Limits to Overused Fiscal and Monetary Policy Can Result in Self-Induced Governmental Impotence

“The [U.S.] federal budget deficit is growing faster than expected as President Trump’s spending and tax cut policies force the United States to borrow increasing sums of money.”[1] This observation was made just after the Federal Reserve Bank relented under pressure from the White House to lower interest rates because bond investors had been investing with a possible future recession in mind. With the U.S. Government’s accumulated debt standing at $22.4 trillion and interest rates already low, the limits to both fiscal and monetary policy were apparent even if most Americans in the political and business elite were focused on avoiding a possible recession in 2020.

The full essay is at "Overused Fiscal and Monetary Tools."

See also: Skip Worden, Essays on Two Federal Empires. Available at Amazon.

---

1. Jim Tankersley and Emily Cochrane, “Budget Deficit Is Set to Surge Past $1 Trillion,” The New York Times, August 22, 2019.

Beyond Collectivism and Individualism: Freedom from Fear

In his speech on April 13, 2011 on reducing the U.S. Government deficits, President Obama identified two strains that had run through the country’s political history and thus informed the American political culture. “More than citizens of any other country” he said, “we are rugged individualists, a self-reliant people with a healthy skepticism of too much government. But there has always been another thread running throughout our history – a belief that we are all connected; and that there are some things we can only do together, as a nation.  We believe, in the words of our first Republican president, Abraham Lincoln, that through government, we should do together what we cannot do as well for ourselves.”[1]  These two strains can be identified as individualism and collectivism, respectively. I contend that collectivism enables both individual and collective security. Individual security is oriented to a person’s survival and collective security is exemplified by national defense. In his speech, the president explicitly placed individual security within the collectivist strain. “Part of this American belief that we are all connected also expresses itself in a conviction that each one of us deserves some basic measure of security.  We recognize that no matter how responsibly we live our lives, hard times or bad luck, a crippling illness or a layoff, may strike any one of us.  ‘There but for the grace of God go I,’ we say to ourselves, and so we contribute to programs like Medicare and Social Security, which guarantee us health care and a measure of basic income after a lifetime of hard work; unemployment insurance, which protects us against unexpected job loss; and Medicaid, which provides care for millions of seniors in nursing homes, poor children, and those with disabilities.”  That is, limits to rugged individualism exist, whether in the state of nature or in an interdependent economy, and collectivized programs can bridge the gap on an individualized basis such that individuals can continue to enjoy liberty. The individualist/collectivist dichotomy is thus not so clearly dichotomist.

The full essay is at "Beyond Collectivism and Individualism."

1. Barak Obama, “Text of Obama Speech on Deficit,” The Wall Street Journal, April 13, 2011.

Is Democracy Inimical to Prudent Government Budgeting: The U.S. and India Contrasted

At a time when the U.S. Government sported an accumulated debt of roughly $20 trillion, with continued deficits expected to add about $10 trillion more over the next ten years, the most populous democracy in the world, India, laid out a prudent budget proposal—one that had been “extremely well thought-out,” according to Deepak Parekh of the Housing Development Finance Corporation in India.[1]

The full essay is at "Prudent Government Budgeting."

---

1. Getta Anand, “Arun Jaitley, India’s Finance Chief, Aims to Spur Economy Hit by Cash Shortage,” The New York Times, February 1, 2017.

On the U.S. Government’s Fiscal Imbalance: Federalism to the Rescue?

At the outset of the Trump administration in the U.S., real economic output was projected to grow at an annual rate of 1.9 percent over the next decade.[1] The new federal president was hoping his proposals of tax cuts and $1 trillion in additional infrastructure spending over a decade would bump up the annual growth to 4 percent. I submit, however, that just over 2 percent more in the growth rate would not alter the stark “budget reality” facing the new president and the American people.

The full essay is at "U.S. Government's Fiscal Imbalance."

---

1. Alan Rappeport, “Federal Debt Projected to Grow by Nearly $10 Trillion Over Next Decade,” The New York Times, January 24, 2017.

U.S. Government adds $587 Billion to Its Debt in 2016: Revealing a Fault-line in Democracy

The U.S. federal-budget deficit for the fiscal year that ended at the end of September, 2016, represented a reversal on the six-year run of declining deficits. The $587 billion deficit is equivalent to 3.2% of GNP; the previous year’s deficit had been $438 billion, which is 2.5 percent of the GNP.[1] The underlying reason for the altered trend has to do with democracy itself—something notoriously difficult to budge.

The full essay is at "U.S. Budget Deficit of $587 Billion."

---

1. Jackie Calmes, “U.S. Deficit Increases to $587 Billion, Ending Downward Trend,” The New York Times, October 14, 2016.

Corbyn as Labour Party Leader in Britain: Are Increased Deficits Implied or Avoidable?

The notion that a political party oriented to redressing the widening economic inequality during the years following the financial crisis of 2008 and the subsequent debt-crisis in the E.U. necessarily must increase government deficits to do so is, I submit, faulty. That is to say, being especially oriented to the plight of the poor, with the goal being the elimination of extreme poverty, can be consistent with fiscal responsibility. The election of a socialist as leader of Britain’s Labour party presents us with an interesting case of assumed fiscal irresponsibility.

The complete essay is at "Anti-Poverty and Budget Deficits."

Jeremy Corbyn upon being elected as leader of the British Labour Party (Jeff Mitchell/Getty)

Should the ECB Buy State Bonds and Encourage State Deficits?

In remarks at Jackson Hole, Wyoming, European Central Bank president Mario Draghi urged greater fiscal and monetary coordination to boost the E.U.’s economy. A ship cannot move along at full speed if all the sails are not coordinated so that each is poised at its optimal angle to the prevailing winds. So too, various policies in a political economy must all sail in the same direction for a full-sail recovery to really take off. Just as a sailing ship must avoid jagged pitfalls lurking in rocky waters, so too must policy makers; for it is all too easy in focusing on one point on the horizon to ignore or dismiss baleful downsides to the dominant policies.

The entire essay is at "Should the ECB Buy State Bonds and Encourage State Deficits?"

Taxes and Health Insurance: The United States Diverge Toward a Stronger Union

One of the main benefits of federalism is that it allows for both the tremendous power that can come from member states taking a united stance and cultural and related political interstate diversity. In other words, federalism is not only a means of checking governmental power by means of splitting governmental sovereignty between two systems of government—state and federal—but also a way of giving empires the advantages of both united action and diversity. In the case of the U.S., the power of uniting forces far surpasses the allowance for interstate diversity because consolidation in Congress and the White House has come to eclipse the power of the state governments. Although it is not sufficient to restore a semblance of balance between the two systems of government in the American federal system, it is nonetheless significant that “red” and “blue” states moved in different directions subsequent to the 2010 elections both in terms of tax and health-insurance policy. 

The complete essay is at Essays on Two Federal Empires, available at Amazon.

Does Austerity Work?

Does raising taxes and cutting government spending reduce a government’s deficits and thus debt? Confine consideration to more tax revenue and less spent and the theoretical answer is yes; it being a simple matter of mathematics. Include the impacts of raising taxes and cutting spending and the answer become far less straightforward. More paid in tax means less disposable income, which means less consumption and thus less produced (i.e., GNP). A government spending less also means less consumption in the economy, and therefore even less to be produced to meet demand. In short, austerity is recessionary. Whether the ratios of deficit and debt to GDP increase depends on how much the numerators drop relative to the decrease in GDP. We can look at the E.U. for some empirical evidence.

 If austerity kills dignity, then pressure on governments to relax spending cuts can be expected.   source: rt.com

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

Anti-Austerity in Greek Government

The Socialists and then the New Democracy Party told Greeks that sacrifices were necessary to avert default on the state’s debt. This position came at a high political cost on May 6, 2012, when both parties lost seats in the state’s legislative election. “The established parties collapsed — they had too much pressure from Berlin and Brussels and the I.M.F.,” said Nikos Xydakis, an newspaper editor and a political commentator, referring to Greece’s foreign lenders.[1] In other words, the leaders of the two mainstream Greek parties sold out their compatriots, having caved in to ultimatums from Merkel operating at the E.U. level. “In a meeting with President Karolos Papoulias, the leader of the leftist party, Alexis Tsipras, ridiculed the leaders of the two main parties whose coalition lost its majority in the parliamentary elections.”[2] Tsipras added that his party would not be forming a government with either party. The New Democracy Party had been unable to form a government in the wake of the election, so it was then Tsipras’ turn to try.

  

The full essay is in Essays on the E.U. Political Economy, available in print and as an ebook at Amazon.

1. Rachel Donadio and Niki Kitsantonis, “Greek Leftists Rule Out Coalition with Incumbents,” The New York Times, May 8, 2012.
2. Ibid.

The E.U.: The Growth Union

In relying only on austerity and cheap bailout loans, the German-led strategy has proffered a false sense of European integration in the E.U. Even as expanding the bailout funds to roughly 800 billion euros and strengthening the E.U.’s means of enforcing limits on state deficits and debt are along the line of continued incremental shifts of governmental sovereignty from the state governments to that of the E.U., the related austerity (and recession) sparked a populist backlash in several states. At the state level (and this level has a major role at the E.U. level—unlike in the U.S.), the state-rights (i.e., anti-E.U.) parties have been the beneficiaries even if they could not gain outright majorities. The National Front in the state of France is an obvious example, as it captured 18% of the vote in the run up to the general election in 2012.  Other things equal, such a spike translates into brakes on further European integration in the medium term.

The full essay is in Essays on the E.U. Political Economy, available in print and as an ebook at Amazon.

Distinguishing Entitlements from the Safety Net

In 2012, Congress lost sight of the fundamental purpose of a safety net, extending it beyond the difference between life and death. By zeroing in on the purpose of a safety net, Congress can both save money and better provide for the survival of those who are not providing it for themselves. Of such people, where survival itself is at stake, questions of being deserving pale in comparison to society’s obligation to fend off starvation, sickness and homelessness. Ironically, by extending the safety net beyond survival, Congress has undercut its role in providing for its citizens’ survival.

The full essay is at "Distringuishing Entitlements."

The E.U. Agenda: Taming Bloated Greek Patronage

As E.U. leaders wrestled in the fall of 2011 with how to bail out those state governments that had been amassing relatively large semi-sovereign debt loads, residents in relatively solvent states such as Germany were frustrated with what they perceived as profligate over-spending in Greece. It is possible that even the Germans did not realize how engrained the excessive politically-based Greek bureaucracy had become. I suspect that for many Greeks, news of their living beyond their means was met more with denial and utter disbelief than an attitude-adjustment. In other words, a vast disparity in perspective exists on the ground as the E.U. struggled to come to grips with the debt crisis. The “ever closer union” necessary for the E.U. to rise to the occasion has as its foremost obstacle the disparate perceptions existing within the union (and enforceable by state governments).

The full essay is at Essays on the E.U. Political Economy: Federalism and the Debt Crisis, available at Amazon.