person becoming a multi-millionaire or even becoming a member of the top 10%.
The most poignant manifestation of this self-deception is Americans’ aversion to a wealth tax despite the rather self-evident fact that it would not apply to the vast majority of Americans, and if, by some miracle, you beat the odds and it does one day apply to you, that will be a good problem to have. Put differently: America is full of temporarily unlucky millionaires.
There are three key factors that help explain “success” in America. One is being white. A second is being male. And a third is being born to wealthy parents. It follows that if you check all three boxes — i.e., you are a white male born to wealthy parents — then your chances of success are much greater than someone who checks only one of those boxes and exponentially higher than someone who checks none of them.
Note that none of those factors are merit-based. Rather, they are luck-based. Sure, there are some exceptions, and yes, hard work does pay off, as does innovation. But the idea that most of America’s well-to-do overwhelmingly “deserve” what they have because they’ve worked “harder” or “longer” or lived a more virtuous life than someone who is less fortunate, is largely a fairy tale.
Because wealth has a way of multiplying exponentially, the mathematical reality is that absent a more progressive tax regime and a complete, “radical” rethink of fiscal policy, American society will become more and more unequal.
With apologies, Biden isn’t going to change this situation. Trump will make it immeasurably worse, if not on purpose then certainly by accident. That, perhaps more than anything else, is Trump’s calling card: He makes bad situations worse and good situations bad, not always by design but infallibly nevertheless.
The Bloomberg article mentioned here at the outset notes that “Democrats have backed a bigger role for [automatic stabilizers] during the coronavirus slump [and] Biden says he wants to apply them in future recessions too.” This would strengthen the economy’s capacity to right itself without having to rely on mercurial, scheming politicians with ulterior motives or, if you like euphemisms, the vagaries of the legislative process.
Sahm is quoted as saying that “July 31 is the reason that we should have automatic stabilizers.” The reference is to the drop-dead date when extra federal unemployment benefits rolled off. “That was when Congress broke down in terms of the discretionary process of sending out more relief,” she added.
At that point in the article (through no fault of Sahm’s, by the way) the piece goes totally off the rails. One particularly cringe-worthy passage reads “one big question… is how to pay for such plans.”
To be fair, Bloomberg acknowledges that the federal government can “create money” and pays lip service to the notion of a federal jobs guarantee. But the fact that this is even debated anymore — that the notion of “paying for it” even comes up — is a sad testament to the state of public discourse and a damning indictment of the country’s almost masochistic tendency to insist that the money we ourselves print must be sourced from without. That somehow, America must go looking for the dollars it needs.
That manifestly absurd notion is everywhere and always accompanied by the idea that some level of acute economic suffering is inevitable for large numbers of people. That “full employment” (in a literal sense, where everyone who wants a job always has one) isn’t attainable or worse, somehow isn’t desirable.
This is all nonsense. And yet, nearly everyone traffics in this nonsense on a daily basis. So entrenched is this nonsense that even Bernie Sanders failed to communicate the realities of government finance in America while debating his fellow Democrats during the primaries.
Rather than explain things, Sanders trafficked in the same objectively false notion that everything he proposed needed to be “paid for,” which in his case meant running on a platform that could be roughly summarized as “f**k the rich or, better yet, let’s eat them!” If the “establishment” was plotting against Bernie (as right-wingers like to insist in a bid to divide the left), can you really blame them?
The fact is, you don’t need to tax the rich or anyone else in order to pay for social programs. It might be desirable to do so for other purposes, but it’s not necessary if what you mean by “necessary” is that the government is somehow short on a currency it can create at will.
At some point, Americans are going to have to wake up and vote for a truly Progressive (with a capital “P”) candidate who understands how government finance works and who is steeped enough in classic economic theory to explain, in terms that everyday Americans can understand, why everything they thought they knew is false.
The immediate problem: There is no such candidate.
Or at least not one who has publicly tipped a 2024 run.
#Heisenberg2024 🙂
Yeah, great post.
+1
You have touched on my greatest criticism of Bernie Sanders. It is that he abdicates his responsibility to educate on the misconceptions of socialism. If, that is, he understands them.
He even calls himself a socialist when in fact a more apt term is a Social Democrat.
I’d argue it’s that a) he’s not a Democrat and doesn’t represent the Party and b) he’s from Vermont which is actually less diverse than the Republican Party. I like the guy, but in 4 years he was never able to connect with black voters which is a key constituency of the Party.
Err…
Printing money allows you to avoid talking about taxes. Again, not the worse idea given how everyone in America gets totally bonkers when you mention ‘taxes’. But all you’re doing with money printing is using inflation to steal the purchasing power of those rich guys you didn’t have the courage to tax.
This is no rational way of running a polity even if it works.
Another point – would everyone have a job if you were running the economy hot? Sure, maybe, for a while. But, if you call yourself a progressive, you might want to think on how to deal with the future of low employment that robotics and AI is very likely to bring about.
“But, if you call yourself a progressive, you might want to think on how to deal with the future of low employment that robotics and AI is very likely to bring about.”
A perfect tie-in for our proponents of a guaranteed income here. How to fund it? MMT.
Otherwise you’ll be spending trillions of dollars on security at the government and individual level. And then, as a buddy in Jakarta reminded me, can you even trust your security guards to stay with you when rioting starts?
“all you’re doing with money printing is using inflation to steal the purchasing power of those rich guys”.
I think the past decade of printing money has made those rich guys into much richer guys as the only inflation we have seen is in the prices of the assets the rich guys own. Saying printing money causes (goods and services) inflation is a big oversimplification and recent history demonstrates that.
Sorry, I’m building on previous discussions of MMT. In this case, the money “printed” goes to the people (helicopter money or fiscal spending), not to the markets/financial institutions/rich dudes.
Thus it is inflationary in essence, though, in practicality, it’ll depends on how it reacts with real world capacity utilization.
Otherwise, you’re obviously right. Printing money and buying bonds only make rich guys richer.
Even in the MMT context, printing money is only inflationary if the economy is running at (or near) capacity. The point of MMT or traditional Keynesian economics is that where there are unused resources within the economy they can be utilized without risking much in the way of inflation. It is only when you have passed that point that you have to ‘bid up’ for resources triggering material inflation.
And I mentioned ‘capacity utilization’ to reflect what you’re saying. But I’d argue it’s inflationary (i.e. has the tendency to push prices higher than otherwise) regardless of whether inflation is generated (i.e. whether countervailing elements, like, say, a pandemic snuff out even more Demand).
Yeah, robotics, technology in general, and demographics. Deflationary headwinds and major impediments for future job growth.
More and more, as the recent years have gone by, I’ve gotten the feeling that we kind of pissed away more of the peace and prosperity of the post-WWII period than was wise. Perhaps the willful ignorance we exercised was just an aspect of human nature that was unavoidable.
Printing money does not equal inflation.
See above. You’re right… unless the money is spent in the real economy and then it’s definitely inflationary, subject to what the cap utilization does.
A federal wealth tax is unconstitutional. This is pretty clear. We needed an amendment for an income tax. There is no authorization for a wealth tax.
That being said, I’m all for UBI (and I’m solidly Republican). But, if we do it, then we should get rid of all other welfare. Make it the most efficient possible.
Yeah, add tax reform as another unsolved, mostly even unconsidered problem, of these past decades. Another farcical lack of attention to helping ensure we have a well functioning republic long term.
When you have a problem that needs solving, you need the right people i.e. you don’t use a stone mason for plumbing. In our current iteration of American democracy, politicians are not the right people to solve our social problems. In the last 50 years they have become more and more inept. This is democracy’s achilles heal.
Doesn’t universal basic income just lead to universal basic housing?
If anyone is looking for a book particularly salient to a good portion of this post, I suggest Charles Murray’s “Coming Apart.” Scary as hell. I still think about the book years after having read it. If someone is looking for such an uplifting book for over the upcoming, dark winter, check it out.
AOC turns 35 just before the 2024 presidential election, and might be looking for a new gig by that time.
https://www.vanityfair.com/news/2020/10/becoming-aoc-cover-story-2020.
Unlike most in Congress, she both understands MMT and has brought it up in congressional hearings. She has a degree in economics and international relations from Boston University.
https://www.businessinsider.com/alexandria-ocasio-cortez-ommt-modern-monetary-theory-how-pay-for-policies-2019-1
Although 35 is young, that is approximately how old the current Prime Minister of New Zealand, Jacinda Ardern, was when she ascended to leadership. Ardern is arguably the most effective current world leader.
The great irony of all these Americans who claim that “hard work” should be rewarded with wealth is that most of them aren’t really willing to do the work of understanding economics or their government. They parrot lines from their favorite news personality and believe in those individuals implicitly. We have large swaths of the country who don’t even bother to read anymore. How in the world is anyone supposed to educate these people when millionaire personalities are the drivers of their opinion. Every politician is put in a good and bad basket and once that politician has been labeled bad, they are no longer worth hearing.
Imagine for a moment that an AOC, who is incredibly bright and able to explain complicated problems in simple terms, decides to talk about how to implement UBI on the foundation that higher taxes would not be required? Well, owed to the fact that she’s AOC from “the squad”, a very large number of Americans have already decided “she’s bad”. Why is she bad? TV personalities painted her as bad and they are who I implicitly trust for information and opinion. How the hell is what I just described “hard work”? It’s laziness.
Andrew Yang, for what it’s worth, did try to push beyond the boundaries of the “extreme socialist” Bernie Sanders and make his platform essentially all about UBI. However, he was made into more of a joke than a legitimate candidate. If you haven’t read his book “The War on Normal People” it definitely gives you an insight into how he views the growing problem of job eliminations due to tech and automation. His plan is by no means perfect, but he is able to acknowledge this is a real problem that hurts flyover America more than anyone and that it’s something Washington needs to solve.
In closing, I largely agree with your piece, however I don’t think blaming political candidates is exactly fair. The fallacy of American exceptionalism has created a electorate of lazy self-entitled people. Rich white males are the largest beneficiaries of American exceptionalism, but they are hardly the only offenders. We live in the internet age, information that was largely unattainable without wealth in the past, is now readily available to anyone who wants to pursue it. Khan Academy will teach you practically any subject that you want to learn for free. And yet, we have less education now than we did 50 years ago. If Americans want to solve the problems that ineffective government creates they have to push that government to work harder. In other words, WE need to lead by example.
“Voting for a radical”
Isn’t that exactly what many americans, if not quite a majority, did in 2016?
heh. yeah.
ahahaha. Good one.